Tata Elxsi shares slip below Rs 7,000 mark after Q1 results; more downside left in this Tata Group stock?

Shares of Tata Elxsi continued to slide during the trading session Thursday as the Tata Group-backed IT solution provider tumbled another 3 per cent after a muted set of numbers in the June 2024 quarter. The company announced its earnings for the April-June quarter on Wednesday, after the market hours.

Tata Elxsi reported a 3 per cent fall in net profit at Rs 184 crore for the first quarter of FY25. The Tata Group company had reported a net profit of Rs 188 crore in the year-ago period. Revenue from operations grew 9 per cent in the June 2024 quarter at Rs 926 crore as against Rs 850 crore in the same quarter last fiscal.

Tata Elxsi Ltd Ebitda came in at Rs 225 crore, falling 3.6 per cent YoY from Rs 233.7 crore a year ago, while Ebit margins contracted 105 basis points YoY to 24.3 percent. Its net margin or profit- before-taxes stood at 26.3 per cent for the given quarter.

Following the announcement of results, shares of Tata Elxsi tumbled 2.65 per cent to Rs 6,930.45 during the trading session on Thursday, with a total market capitalization slightly above Rs 43,500 crore. The stock had settled at Rs 7,118.80 in the previous trading session on Wednesday.

Shares of Tata Elxsi have cracked nearly 35 per cent from its all time highs, while the stock is down nearly 25 per cent from its 52-week high at Rs 9,191.10, hit in December 2023. Brokerage firms are not positive on the stock and see more downside in the stock after a muted Q1 show.

Tata Elxsi's 1QFY25 was marginally ahead of our estimates on revenue growth and profitability. Revenues grew 2.4 per cent sequentially, driven by large deal ramp-ups and likely strong performance at JLR. EBIT margin improved to 26.4 per cent, up 60 bps QoQ, excluding a one-off expense, said Kotak Institutional Equities.

"The company has had tight controls on costs, focusing on operational efficiencies. We believe management would prioritize reinvestment toward growth initiatives and do not see a significant upside from current levels. We marginally increase our revenue growth estimates and raise our fair value to Rs 5,500," it added, maintaining a 'sell' rating for the stock.

Sequential numbers were better mainly due to deal wins and ramp-up of Software Defined Vehicle (SDV) engagements in the transportation segment and strong growth in the system integration services space. Reported PAT for Q1FY25 was impacted by higher tax rate, said Choice Broking.

"The company steps into the second quarter with the confidence of a healthy deal pipeline, continued growth in transportation business, new customer wins and expansion of business with strategic customers across verticals. We downgrade our rating to 'reduce' with a revised target price of Rs 7,450 implying a PE of 47 times on FY26E EPS of Rs 158," it added.

Tata Elxsi is amongst the world’s leading providers of design and technology services across industries including automotive, broadcast, Communications, healthcare and transportation. through design thinking and application of digital technologies such as IoT (internet of things), cloud, mobility, virtual reality and artificial intelligence.

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