Tata Elxsi shares may continue to underperform, says this analyst post Q3 results

Shares of Tata Elxsi Ltd. faced price target cuts after its December quarter results missed analyst expectations. The company was affected during the quarter by a continuing slowdown in the communications business and headwinds in the automotive segment, analysts said.

Analysts tracking Tata Elxsi expect a potential downside of up to 16% from Thursday’s closing levels.

Tata Elxsi’s posted a 13% quarter-on-quarter decline in net profit at ₹199 crore for the December quarter. The company’s revenue fell 1.7% QoQ to ₹939 crore. Revenue from the company’s media and communications unit fell 5.5% year-on-year. The division accounts for about 32.4% of revenue from its software development and services segment, which, in turn, contributes more than 97% to total revenue.

Global brokerage firm Morgan Stanley maintained its ‘Underperform’ rating on Tata Elxsi, but cut its price target to ₹6,000 from ₹6,500 earlier. The new target implies a potential downside of 7% from Thursday’s closing levels.

Morgan Stanley wrote in its note that Tata Elxsi’s Q3 results missed expectations. Weakness in European transportation continues, and a significant recovery in media and healthcare remains elusive.

With limited growth visibility, a potential cut to consensus numbers, and high valuations, the foreign brokerage noted that the stock could continue to underperform.

JP Morgan has an ‘Underweight’ recommendation on Tata Elxsi and has reduced the price target to ₹5,400 from ₹5,700 per share.

The third quarter results sharply missed expectations on both revenue and margins for the second consecutive quarter, with flat constant-currency (CC) quarter-on-quarter (QoQ) revenue growth coming in 100 basis points (bps) below JP Morgan estimates (JPMe). EBIT margins declined 160 bps QoQ, 180 bps below JPMe.

The foreign brokerage has slashed its earnings estimates by 3-5% for FY26-27E.

Out of the 14 analysts that have coverage on Tata Elxsi, only three have a ‘Buy’ recommendation on the stock, while 11 others have a ‘Sell’ rating.

Shares of Tata Elxsi Ltd. settled 0.33% lower on Thursday at ₹6,451.95. The stock has tumbled over 25% in the last one year. The stock price is on downhill after touching highs of 10,000 in August 2022. PE has now fallen from peak of 100 to below 50.