Tata Elxsi Ltd - Research Report

Private Client Research




IT - Software


Tata Elxsi Ltd

IT - Software

October 24, 2019

Sensex: 39020.39

CNX Nifty: 11582.6


BSE: 500408

Reco Price
Rs. 747
Price Target (1.5 - 2 Years)
Rs. 1050


October 24, 2019



CNX Nifty








Stock Data

CMP (Rs)
Face value (Rs)
52 Week Range (Rs)
1090 - 592.25
Market cap (Rs Crores)
Price To Book Value (x)
P/E Ratio (x)

One Year indexed Stock Performance

Tata Elxsi Ltd Sensex
Tata Elxsi Ltd
Return (%)


(in %)

+91 22 6639 3000



Tata Elxsi (TELX) is amongst the world’s leading providers of design and technology services for product engineering and solutions across industries including Broadcast, Communications and Automotive sectors. It provides technology consulting, new product design, development, and testing services. TELX also provides solutions and services for emerging technologies such as IoT (Internet of Things), Big Data Analytics, Cloud, Mobility, Virtual Reality and Artificial Intelligence.

Tata Elxsi is uniquely placed with its integrated design, technology & engineering teams to help enterprises reimagining their products & services, deliver exceptional outcomes for their customers, and drive the growth of their brands and business. In terms of Business mix, automotive sector contributed 60% to revenue in FY19, followed by Broadcasting and Media (30 to 35% of total revenue) and other sectors (5-10% of total revenue). TELX reports its financials under two segments, namely, Software Development and Services (SDS) and Systems Integration and Support (SI).

Tata Elxsi addresses the complete product development lifecycle from R&D, new product development and testing to maintenance engineering for Broadcast, Consumer Electronics, and Communications. With the penetration of high-speed internet, smart devices and content flooding in the market, the borders between entertainment, media, and telecommunications have dissolved. New services such as smart, connected homes &OTT (Over the top) are creating new revenue opportunities for operators & broadcasters. Tata Elxsi works with leading broadcasters & operators to create solutions for smarter living, engaged entertainment and a digital future driven by IoT, analytics and artificial intelligence thereby enabling new revenue streams and enhanced customer experience.

Tata Elxsi’s major revenues come through exports; it derives 55% of total revenues from Europe, 30% of revenues are from US and 15% of revenues are from Asia.

Source: Company, Stockaxis Research

Diversified business model, outsourcing of design services by Global OEMs and higher ER&D investments from global majors will continue to boost sales; Debt free status and cash rich position makes it a perfect candidate for re-rating.

Investment Rationale:

Revival in automotive sector to boost revenues in the near term: Tata Elxsi’s automotive sector contributes around 51% of total revenue. While in automotive sector its top client JLR comprises around 14.5% of total revenues, in a recent statement from JLR, the management indicated that despite the slowdown, they are not looking toreduce their budget for R&D process which is positive for TELX. We believe that in the near term, the auto sector can revive at a faster pace. Globally auto manufacturers are continuously investing in technology-driven cars and focusing on driverless cars. We expect good momentum soon in the auto sector. Apart from this, we expect a key change in the Auto sector is a shift from normal vehicles to electric vehicles. According to Bloomberg report, in 2018 over 2 million Electric Vehicles (EV) were sold; this has grown 10-foldas compared to the previous decade. The report states that annual EV’s will rise by 10 million in 2025. This is a huge untapped opportunity for Tata Elxsi as it offers services to electric vehicles in program management, engine management software, battery management, etc.

New collaborations and exciting ventures to explore new opportunities: Tata Elxsi has successfully collaborated with top auto sector players to develop sector specific products and tools for OEMs and automotive suppliers. TELX has collaborated with Hyundai mobis to develop tools for accelerate testing of autonomous cars. It recently announced the licensing of their AUTOSAR adaptive platform to Great Wall motors, China’s largest SUV manufacturer. TELX has also partnered with Android and Blackberry for IP solutions which are one-stop solution for automotive solutions.

Media & Communication is the new avenue for robust growth: Tata Elxsi has developed good presence in Media & Communication. We expect there is a huge opportunity for the company in media & communications space. The company develops platforms for FTH & DTH and OTT service providers in order to improve the viewing experience for their customers.The company has tie-ups with different players such as OEMs (Original Equipment Manufacturers), Digital Content Providers (DCPs), Software Vendors for addressing their needs to digitally connect consumers using DTH, IPTVs (Internet Protocol TVs), and OTA (Over-the-Air) technology.

