Tata Elxsi shares sink 5% after Q1 results; Should you buy, sell or hold? Brokerages offer mixed views

financialexpress.com:

Tata Elxsi’s share price fell 4.85% today to Rs 7,345.05 since the company’s Q1FY24 results failed to impress. The company faced pressure on the operating margins, which declined to 27.1% – down 340 bps on-year and 23 bps on-quarter. Tech services player Tata Elxsi reported increased revenue for Q1FY24 at Rs 8,503 million, up 1.2% sequentially and 11.9% on-year in constant currency. Despite macroeconomic uncertainties and challenges, Tata Elxsi posted a marginal 2% on-year increase in net profit at Rs 189 crore in the first quarter ended June 2023.

Choice Broking: Add

As Tata Elxsi’s revenue growth came in at 1.5% sequentially and 17.1% on-year, the brokerage gave it an ‘Add’ rating, with a target price of Rs 8,100, implying a potential upside of 7.4% from its current market price at Rs 7,538. 

Tata Elxsi’s collaboration with ISRO to contribute for the Gaganyaan project is expected to push the company’s technical boundaries and ultimately provide them with a growth opportunity. However, the reported PAT of Tata Elxsi stood at Rs 1,889 million, which declined 6.3% on-quarter for Q1FY24 due to a surge in the effective tax rate. The operating margins for the company also declined by 340 bps on-year and 23 bps on-quarter by 27.1% in Q1FY24, the prime cause being the wage hikes during the quarter.

Nonetheless, Tata Elxsi plans to continue adding around 1,800-2,000 fresh engineers in key lead positions across delivery in FY24, which is expected to improve operating margins. “With a strong demand outlook and reasonable medium-term revenue visibility, we expect TELX to deliver a revenue CAGR of c.25% over FY23-FY25E. We ascribe a target price of Rs.8,100 based on DCF valuation methodology (implied P/E of 48x on Sept24E EPS) and