Why this IT stock has rallied 37% this year versus 27% fall in BSE IT index
Premium- Shares of Tata Elxsi Ltd have jumped about 37% in 2022 (YTD) so far, outperforming the BSE IT index
Shares of Tata Elxsi Ltd have jumped about 37% in 2022 (YTD) so far, outperforming the BSE IT index that has declined over 27% during the same period. The IT company’s profit and revenue have climbed on large deals for cloud-based platforms and artificial intelligence used to improve products and customer experience.
Furthermore, strong demand for niche design services used in making electric vehicles (EVs) has helped the IT stock surge by more than a third this year, even as inflation concerns have battered the sector globally.
The IT company's revenue from operations rose 30% year-on-year (YoY) at ₹725.9 crore for the first quarter ending June 2022, and its net profit grew over 63% from the year-ago quarter to ₹184.7 crore.
“Tata Elxsi is a consistently strong performer achieving >6% QoQ CC growth (with sustained margin expansion) for eight consecutive quarters. Its Q1FY23 revenue growth was strong at 6.5% QoQ CC (constant currency). Growth was volume-led and driven by transportation and healthcare while media & communications grew below company average," said analysts at ICICI Securities in a note.
The Tata Group firm's Q1FY23 EBITDA margin at 32.8% (+30 bps QoQ) was a strong beat on analysts' estimates despite wage hike for senior employees during the quarter. The company's management has said that in case of recession and budget cuts, impact on Tata Elxsi is likely to be less than that on the industry because the company operates at competitive rates enabled by its high offshore presence and the critical strategic client projects on which it is working.
“We expect Tata Elxsi to grow at 24%/15.3% in FY23E/FY24E, which would be higher than the industry growth rate," ICICI Securities' note added.
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Tata Elxsi’s orders remain robust even as the global economy flashes warning signs, according to Chief Executive Officer (CEO) Manoj Raghavan. “From all our major customers, we really have not heard any intent to reduce budgets," Raghavan said in a conference call. The Bengaluru-based firm could grow its current 10,000 headcount by as much as 50% in the year through March 2023, including new graduates and experienced workers, he said.
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