Mid cap Tata Elxsi company stock outperforming sector by delivering 121% return in a year

Tata Elxsi company is  an IT services compnay that provides design and technology services in the transportation, media, communications, and healthcare industries. With over 20 years of experience in design-led development, Tata Elxsi product list include providing cutting-edge solutions to help global companies streamline existing processes for increased efficiency and create new business opportunities and revenue streams.

With Tata Elxsi’s TEngage, hospitals and healthcare providers can deliver multimodal touchpoints throughout the patient experience thanks to its scalable, cloud-first digital health platform for omnichannel care. Another Tata Elxsi invention is TEDREG, a regulatory intelligence platform that offers producers useful information for launching new products and maintaining existing ones.

Tata Elxsi Share has increased by 46% so far in 2022, outperforming benchmark Nifty 50 by a margin and has provided a multibagger return of 121% in the last year. The cumulative return over the last three years for this stock is a whopping 792%.Let’s investigate the reason for the massive rise by examining their financials as well as industry trends and  check whether this hyper growth is sustainable in future.

Tata Elxsi Q4FY22 results maintain growth trend

The Tata Elxsi IT company reported better-than-expected Q4 results. Tata Elxsi reported 9% QoQ growth in its consolidated revenues for Q4FY22. On a year-on-year (YoY) basis, it witnessed a growth of 33%. Its expenses for the quarter were up by 9% QoQ and 32% YoY. While the net profit increased by 6% QoQ, it grew by 39% on a YoY basis. The company’s growth was backed by Embedded Product Design (EPD) segment growing at 7.5% QoQ and Industrial Design and Visualization (IDV) at 8% QoQ.

The reason for increase in expenses was that the company took a wage hike for all junior level workforce (65%-70% of the workforce) during January 2022 and for the senior workforce the wage hike would be undertaken from April 2022.

 

 

Tata Elxsi recorded highest ever Revenue & PAT in FY22

In FY22, the company reported operating revenues of Rs. 2,470 crores, a 35% increase YoY. This growth was primarily driven by volume, with constant currency growth of 34% YoY. Their operating profit (EBITDA) was Rs. 766 crores, a 47% increase YoY, with EBITDA margins of 31.0%, a 2.4% increase. Profit before tax was Rs. 745 crores, up 46% YoY. The net profit for the year was Rs. 549.7 crores, up 49% YoY.

 

 

Geographically speaking, the Americas accounted for 41.2% of revenue in Q4 FY22, followed by Europe (34%), India (16.5%), and the rest of the world (8.3%). It is clear why it is a prominent service provider on a worldwide scale given that the majority of its revenue is generated in America and Europe rather than India.

 

 

Employee Attrition rate: Other Key Metric

Attrition rates have been high across IT companies through the last few quarters as demand for technology talent with digital skills continued to outstrip supply with increasing labour costs. With rising demand, attracting talent, training, and retention gained paramount importance.

While the Employee attrition rate was 7.8% in Q4FY21, it has now become 20.8% in Q4FY22, which is still low when compared with peers. Asa measure to retain talent,  wage hike for all junior level workforce (65%-70% of the workforce) during January 2022.

 

 

While the company has observed cost inflation and supply chain constraints on an industry level, it is taking steps such as wage increases, retention, and employee engagement to mitigate the same. Additionally, the gains in the foreign exchange are helping to counteract cost inflation. They are also investing in SEZs (Special Economic Zones) to lower the effective tax rate.

Tata Elxsi wins multi-year multi-million USD deals

A leading European commercial vehicle manufacturer chose the company to establish and set up a virtual reality innovation centre, which would be a virtual reality-based simulation and collaborative design solution with full technology integration and immersive content development.

In the Transportation segment, a leading German tier-I supplier chose Tata Elxsi to establish an offshore development centre for autonomous driving and ADAS (advanced driver assistance systems) technologies. In addition, they secured a multi-year, multi-million-dollar deal from a global automotive leader for EV system development.

A North American Healthcare platform provider chose Tata Elxsi to provide cloud engineering services in the Healthcare & Medical devices segment. It is a multi-year, multi-million-dollar agreement to support digital transformation for a unified cloud platform as well as legacy product migration.

In the Media & Communications segment, they won a Design digital deal for a Middle East broadcasting leader, leveraging the company’s video platform and IP. They created TEPlay, an end-to-end streaming video solution, white label streaming video, and an OTT (over-the-top) solution. For a new video service, they also added research, experience design, UX (user experience), and UI (user interface).

Moreover, the management of Tata Elxsi in a call with analysts said, “Going forward, revenue mix by industry towards the EPD(Embedded Product Design) segment from Transportation, Media & Communication and Healthcare & Medical Devices segment is expected to be 40:40:20.”

Technical Analysis: Continuous Uptrend from Last 2 years

As can be observed, the 50 EMA has been significantly above the 100 EMA and the 200 EMA for the past year. In the past year, the value of the share increased by 121%. It just reached an all-time high of Rs 9042 (31st March, 2022) and is currently trading close to that level.

Sharekhan analysts are still bullish on Tata Elxsi stock, giving it a ‘buy’ rating and a target price of Rs 9,750. According to their report, the stock has a further upside potential of 12% from current levels.

 

 

Our View:

In its annual report for FY22, Tata Elxsi Limited emphasised its unique solutions and design-led strategy across a few industries, growing emphasis on offshore delivery capabilities, and advantageous sector tailwinds. It concentrates on the use of digital technology in high-growth industries that are anticipated to see rapid expansion fueled by increasing ERD expenditures. It is projected that Indian ERD service providers’ market share will rise from $16 billion in 2021 to $58 billion in 2031, representing a CAGR of more than 13%.

Tata Elxsi will be one of the major beneficiaries among its worldwide peers from the current upturn in ERD spending due to its extensive range of digital engineering-led services, strong platform portfolios, deep domain expertise, and strong offshore delivery capability.

 

About the Author

Ketan Sonalkar (SEBI Rgn No INA000011255)

Ketan Sonalkar is a certified SEBI registered investment advisor and head of research at Univest. He is one of the finest financial trainers, with a track record of having trained more than 2000 people in offline and online models. He serves as a consultant advisor to leading fintech and financial data firms. He has over 15 years of working experience in the finance field. He runs Advisory Services for Direct Equities and Personal Finance Transformation.

Note – This channel is for educational and training purpose only & any stock mentioned here should not be taken as a tip/recommendation/advice

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