Target: ₹5,870
CMP: ₹6,003.15
Tata Elxsi reported a weak top-line performance (0.4 per cent q-o-q CC), as transportation vertical (55 per cent of revenue), which had been performing well despite industry-wide challenges since past three quarters, reported soft growth of 0.5 per cent q-o-q CC in Q3FY25.
European market (largest contributor to auto) may take longer to recover, as per management. TELX sees greenshoots in rest of its portfolio. We cut EPS by about 4 per cent for FY26/27E due to cut in revenue and margin estimates as we factor in slowdown in auto and slower pickup in non-auto segments. We continue to value Tata Elxsi at 38x on Q3-FY26–Q2-FY27 EPS of ₹154 and arrive at a TP of ₹5,870.
Management expects steady revenue growth in both healthcare & lifesciences and media & communication for a couple of quarters followed by a pickup in growth.
We like the company given its presence in high-growth service lines of design, embedded and digital engineering, diversified vertical exposure and superior margins. However, we maintain Reduce given premium valuations against the backdrop of slowdown in growth.
Downside risks: High top 5 client concentration, worsening of challenges in auto segment, delay in recovery in media & communication and healthcare segments.
Upside risks: Faster ramp ups of existing and new large deal wins.
