Strong Q2 performance Tata Elxsi reported a better‑than‑expected second‑quarter, with constant‑currency revenue rising 2.3% quarter‑on‑quarter, well above the 1.2% consensus forecast. The earnings before interest and taxes (EBIT) margin widened by 70 basis points to 19.7%, surpassing the 18.5% estimate.
Growth across key verticals Revenue growth was broad‑based. The Health‑Life‑Sciences (HLS) segment expanded 3.5% QoQ, while Media & Communications (M&C) rose 3.4%. Transportation, a strategic focus area, grew 2.0% QoQ. The uplift was anchored by a ramp‑up of deals in the United States and robust demand from Indian auto OEMs, although European automotive activity lagged.
Management outlook The company’s leadership remains confident about sustaining Transportation momentum in the second half of the year. They cite a multi‑year, large‑scale contract with an auto OEM, reduced revenue leakages compared with the prior year, and emerging opportunities in aerospace and defence as tailwinds.
Margin dynamics The 70‑basis‑point margin expansion stemmed mainly from a 60‑70‑basis‑point currency benefit and the lack of one‑off expenses that had weighed on the prior quarter (estimated 200‑220 bps). These positives offset the impact of higher wage costs. Management expects margins to improve gradually through operating leverage, higher utilisation rates and what they term “pyramid optimisation”.
Revised forecasts and valuation In light of the Q2 beat, Prabhudas Lilladher lifted its FY27 revenue growth estimate to 6.5% YoY (constant currency), up from 5.9%. FY27‑29 EBIT margin forecasts were also nudged higher by 30, 20 and 20 basis points respectively, reaching 20.3%, 21.5% and 22.5%.
The target multiple for the September 2028 earnings per share was increased to 24× (from 22×), translating to a revised target price of INR 3,790, up from INR 3,480. The analyst house retained an ACCUMULATE rating on the stock.
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