Tata Elxsi Q2 show: Media gains offset by margin stress; 'Sell' calls stay

Design and technology service providers Tata Elxsi reported modest revenue growth in the September quarter of financial year 2026 (Q2FY26), with Media and Communications leading the gains, but continued softness in Automotive and Healthcare segments weighed on margins, leading analysts to maintain a cautious stance.

 

Tata Elxsi posted revenue of $105 million in Q2FY26, up just 1 per cent sequentially (Q-o-Q) in constant currency (CC) terms, largely in line with analyst expectations. Growth was primarily driven by the Media and Communications vertical, which rose 3.7 per cent Q-o-Q CC, while Transportation and Healthcare/Life Sciences (HLS) declined 0.5 per cent and 4.6 per cent respectively. 

 

 

In geographical terms, America and Rest of World markets rose 5.4 per cent and 2.3 per cent Q-o-Q in USD terms, whereas India and Europe saw declines of 3.7 per cent and 1.7 per cent respectively.

 

Earnings before interest, tax (Ebit) margin came in at 18.5 per cent, slightly up 30 basis points (bps) Q-o-Q but below Motilal Oswal’s estimate of 20.3 per cent. Profit after tax (PAT) rose 7.2 per cent sequentially but fell 32.5 per cent Y-o-Y to ₹154.8 crore, missing the brokerage’s estimate of ₹166.2 crore. Net headcount decreased by 176 employees to 11,951, while attrition increased to 15.4 per cent (LTM), up 40 basis points Q-o-Q.

 

On the bourses, Tata Elxsi share price dropped as much as 2.99 per cent to an intraday low of ₹5,406.45 per share. At 9:20 AM, Tata Elxsi share price was trading at ₹5,545.30  per share, down 0.50 per cent. By comparison, BSE Sensex was trading flat at 82,158.53 levels.   

Motilal Oswal noted that “muted tech spends across Automotive and Media are weighing on near-term momentum” and highlighted that margins, once a defining strength for Tata Elxsi, have come under meaningful pressure. 

 

The brokerage maintained its ‘Sell’ rating with a target price of ₹4,400, stating that Tata Elxsi’s growth revival hinges on a sustained pick-up in original equipment manufacturer (OEM) spend and the ramp-up of large deals over the next 6-8 quarters.

 

Management remains cautiously optimistic about the second half, expecting revenue to grow by 4 per cent while Ebit and PAT may decline 9 per cent and 4 per cent Y-o-Y in H2FY26. They cited strong client conversations in AI, data modernisation, and cost optimisation as potential growth drivers, but acknowledged near-term challenges, including delays in decision-making and subdued global tech spending. 

 

Avendus, too, reportedly maintained its ‘Sell’ rating, setting a target price of ₹4,690. The brokerage cut revenue estimates by 2 per cent for both FY26 and FY27, while Ebitda margins for FY26 were revised down by 77 bps to 22.7 per cent. Analysts expect margins to improve by 180 bps in FY27, noting that large deal-wins in Q4FY25 and Q1FY26 are likely to remain key growth drivers.

 

Similarly, Kotak Institutional Equities also retained a ‘Sell’ rating with a target of ₹4,000, observing that large deal ramp-up in Media & Communications led revenue growth, while weakness in the vertical is likely to persist in the foreseeable future, according to reports. Kotak expects a moderate recovery in H2FY26 but projects a 5.4 per cent decline in revenue in constant currency terms for FY26.

 

Brokerages broadly agree that Tata Elxsi faces near-term headwinds. While management projects double-digit growth for FY27, execution delays, weak tech spending in Automotive, and ongoing volatility in Media are limiting momentum. Margin pressures from rising costs, sub-optimal utilisation, and slower volume growth may prevent a swift recovery.

 

That said, with revenue growth concentrated in a few accounts and valuation remaining high – Motilal Oswal notes a 12-month forward P/E of ~52x – brokerages see limited near-term upside. Thus, market participants are advised to remain cautious until broader, sustained growth becomes visible.