Tata Elxsi Margins Climb, But Analysts See Uneven Growth, Maintain 'Sell'
Overview
Tata Elxsi posted better-than-expected Q3 margins driven by transportation vertical strength, with revenue reaching $107 million. However, media and healthcare segments showed declines, leading analysts to maintain 'Sell' ratings due to selective demand recovery and rich valuations, despite margin expansion.
Stocks Mentioned
Tata Elxsi's December quarter results revealed margin expansion to 20.9%, surprising analysts, driven by strong execution in its transportation vertical. However, the company navigated uneven growth across its media and healthcare segments, prompting several brokerages to maintain 'Sell' ratings.
Margin Expansion and Revenue Beat
The Bengaluru-based design and engineering solutions firm reported $107 million in revenue for Q3FY26, a 3.2% sequential increase in constant currency terms, surpassing the estimated 1.8%. Operational efficiency boosted the Ebit margin by 240 basis points quarter-on-quarter to 20.9%, exceeding analyst expectations of 18.8%. This was attributed to higher utilization, operating leverage, and cost discipline.
Vertical Performance Challenges
While the transportation business surged 7.3% sequentially, fueled by software-defined vehicle (SDV) programmes, the healthcare and life sciences (HLS) vertical declined 4.3%, and media & communications saw a 1.3% dip. Geographically, the Americas and Europe showed robust growth, but India and other emerging markets faced headwinds.
Analyst Concerns and Valuations
Brokerages highlighted that demand recovery remains selective, with media and healthcare showing cautious client spending and delayed deal awards. Motilal Oswal and Elara Capital reiterated 'Sell' ratings, citing the company's reliance on specific verticals for growth rather than a broad ER&D spending rebound. Tata Elxsi trades at a steep valuation of approximately 43 times 12-month forward P/E, with price targets around ₹4,700 (Motilal Oswal) and ₹4,520 (Elara Capital).
