1:1 Bonus, Highest 700% Dividend Payout Soon: Tata's Top IT Stock Gets Buy Call; Rs 8,095/TP By Choice Broking

Tata Group-backed 35-year-old IT company, Tata Elxsi has been in focus since its mixed-Q4 earnings. On the positive front, Tata Elxsi has announced the highest ever dividend payout to the tune of Rs 70 per share which will be paid in the coming weeks. But that's not all, Choice Equity Broking in its latest report also pointed out that Tata Elxsi's management has laid down a strategy of integrating its design business deeply with its key industry verticals, complementing its software and digital business with a design-led proposition.

And this strategy is a key positive for the company, which is why, Choice Broking has recommended buying Tata Elxsi shares for a target price of Rs 8,095 crore.

According to Choice Broking, Tata Elxsi's management plan is going to help enhance the company's competitive differentiation, provide early visibility into customer product roadmaps, and create larger downstream development deals.

Choice Broking added, "Management is quite bullish and expects the Healthcare segment to lead the organization for the next few quarters. Media and Communication segment seems to have bottomed out and is expected to witness recovery from FY25E."

Also, the brokerage believes that there are opportunities to contribute to the revenues through advertising technologies and enabling optics reductions to automation and transformation of network operations. SIS business is pivoting to value-added services,
innovation-led projects such as experience centres, and supporting downstream deployment and run management for its products and platforms. Company expects
FY25E to be better than FY24.

It's the trend of AI in the sector, and many tech companies have laid out strategies to tap the market and enhance growth.

For Tata Elxsi, in the case of AI and Gen-AI, Choice Broking's note said, "the company continues to invest strongly in solutions, POCs and projects and ramp up the talent across the company. It has created and deployed specialized programs to be able to get 25% of its engineers AI-ready by Q3FY25E. The company is working on experimenting and innovating using GenAI across design and software. It is targeting areas that may be impacted by GenAI in the business, such as coding, and automated testing, that is being proactively taken to customers."

Also, looking ahead the company plans to onboard approximately 1,500 to 2,000 fresh
engineers in FY25E depending on demand, it said,

On the valuation, Choice Broking said, "The management is committed to growth backed by strategic relationships built over the years with key customers, the qualitative change in revenues towards OEMs and SDV programs, entries into new operators and marquee healthcare logos, investments and talents in hiring, investments in strategic technology areas in AI and a strong deal pipeline."

"We maintain our rating to BUY with a revised target price of Rs 8,095 implying a PE of 45x on FY26E EPS of Rs 180," Choice Broking's note said.

Overall, in FY24, Tata Elxsi's revenue was at Rs 3,552.1 crore, registering double-digit 13% YoYg growth, while in constant currency the company recorded 9.3% YoY growth in software development and services and 18.6% YoY growth in system integration and support segment. PBT was up 11.9% to Rs 1,048 crore, surpassing the Rs 1,000 crore mark for the first time. EBITDA margins stood at 29.5%.

Further, this Tata tech player recommended the highest ever dividend payout of 700% at Rs. 70/-, per equity share of Rs. 10 each, for the financial year 2023-24, subject to tax, which shall be paid/dispatched on or after the seventh day from the conclusion of the 35th Annual General Meeting, subject to the approval of the shareholders of the Company.

Before the upcoming Rs 70 per share dividend, Tata Elxsi's highest payout was Rs 60.60 per share in 2023.

Since June 2001, Tata Elxsi has delivered up to 24 dividends, as per Trendlyne data. The highest dividend payout was Rs 60.60 dividends per share in 2023. However, since its bonus issue in 2017, the company has delivered as much as Rs 208.1 dividend per share in 7 years cumulatively.

Apart from the dividend payout, Tata Elxsi has paid only one bonus share till now. It was in September 2017 when Tata Elxsi turned ex-bonus on the 18th of that month for a bonus issue in the ratio of 1:1. It meant Tata Elxsi paid 1 bonus share on every existing 1 share.

Tata Elxsi is amongst the world's leading providers of design and technology services across industries including Automotive, Broadcast, Communications, Healthcare and Transportation.