Tata Elxsi shares fall over 8% as Q2 earnings disappoint Dalal Street

Shares of Tata Elxsi fell over 8 per cent today despite the firm announcing a strong set of Q2 earnings. The Tata Group firm reported a 39.1 per cent rise in net profit at Rs 174.3 crore in Q2, up from a year-ago period of Rs 125.3 crore.  However, the earnings fell below market expectations. Tata Elxsi stock fell 8.52 percent to Rs 7,735 against the previous close of Rs 8,455.85 on BSE. The scrip has lost 0.93 per cent or Rs 93 since Q1 earnings were announced on April 20 this year. The stock closed at Rs 7,808 on April 20. 

Total 0.68 lakh shares of the firm changed hands amounting to a turnover of Rs 58.38 crore on BSE. The market cap of the firm fell to Rs 48,669 crore on BSE. The stock hit its all-time high of Rs 10,760 on August 17, 2022 and a 52 week low of Rs 5,264.75 on November 29, 2021. 

ALSO READ: Tata Elxsi shares fall for second straight session post Q2 earnings

The firm reported a 28.2 per cent, year-on-year (YoY), rise in its revenue from operations at Rs 763.2 crore. The employee strength crossed the 11,000 mark during Q2 with 1,532 net additions. Tata Elxsi's earnings per share (EPS) grew 39 per cent to Rs 27.98.

During the quarter, the company said it invested in expanding facilities in existing locations of Bengaluru, Chennai and Pune, and building new talent bases in Kozhikode and Hyderabad.

ALSO READ: Tata Elxsi’s growth story continues in Q2! Key takeaways from quarterly results

However, the earnings failed to excite the stock market today. 

Choice Broking in its earnings review said revenue came slightly lower than estimates at Rs 763 crore, a 5.1% growth sequentially and 28.2% growth YoY. Our revised estimates indicate Tata Elxsi will continue to grow rapidly with a revenue CAGR of 22.5 per cent over FY23-FY25E.

"While we are confident about the growth of the company, we feel skeptical regarding company being able to maintain margins at a level that justifies current level of valuation. We have ascribed reduce rating with a DCF-based target price of Rs 7,963 implying a PE of 63 times on NTM EPS of Rs 125," said the brokerage.

ALSO READ: Tata Elxsi Q2 profit up 39%; revenues from operations at Rs 763.2 crore

ICICI Securities has maintained its 'sell' call  on the stock with a target of Rs 8,456. 

"We reduce our earnings per shares estimates by 4%/3% due to lowering of dollar revenue estimates (because of macro headwinds in the MCE vertical) and decrease in margin estimates. We like the company for its robust growth profile and industry leading margins. However, its super premium valuation of 65 times on FY24 EPS (123% /77% premium to LTTS/KPIT) drive our SELL rating. We value the firm at a target multiple of 40 times FY24E earnings to arrive at a fair value of Rs 5,173 (earlier: Rs 5,322)," said the brokerage.  

Tata Elxsi is a subsidiary of Tata Sons, holding company of the Tata Group. The firm is among the leading providers of design and technology services across industries including automotive, broadcast, communications, healthcare and transportation.