Tata Elxsi gains over 3% on strong Q2 performance; JP Morgan sees significant downside

Shares of Tata Elxsi in early trade on Wednesday jumped 3.24 per cent to scale the day’s high price of Rs 7690 after the company reported a healthy performance for the September quarter post market hours on Tuesday.

Global design and technology services player posted net profit of Rs 200 crore for the September ended quarter, a 15 per cent year-on-year (YoY) increase. The figure stood at Rs 174.28 during the same period of the previous fiscal year. Revenue from operations at the company also edged higher, registering 15.6 per cent growth to Rs 882 crore as against Rs 763 during Q2 period of FY23.

The operating revenue at the company clocked 3.4 per cent growth sequentially and 10.1 per cent increase YoY on a constant currency basis. The operating margin has come in strong at 29.9 per cent with net margin (PBT) at 28.9 per cent.

“We are happy to report a healthy performance in the second quarter with a top-line growth of 3.7% QoQ and 15.5% YoY in a challenging quarter for the industry. Our EBITDA has grown 4.8% QoQ and 16.3% YoY and our EBITDA margin has improved by 31 bps to 29.9%,” Manoj Raghavan, CEO and Managing Director, Tata Elxsi said while commenting on the company’s performance in the second quarter.

Of the company’s different segments, transportation business boosts growth, with the segment clocking 26.1 per cent YoY growth on the back of large deals and strong traction in Software Defined Vehicle (SDV) engagements.

At around 9:30 am, the scrip traded with gains of over 3 per cent at Rs 7688.

Brokerages view on Tata Elxsi

Global brokerage Morgan Stanley maintains an underweight rating on the stock with a target price of Rs 6400, translating into a downside of over 14 per cent from the last closing price. The brokerage said that the company’s Q2 financial came in strong with positive trends in the healthcare and transportation business segments. 

Besides, the brokerage is of the view that the company needs strong execution to meet estimates and the scope for earning per share (EPS) to trend higher is limited. This, along with premium valuation, makes risk-reward unfavorable 

JP Morgan is also underweight on the counter and has suggested a target of Rs 5000, implying significant downside of 33 per cent from the last closing price.