Tata Elxsi shares: PL Capital ups rating post correction, says broader pain persists
PL Capital said its interaction with the Chief Financial Officer of Tata Elxsi reaffirmed that while the automotive segment was stabilising, the broader business continued to face pressure.
- Dec 11, 2025,
- Updated Dec 11, 2025 12:10 PM IST
PL Capital said valuations for Tata Elxsi remained expensive despite the recent correction in the stock. The Tata group stock traded at 35 times September 2027 estimated earnings, a level the domestic brokerage considers rich, given the company’s uneven demand environment beyond the Transportation vertical. PL Capital assigned a 36 times multiple to September 2027 earnings and revised its rating to 'Hold' from 'Reduce', citing limited upside at current valuations.
PL Capital said its interaction with the Chief Financial Officer of Tata Elxsi reaffirmed that while the automotive segment was stabilising, the broader business continued to face pressure.
Research and development budgets, it noted, were being prioritised towards cost efficiency and improvements in vehicle architecture rather than new product development.
Client decision-making cycles has improved, and sentiment recovered, but demand traction remained uneven, it said while suggesting a target price of Rs 5,010 on Tata Elxsi. The brokerage added that competitiveness against Chinese original equipment manufacturers required greater software optimisation and faster feature delivery, though Tata Elxsi had secured only a handful of small engagements in China.
The brokerage said deal constructs had not materially changed; annual contract values were comparable with earlier engagements, and pricing continued to be a trade-off against right-shoring. Demand outside the Transportation vertical remained moderate, with only limited deal activity in media and communications due to consolidation-led pressures. Healthcare showed a healthy pipeline, but elongated deal cycles weighed on revenue predictability. PL Capital added that operational issues at the company’s top account had stabilised and were not expected to affect third-quarter performance.
Despite some improvement in automotive, PL Capital said the recovery still appeared defensive and had not reached the phase where design-led programmes could drive stronger growth. Verticals beyond Transportation remained unstable, reinforcing the brokerage’s view that premium valuations were difficult to justify at this stage. It kept its constant-currency revenue and margin estimates unchanged at 9.4 per cent and 20.6 per cent for FY27E, and 11.2 per cent and 22.0 per cent for FY28E, translating into an earnings CAGR of 24 per cent for FY26–FY28. Tata Elxsi shares, the brokerage noted, had declined around 33 per cent in FY25 and about 2 per cent so far in FY26, while the Nifty IT Index posted gains.
PL Capital said the transportation business was positioned for a third-quarter recovery as delayed Jaguar Land Rover programmes restarted in late October. Japan continued to offer growth opportunities as original equipment manufacturers avoided Chinese vendors, while China remained at a nascent stage with small-scale engagements and potential joint-venture or acquisition-led options under evaluation. The brokerage said media and communications demand stayed soft, with deal flow concentrated in cost-reduction and vendor-consolidation mandates. Margin recovery, it added, was likely to be gradual and tied to revenue momentum, with utilisation around 70 per cent and scope to rise toward 80 per cent in a favourable macro environment.
PL Capital said valuations for Tata Elxsi remained expensive despite the recent correction in the stock. The Tata group stock traded at 35 times September 2027 estimated earnings, a level the domestic brokerage considers rich, given the company’s uneven demand environment beyond the Transportation vertical. PL Capital assigned a 36 times multiple to September 2027 earnings and revised its rating to 'Hold' from 'Reduce', citing limited upside at current valuations.
PL Capital said its interaction with the Chief Financial Officer of Tata Elxsi reaffirmed that while the automotive segment was stabilising, the broader business continued to face pressure.
Research and development budgets, it noted, were being prioritised towards cost efficiency and improvements in vehicle architecture rather than new product development.
Client decision-making cycles has improved, and sentiment recovered, but demand traction remained uneven, it said while suggesting a target price of Rs 5,010 on Tata Elxsi. The brokerage added that competitiveness against Chinese original equipment manufacturers required greater software optimisation and faster feature delivery, though Tata Elxsi had secured only a handful of small engagements in China.
The brokerage said deal constructs had not materially changed; annual contract values were comparable with earlier engagements, and pricing continued to be a trade-off against right-shoring. Demand outside the Transportation vertical remained moderate, with only limited deal activity in media and communications due to consolidation-led pressures. Healthcare showed a healthy pipeline, but elongated deal cycles weighed on revenue predictability. PL Capital added that operational issues at the company’s top account had stabilised and were not expected to affect third-quarter performance.
Despite some improvement in automotive, PL Capital said the recovery still appeared defensive and had not reached the phase where design-led programmes could drive stronger growth. Verticals beyond Transportation remained unstable, reinforcing the brokerage’s view that premium valuations were difficult to justify at this stage. It kept its constant-currency revenue and margin estimates unchanged at 9.4 per cent and 20.6 per cent for FY27E, and 11.2 per cent and 22.0 per cent for FY28E, translating into an earnings CAGR of 24 per cent for FY26–FY28. Tata Elxsi shares, the brokerage noted, had declined around 33 per cent in FY25 and about 2 per cent so far in FY26, while the Nifty IT Index posted gains.
PL Capital said the transportation business was positioned for a third-quarter recovery as delayed Jaguar Land Rover programmes restarted in late October. Japan continued to offer growth opportunities as original equipment manufacturers avoided Chinese vendors, while China remained at a nascent stage with small-scale engagements and potential joint-venture or acquisition-led options under evaluation. The brokerage said media and communications demand stayed soft, with deal flow concentrated in cost-reduction and vendor-consolidation mandates. Margin recovery, it added, was likely to be gradual and tied to revenue momentum, with utilisation around 70 per cent and scope to rise toward 80 per cent in a favourable macro environment.