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Reliance Securities
Tata Elxsi (Buy)
CMP: ₹1,389
Target: ₹1,610
TEL’s revenue rose 1.8 per cent q-o-q in 1QFY19, with the key SDS business clocking 2.5 per cent q-o-q growth; y-o-y SDS revenue growth was a robust 19.6 per cent, the fastest growth since 1QFY17. EBITDA margin rose 255 bps q-o-q and 516 bps y-o-y on operating leverage and cost control to 27.9 per cent, its highest-ever level.
The addressable size of the ER&D (engineering and research & development) industry will cross $300 billion, while offshore ER&D spend will clock 9 per cent CAGR, with TEL likely to grow at a much faster pace. TEL’s presence in specialised verticals such as automotive and broadcast will be key growth drivers, going forward.
TEL’s core strengths lie in high growth solutions such as IoT, Robotics, Automation, Mobility, VR/AR Digital Experience, Cloud and AI platforms. TEL counts names such as BMW, Mercedes-Benz, JLR and Tata Motors as clients. TEL has presence across the value chain of Broadcast & Media vertical and counts clients from different segments of broadcast ecosystem.
We expect TEL’s PAT to clock a healthy 22.2 per cent CAGR over the period FY18-20E.
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