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Synopsis: Tata Elxsi's shares fell below Rs 7,000 after the company reported a 3% drop in Q1 FY25 net profit. The stock has declined significantly from its highs, and brokerage firms foresee further downside. Despite challenges, the company remains optimistic about future growth, particularly in transportation and healthcare sectors.
On Thursday, Tata Elxsi's shares experienced a significant decline, dropping by 2.65% to Rs 6,930.45, which resulted in a market capitalization of slightly over Rs 43,500 crore. This downturn followed the announcement of the company's Q1 FY25 results, which showed a subdued performance, causing concerns among investors and analysts alike.
Tata Elxsi, a leading provider of IT solutions under the Tata Group umbrella, reported a 3% decrease in net profit for the April-June 2024 quarter, amounting to Rs 184 crore compared to Rs 188 crore in the same period last year. The company's revenue from operations grew by 9% year-over-year, reaching Rs 926 crore from Rs 850 crore in the previous fiscal year. However, the EBITDA margin contracted to 24.3%, down by 105 basis points from last year.
The disappointing quarterly performance led to a 35% drop in Tata Elxsi's stock from its all-time high, with a 25% decline from its 52-week peak of Rs 9,191.10 achieved in December 2023. Brokerage firms, responding to the muted Q1 results, have downgraded their outlook on the stock. Kotak Institutional Equities maintained a 'sell' rating, raising the fair value estimate to Rs 5,500 while noting the company's focus on operational efficiencies and reinvestment in growth initiatives. Choice Broking also downgraded their rating to 'reduce,' with a revised target price of Rs 7,450.
Despite the challenges, Tata Elxsi's management remains optimistic about the future. The company highlighted strong growth in the transportation sector, driven by software-defined vehicle (SDV) engagements and system integration services. Additionally, the healthcare sector showed a recovery with new customer wins and business expansions across verticals.
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