Narnolia Financial
Tata Elxsi (Buy)
CMP: ₹922.05
Target: ₹1,084
Tata Elxsi exited FY19 with moderate growth. Revenue grew by 15 per cent y-o-y in FY19 mainly led by stronger growth in automotive and broadcast segments in 1HFY19, however, second half reflected pressure in major segments due to macro challenges and JLR issues affecting performance. However, management managed to show margin expansion of 100 bps to 26 per cent in FY19 on the back of better execution and benefit from rupee depreciation.
Going forward, we expect the FY20’s revenue growth to remain slower than FY19 seeing soft growth in the last two quarters and slow growth in embedded product design due to presence of macro concerns. Automotive segment which is major contributor to EPD is expected to post laggard growth in FY20 due to JLR issue and slow growth in client ex JLR. Though broadcast segment (other major contributor to EPD) showed a slow growth in FY19, we expect the company to see success as its takes its OTT to global market, thus we expect the traction to be seen in next few quarters in OTT space. We still see macro challenges persist around the globe, so some quarters are expected to remain muted.