Sell Tata Elxsi, target price Rs 5173: ICICI Direct

ICICI Direct has sell call on Tata Elxsi with a target price of Rs 5173. The current market price of Tata Elxsi Ltd. is Rs 7833.45. Time period given by analyst is one year when Tata Elxsi Ltd. price can reach defined target.

Tata Elxsi Ltd., incorporated in the year 1989, is a Mid Cap company (having a market cap of Rs 52720.43 Crore) operating in IT Software sector.

Tata Elxsi Ltd. key Products/Revenue Segments include Software Development Charges and Traded Goods for the year ending 31-Mar-2022.



Financials
For the quarter ended 30-09-2022, the company reported a Standalone Total Income of Rs 781.84 Crore, up 6.20 % from last quarter Total Income of Rs 736.21 Crore and up 30.79 % from last year same quarter Total Income of Rs 597.76 Crore. Company reported net profit after tax of Rs 174.28 Crore in latest quarter.

Investment Rationale
The brokerage reduces EPS estimates by 4%/3% due to lowering of USD revenue estimates (because of macro headwinds in the MCE vertical) and decrease in margin estimates. Company has superior operating metrics vs peers: 1) lowest cost of delivery, 2) highest offshore mix, 3) reducing client concentration and, at the same time, superior client- mining capabilities. It likes the company for its robust growth profile and industry- leading margins. However, its super premium valuation of 65x on FY24 EPS (123% /77% premium to LTTS/KPIT) drive SELL rating. It values TELX at a target multiple of 40x FY24E earnings to arrive at a fair value of Rs5,173 (earlier: Rs5,322).

Promoter/FII Holdings
Promoters held 43.92 per cent stake in the company as of 30-Jun-2022, while FIIs owned 15.17 per cent, DIIs 4.21 per cent.