Tata Elxsi shares sink 5% after Q1 results; Should you buy, sell or hold? Brokerages offer mixed views 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.Stock Call: Tata Elxsi Choice Broking: Add 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 maintain our ADD rating on the stock”, said the report. HDFC Securities: Sell HDFC Securities gave a ‘Sell’ rating to Tata Elxsi and set the target price at Rs 6,420 implying a downside of 14.8% from its current market price of Rs 7,538. “Tata Elxsi’s Q1 performance was lower in revenue, impacted by moderate growth in the Transportation vertical and muted performance in the Media & Communications vertical. The Transportation vertical was impacted by delayed decision-making; acceleration is expected in Q2 & Q3.” “We expect TELX’s growth trajectory in the low teens as compared to 34/18% delivered in FY22/23. Growth visibility for TELX is based on (1) a healthy deal pipeline and acceleration in the Transportation vertical in Q2 & Q3 supported by OEM platform deals; (2) sustainability of the Healthcare vertical recovery; (3) traction in large accounts (T5/10 grew 7.1/6.6% QoQ); and (4) fresher addition plans of ~2,000 for FY24E.” “Margin recovery will be supported by lower dependence on sub-contractor and utilization improvement. We expect a 17% EPS CAGR over FY23-26E as compared to a prolific 40% CAGR over FY20-23; maintain SELL with a TP of INR 6,420, based on 38x Jun-25E EPS”, said the report.
Logistics, good or bad, are driven by the states and the commerce ministry has a LEADS (Logistics Ease Across Different States) report, based on perceptions. The 2023 version was released in December. Since states are heterogenous, in the reporting, they are divided into four groups—coastal, landlocked, north-east, and UTs. States that do well are called achievers. Nomenclature matters. Thus, states that are middling aren’t called average. They are called fast movers. States that are sub-par are called aspirers. Let me highlight coastal states, since 75% of export cargo is estimated to originate from them. Among coastal states, ones that do well are Andhra Pradesh, Gujarat, Karnataka, and Tamil Nadu. The ones that lag are Goa, Odisha, and West Bengal. While India’s logistics performance may have improved over time, that’s not true of every state. Some have slipped. Most states have a state-level logistics policy, including Goa and Odisha. West Bengal, bottom of the pecking order in the coastal category, doesn’t have one. To quote from LEADS 2023, “Looking ahead, the State (West Bengal) could benefit from formulating a State Logistics Master Plan and State Logistics Policy to drive efficiency improvements and facilitate investments within the logistics sector and undertake consultation with the logistics stakeholders for educating and informing them about the initiatives State is undertaking for the development and improvement of logistics sector.”
Logistics has been talked about for a long time and India has also focused on improving performance. We are now getting some precise data on measurement and quantification. That helps.
Bibek Debroy, chairman, EAC-PM. Views are personal.