Tata Elxsi rallies 5%; stock hits record high on strong growth outlook

Shares of Tata Elxsi hit a record high of Rs 9,425 on rallying 5 per cent on the National Stock Exchange (NSE) in Friday’s trade due to a strong growth outlook.

The stock of the Tata Group company surpassed its previous high of Rs 9,420 touched on March 31, 2022. In the past one month, it has gained 16 per cent, as compared to a 10 per cent rise in the S&P BSE Sensex.

In the last one year, the stock has zoomed 118 per cent, as against a 7 per cent gain in the benchmark index. Tata Elxsi is a subsidiary of Tata Sons.

Tata Elxsi provides various engineering, research & development (ER&D) services for transportation, media & broadcasting and healthcare verticals, which benefits from the current upcycle in ER&D spend. The company offers its services to high demand markets like US and European countries – generating almost 75 per cent of its revenue from these geographies.

In its FY22 annual report, the company said that its automotive engineering business is well poised to address the emerging opportunities from the ecosystem transformation in the sector, allowing Tata Elxsi to actively engage with its customers to drive projects around Autonomous Driving (AD), ADAS (Advanced Driver Assistance Systems), electrification projects and digitalisation.  

The company is actively engaged with some of the world’s best known automotive OEMs and suppliers for the development and deployment of future mobility.

In 2021-22, the rupee witnessed moderate devaluation over key foreign currencies of countries where Tata Elxsi operates, and this has helped us in mitigating some of the effects of cost inflation, the company said.

Brokerage firm Sharkhan has a buy rating on Tata Elxsi with a price target of Rs 9,750, given its strong growth potential, robust deal wins and consistent dividend payouts.

Given its strong digital engineering capabilities, the company would benefit from the current upcycle in ERD spends. Tata Elxsi is expected to deliver industry-leading margin in FY2023, led by a higher offshore mix, and currency tailwinds, it said in a report dated June 8, 2022.

According to the brokerage, Tata Elxsi is well poised to capture market opportunities across the selected industries given its unique capabilities in design-led engineering. The company’s USD revenue and earnings are likely to clock a CAGR of 23 per cent and 20 per cent, respectively, over FY2022-FY2024E.

“We continue to prefer Tata Elxsi, given its strong growth potential, market share gains, superior margin profile, differentiated capabilities in digital engineering and strong balance sheet (cash and investments was 51 per cent of total assets),” it said.