Why Tata Elxsi Share Price is Falling

Having a share price in excess of Rs 10,000 is a mean feat. Not many companies have achieved this milestone.

Out of more than 6,000 listed companies on Indian bourses, only 17 companies have a share price above Rs 10,000 at present.

Tata group company Tata Elxsi recently surpassed this mark on 12 August 2022. The company's stock price closed above Rs 10,000 for the next five sessions.

The stock was on a dream during in the Covid-led recovery and delivered multibagger returns. It was trading at around Rs 700 in September 2019. It touched a high of Rs 10,760 in August 2022.

However, the rally was short lived. Tata Elxsi shares have come under pressure recently.

In the past five days, Tata Elxsi share price has fallen 14%. It has fallen around 17% in the past month.

Let's take a look at the probable reasons as to why this could have happened...

Quarterly Results Impact

Last week on Friday, Tata Elxsi reported its September 2022 quarter earnings (Q2 results).

The Tata group company reported a sequential fall of 6% in its net profit at Rs 1.7 bn. Year on year (YoY), net profit rose 39%.

For the said quarter, the company reported Rs 7.6 bn in revenues, a muted growth of 5% sequentially. On a YoY basis, revenues grew 28%.

The growth in revenue was primarily volume-led, with all three segments of EPD, IDV, and SIS showing growth of 4%, 14%, and 26% sequentially, according to the company's exchange filing.

Brokerage houses took note of the muted sequential performance and cut their targets on Tata Elxsi.

Also, the stock had run-up substantially in quick time which raised valuation concerns.

Talking Points from Management Commentary

While declaring results, the company's CEO and MD Manoj Raghavan said the company has won multi-year deals in electric vehicle (EV) and autonomous driving systems in the automotive space.

It also secured orders pertaining to a next-gen platform for connectivity and infotainment with a leading off-road equipment maker.

Here's an excerpt:

We have won strategic platform-led deals in media and communications, with new SaaS and managed services models.

We are seeing strong and sustained growth in the automotive and adjacent segments, led by our EV and digital capabilities. We are gaining market share in both Automotive and Media & Communications, especially in Europe.

We first wrote to you in September 2021 on how Tata Elxsi is tapping into the huge autonomous driving opportunity.

Equitymaster's View on Tata Elxsi

We reached out to Tanushree Banerjee, Co-head of Research at Equitymaster, on what she has to say about Tata Elxsi.

Here's Tanushree:

With the Tata group heading for a consolidation over the long term, the future of subsidiaries like Tata Elxsi as independent entities, is uncertain.

Also, while Tata Elxsi continues to have a strong order book of projects, with cutting edge technologies, the current valuations of the stock do not price in execution risks. Hence some correction in the valuations was expected.

In the meantime, you can also check out the below video where Co-head of Research at Equitymaster Rahul Shah shares his view on Tata Elxsi.

How Tata Elxsi has Performed in 2022

In 2022 so far, Tata Elxsi share price has gained 28%. This, at a time when IT stocks in India and across the globe have witnessed a sharp sell-off.

Post declaring results on Friday last week, shares of Tata Elxsi have fallen around 12%. Yesterday, the stock fell 8% intraday while it is down over 4% today.

Ahead of its results on Friday, the stock had ended 3% higher.

Tata Elxsi has a 52-week high quote of Rs 10,760 touched on 17 August 2022 and a 52-week low quote of Rs 5,265 touched on 29 November 2021.

At the current price, the stock is trading at a price-to-earnings ratio of 72x. This ratio is much higher than its 5-year average of 41x and the industry average of 27.4x.

Here's a table comparing Tata Elxsi with its peers.

Comparative Analysis

Company	Tata Elxsi	Birlasoft	Coforge	LTTS	Cyient
ROE (%)	37.2	19.9	33.0	25.3	23.0
ROCE (%)	51.2	27.3	34.2	35.2	27.7
Latest EPS (Rs)	107.6	11.3	99.6	92.1	47.6
TTM PE (x)	72.3	25.0	37.8	39.0	16.0
TTM Price to book (x)	28.6	4.6	10.1	9.0	3.2
Dividend yield (%)	0.6	1.6	1.4	1.0	3.2
Industry PE (x)	27.4
Industry PB (x)	8.0

Data Source: Ace Equity

About Tata Elxsi

Incorporated in 1989, Tata Elxsi predominantly designs and develops systems and software for the auto, aerospace, broadcast, communication, consumer electronics, and semiconductor sectors.

It also provides systems integration and industrial design services across industries.

Tata Elxsi, headquartered in Bangalore, has a presence across the US, Europe, Asia Pacific, and Japan.

In India, the company has global development centers and studios in Bangalore, Thiruvananthapuram, Mumbai, and Pune.

To know more, check out Tata Elxsi company fact sheet and quarterly results.

You can also compare Tata Elxsi with its peers.

Tata Elxsi vs TCS

Tata Elxsi vs L&T Infotech

Tata Elxsi vs HCL Technologies

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...