Tata Elxsi Q4 results preview: EBIT margins likely under pressure, sequential profit growth to be flat

Tata Group's software and consulting arm Tata Elxsi is set to announce its earnings for the period ended on March 31, 2023, on Thursday and brokerage firms are not much bullish for the company's prospects. Sentiments for the IT sector remain sour too amid the results buzz. Tata Elxsi is expected to report healthy growth in revenue and EBITDA on a year-on-year (YoY) basis, but EBIT margins are likely to contract up to 240 basis points (bps) on a yearly comparison. The Tata Group company is likely to report a flat profit after tax (PAT) on a quarter-on-quarter (QoQ) comparison. According to market analysts, management commentary on the future outlook, growth momentum and deal wins will be the key for the company in the coming months. Also, health is its key sectors including automotive, broadcast, communications and healthcare will also be keenly tracked. HDFC Securities expects Tata Elxsi to see net revenue at Rs 855 crore, up 25.4 per cent YoY and 4.5 per cent QoQ. EBIT is seen at Rs 237 crore, increasing 15.2 per cent YoY and 4.9 per cent QoQ with an EBIT margin of 27.7 per cent, contracting 245 bps on a yearly basis. Adjusted profit is likely to be around Rs 195 crore, flat QoQ but 22.4 per cent YoY. For the entire fiscal, it sees revenue at Rs 3,776 crore, with an EBIT of Rs 1,022 crore and a profit of Rs 841 crore. EBIT margin is seen at 27.1 per cent for the year, with USD revenue growth at 16 per cent for the entire fiscal. HDFC Securities has a 'sell' rating on Tata Elxsi with a target price of Rs 5,450. Tata Elxsi is expected to report 2.5 per cent CC revenue growth with a 100-bps cross-currency tailwind resulting in reported USD revenue growth of 3.5% q-o-q. Growth is to be led by the transportation vertical while softness may continue in media and broadcasting. EBIT margin to improve by 50 bps Qo Q led by easing supply side pressure and higher utilization, said Sharekhan. It expects Tata Elxsi to report sales at Rs 848 crore, up 24.5 per cent YoY and 3.8 per cent QoQ, while operating profit margins to fall 175 bps YoY to 30.7 per cent. It pegs the company's net profit at Rs 194 crore, flat QoQ but up 21.5 per cent YoY. Sharekhan has a 'reduce' rating on Tata Elxsi with a target price of Rs 6,185. Choice Broking expects Tata Elxsi to report revenue at Rs 862.3 crore, rising 26.5 per cent YoY, while EBIT is seen at 250.4 crore, increasing 21.9 per cent YoY. EBIT margin is seen at 29 per cent, contracting 108 bps from the year-ago period, while net profit is seen at Rs 211.7 crore, up 32.3 per cent YoY. It has a 'neutral' view on the stock with a target price of Rs 7,114. "Topline sequential growth is expected to be decent between 5-5.5 per cent led by strong order book and healthy deal pipeline across key industries. The hiring of freshers and other employees will bring down gross margins marginally. Better utilization will help operating margins to improve by 100-150 bps sequentially," Choice said.