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ICICI Securities Report
Tata Elxsi Ltd. reported muted growth of 0.2% QoQ constant currency in Q2 FY25. While the auto vertical continues to grow at a healthy pace, challenges persist in communication and healthcare.
Given softer growth in H1 FY25, at ~6.5% YoY CC, management's earlier guidance of double-digit CC growth in FY25 requires ~7% CQGR in H2 FY25, seems a tall ask.
We model 7.9%/15.1%/14.8% YoY CC revenue growth in FY25E/26E/27E. We expect Ebitda margin to remain range-bound at ~29–30% and has downside risk if growth moderates further.
We value Tata Elxsi at a five-year average multiple of 49 times on Q2 FY26E–Q1 FY27E earnings per share of Rs 158 and arrive at a target price of Rs 7,590 with potential 2% downside.
We like the company given its presence in high growth service lines of design, embedded and digital engineering, diversified vertical exposure and superior margins.
We assign Hold rating given premium valuations on backdrop of moderating growth.
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