Page 1

Tata Elxsi Limited

RESULT UPDATE 25th January 2024

 India Equity Institutional Research II Result Update – Q3FY24 II 25th January 2024 Page 2
Muted revenue growth and higher costs pressure margins
Tata Elxsi Ltd.
CMP Target Potential Upside Market Cap (INR Mn) Recommendation Sector
INR 7,768 INR 8,390 8.0% INR 4,84,822 ACCUMULATE Internet Software & Services

Synopsis:
• Tata Elxsi registered a revenue of INR 9,142 Mn for Q3FY24, translating to a growth of 11.8% YoY/ 3.7% QoQ. The revenue was 1.2% below our
expectations. Revenue for 9MFY24 grew by 14.7% YoY to INR 26,462 Mn.
• EBIT for the quarter was INR 2,447 Mn, an expansion of 8.5% YoY/ 2.5% QoQ. EBIT margin came in at 26.8%, a decline of 80 bps YoY and 31 bps QoQ
and was below our estimate by 2.6%.
• EBIT for 9MFY24 expanded by 9.5% YoY while EBIT margin contracted by 128 bps YoY, respectively.
• PAT for the quarter increased by 6.0% YoY/ 3.1% QoQ to INR 2,064 Mn and came within our expectations. For 9MFY24, PAT expanded by 7.5% YoY
and PAT margin declined by 151 bps.

MARKET DATA KEY FINANCIALS

Shares outs (Mn) 623 (INR Mn) Q3FY24 Q2FY24 Q3FY23 QoQ YoY
Mkt Cap (INR Mn) 4,84,822 Revenue 9,142 8,817 8,177 3.7% 11.8%
52 Wk H/L (INR) 9,200/5,883 EBIT 2,447 2,387 2,254 2.5% 8.5%
Volume Avg (3m K) 144 PAT 2,064 2,002 1,947 3.1% 6.0%
Face Value (INR) 10 OPM (%) 26.8% 27.1% 27.6% -31bps -80bps
Bloomberg Code TELX IN NPM(%) 22.6% 22.7% 23.8% -13bps -123bps

Source: Company, KRChokseyResearch

Muted revenue growth, weak performance in Media and Communications

SHARE PRICE PERFORMANCE
In Q3FY24, Tata Elxsi reported revenue of INR 9,142 Mn registering growth of 3.7% QoQ and 11.8% YoY.
The growth was led by Healthcare and Life Sciences which increased by 4.6% QoQ and 13.0% YoY due to
500 new product engineering and regulatory services. Transportation grew at 2.7% QoQ and 15.6% YoY due to
450 large deals and traction in SDV (Software Defined Vehicles). Media and Communications saw a marginal
0.6% QoQ and 3.4% YoY growth due to higher furloughs and tough macro environment. Lower
400 discretionary spending is affecting OTTs and media companies due to lower subscriptions.
Geographically, Europe saw a 5.0% growth QoQ along with Japan and RoW where growth was also
350
observed. Segment wise, IDV was 12.3% of revenue, EPD was 84.7% while System Integration was 3%.
300 During the quarter, the Company was affected by few delays in ramp-ups due to shorter quarter and
holiday season.
250 Ramp-ups in deals expected from Q4FY24E and beyond
200 Tata Elxsi does not disclose the details on deal wins and order book. However, the management remains
confident regarding the deal pipeline and ramp-ups in the coming quarters. The Company also outlined
150 that due to price competitiveness and unsuitable terms and conditions offered, it is being very selective
in deal selection in the U.S. transportation segment as it does not want margin dilution. The
100
management also indicated that due to customer related issues, deals that were signed in Q2FY24 will
50 come into effect in Q4FY24E and Q2FY25E.
Jan-21 Jan-22 Jan-23 Jan-24 Margins decline due to headwinds from other expenses
The EBIT came in at INR 2,447 Mn growing at 2.5%/ 8.5% QoQ/ YoY. EBIT margin, however, saw a decline
TELX Sensex of 31 bps/ 80 bps QoQ/YoY. This was due to increase in the other expenses bucket such as travel and visa
costs, AI-related investments, people costs and hardware and software costs. This was offset by lower
MARKET INFO cost of revenues and exchange benefits. The Company’s management maintains the desire to have ~27%
margin. PBT however, was higher because of increased interest income from investments.
Investment in headcount addition continues
SENSEX 71,060
In Q3FY24, the headcount reached 13,221, an increase of 350 resources over the previous quarter. The
NIFTY 21,454 attrition rate trended downward to 12.9% from 13.7% in Q2FY24 due to strong talent retention strategies.

