Tata's IT Stock To Rise By Rs 1000 Ahead: Accumulate This Tata Group-Backed Midcap Share For Rs 8,610 TP

Tata Group-backed IT stock, Tata Elxsi has corrected significantly after its Q3 results. In the past five trading sessions, this midcap tumbled nearly 8% and is currently near Rs 7,660 apiece. This brings a buy-on-dips opportunity in the Tata stock as brokerage Elara Capital has recommended to ACCUMULATE for a target price of Rs 8,610 apiece. That being said, Tata Elxsi has a potential of rising by nearly Rs 1,000 or over 12% on the exchange.

Tata Elxsi Share Price:

Last week, on BSE, Tata Elxsi's share price ended at Rs 7,660.15 apiece on January 25 with a market cap of Rs 47,704.69 crore.

In the past five trading sessions, Tata Elxsi shares have plunged by Rs 660 or 8% on BSE. Year-to-date, the stock has tumbled by 12.42%.

Following this, there is a huge buying opportunity in Tata Elxsi.

Tata Elxsi Share Price Target:

In its research note, Elara Capital said, "Tata Elxsi (TELX IN) posted an in-line Q3, with QoQ dollar growth at 2.8%, slightly ahead of consensus estimates by 0.7%. EBIT margin at 26.8% was a tad miss on street expectations by 30bps and in line with ours. Growth was broad-based, except for Media & Communications, wherein spending was laggard, and thus the caution on demand."

Further, the brokerage added, but this was offset by robust demand in Lifesciences (+3.9% QoQ CC). Transportation saw a steady performance of 1.9% QoQ CC growth. Softness in growth was due to delayed ramp-ups and Q3 weakness. But talent addition (+350 employees QoQ) in a weak Q3 is possibly a reflection of ramp-ups finally ensuing in Q4.

Also, Tata Elxsi's digital propelled the Industrial Design business that saw a sharp 11.7% QoQ and 17.9% YoY CC growth. This also paves the way for downstream value in the Systems Integration business, reflected in related 11.7% QoQ / 20% YoY CC growth. TELX is building capabilities in AI via new deals. It already has an AI component in its automation and ADAS offerings and adding gAI aids faster time to market.

It added, TELX bagged four key deals in Q3, one in design services, two in product engineering and one in Lifesciences, thus backing demand momentum.

On the valuation, brokerage Elara said, "We favour TELX given: a) its digital design prowess, b) industry-leading operating margin (~30% EBITDA), c) marquee clientele (75% offshore mix) and d) strong return ratios (RoE/RoIC at 41%/93%). Orderbook continues to be robust in Transportation and Medical verticals. However, the soft outlook for the Media and Telecom sector may continue to weigh on growth. We slightly raise FY25E/ 26E earnings by 0.6% / 1.7% respectively."

Lastly, Elara's note said, "We maintain Accumulate with raised TP of INR 8,610 (earlier INR 8,490, on 51x Dec-25E EPS of INR 168 (five-year average + 0.5std. deviation). In FY23-26E, expect USD revenue/EBIT CAGRs of ~16%/18%, implying an EPS CAGR of ~15%."

During Q3FY24, Tata Elxsi registered a net profit of Rs 206.4 crore in Q3FY24, registering a growth of 3.2% QoQ and 6% YoY. While revenue from operations stood at Rs 914.2 crore, up by 3.7% QoQ and 11.8% YoY.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author or Greynium Information Technologies. The author, 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.