Highest Rs 70/Sh Dividend; Tata's IT Stock Falls After Q4; Rs 5,400/TP By Kotak, Brokerages Give Underweight

Tata Group-backed 35-year-old IT company, Tata Elxsi has reported a weak Q4FY24 results. But that has not stopped this IT player in recommending its highest ever dividend of Rs 70 per share. However, due to being the weakest performing Tata company in Q4 as of now, Tata Elxsi's share price nosedived by more than 5.3% to an intraday low of Rs 7000.70 apiece on BSE. Following this, 2 global brokerages are underweight on Tata Elxsi share price, while Kotak Institutional Equities stayed NEUTRAL on the stock with fair value at Rs 5,400.

Tata Elxsi Share Price:

In the early trade, Tata Elxsi share price fell as much as 5.3% to hit an intraday low of Rs 7000.70 apiece. On Wednesday so far, Tata Elxsi's market cap is around Rs44,259.87 crore.

This IT stock opened lower at Rs 7173.15 apiece, while its intraday high is also lower to Rs 7231.70 apiece from the previous session's closing price of Rs 7393.85 apiece.

Tata Elxsi's 52-week high and low are at Rs 9,191.10 apiece and Rs 6,228.30 apiece respectively.

Tata Elxsi Dividend:

Tata Elxsi said, we are pleased to inform you that the Board of Directors has recommended a dividend 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.

Tata Elxsi Q4 Results:

During the last quarter of FY24, Tata Elxsi announced its PBT was at Rs 262.4 crore, up 4.9% YoY, while revenues were at Rs 905.9 crore up by 0.9% QoQ and 8.1% YoY. EBITDA margin was at 28.8%.

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%.

Tata Elxsi Target Prices:

Talking about the quarterly earnings, Kotak Institutional Equities said, "Revenues declined 0.6% QoQ in 4QFY24, significantly lower than our expectations. The performance was muted across verticals. EBIT margin moderated to 25.8%, primarily due to lower revenues. We cut our EPS estimates by 2-4%, following another disappointing quarter. TELX has a higher exposure to embedded engineering and has a well-diversified revenue mix, but the increasing dependence on top-5 clients with subscale relationship beyond them is a risk."

Near-term weakness is expected for this Tata company. Kotak's note said, "TELX has been increasingly pivoting toward accounts that have better potential to spend on design and development of new products. The company is gradually lowering its exposure to automotive tier-1 suppliers and equipment vendors and media clients."

This should help in a gradual recovery in growth. Further, a few large engagements signed in the earlier quarters are yet to ramp up. For instance, a multi-year engagement with global top-5 automotive OEM is expected to ramp up toward the end of the June 2024 quarter. JLR is likely to continue to grow at a robust pace, aiding overall growth, as per Kotak.

However, Kotak does not expect significant growth improvement in FY2025E, given the demand challenges in telecom and TELX's high dependence on short-term deals in the healthcare vertical. It expects 9.5% c/c revenue growth in FY2025E.

On the valuation, Kotak's note said, "We note that the company's performance was adversely impacted in the past due to a high exposure to JLR. Our reverse DCF valuation implies 19% US$ revenue CAGR over FY2024-34E."

Meanwhile, global brokerages, Morgan Stanley and JP Morgan have maintained 'UNDERWEIGHT' on the stock, while their outlook is Neutral. Morgan has set a target price of Rs 6,880 and JP predicts a target of Rs 5,800.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.