Tata Elxsi share price down 5% after disappointing Q3 results; what should investors do now?

The firm posted a 6 percent year-on-year (YoY) rise in its net profits at ₹206.4 crore in Q3FY24 as against ₹194.6 crore during the year-ago period. Meanwhile, sequentially, the company’s net profit rose just 3 percent from ₹200.2 crore reported during the quarter ending September 2023.

Its revenue from operations grew 11 percent YoY to ₹914.2 crore in Q3FY24 versus ₹817.7 crore during the same period last year. Sequentially, the revenue also rose just 3 percent from ₹881.6 crore in Q2FY24.

Its earnings before interest, taxes, depreciation and amortisation (EBITDA) grew 2.4 percent on a quarter-on-quarter basis to ₹270.1 crore, according to the regulatory filing. Meanwhile, the company’s margin, a key measure of profitability, contracted to 29.5 percent in Q3 from 29.9 percent in Q2.

The stock fell as much as 4.7 percent to its day’s low of ₹7,807.35. It is still trading 33 percent higher than its 52-week low of ₹5,883.05, hit on March 28, 2023. However, it is now 15 percent away from its record high of ₹9,191.10, hit on December 18, 2023.

The stock has gained 23 percent in the last 1 year and has shed over 10 percent in January so far, snapping after 3 months of gains.

In the nine-month period from March-December 2023, Tata Elxsi’s net profit increased 7 percent to ₹595.3 crore as against ₹553.6 crore in March-December 2022. In terms of revenue from operations, the growth was 16 percent to ₹2,734.5 crore in the March-December 2023 period from ₹2,355 crore in December 2022.

“While we have continued to invest strongly in talent addition with over 350 Elxsians in this quarter and a net of 1,357 Elxsians over the past nine months, we have done well to maintain our EBITDA well over the 29% band. This underlines our strong focus on delivery and operational excellence, and our confidence in the future and long-term demand for our differentiated offerings,” MD and CEO Manoj Raghavan said.

“As we step into the last quarter of this financial year, the confidence of our customers in our differentiated Design Digital proposition and delivery excellence, and a strong deal pipeline provide us the foundation for sustained growth,” Raghavan added.

Should you buy?

Choice Broking has an ‘add’ call on the stock with a target price of ₹8,890, indicating an upside of 14 percent. Tata Elxsi delivered healthy Q3FY24 revenues despite a challenging and weak quarter for the industry, said the brokerage.

“The management believes in the strength of the deal pipeline across segments and is confident of their differentiated Design-Digital capabilities. We expect TELX to deliver a Revenue/EBIT/PAT CAGR of 16.6 percent/17.6 percent/17.7 percent respectively, over FY23-FY26E. We maintain our rating to ADD with a revised target price of ₹8,890 implying a PE of 45x (modified) on FY26E EPS of ₹198,” stated the brokerage.

Meanwhile, Morgan Stanley maintained its ‘underweight’ recommendation for the Tata group company, expressing dissatisfaction with its earnings performance, which fell short of the global brokerage’s expectations.

Read here: Karnataka Bank shares plunge 12.6% after Q3 earnings, hit 2-week low

It noted that the quality of growth could have been improved, particularly in the Embedded Product Design segment, where higher growth was expected. The brokerage also pointed out ongoing challenges in the company’s media and certain transportation segments, providing valuable insights into the overall demand outlook. Moreover, the delay in the recovery of growth serves as a factor contributing to a reduction in the target price, especially considering the premium valuations associated with the company’s shares. Morgan Stanley has set a target price of ₹7,500 per share for the company, implying a 4 percent downside.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision.an

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Published: 24 Jan 2024, 02:04 PM IST