Tata group stock is 97% away from 52-week-low, Sharekhan sees more upside

Tata group stock is 97% away from 52-week-low, Sharekhan sees more upside

Market


With a market valuation of Rs. 50,438.31 crores, Tata Elxsi Ltd. is a large cap company in the IT software industry. One of the top companies in the world for design and technology services, Tata Elxsi works with clients in the automotive, broadcast, communications, healthcare, and transportation sectors. Tata Elxsi’s shares on the NSE ended the day at 8,099.80 per share, up 0.49 per cent from the previous close of 8,060.60. The stock had touched a 52-week-high of 9,420.00 on 31-March-22 and a 52-week-low of 4,107.05 on 20-July-21 which indicates that at the current market price the stock is trading 97.21% above the 52-week-low and 14% below the 52-week-high. With a target price of Rs. 9,200, the brokerage company Sharekhan has issued a buy call on the stock, indicating a potential gain of 13.58 per cent over the stock’s current market price.

Based on the performance of the company, Sharekhan has said in a note that “Tata Elxsi Limited’s (TEL) strong revenue growth momentum continued during Q1FY2023, with margin expansion despite partial wage revision (covered 30-40% of its senior level employees). TEL registered constant currency (CC) revenue growth of 6.5% q-o-q and 30.9% y-o-y during the quarter, led by strong volume. Q1 witnessed solid net hiring, healthy deal intake across verticals, new logo additions, and good client mining. EBITDA margin improved by 36bps q-o-q to 32.8%, exceeding our estimates, aided by strong growth, improved utilisation, better pricing, and SG&A optimisation.”

“Net profit of Rs. 184.7 crore was 12% ahead of our estimates, aided by beat in margin and lower tax provision (19% versus 27.4% in Q4FY2022). TEL’s management indicated that it does not see any deferment of projects or reduction of budget owing to the recent macro-economic situation, though it remains watchful. Strong net headcount addition, healthy deal pipeline, and robust deal wins provide strong revenue growth visibility in the medium term. Margin tailwinds such as absence of wage revision, better pricing, higher offshore mix, pyramid balancing, and currency tailwinds are expected to help the company to sustain its superior margin performance, partially negated by margin headwinds such as supply-side pressures, investments in building capability, lateral hiring in niche areas, and rising discretionary spends,” the brokerage has said on behalf of Q1FY2023 performance of Tata Elxsi.

“TEL is well poised to capture market opportunities across the selected verticals and its adjacencies given its unique capabilities in design-led engineering. We believe TEL is well placed to deliver another year of strong growth in FY2023E, given strong order intake, robust digital engineering capabilities, and large addressable markets. TEL may be the only Indian IT company whose stock performance (up 37%) has significantly outperformed CNX IT (down 32%) on YTD basis, given strong revenue growth visibility, consistent in deal wins, long-standing relationships with marquee clients, and market share gains. At the CMP, the stock is trading at 72x/69x its FY2023E/FY2024E earnings, which is expensive. We continue to prefer TEL, given its superior margin profile despite supply-side pressure across the industry, solid offshore delivery capability, strong balance sheet, and favourable sector tailwinds. We maintain our Buy rating on TEL with a revised price target (PT) of Rs. 9,200,” the research analysts of Sharekhan have said in a note.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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