Tata Stock Gives 121% Retuns in One Year, Rallies 43% This Year So Far; Should You Buy?

Tata Multibagger stock: Shares of IT company Tata Elxsi Ltd (TEL) are up more than 43 percent this year so far and have doubled investor money in the past year. Shares of Tata Elxsi rose from Rs 3,809.60 to Rs 8,445, resulting in a multi-brand return of 121.29 per cent in one year. The stock last traded at Rs 8,445 is above the 5-day, 20-day, 50-day, 100-day and 200-day moving averages. The 52-week low is 3555.05/share and the 52-week high is 9420/share.

Expect returns of up to 15%

Tata Elxsi Limited’s FY 2022 Annual Report highlighted its differentiated offering and design-driven approach across selected industries, increased focus on subscriber-based platform business, offshore delivery capabilities and a favorable sector tailwind. Sharekhan has assigned a buy rating to Tata Elxsi shares, with a target price of Rs. 9750, indicating a potential 15.5 percent upside from the stock’s last traded price.

Logic

Brokerage firm Sharekhan said in a note that “Tata Elxsi Limited (TEL’s) Annual Report for FY 2022 highlights its differentiated offering and design-driven approach across select industries, increased focus on subscriber-based platform business, offshore delivery capabilities and favorable sector tailwind. TEL focuses on design thinking and application of digital technologies in high-growth sectors that are expected to experience strong growth driven by higher ERD spending.According to Zinnov, the share of Indian ERD service providers is expected to increase from $16 billion in 2021 to $58 billion in 2031, which means a compound annual growth rate of over 13 percent.With its broad portfolio of services driven by digital engineering, strong platform portfolios, deep domain expertise, and strong offshore delivery ability, we believe Tata Elxsi will be one of the Key beneficiaries among global peers from the current ERD spending cycle.”

“Management remains optimistic about the sustainability of the higher external mix in FY2023 (90 percent in Q4 FY22) given the robust delivery model and cost savings to clients, although we believe this mix will decline slightly in FY20. 2023 due to the opening of travel.Attrition is expected to slow in the future due to higher start-up layoffs, hiring freezes, and strong industry-wide hiring (during FY 2022).Moreover, the company introduced wage increases in January. 2022 (which covered 65-70 percent of the workforce) as of July (a 7-8 percent wage increase rolled out in 2021), which would benefit Tel in FY 2023E. That the company will continue to provide industry-leading margins in fiscal year 2023E, driven by price, higher external mix, hierarchical balance, and currency tailwinds,” the brokerage said.

According to Sharekhan Report, Tata Elxsi is well positioned to seize market opportunities across selected industries due to its unique capabilities in design-led engineering. Its revenue and earnings in US dollars are likely to achieve a compound annual growth rate of 23 percent and 20 percent respectively over fiscal years 22 to 24. “Under our coverage, Tata Elxsi is the only company that significantly outperforms its stock (up 22 percent) On CNX IT (down 17 percent) over the past three months despite a US Federal Reserve interest rate hike, high inflation in developed markets, the Russia-Ukrainian conflict and a possible recession in the US.

Tata Elxsi stock is trading at 78x/67x its FY2023E/FY2024E earnings, which is expensive. However, Sharekhan still prefers Tata Elxsi due to its strong growth potential, market share gains, superior margin profile, differentiated digital engineering capabilities, and strong balance sheet. Appreciation of the rupee and/or opposite moves between currencies will adversely affect their profits. Moreover, reversing the mix of offshore efforts may affect its margins, the report added.

Disclaimer: The opinions and investment advice provided by the experts in the News18.com report are their own and not those of the website or its management. Users are advised to check with certified experts before making any investment decisions.

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