After a weak Q2 showing, Motilal Oswal Financial Services (MOFSL) maintained its ‘Sell’ rating on Tata Elxsi, noting that subdued tech spending in the automotive and media segments continued to drag near-term growth.
The brokerage highlighted that margins – once a key strength for the company – have come under notable pressure. MOFSL maintained a cautious stance and values the stock at 31x June 2027 EPS, with a target price of Rs 4,400.
The IT firm reported a 32.5 per cent drop in net profit at Rs 154.80 crore for the September quarter compared with Rs 229.40 crore in the year-ago period. Its revenue from operations came in at Rs 918 crore, a 3.8 per cent YoY fall over Rs 955 crore in the year-ago quarter.
Tata Elxsi’s revival hinges on a sustained pick-up in OEM spend and the ramp-up of large deals over the next 6-8 quarters. Until then, margin normalisation is likely to be gradual, and valuations appear steep given modest near-term growth visibility, MOFSL said.
While the management commentary on a better H2 and double-digit FY27 growth appears encouraging, the near-term growth momentum remained patchy, MOFSL said.
“Q2 growth was modest at 1 per cent QoQ in CC, largely aided by the rampup of previously won deals rather than a broad-based recovery. We think execution delays, sluggish tech spending in the Automotive segment, and continued pressure in the Media vertical are weighing on the company’s growth trajectory,” it said.
For Q2, the margin uptick was driven largely by forex gains, while underlying cost pressures remained. Structural headwinds such as wage pressures, sub-optimal utilisation, and slower volume growth may cap a meaningful upside to the earlier margin trajectory in the near term, MOFSL said.
“Valuations remain steep at 52 times, which we see as difficult to justify given current headwinds. We value the stock at 31x Jun’27E EPS, with a target of Rs 4,400. We maintain our Sell rating,” MOFSL said.
The medium-term story as increasingly seen dependent on a Transportation OEM-led recovery, which, although visible in pipeline commentary, remains back-ended with multi-quarter ramp-up timelines (Suzuki).
The Media vertical continued to face industry-level volatility and consolidation headwinds. In the Healthcare vertical, the softness from regulatory program completion is yet to normalise.