Tata Elxsi shares in focus after Q3 results, Motilal Oswal sees downside on valuations

Shares of Tata Elxsi Ltd. will be in focus on Wednesday, January 14, after the company reported a decent set of third quarter earnings for Q3FY26.

Despite the improved performance, brokerage firm Motilal Oswal has reiterated its 'Sell' rating on the stock, with a price target of ₹4,700. This implies a potential downside of about 19% from current levels.

Motilal said that while execution improved during the quarter, growth continues to be uneven and remains largely dependent on transportation-led ramp-ups, with the media and healthcare segments still lagging amid cautious client spending.

The brokerage added that valuations remain expensive at 43x one-year forward P/E, which it finds hard to justify in the absence of sustained growth visibility across verticals.

On the earnings front, constant currency revenue rose 3.2% sequentially, ahead of estimates of 2.7%, while EBITDA margin improved to 23.3% from 21.05%.

Profitability, however, was hit by an exceptional loss linked to the new labour code. Reported PAT declined 29% QoQ and 44% YoY due to an exceptional charge of ₹95.8 crore.

For Q3FY26, revenue came in at ₹953.5 crore, up 3.9% QoQ and 1.5% YoY. CC revenue grew 3.2% QoQ but declined 5.5% YoY. Adjusted PAT stood at ₹179.1 crore, rising 15.7% QoQ but falling 10% YoY.

Management said it remains optimistic about delivering incremental growth in the fourth quarter and sees further margin upside driven by initiatives to improve utilisation and operational efficiencies, even as decision making cycles remain slow and more calculated.

Transportation revenue increased 7.7% QoQ, and the automotive segment is expected to be the key growth driver in FY27.

Media and communications revenue declined 0.3% QoQ, while healthcare revenue fell 3.6% QoQ. Management believes the healthcare business has bottomed out and expects a recovery from Q4, supported by scheduled ramp ups.

Shares of Tata Elxsi ended Tuesday's session 1.75% higher at ₹5,793. The stock has gained 5% over the last five trading sessions.