Buy or sell? Tata Elxsi share price targets post Q3 results

Despite an improvement in earnings in the December quarter, a handful of brokerages have 'Hold' or 'Sell' call on Tata Elxsi Ltd, as they believe the stock valuations are still expensive amid a lack of sustainable cross-vertical growth visibility. 

Tata Elxsi reported 1.5 per cent YoY rise in sales at Rs 953.50 crore for the December quarter. Excluding the impact of exceptional item on account of New Labour Code, profit for the quarter was down 10 per cent YoY at Rs 179.10 crore. Analysts said the Q3 numbers came after a historically weak performance in H1FY26, adding that the IT firm expects the recovery to continue in the March quarter and FY27.

Overall, Tata Elxsi's Q3 revenue was 0.5 per cent above consensus estimates. EBIT margin at 20.9 per cent was 120 basis points above consensus estimates. Margin tailwinds included currency benefits (up 35 bps), operating leverage and utilisation (up 200 bps), and cost control and lower other expenses (up 80-85 bps) for a total of 310 bps of margin tailwinds. Major headwinds were the wage hikes for the junior and mid-level staff, which impacted margins by 110 bps, Nirmal Bang Institutional Equities said.

The leadership is optimistic about recovering margins through FY26 and reaching the range of 26-28 per cent EBIT in the medium term, but Nirmal Bang believes this will require a huge revenue uptick. 

"Post-3QFY26, we have left our revenue, EBIT, and EPS estimates unchanged for FY27-28, and are upgrading the stock to a ‘HOLD’ from ‘Sell’ earlier, valuing it at a higher multiple of 37x against the earlier 35x on December 2027E EPS, for a higher target price of Rs 5,764 vs Rs 5,186," it said.

MOFSL said valuations of Tata Elxsi remain steep at 43 times 12-month forward earnings, which it finds difficult to justify given the lack of sustainable cross-vertical growth visibility. It values the stock at 30 times FY28E EPS, with a target price of Rs 4,700. It maintained its 'Sell' rating.

"While Q3 execution improved, Tata ELxsi's growth remains uneven and largely reliant on Transportation-led ramp-ups, with Media and Healthcare continuing to lag amid cautious client spending. With demand recovery still selective rather than broad-based, we expect a modest 6 per cent CAGR in USD revenue over FY25-28," it said.

Choice Broking said while fundamentals are improving, much of the medium-term recovery is priced in. "We maintain our PE multiple at 28x, arriving at a TP of Rs 4,700 based on average FY27E–FY28E EPS. We reiterate our SELL rating, while noting that sustained double-digit growth momentum in the Transportation & HLS vertical and margin normalisation could act as potential re-rating triggers," it said.