Tata Elxsi, a leading global design and technology services company, has recently reported a weak top-line performance in the third quarter of FY25. The transportation vertical, which accounts for 55% of the company’s revenue, saw a modest growth of 0.5% quarter-on-quarter. However, the European market, which is a significant contributor to the auto segment, is expected to take longer to recover, according to the management.
Despite the challenges in the auto segment, Tata Elxsi sees growth opportunities in the rest of its portfolio, particularly in the healthcare & lifesciences and media & communication segments. The company expects steady revenue growth in these segments for the next couple of quarters, followed by a pickup in growth.
In light of the slowdown in the auto sector and the slower pickup in non-auto segments, the EPS estimates for FY26/27 have been revised downwards by about 4%. As a result, the target price for Tata Elxsi has been adjusted to ₹5,870, based on a valuation of 38x on Q3-FY26–Q2-FY27 EPS of ₹154.
While Tata Elxsi has a strong presence in high-growth service lines and offers diversified vertical exposure, the company’s premium valuations and the challenges in the auto segment warrant a cautious approach. Therefore, the recommendation for Tata Elxsi remains at Reduce.
In conclusion, Tata Elxsi’s performance in the upcoming quarters will be closely monitored, with potential upside risks from faster ramp-ups of existing and new large deals. On the other hand, downside risks include high client concentration, challenges in the auto segment, and delays in the recovery of the media & communication and healthcare segments. Investors are advised to keep an eye on these factors while making investment decisions in Tata Elxsi.
