Tata Elxsi, a Tata Group firm, has witnessed a significant decline in its value, with a downturn of 34.22% over a span of nine months. During this period, the stock tumbled from ₹10,684 apiece to ₹7,027.
The stock experienced a significant decline in value between August and December of last year, dropping by approximately 45.36% to reach ₹5,837 per share. This decline was primarily attributed to the company's weak Q2FY23 earnings.
Despite the recent sell-off, the stock holds the multibagger tag, with a remarkable return of over 799% in the past three years, and a stellar 500% return over the last five years.
During the recent March quarter, the company reported a mixed set of numbers. Its revenue and EBITDA margin fell short of analysts' expectations, while the net profit exceeded estimates.
According to domestic brokerage firm Sharekhan, the company's constant currency revenue growth in the last quarter increased by 1.6% QoQ and 17.9% YoY, missing the estimates.
It said this was due to muted sequential growth in embedded product design (EPD) and industrial design and visualisation (IDV).
Among verticals, transportation, media and communication clocked 1.7% QoQ in CC terms, while healthcare and medical devices grew 1.0% QoQ. Transportation growth at 27.4% y-o-y was aided by large deals and growth across customers in EV, Software Defined Vehicles (SDV), and adjacencies, it said.
The company's EBITDA margin declined by 40 basis points QoQ to 29.8%, falling short of the brokerage's estimate of 30.7%, primarily due to higher employee expenses.
On the positive side, the net profit increased by 25.95% YoY to ₹201.5 crore in Q4, surpassing Sharekhan's estimates by 3.7%, mainly supported by higher other income and reduced finance costs.
For the financial year ending March 2023, the company reported a net profit of ₹755 crore, a growth of 37.27% over FY22's net profit of ₹550 crore.
The brokerage stated that the company is well-positioned to capture opportunities in automotive and other verticals on account of deep domain knowledge, scale, and expertise in software development and digital technologies like AI and IoT.
The brokerage expects an 18% and 13% sales and PAT CAGR, respectively, over FY23–25E, and it upgraded the stock rating to 'Hold' from 'Reduce' with a revised target price of ₹7,500 apiece.
This increase in price target reflects the rollover of the PE multiple to FY25E EPS as the upcoming IPO of group company Tata Technologies and healthy deal wins would support the valuation, said Sharekhan.
The company is focused on building a strong deal pipeline and anticipates an increase in large deal conversions in the current quarter and beyond. It has experienced significant growth in the key accounts, increasing wallet share compared to competitors, it added.
HDFC Securities, on the other hand, maintained a 'sell' rating on the stock with a target price of ₹5,535 apiece, citing expensive valuations.
Tata Elxsi is a mid-cap IT stock with a market capitalization of ₹43,375 crore. It provides product design and engineering services to the consumer electronics, communications, and transportation industries, as well as systems integration and support services for enterprise customers. It provides digital content creation for the media and entertainment industries.
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