Tata Elxsi: All Round Growth Drives Strong Q3 Performance

Tata Elxsi

Tata Elxsi, a part of the Tata Group, that offers technology and design services, has clocked scintillating performance during the October-September quarter led by strong execution and ramp-ups in large deals won in the previous quarters along with the addition of leading customers and wins in the electric vehicles, medical devices, and the OTT segments

Tata Elxsis’s net profit increased by 14.2% to Rs 75.42 crore for the October-December 2019 quarter.
Revenue from operations rose 4% to Rs 423.43 crore for the said quarter from Rs 407 crore for the corresponding period a year ago.
Software development and services contributed Rs 409.8 crore, while system integration and support services accounted for Rs 13.63 crore of the said quarter’s revenue.

Tata Elxsi witnessed growth across key verticals, business divisions and geographies in the reported quarter.

The transportation vertical grew 10.4% on quarter while healthcare grew faster at 40.6%.

Media and Communications delivered steady growth at 5.3% in the quarter. The design business also showed strong growth at 9.9% in the quarter.

Being a zero debt company, Tata Elxsi has generated investor interest.

Tata Elxsi’s, the automotive business contributes to 48% of its total revenue. Within the automotive vertical, 60% of revenue comes from Europe, 30% from the US, 10% from Japan, and Korea.

JLR, being the largest client contributes to 14.5% of the total revenue of Tata Elxsi, it is amongst the top preferred client and the only Indian supplier to JLR.

With the increasing share of electronics, auto companies are focusing on software even more and allocating a bigger part of R&D spend towards electronics which will be a key trigger for driving the growth for Tata Elxsi.

The company is also planning to tap the EV segment where it expects significant growth ahead.

Tata Elxsi has developed a good presence in the Media & Communication space. FTH and 5G have opened up new opportunities for service providers like Tata Elxsi across both communications and media space.

OTT Platforms (over the Top), is another space within the media sector that has gained traction globally, is another growth avenue for Tata Elxsi.

Tata Elxsi already has both domestic and global OTT players as its clients.

Tata Elxsi has also partnered with leading domestic DTH service provider to deliver an engaging digital platform for customers with an innovative hybrid DTH set-top-box – Internet TV which brings together the best of online content and linear TV on one platform

Going forward, it is expected that the investors will continue to keep an eye on top-account growth, demand outlook in the automotive and media vertical, margin trajectory, demand outlook in the wake of Brexit, and commentary on diversification strategy and large deal wins.
The management has given a positive outlook on the Business from its Media and Medical verticals where it expects strong growth ahead.

Hence looking at the company’s strong business prospects and margin outlook of 22-24% and a cash kitty of Rs 5 bn coupled with steady earnings growth prospects in FY21 and FY22 make the stock look attractive from a long term perspective.

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