Tata Elxsi reported its Q3FY26 financial results, delivering mixed performance with revenue growth offset by exceptional charges that significantly impacted profitability. Despite improved operational metrics, brokerage firm Motilal Oswal has maintained its cautious stance on the stock.
Financial Performance Overview
The company's Q3FY26 financial performance showed both strengths and challenges:
| Metric |
Q3FY26 |
Growth (QoQ) |
Growth (YoY) |
| Revenue |
₹953.5 crore |
+3.9% |
+1.5% |
| Constant Currency Revenue |
- |
+3.2% |
-5.5% |
| EBITDA Margin |
23.3% |
Improved from 21.05% |
- |
| Adjusted PAT |
₹179.1 crore |
+15.7% |
-10% |
| Reported PAT |
- |
-29% |
-44% |
The company's constant currency revenue growth of 3.2% sequentially exceeded estimates of 2.7%, while EBITDA margin expansion demonstrated improved operational efficiency. However, profitability was severely impacted by an exceptional charge of ₹95.8 crore linked to the new labour code implementation.
Brokerage Assessment and Valuation Concerns
Motilal Oswal has reiterated its 'Sell' rating on Tata Elxsi with a price target of ₹4,700, implying a potential downside of approximately 19% from current levels. The brokerage highlighted several key concerns:
- Valuations remain expensive at 43x one-year forward P/E ratio
- Growth continues to be uneven across business verticals
- Sustained growth visibility across verticals remains absent
- Performance largely dependent on transportation-led ramp-ups
While acknowledging improved execution during the quarter, Motilal Oswal emphasized that the current valuation multiples are difficult to justify given the growth challenges.
Segment-wise Performance Analysis
The company's performance varied significantly across different business segments:
| Segment |
Q3FY26 Performance |
Outlook |
| Transportation |
+7.7% QoQ |
Expected key growth driver in FY27 |
| Media & Communications |
-0.3% QoQ |
Continued weakness |
| Healthcare |
-3.6% QoQ |
Management expects recovery from Q4 |
The transportation segment showed robust growth and is positioned as the primary growth driver for FY27. However, the media and healthcare segments continue to face headwinds due to cautious client spending patterns.
Management Outlook and Market Performance
Management expressed optimism about delivering incremental growth in Q4FY26 and anticipates further margin improvements through enhanced utilization and operational efficiencies. The healthcare business is expected to have bottomed out, with recovery anticipated from Q4 supported by scheduled ramp-ups.
Despite the mixed results, Tata Elxsi shares ended Tuesday's session 1.75% higher at ₹5,793, with the stock gaining 5% over the last five trading sessions. The market's positive response suggests investor confidence in the company's operational improvements, though valuation concerns persist among analysts.
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