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PL Capital Report
Considering the growth uncertainty and incremental margin pressure, PL Capital has downgraded Tata Elxsi Ltd. to 'Reduce' from earlier 'Hold'.
The brokerage has revised its target multiple to 23 times FY28E EPS (24x earlier), that translates the revised target price of Rs 3,350.
Tata Elxsi Q1 Results
Tata Elxsi delivered a mixed Q1 FY27 performance. Revenue grew by 1.3% QoQ CC, while Ebit margin declined sharply by 330 bps QoQ to 19.0%, below brokerage's and consensus estimates.
Revenue growth was driven by the ramp-up of earlier wins in M&C vertical, which grew +2.9% QoQ CC vs +5.6% QoQ CC in Q4 FY26.
Transportation continued to show weak performance, attributed to European auto market (Germany) due to slower decision-making and weaker OEM spending. The management expects transportation growth to be supported by Americas and APAC regions on the back strategic large wins, which is expected to see ramps in the coming quarters.
Large deal ramps require higher upfront investments through increased onsite presence, elevated subcon costs and transition expenses, which impacted margins by ~150 bps QoQ in Q1 and are expected to recover by Q4 FY27. Margins were further impacted by 220–230 bps QoQ owing to structural investments in:
- Onsite sales and delivery personnel,
- AI infra and tools,
- higher provisioning related to a client bankruptcy, and
- elevated visarelated costs, which should recoup gradually over medium to long-term.
Factoring in the weak margin performance and continued investments, ICICI Securities has reduced its FY27E/FY28E Ebit margin estimates by 130 bps/110 bps to 20.0%/21.3%, respectively.
The brokerage largely maintains its FY27E revenue growth estimate at 6.0% CC but lower our FY28E growth estimate to 8.8% CC (from 10.0%), reflecting slower recovery in the European auto market.
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