Tata Elxsi's Q4 Review: Brokerages See Limited Upside Amid Macro Uncertainty

Tata Elxsi Ltd.’s fourth-quarter performance for financial year 2025 fell short of expectations, prompting both Morgan Stanley and JPMorgan to maintain their Underweight ratings while lowering target prices.

Management remains optimistic about a recovery in fiscal 2026, buoyed by recent deal wins and expectations of improved momentum in the auto and healthcare segments. However, both brokerages are cautious on near-term prospects.

JPMorgan flagged that auto revenues declined 9.7% quarter-on-quarter, hampered by delays in project ramp-ups and uncertainty due to tariffs, while media and telecom saw a 6.3% quarter-on-quarter drop amid cautious R&D spending.

Morgan Stanley echoed concerns, noting that despite deal wins, the media segment continues to underperform, and auto recovery is likely to be gradual given macroeconomic challenges.

Here is what the brokerages had to say on Tata Elxsi:

• Morgan Stanley cut its target price to Rs 4,660 from Rs 5,400 while maintaining 'Underperform'.

• Morgan Stanley cited weak exit revenues, continued earnings downgrades, and high valuations as key concerns.

• Noted green shoots in the auto segment, including a €50 mn SDV deal and expected ramp-up of paused projects in the first quarter of fiscal 2026.

• Media remains soft, with a $100 mn deal contributing only 25–30% net new revenue.

• Healthcare showed strength with new client additions and a shift toward product engineering.

• Fiscal 2026 revenue growth forecast cut to 2.7%, citing weak exit run rate and macro pressures.

• Margins may improve as utilisation (currently below 70%) rises, but lower-margin deals could cap upside.

• EPS estimates for financial year 2026 and fiscal 2027 cut by 11.1% and 6.9%, respectively.

• Valuations remain elevated despite year-to-date underperformance versus Sensex.

• JPMorgan lowered its target price to Rs 4,400 from Rs 4,500 while maintaining 'Underperform'.

• Fourth quarter revenues declined 5.3% quarter-on-quarter in constant currency, missing estimates sharply.

• Auto segment fell 9.7%, hit by deal ramp-up delays and tariff-related project pauses.

• Media & Telecom dropped 6.3%, with clients cautious on R&D spending.

• Healthcare grew 3.5% quarter-on-quarter, the only bright spot.

• EBIT margin fell 330 bps quarter-on-quarter to 20.1%, missing consensus and JPM estimates by over 300 bps.

• Earnings missed by 9% due to negative operating leverage.

• Large deal wins include a €50 mn auto deal and a $100 mn media deal, both set to ramp in the first quarter of financial year 2026.

• Management aims for better fiscal 2026 growth than financial year 2025, but JPMorgan expects otherwise due to persistent macro headwinds.

• Earnings estimates cut by 1–2% for financial year 2026–27, with continued concern over rich valuations at 36x FY26E P/E.