SHARE HOLDING PATTERN (%)

Particulars Dec-23 Sep-23 Jun-23
Promoters 43.9 43.9 43.9 16.0% 13.7%
FIIs 15.0 13.8 14.2
DIIs 5.7 4.8 4.1
Others 35.4 37.5 37.8 Revenue CAGR between FY23 PAT CAGR between FY23 and
Total 100.0 100.0 100.0
and FY26E FY26E

RESEARCH ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
Unnati Jadhav, research5@krchoksey.com, +91-22-6696 5420 is also available on Bloomberg KRCS<GO>
www.krchoksey.com
Thomson Reuters, Factset and Capital IQ
 India Equity Institutional Research II Result Update – Q3FY24 II 25th January 2024 Page 3

Tata Elxsi Ltd.

Key Concall Highlights: (i) Tata Elxsi’s revenue from operations came in at INR 9,142 Mn, a growth of 3.0% QoQ and 9.4% YoY in CC terms. The EBITDA
margin was 29.5%. (ii) The EBIT margin came in 30 bps lower than the previous quarter due to an increase in the “other costs” bucket. The PBT
margin was at the same level as Q2FY24 due to an increase in income from interest on investments and funds surplus. (iii) The Company reported
growth across the entire portfolio of customers including from those beyond the top 5 and top 10. (iv) Looking at the business verticals, EPD
accounted for 84.7% of the business, while IDV contributed 12.3% and system integration was at 3.0%. (v) In terms of region-wise performance,
Europe grew 5% QoQ. Japan and RoW saw decent growth including some key deals and new customer wins in the automotive sector. Within EPD,
the transportation segment grew 1.9% QoQ in CC terms. (vi) The Company observed some delays in the operations in Q3FY24 due to the shorter
quarter and holiday season. (vii) The media, technology and telecom vertical is experiencing a challenging business environment which has led to a
decline in business of a marginal 0.1% QoQ in CC terms. Majority of the business in this segment comes from the U.S. where this segment was most
impacted due to higher furloughs. (viii) Moving to the Healthcare and Life Sciences business, the segment saw a growth of 3.9% QoQ in CC terms.
Large deals in regulatory as well as new product engineering services were won. The management is hoping to bring down the dependencies on the
MDR business to less than 25%. (ix) In the Industrial design and visualization business, growth of 11.7% was observed in CC terms. (x) The
Management expects to increase investments in the coming quarters as the Company looks to expand the applications and products across
different verticals and domains. (xi) The headcount for Q3FY24 reached 13,221 including the addition of 350 resources. This brings the total addition
to 1,350 for 9MFY24. The attrition rate came down to 12.9% from 13.7% in Q2FY24.
Valuation and view:
Tata Elxsi is currently trading at 59.9x/49.3x on FY24E/FY25E earnings. The Company showcased modest revenue growth in Q3FY24 on both a YoY
and QoQ basis, missing our expectations. We believe that Tata Elxsi’s relatively high valuations leave little room for even the slightest
disappointment on any parameter. In this report, we introduce FY26E EPS of INR ~190.7 and apply a P/E multiple of 44x to arrive at a reduced
target price of INR 8,390 (previously 8,466). Given the upside of 8.0% over the CMP, we maintain our “ACCUMULATE” rating for the stock. We
think the recent correction in the stock price post Q3FY24 results can be looked at as a good opportunity for investors to accumulate the stock.

