Maintain BUY on Tata Elxsi - Leading the pack - HDFC Securities

Mr. Apurva Prasad, Institutional Research Analyst, HDFC Securities and Mr. Amit Chandra, Institutional Research Analyst, HDFC Securities

We maintain BUY on Tata Elxsi (TELX), based on industry-leading metrics (growth, margin, and efficiencies) and a stellar 4Q performance. Our positive view is predicated on (1) strong scalability in the business (>20% CAGR over FY21-24E), (2) superior execution framework, led by low cost of delivery (high offshoring, low attrition, low sub-con dependence), (3) potent industry drivers (CASE, OTT & new media), IP deals and strong partnerships (Google Widevine) augmenting growth, (4) improving growth visibility with pick-up in deal wins (including strong pipeline within large accounts) and investments to drive higher duration-annuity deals, and (5) stronger cash generation (70% growth in OCF/FCF). Our TP of INR 3,340 is based on 36x Mar-23E EPS, supported by EPS CAGR of 25% over FY21-23E (35% in FY21) and >60% RoIC.

4QFY21 highlights: (1) Revenue: TELX' revenue growth was 9.1% QoQ CC and 15.2% YoY CC (FY21 8% CC) at a strong premium to ER&D peers. (2) Segmental growth: EPD (85% of revenue) grew 5.5% QoQ, which included Transportation growth at 3.9% QoQ, Broadcast & Comms at 5.8% QoQ, and Healthcare & Medical at 13.3% QoQ. T1 growth was 2.5% CC, while T2-10 grew at a robust 14% QoQ. (3) Margin: EBITDA margin expanded 230bps QoQ to 32.4% (28.6% in FY21, +730bps). The wage hike roll-out would take place in 2Q22 and additional one-month bonus would be given in 1Q/3Q22. (4) Strong 4Q headcount net addition (>FY20 net adds) and attrition were at 7.4%. >700 fresher and >700 lateral hires are planned for FY22E. (5) Company's payout is improving with dividend of INR 24 (16.5 in FY20) as well as one-time special dividend of INR 24.

Outlook: We have factored in USD revenue growth at 28/17% for FY22/23E (implying ~4% CQGR), factoring in EPD growth at 25/18% and IDV growth at 54/11%. EBITDA% at 27.4/28.4% for FY22/23E, translating into 25% EPS CAGR over FY21-23E. Following the recent stock performance, TELX trades at 34x FY23E.

Shares of TATA ELXSI LTD. was last trading in BSE at Rs.3201.7 as compared to the previous close of Rs. 3191.95. The total number of shares traded during the day was 37133 in over 3844 trades.

The stock hit an intraday high of Rs. 3265.15 and intraday low of 3163.95. The net turnover during the day was Rs. 119213311.

Source : Equity Bulls

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