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Reliance Securities
Tata Elxsi (Buy)
CMP: ₹1,030
Target: ₹1,440
Tata Elxsi’s (TEL) revenue rose 5.4 per cent q-o-q in 2QFY19, with the key SDS business clocking 6 per cent q-o-q growth; y-o-y SDS revenue growth was a robust 20.7 per cent, the fastest growth since 1QFY17. EBITDA margin declined 139 bps q-o-q despite depreciation in rupee, owing to wage hike impact. The addressable size of the ER&D industry will cross $300 billion, while offshore ER&D spend will clock 9 per cent CAGR, with TEL likely to grow at a much faster pace.
TEL’s presence in specialised verticals such as automotive and broadcast will be key growth drivers, going forward. TEL’s core strengths lie in high growth solutions such as IoT, robotics, automation mobility, VR/AR digital experience, cloud and AI platforms.
TEL counts names such as BMW, Mercedes-Benz, JLR and Tata Motors as clients. The company has presence across the value chain of broadcast & media vertical and counts clients from different segments of broadcast ecosystem.
We expect TEL’s PAT to clock a healthy 22.1 per cent CAGR over the period FY18-FY20E.
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