5G - the new era for company’s growth: IHS has forecasted that the 5G market will grow to $19.3 bn by 2022 from $758.8 mn in 2018, at a CAGR of 124.6%. The market for 5G phones is likely to be quite small initially as some players like Samsung, Oneplus, Huawei and LG have recently launched their flagship phones with 5G technology.IHS is projecting a total of 720,336 global subscribers in 2019, but rising rapidly to 37.4 mn in 2020 and further reaching up to 1.3 bn by 2023. In FY18, Tata Elxsi collaborated with Airtel as a technology partner to develop and integrate key software components for its Internet TV by upgrading OTA module, improving UI (User Interface), and optimizing software for its smooth execution. Tata Elxsi has a comprehensive portfolio of software development network (SDN) based services that enable global customers to deliver business service agility in their next generation networking technology solutions. The company’s focus to harness technology with consumer needs to deliver good technology solutions enables Tata Elxsi to be a core service provider.



According to NASSCOM, India’s IT-BPM industry (excl. e-commerce) is expected to grow by 6.1% in FY19 to $ 177 billion. Technologies such as robotics, cloud, IoT, and AR (Augmented reality)/ VR (Virtual reality) are driving a large part of this growth. According to NASSCOM, India continues to be the core for developing ‘Intelligent Solutions’ with enormous opportunities for digital engineering & connected solutions, innovation and R&D hubs, SaaS & deep tech solutions, IT digital solutions partners, intelligent operations partners, and disruptive products & solutions.

India’s IT &ITES industry grew to US$ 181 billion in 2018-19. Exports from the industry increased to US$ 137 billion in FY19 while domestic revenues (including hardware) advanced to US$ 44 billion. Spending on Information Technology in India is expected to grow over 9 per cent to reach US$ 87.1 billion in 2018. Revenue from digital segment is expected to comprise 38 per cent of the forecasted US$ 350 billion industry revenue by 2025.

According to Gartner, despite uncertainty fuelled by recession rumours, Brexit, trade wars and tariffs, the IT spending in 2019 is expected to grow. Spending is moving from saturated segments such as mobile phones, PCs and on-premises data centre infrastructure to cloud services and Internet of Things (IoT) devices.  With the shift to cloud, a key driver of IT spending, enterprise software will continue to exhibit strong growth, with worldwide Enterprise Software spending projected to grow 8.5% in 2019. It will grow another 8.12% in 2020 to total $466 bn. The increased spending will be driven by switching of corporate budgets to Software as a Service (SaaS) from conventional applications.

Source: Company, IBEF, Gartner

Profit & Loss Statement:- (Standalone)

(Rs Crores)

DESCRIPTION Mar-17 Mar-18 Mar-19 Mar-20 E Mar-21 E
Net Sales 1237.00 1386.00 1597.00 1725.00 1983.00
% Growth 15.10% 12.00% 15.20% 8.00% 15.00%
Employee Cost 666.00 749.00 843.00 914.00 1075.00
% Growth 15.50% 12.50% 12.50% 8.50% 17.60%
Operating Expenses 298.00 292.00 338.00 379.00 417.00
Total Expenditure 964.00 1041.00 1181.00 1294.00 1492.00
EBITDA (Excl OI) 274.00 345.00 416.00 431.00 492.00
Growth(%) 10.40% 26.20% 20.50% 3.60% 14.10%
EBITDA Margins(%) 22.10% 24.90% 26.10% 25.00% 24.80%
Depreciation 27.00 25.00 25.00 26.00 26.00
Other Income 18.00 45.00 43.00 50.00 60.00
EBIT 265.00 365.00 434.00 455.00 526.00
Interest 1.00 1.00 1.00 1.00 1.00
Exceptional Income / Expenses 0.00 0.00 0.00 0.00 0.00
Profit Before Tax 264.00 364.00 433.00 454.00 525.00
Provision for Tax 89.00 124.00 143.00 124.00 132.00
Profit After Tax 175.00 240.00 290.00 331.00 393.00
PATM (%) 14.10% 17.30% 18.20% 19.20% 19.80%
Earnings Per Share 56.10 38.50 46.60 53.10 63.10
Source: Stockaxis Research, Company Data


Tata Elxsi provides design and technology services for product engineering and solutions across industries including Broadcast, Communications and Automotive. Tata Elxsi has developed good presence in the Media & Communication space. FTH and 5G have opened up new opportunities for service providers like Tata Elxsi. We believe the auto sector will see a revival in the near term, which will lead to a boost in sales. Outsourcing of design services by Global OEMs will remain intact and is well supported by higher ER&D investments from global majors. The company has also entered into different verticals and now has a diversified business model. Currently it is trading at PE of 18x and company enjoys debt-free status with a cash surplus of Rs. 5 billion. We believe the stock can get a strong re-rating and risk reward is favourable at current levels. We remain positive on Tata Elxsi and expect target price of Rs.1,050 based on 16x FY21 EPS view of long term perspective.