Employee Base & Attrition Client Concentration

18.4%
17.3% 60.0% 53.2%
51.9% 52.5%
15.6% 13.7% 48.0% 49.4%
50.0% 44.5% 43.8%
42.0%
12.9% 38.4% 39.8%
40.0%

30.0%

20.0%

10.0%
11,607 11,864 12,286 12,871 13,221
0.0%
Q3FY23 Q4FY23 Q1FY24 Q2FY24 Q3FY24 Q3FY23 Q4FY23 Q1FY24 Q2FY24 Q3FY24

Employees Attrition level (IT services) Top-5 Customers Top-10 Customers

Source: Company, KRChokseyResearch Source: Company, KRChokseyResearch

Geographic Break-Up (as a % of Revenue)

Service Line Break Up
120.0%
100% 2.7% 2.9% 2.8% 2.7% 3.0%
100.0%
6.3% 5.8% 5.4% 4.9% 5.7% 95%
16.2% 17.3% 17.0% 15.5% 16.4% 11.3% 11.3% 11.3% 11.3%
80.0% 90% 12.3%

60.0% 39.6% 85%

42.8% 41.4% 40.2% 37.4%

80% 85.90% 85.8% 85.9% 86.0% 84.7%

40.0%
75%
20.0% 34.7% 35.5% 37.4% 40.0% 40.5% Q3FY23 Q4FY23 Q1FY24 Q2FY24 Q3FY24

0.0% Systems Integration

Q3FY23 Q4FY23 Q1FY24 Q2FY24 Q3FY24 Industrial Design & Visualisation
Europe USA India RoW Embedded Product Design
Source: Company, KRChokseyResearch Source: Company, KRChokseyResearch

RESEARCH ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
Unnati Jadhav, research5@krchoksey.com, +91-22-6696 5420 is also available on Bloomberg KRCS<GO>
www.krchoksey.com
Thomson Reuters, Factset and Capital IQ
 India Equity Institutional Research II Result Update – Q3FY24 II 25th January 2024 Page 4

Tata Elxsi Ltd.

KEY FINANCIALS
Exhibit 1: Balance Sheet

Particulars (INR Mn) FY21 FY22 FY23 FY24E FY25E FY26E

Property, Plant and Equipment 860 1,268 1,597 1,560 1,805 2,081

Right-of-use Asset 651 1,244 1,577 1,824 2,083 2,360

CWIP 73 221 70 70 70 70

Intangible Assets 186 203 162 282 450 633

Deferred Tax Asset, Net 100 90 129 129 129 129

Other Non-Current Financial Assets 1,224 1,384 685 2,000 2,332 2,749

Income Tax Assets (net) 140 155 272 272 272 272

Other Non-Current Assets 21 170 9 246 287 339

Total non-current assets 3,253 4,735 4,500 6,384 7,428 8,632

Inventory 1 6 4 4 5 8

Cash & equivalent 1,004 1,511 1,339 3,176 7,048 11,892

Bank Balance 7,592 8,141 10,577 10,577 10,577 10,577

Trade Recceivables 4,894 6,728 9,764 11,086 12,927 15,235

Short Term Loans and Advances 9 10 18 25 29 34

Other Current Assets 414 561 1,434 1,628 1,898 2,237

Total current assets 13,914 16,957 23,135 26,495 32,483 39,982

Total Assets 17,167 21,692 27,635 32,879 39,911 48,614

Equity Share Capital 623 623 623 623 623 623

Other Equity 12,899 15,386 20,235 25,483 31,376 38,501

Total Equity 13,522 16,009 20,858 26,106 31,999 39,124

Deferred Tax Liability,(Net) 0 0 0 0 0 0

Lease Liability 605 1,183 1,537 1,779 2,062 2,336

Long term Provision 396 398 455 515 586 673

Total non current liabilities 1,001 1,580 1,992 2,293 2,648 3,009

Trade Payables 561 843 1,032 1,130 1,407 2,040

Lease Liability 128 202 285 330 417 472

Other Current Liabilities 1,830 2,931 3,213 2,843 3,240 3,737

Short term Provisions 126 126 256 177 202 231

Total Current Liabilities 2,645 4,102 4,786 4,480 5,264 6,480

Total liabilities 17,167 21,692 27,635 32,879 39,911 48,614

Source: Company, KRChokseyResearch

RESEARCH ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
Unnati Jadhav, research5@krchoksey.com, +91-22-6696 5420 is also available on Bloomberg KRCS<GO>
www.krchoksey.com
Thomson Reuters, Factset and Capital IQ
 India Equity Institutional Research II Result Update – Q3FY24 II 25th January 2024 Page 5

Tata Elxsi Ltd.

