Why Tata Elxsi shares tanked 8% post Q3 results; stock price targets

Shares of Tata Elxsi Ltd tanked 8 per cent in Friday's trade after a muted set of quarterly results. The transportation vertical showed modest growth in Q3, supported by large deal wins in Asia and Japan. However, the automotive sector in Europe and the US faced significant headwinds, said analysts. Margins were also impacted due to adverse currency movements and salary hikes.

"Tata Elxsi's Q3 performance was weak, missing moderate expectations. Weakness was across verticals with a modest uptick in the healthcare vertical, while the transportation and media verticals were muted. EBIT margin declined 160 bps QoQ to 23.5 per cent, impacted by a wage hike and currency headwinds," Kotak Institutional Equities said.

The brokearge said the near-term outlook remains weak, primarily due to challenging demand in the automotive vertical, despite some green shoots emerging in the rest of the businesses. It cut its FY2025-27 EPS estimates by 7-11 per cent due to continued uncertainties in automotive and maintained 'Sell' with a revised fair value target of Rs 5,400 from Rs 5,600.

"Tata Elxsi aims to drive growth in India, Japan, and emerging markets while addressing challenges in Europe and anticipating recovery in the US. The company remains focused on operational efficiency, deal momentum in Media and Healthcare, and expanding in high-growth areas like connected vehicles and digital engineering," Arihant Capital Markets said.

On Friday, the stock fell 8.06 per cent to hit a low of Rs 5,924 on BSE. With this, the stock is down 17 per cent in the past six months.

Tata Elxsi Ltd on Thursday reported a 3.39 per cent fall in net profit for the quarter ended December 2024. Net profit slipped to Rs 199 crore in Q3 against Rs 206 crore in the December 2023 quarter.

Revenue rose 2.72 per cent to Rs 939.17 crore in Q3 against Rs 914.23 crore in the corresponding quarter of the previous fiscal. Operating Ebitda stood at Rs 246.6 crore in the last quarter and Ebitda margin came at 26.3 per cent.

With limited growth visibility, potential cut to consensus estimates and high valuations, the stock may continue to underperform, Morgan Stanley said as it cut its target price on Tata Elxsi to Rs 6,000 from Rs 6,500 earlier. JP Morgan stayed underweight with a new target price of Rs 5,400 against Rs 5,700 earlier. This brokearge said Q3 sales and margins were a big miss for the second successive quarter.