Tata Elxsi - Improving Growth Visibility; High Valuations: HDFC Securities

HDFC Securities Institutional Equities

We spoke to the management of Tata Elxsi Ltd. for a business update and have analysed the annual report – key highlights are:

1. strong growth momentum in the OEM segment (both JLR and others) within the Transportation vertical,

2. JLR (top client) growth expectation is driving growth visibility for FY25E,

3. high growth in the Transportation OEM segment can be offset by healthcare and life-sciences and media and communication verticals,

4. integration of IDV segment can drive larger deals,

5. near-term volatility in healthcare and lifesciences vertical, and

6. improved cash generation with stable margin.

High certainty of double-digit growth in FY25E driven by client and sub-segment skew and normalisation in the nontransportation business ahead are positives; upgrade Tata Elxsi to Reduce (Sell earlier).

We factor 16% EPS CAGR over FY24-26E and value Tata Elxsi at 38 times FY26E EPS (currently trading at 41 times FY26E).

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