ICICI Securities research report onTata Elxsi
TATA Elxsi (TELX) reported Q2FY27 revenue growth and margin ahead of I-Sec/consensus estimates, marking a possible beginning of a turnaround. Some positive highlights of the quarter were: 1) a broad-based recovery, 2) strong product pipeline, 3) outlook of a better H2FY27, and 4) margin recovery outlook. Valuations at ~22x one-year forward P/E (nearing all-time low) appear attractive when paired with a strong pipeline with large deals across all verticals. However, some headwinds in the form of 1) a volatile macro, 2) cautious outlook and guidance cut by major automotive OEMs, and 3) Q3 furloughs, might affect TELX’s portfolio where segments such as aerospace are still small. That said, we wait and watch for sustenance of growth and margin performance going forward.
We upgrade to HOLD (stock down ~10% over 3M) and roll over to Sep’27E TP of INR 3,380, based on an unchanged one-year forward P/E multiple of 22x, in line with our target multiple for LTTS.
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