HDFC Securities keeps 'Add' on Tata Elxsi; sees calibrated recovery in FY27

Analysts believe the company is well placed for a growth recovery in FY27E, as against a 3 per cent decline estimated for FY26E

Analysts at HDFC Securities remain upbeat on Tata Elxsi and have retained their ‘Add’ rating on the stock, citing strong client relationships, differentiated capabilities, and strategic positioning across verticals. They believe the company is well placed for a growth recovery in FY27E, as against a 3 per cent decline estimated for FY26E. 

The brokerage expects growth to rebound in FY27E after an estimated 3 per cent contraction in FY26E. It has maintained its ‘Add’ stance with a revised price-to-earnings (P/E) multiple of 30x (earlier 35x) and a target price of ₹5,000, based on 30x FY28E EPS. The brokerage noted that the stock is currently trading at a P/E of 32x/27x FY27E/FY28E, compared with the 10-year average of 36x and the pre-Covid 10-year average of 17x.

Growth recovery in FY27E

Vinesh Vala, Amit Chandra, and Maitreyee Vaishampayan, analysts at HDFC Securities, expect the company’s growth to recover to low double digits in FY27E, anchored by engineering engagements that are more core and sticky to customers than traditional IT services. However, they said the pace of recovery will be calibrated and have reduced their revenue estimates by 3–5 per cent. 

The automotive vertical, they said, will serve as the primary catalyst, driven by a healthy large deal pipeline and ramp-ups in steady-state and security projects for the top OEM client. Growth in the transportation vertical will be further bolstered by traction in off-road and aerospace segments. 

“Strategic collaborations, such as the fully outsourced partnership with Suzuki, underscore the company’s ability to compete with GCC models through superior technical expertise. The communications vertical is entering a catch-up recovery phase by consolidating positions with existing clients, while healthcare demand centres around enhancing operative performance and clinical outcomes rather than job replacement,” wrote the analysts in a research note.  READ | IRFC OFS: Should you apply post muted institutional response? Experts weigh

AI, automation drive efficiencies

The analysts further highlighted that AI is fundamentally transforming ER&D by acting as a high-speed enabler rather than a disrupter. 

According to the brokerage, automation is concentrated in functions such as testing, verification, and regulatory checks across US and European mandates, while high-level architectural roles and complex system contexts remain shielded from automation and full replacement.  The margin expansion trajectory, analysts said, relies on volume growth and utilisation rather than cost-cutting. "Consequently, hiring is being carefully calibrated, with no major headcount increases immediately but a focus on building a bench to meet the double-digit growth target."  READ | Hitachi Energy gets 'Buy' from Ambit on multi-year revenue visibility

Margins and earnings outlook

The brokerage expects Ebitda margins to expand to 26.9 per cent in FY28E versus 26.1 per cent in FY25 and 22.3 per cent in FY26E. The margin recovery is expected to be gradual, leading to a 6–7 per cent reduction in analysts’ EPS estimates. 

“We expect TELX to deliver revenue/EPS CAGR of 13/26 per cent over FY26–28E (around 7/10 per cent over FY25–28E) versus a five-year CAGR of 14/24 per cent,” the analysts said.  =================================

  (Disclaimer: The views and investment tips expressed by the analysts in this article are their own and not those of the website or its management. Business Standard advises users to check with certified experts before taking any investment decisions.)