Tata Elxsi shares: ICICI Securities ups rating but cuts target price; here's why

ICICI Securities has raised its rating on Tata Elxsi Ltd from 'Sell' to 'Reduce', but revised the target price downwards to Rs 4,250 from Rs 4,300. The brokerage attributed this change in rating to a recent 7% stock correction over the last month while maintaining a one-year forward PE of 30 times.

Tata Elxsi's Q4FY25 results were described as muted due to a revenue contraction of 5.3% QoQ in constant currency terms. ICICI Securities noted, "The revenue contraction of 5.3 per cent QoQ in constant currency (CC) terms was roughly in line with its estimate of minus 5.9 per cent and below the consensus estimate."

The transportation vertical experienced a significant downturn, although this was already built into ICICI Securities' estimates. "The transportation vertical downturn was sharp, though already built into its estimate," the brokerage commented.

Despite these challenges, Tata Elxsi secured three large deals in Q4, focusing on emerging geographies and highlighting a rebound in growth expected in Q1FY26. The company announced significant wins in automotive, media, and communication sectors, with a pivot towards emerging geographies like Japan and India.

ICICI Securities remarked that the deal ramp-ups are likely to proceed well despite macroeconomic challenges. The brokerage added, "Tata Elxsi is pivoting towards more multi-year deals," enhancing stability through annuity-based contracts.

Tata Elxsi is also adjusting its strategy in response to slowing demand in the EU and the US, exacerbated by geopolitical factors. The company is focusing on expanding in emerging markets, primarily through multi-year, annuity-based deals.

Looking ahead, ICICI Securities expects margins to recover in Q1FY26, aligning with stable levels observed in FY23. "Margin for Tata Exlsi is likely to recover once growth bounces back in Q1FY26," they stated, with target margins ranging between 28-30%.