Tata Elxsi tanks 8% after tepid Q2 results

Shares of design and technology services firm Tata Elxsi plunged 8% to ₹7,799.85 in the opening trade on Monday after the Tata Group company posted a sequential drop in net profit for the quarter ended September 2022.

Analysts remain wary of the stock due to expensive valuations. ICICI Securities maintains "sell" at a target price of ₹5,173 from earlier ₹5,322, implying a potential downside of 38%. Axis Capital too maintains "sell" at a fair value of ₹6,500 compared with ₹7,100 earlier, implying a potential downside of 23%. Morgan Stanley also has an "underweight" call on the stock with a target price of ₹5,800. HDFC Securities maintains "sell" at a target price of ₹6,540, implying a potential downside of 22%.

Net profit of Tata Elxsi stood at ₹174.27 crore in the second quarter compared with ₹184.72 crore in the quarter ended June. The company's revenue from operations grew 28% year-on-year to ₹763.2 crore in the September quarter. Operating profit margin stood at 29.7%.

"We have delivered a quarter of steady growth amidst macro-economic uncertainty and currency headwinds in our key markets. We are seeing strong and sustained growth in the automotive and adjacent segments, led by our EV and digital capabilities," says Manoj Raghavan, chief executive officer and managing director, Tata Elxsi. "We are gaining market share in both automotive and media & communications, especially in Europe. The numbers are muted in the region due to unfavorable currency movement."

The company is entering the second half of the financial year with a strong order book and a healthy deal pipeline across key markets and industries, and the confidence of customers in our technology capabilities and differentiated delivery models, says Raghavan.

Tata Elxsi provides design and technology services across industries including automotive, broadcast, communications, healthcare, and transportation.

The healthcare segment continued to witness strong growth of 8.2% quarter-on-quarter and 55.9% year-on-year, driven by new product engineering and regulatory services.

The transportation business grew 30.4% year-on-year, aided by large deals in electric vehicles. "We won multi-year deals in EV and autonomous driving systems in the automotive space, and a next-gen platform for connectivity and infotainment with a leading offroad equipment maker," says Raghavan.

The company also helps clients with application of digital technologies such as IoT (Internet of Things), Cloud, mobility, virtual reality, and artificial intelligence.

The company's growth was primarily volume-led, with embedded product design, industrial design and visualisation, and SIS showing sequential growth of 3.8%, 13.5% and 26.2% respectively.

Tata Elsxi crossed the 11,000 employee mark with 1,532 net additions during the quarter.

The technology firm's attrition rate declined for the second consecutive quarter. It has also invested in expanding its facilities in existing locations of Bengaluru, Chennai and Pune, and new talent bases in Kozhikode and Hyderabad.