Tata Elxsi analysts remain wary on rich valuations, muted demand worries; Stock in focus

Shares of Tata Group's Tata Elxsi Ltd. will be reacting to their September quarter results, on Friday, October 10. The results were reported after market hours on Thursday.

The company's results were in-line with expectations on most fronts. Constant currency revenue for the company grew after two quarters of decline on a sequential basis. EBIT margins saw a slight, 30 basis points expansion compared to the June quarter.

Among business segments, the Media vertical led growth, up 3.7% QoQ, while Transportation declined 0.5% and Healthcare fell 4.6%.

Employee headcount declined by nearly 1.5% from last quarter and 6.6% year-on-year.

Brokerages retained a cautious outlook despite the sequential recovery.

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Avendus

The brokerage maintained a "Sell" rating with a price target of ₹4,690, trimming revenue estimates for the current and next financial year by 2% each.

It expects Tata Elxsi's non-transportation verticals to drive growth through the rest of financial year, with broad-based improvement anticipated in FY27 on a low base.

EBITDA margin estimates for the current financial year were cut by 77 basis points to 22.7%, although margins are projected to recover by 180 bps in the next financial year.

Large deal wins in the March and June quarter are seen as key growth drivers, with potential upside from adjacencies in rail, off-highway, and aerospace and defence segments.

Kotak Institutional Equities

The brokerage also maintained a "Sell" rating on the stock with a price target of ₹4,000, calling it a "broadly in-line quarter", with slightly better revenues but weaker profitability.

Kotak said a large deal ramp-up in the media and communications vertical drove growth, while the cybersecurity incident at Jaguar Land Rover (JLR) had only a modest impact.

It expects automotive deal ramp-ups to support near-term performance but warned of continued weakness in media and communications. Kotak forecasts a 5.4% constant currency revenue decline for FY26, with projections of a moderate recovery in the second half.

JPMorgan

The brokerage maintained an "Underweight" rating on Tata Elxsi with a price target of ₹4,000, noting that while the September print beat revenue expectations, margins came in below estimates.

Excluding the JLR impact, Tata Elxsi's automotive segment reported positive growth.

JPMorgan though, expressed optimism about an automotive recovery driven by recent deal closures and ramp-ups, and expects the second half of FY26 to be stronger than the first, targeting double-digit growth in FY27.

Demand was described as broad-based across Europe, Japan and India, though the US market continues to remain weak. The Media and Telecom segment, meanwhile, remains under pressure, with clients adopting a cautious stance.

Motilal Oswal Financial Services

Motilal Oswal Financial Services (MOSL) also retained a "Sell" call on Tata Elxsi with a price target of ₹4,400, citing continued softness in demand and persistent headwinds in the Media and Healthcare verticals.

While the management’s guidance for double-digit growth in FY27 was seen as encouraging, MOSL said valuations remain steep at 52 times 12-month forward earnings, which it finds difficult to justify given the current business environment.

18 analysts have coverage on Tata Elxsi, where 15 of them have a "sell" rating on the stock. Only two still have a "buy", while one has a "sell" recommendation.

Shares of Tata Elxsi ended 2.2% higher on Thursday at ₹5,580. The stock is down over 40% from its record high of over ₹10,000, and is down 18% so far this year.

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