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Sharekhan recommends to BUY this Tata group multibagger IT stock

Sharekhan has assigned a buy call rating to Tata Elxsi shares, with a target price of Rs. 9,750, indicating a 13 per cent upside potential from the stock's last traded price.Premium
Sharekhan has assigned a buy call rating to Tata Elxsi shares, with a target price of Rs. 9,750, indicating a 13 per cent upside potential from the stock's last traded price.

  • Tata Elxsi Ltd (TEL) is an IT company with a market capitalization of 53,547.15 crore. Tata Elxsi shares have risen from 3809.60 to 8,576, resulting in a multibagger return of 125.12 per cent in one year.

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Tata Elxsi Ltd (TEL) is an IT company with a market capitalization of 53,547.15 crore. Tata Elxsi shares have risen from 3809.60 to 8,576, resulting in a multibagger return of 125.12 per cent in one year. So far in 2022, the stock has returned 45.51 per cent to its shareholders. The stock's last traded price of 8,576 is higher than the 5 days, 20-day, 50-day, 100-day, and 200-day moving averages. Sharekhan has assigned a buy call rating to Tata Elxsi shares, with a target price of Rs. 9,750, indicating a 13 per cent upside potential from the stock's last traded price.

Sharekhan has said in a note that “Tata Elxsi Limited’s (TEL’s) annual report for FY2022 put the spotlight on its differentiated offerings and design-led approach across selected industries, rising focus on subscriber-based platform business, offshore delivery capabilities and favorable sector tailwinds. TEL focuses on design thinking and application of digital technologies in high-growth verticals that are expected to see strong growth driven by rising ERD spends. According to Zinnov, the share of Indian ERD service providers is expected to increase from $16 billion in 2021 to $58 billion in 2031, implying an over 13% CAGR. Given its wide array of digital engineering-led services, robust platform portfolios, deep domain expertise and solid offshore delivery capability, we believe Tata Elxsi would be one of the key beneficiaries among the global peers from the current upcycle in ERD spends."

“Management remains optimistic on sustenance of higher offshore mix in FY2023E (90% in Q4FY2022) given its strong delivery model and cost-savings to customers, although we believe the mix would taper off marginally in FY2023E due to opening of travel. Attrition is expected to slow down going ahead given rising layoff in startups, hiring freeze and strong industry-wide fresher hiring (during FY2022). Further, the company has brought forward wage hikes in January 2022 (which covered 65-70% of the workforce) from July (rolled out 7-8% wage hike in 2021), which would benefit TEL in FY2023E. We believe the company would continue to deliver industry-leading margin in FY2023E, led by pricing, higher offshore mix, pyramid balancing and currency tailwinds," said the brokerage.

Sharekhan has said in its research report that “TEL is well poised to capture market opportunities across the selected industries given its unique capabilities in design-led engineering. TEL’s USD revenue and earnings are likely to clock a CAGR of 23% and 20%, respectively, over FY2022-FY2024E. Under our coverage, Tata Elxsi is the only company whose stock performance (up 22%) has significantly outperformed CNX IT (down 17%) over last three months despite interest rate hikes by the US Federal Reserve, rising inflation in developed markets, the Russia-Ukraine conflict and potential recession in the US. At CMP, stock is trading at 78x/67x its FY2023E/FY2024E earnings, which is expensive. However, we continue to prefer TEL, given its strong growth potential, market share gains, superior margin profile, differentiated capabilities in digital engineering and strong balance sheet (cash and investments was 51% of total assets). We maintain a Buy rating on TEL with a revised price target (PT) of Rs. 9,750."

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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