Buy This TATA Group Multibagger Stock For A Target Price of Rs. 8,160: Sharekhan

Tata Elxsi Ltd, a TATA group company with a market capitalization of Rs 43,549.91 crore, is active in the IT industry. Tata Elxsi is a global leader in technology and innovation services, with a focus on the automotive, broadcast, communications, healthcare, and transportation sectors. The stock has jumped from Rs 2696.55 on 10th March 2021 to Rs 7,045.00 on 9 Mar 2022, 3:30 pm IST on the NSE, resulting in a multibagger return of +4,348.45 (161.26%) in 1 year. The stock is also up by 19.54% on a year-to-date (YTD) basis. The stock has returned 40.64 percent in the previous six months and is ahead 5.07 percent in the last 5 days. Considering the company's remarkable revenue growth, brokerage firm Sharekhan has issued a buy call on the stock with a target price of Rs. 8,160.

Investment rationale for Tata Elxsi Limited (TEL)

As per the brokerage "Tata Elxsi Limited (TEL) reported another quarter of outstanding all-round revenue growth of 6.5% q-o-q and 32.7% y-o-y on constant currency (CC) basis, with further margin expansion, strong fresher intake, and robust deal intake across its verticals. Revenue growth was driven by continued robust growth in embedded product design (EPD), up 9.6% q-o-q and 35.4% y-o-y on CC basis in Q3FY2022. USD revenue grew by 5.4% q-o-q and 30.9% y-o-y to $84.8 million, in-line with our estimate of $85 million. EBITDA margin expansion surprised positively, backed by faster growth in its high-margin medical devices vertical, higher offshore, increasing utilisation, quality of revenue mix (including multi-year contracts with focus on better margin deals), operational efficiencies, and delivery excellence."

The brokerage firm Sharekhan says "We believe margin headwinds such as supply-side concerns, investments in building capability in emerging areas, lateral hiring, and higher discretionary spends in the area of travel and facility would put pressure on margins in the subsequent quarters. We expect strong growth momentum to continue in the medium term, backed by strong order intake, robust deal pipeline, solid execution, excellent capability across focused verticals, good client mining, a quality client base, and strong demand tailwinds."

EBIT margin improved by 240 bps q-o-q to 31.0%, exceeding our estimates, offshore revenue mix further improved to 75.1% and strategic multi-year large deal wins across verticals, including a software development programme from a new-age electric vehicle (EV) original equipment manufacturer (OEM) are the key positives of the stock according to the brokerage.

Buy for a target price of Rs. 8,160

The brokerage's note also states "We believe TEL's revenue growth is likely to remain strong in the medium term, as it focuses on high-growth sectors (media and healthcare) and emerging technology areas (such as connected, autonomous, electric, OTT, digital health, and digital), where the client allocates a higher budget. Further, the company's good client mining strategy, strong order intake, robust deal pipeline, and solid execution would aid its growth momentum."

According to Sharekhan "TEL's USD revenue and earnings are likely to post a CAGR of 22% and 20%, respectively, over FY2022-FY2024E. We continue to prefer TEL, given its strong digital engineering capabilities, long-standing client relationships, superior margin profile, increased focus on long-term deal contracts, and presence in the fast-growing ERD space. Though TEL's PE multiples have significantly rerated over last one year, it is still trading at a discount to median forward PE multiple of Chinese tech companies whose long term growth profile is in the high 20% EPS growth range. We maintain our Buy rating on TEL with a revised price target (PT) of Rs. 8,160."

Disclaimer

The stock has been picked from the brokerage report of Sharekhan. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.