KEY FINANCIALS
Exhibit 2: Profit & Loss Statement

Particulars (INR Mn) FY21 FY22 FY23 FY24E FY25E FY26E

Revenue 18,262 24,708 31,447 35,704 41,635 49,068

Total Operating
13,037 17,051 21,834 24,956 28,765 33,219
expenses
EBITDA 5,224 7,657 9,613 10,749 12,870 15,848
Depreciation 444 553 814 1,053 1,200 1,468
EBIT 4,780 7,104 8,799 9,696 11,670 14,380
Finance Cost 59 94 162 211 248 281
Other income, net 398 445 738 1,146 1,501 1,630
Pre-tax Income 5,119 7,455 9,375 10,631 12,923 15,729
Income tax expense 1,437 1,958 1,823 2,552 3,102 3,854
Net profit Before MI 3,681 5,497 7,552 8,080 9,822 11,876

Minority Interest 0 0 0 0 0 0

Net profit After MI 3,681 5,497 7,552 8,080 9,822 11,876

Diluted EPS (INR) 59.1 88.3 121.3 129.7 157.7 190.7
Shares in Mn 62 62 62 62 62 62
Source: Company, KRChokseyResearch

Exhibit 3: Free Cash Flow Analysis

Particulars (INR Mn) FY21 FY22 FY23 FY24E FY25E FY26E

Net Cash Generated From
4,374 4,830 4,869 4,831 8,048 10,120
Operations
Net Cash Flow from/(used
-4,377 -1,083 -2,019 -237 -369 -574
in) Investing Activities
Net Cash Flow from
-1,265 -3,261 -3,031 -2,757 -3,807 -4,701
Financing Activities
Net Inc/Dec in cash
-1,268 486 -182 1,837 3,871 4,844
equivalents
Closing Balance Cash and
1,004 1,511 1,339 3,176 7,048 11,892
Cash Equivalents

Source: Company, KRChokseyResearch

Exhibit 4: Ratio Analysis

Key Ratio FY21 FY22 FY23 FY24E FY25E FY26E

EBIT Margin (%) 26.2% 28.8% 28.0% 27.2% 28.0% 29.3%

Tax rate (%) 28.1% 26.3% 19.4% 24.0% 24.0% 24.5%

Net Profit Margin (%) 20.2% 22.2% 24.0% 22.6% 23.6% 24.2%

RoE (%) 27.2% 34.3% 36.2% 31.0% 30.7% 30.4%

RoCE (%) 32.9% 40.4% 38.5% 34.1% 33.7% 34.1%

EPS (INR per share) 59.1 88.3 121.3 129.7 157.7 190.7

Source: Company, KRChokseyResearch

RESEARCH ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
Unnati Jadhav, research5@krchoksey.com, +91-22-6696 5420 is also available on Bloomberg KRCS<GO>
www.krchoksey.com
Thomson Reuters, Factset and Capital IQ
 India Equity Institutional Research II Result Update – Q3FY24 II 25th January 2024 Page 6

Tata Elxsi Ltd.

Tata Elxsi Rating Legend (Expected over a 12-month period)
Date CMP (INR) TP(INR) Recommendation
25-Jan-24 7,768 8,390 ACCUMULATE Our Rating Upside

19-Oct-23 7,609 8,466 ACCUMULATE

Buy More than 15%
18-Jul-23 7,535 8,406 BUY
Accumulate 5% – 15%
19-May-23 7,023 8,878 BUY

25-Jan-23 6,597 8,884 BUY Hold 0 – 5%

17-Oct-22 7,783 8,884 ACCUMULATE

Reduce -5% – 0
16-Jul-22 8,056 8,884 ACCUMULATE

21-Apr-21 7,904 8,884 ACCUMULATE Sell Less than – 5%

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Digitally signed by
UNNATI SACHIN UNNATI SACHIN JADHAV
JADHAV Date: 2024.01.25 14:21:20
+05'30'

RESEARCH ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
Unnati Jadhav, research5@krchoksey.com, +91-22-6696 5420 is also available on Bloomberg KRCS<GO>
www.krchoksey.com
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