Tata Elxsi Ltd. share price target

Weak auto segment spoils the show: Tata Elxsi (TELX) continued with its weak performance in Q4FY19.

INR4.05b, a 5% miss to our estimate of INR4.27b. In CC terms, this implies a decline of ~0.5% QoQ, based on our analysis, and in USD terms, revenue grew ~0.5% QoQ to USD57.5m. EBITDA margin shrank 110bp QoQ (-100bp YoY) to 24.3%, below our estimate by 120bp, mainly due to an increase in...

TELX clocked 2% QoQ CC and 10% YoY CC growth during the quarter. Growth was impacted by extended furloughs, which affected the work both at onsite and offshore locations, and was broad-based across business units. Short-term anomalies on margins were a function of currency movements, but TELX remains confident that margins will continue to be ~25%.

Revenue growth maintained: Tata Elxsi (TELX) reported a revenue growth of17.8% over previous year. Revenue growth on YoY basis is maintained at Q2 Levels.Sequentially, revenue growth was flattish at 1%.

8 January 2019 TELXs revenue grew 17.8% YoY to INR4.07b in 3QFY19, lower than our estimate of +20% YoY. The company delivered INR revenue growth of 1% QoQ, which implies a sequential decline in USD revenue (as INR depreciated by 2%+ QoQ against USD). On a YoY basis too, USD revenue growth decelerated to 5.4% from 19% only three quarters ago. This can partially be attributed to 3Q seasonal weakness. EBITDA margin shrank 110bp QoQ to 25.4%, below our estimate of 26%. PBT margin of 23.2% missed managements guidance of 24-25%, mainly due to forex losses. Consequently, PAT grew by only 5% YoY (-20% QoQ; our quarter, 3Q saw a much slower growth in Software development (97% of revenue; +1% v/s +6% in 2QFY19), while System Integration (SI; 3% of revenue) grew 19% QoQ (v/s -12% QoQ in 2QFY19). PBT margin came in at 23.2%, lower than our estimate of 26.5%.

Rightly Placed with High Potential: We believe Tata Elxsi (TELX) which offers cutting edge solutions in the areas of auto, communication and broadcasting and designing services is rightly placed to tap growing demand for its offerings.

Going forward, given substantial growth being witnessed in digital portfolios of most IT firms, along with investments into avenues like connected cars, autonomous vehicles, AR/VR experience and automotive electronics, we believe TEL will be one of the key beneficiaries of the same, given its presence in these emerging businesses. We expect its diversified portfolio including automotive, broadcast, medical and design expertise to enable TEL to leverage these investments disproportionately. We would watch growth from IP-led engagements in future given scope for margin expansion, with the Autonomai platform a critical driver. Nonetheless, owing to macro concerns, global trade wars and issues with the British car industry - its largest...

8 October 2018 TELXs reported 18% revenue growth YoY which accounts to revenue of INR4b, lower than our expectation of 20% growth. Sequential growth for TELX at 5.4% was partially fueled by INR depreciation, adjusted for which, we estimate the growth would be marginal. Historically, 2Q has seen sharper growth for TELX given seasonality. EBITDA margin expanded by 190bp YoY to 26.5% in line with our estimates. Consequently, PAT growth of 44% YoY to INR822m was above expectations by 4% on account of higher-than-expected Other Income. Similar to the last quarter, revenue from SI (3% of revenue) declined by 12% QoQ, whereas that in Software Development & Services grew by 6% QoQ. Were the decline to not exist, revenue growth would have been higher by ~40bp. Given growth in the Engineering Services market, emergence of new areas like Medical Devices and Cloud, and strong traction across segments, we are currently expecting 20% revenue CAGR over FY18- 20.

Healthy Revenue Growth with Impressive Operating Margin Tata Elxsi (TEL) has posted an impressive performance in 1QFY19 with revenue rising by 1.8% QoQ (+18.2% YoY) to Rs3.82bn. While revenue from SDS business grew by 2.5% QoQ (+19.6% YoY) to Rs3.69bn, revenue from SIS business fell by 16.4% QoQ (-12.2% YoY), as TEL continued to focus more on higher-margin SDS business. This was the highest YoY growth achieved by the SDS business in 2 years (since 1QFY17). Led by operating leverage and cost control, EBITDA crossed Rs1bn-mark for the first time ever (12% QoQ and 45% YoY to Rs1.07bn). Net profit rose 0.3% QoQ on lower other income, while YoY growth was robust at 41.7%....

TELX's revenue grew 15% YoY (our estimate: +14%) to INR3.8b. EBITDA margin expanded 210bp YoY to 25.3% (largely in-line). PAT growth of 58% YoY to INR703m was above our estimate because of higher other income. For FY18, TELX clocked 15% CC growth, 120bp margin expansion and 38% PAT growth.