Tata Elxsi Shares Drop Over 5% Amid Disappointing Q4 Results

Tata Elxsi Ltd., a large-cap IT software company, witnessed a significant drop in its stock performance on April 25, 2024, following the announcement of its fourth-quarter results. The company's shares fell more than 5% in early trading on the NSE, marking the fifth consecutive session of decline.

The company reported a 4.6% decline in net profit to Rs 196.9 crore for the quarter ended March 31, 2024, compared to the Rs 207.37 crore consensus estimate. Revenue also fell 0.91% to Rs 905.94 crore, below the estimated Rs 939.73 crore. Tata Elxsi's EBIT margin declined 96 basis points to 25.79% during the quarter.

For the fiscal year ended March 31, 2024, Tata Elxsi reported a net profit of ₹792.23 Crore, compared to ₹755.19 Crore in the previous fiscal, and revenue from operations of ₹3,552.14 Crore, up from ₹3,144.72 Crore in FY23. The company declared a dividend of Rs. 70 per equity share.

Why this matters: Tata Elxsi's disappointing results and the subsequent drop in its stock price highlight the challenges faced by IT companies in the current market environment. The broader sentiment towards the IT sector remains weak, with expectations of limited earnings improvement in the near term.

Analysts remain skeptical about Tata Elxsi's margin target and find the company's valuations expensive, with most maintaining an 'underweight' rating on the stock. Brokerages have cited factors like market-share loss in the transportation vertical, business mix challenges in the Healthcare vertical, and macro factors impacting media and telco enterprise client spend as reasons for their cautious stance.

Tata Elxsi's management aims to go back to fiscal 2023 margins of 28%, but analysts remain doubtful about the company's ability to achieve this target. The company's growth was impacted by a ramp-down in media and telecom clients, adding to the concerns surrounding its future performance.

As of April 25, 2024, out of 8 analysts covering the company, 4 analysts have given a Strong Sell rating, 2 analysts have given a Sell rating, and 2 analysts have given a Buy rating. The consensus recommendation stands at Sell, indicating the market's bearish sentiment towards Tata Elxsi's stock.

Key Takeaways

• Tata Elxsi's Q4 FY24 results missed estimates, with net profit and revenue declining.
• The company's EBIT margin fell 96 bps to 25.79% during the quarter.
• Tata Elxsi declared a dividend of Rs. 70 per equity share for FY24.
• Analysts remain skeptical about the company's margin target and find its valuation expensive.
• Consensus recommendation is 'Sell', indicating bearish market sentiment towards Tata Elxsi's stock.