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Buy Tata Elxsi; target of Rs 1400: Motilal Oswal

October 09
18:25 2018

Motilal Oswal’s research report on Tata Elxsi

TELX’s reported 18% revenue growth YoY which accounts to revenue of INR4b, lower than our expectation of 20% growth. Sequential growth for TELX at 5.4% was partially fueled by INR depreciation, adjusted for which, we estimate the growth would be marginal. Historically, 2Q has seen sharper growth for TELX given seasonality. EBITDA margin expanded by 190bp YoY to 26.5% in line with our estimates. Consequently, PAT growth of 44% YoY to INR822m was above expectations by 4% on account of higher-than-expected Other Income.

Outlook

However, “Headwinds in the British car industry” as cited by JLR, and BMW profit warning on trade war are risks to the company’s business that will weigh on valuation multiple (and earnings if reflected in demand by TELX). We hence value the stock at 25x FY20E EPS (versus 30x earlier) and maintain Buy with a TP of INR1,400.

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