Tata Elxsi stock upgraded to 'Hold' at PL Capital; check outlook here

PL Capital, after interacting with the PL Capital management, noted that recovery in the automotive segment is progressing but remains defensive

PL Capital has upgraded its rating on Tata Elxsi to 'Hold' from 'Reduce', citing steep stock price corrections and a still-fragile demand environment outside the automotive segment. 

 

The brokerage said the stock, which has fallen about 33 per cent in the financial year 2025 (FY25) and 2 per cent year-to-date in FY26, continues to trade at expensive valuations of around 35 times September 2027 earnings.

 

PL Capital, after interacting with the management, noted that recovery in the automotive segment is progressing but remains defensive, with clients prioritising cost optimisation and improvements to existing vehicle architecture rather than new product development. 

 

 

Decision-making cycles have improved, supported by better client sentiment and fewer budget constraints. The company is also placing greater emphasis on software efficiency and faster time-to-market to stay competitive against Chinese OEMs, the brokerage said  ALSO READ | Samvardhana Motherson up 3% on huge volumes, hits 52-week high; here's why 

While Tata Elxsi has not seen meaningful breakthroughs in China, it has secured a few engagements with local players, analysts noted. Deal structures remain largely unchanged in pricing and tenure, with annual contract value similar to earlier wins despite right-shoring trade-offs.

 

Demand outside transportation remains moderate, and media and communications continue to see weakness due to consolidation, while healthcare shows a strong pipeline in provider and medical device segments, though longer decision cycles add unpredictability. The brokerage said operational issues in the company’s top account have stabilised, with no material impact expected in the third quarter.

 

PL Capital maintained its constant-currency revenue and margin forecasts at 9.4 per cent/11.2 per cent and 20.6 per cent/22.0 per cent for FY27/FY28, implying an earnings CAGR of 24 per cent over FY26-28. It also said margin recovery is likely to be gradual and closely linked to revenue momentum. 

 

Utilisation, currently around 70 per cent, could rise to 80 per cent in a supportive macro environment. Consolidation-led deals may initially dilute margins due to onboarding and transition costs, but typically improve profitability once scale and efficiencies kick in.  ALSO READ | Suryoday SFB gains 3% after RBI clears 1729 Capital's 9.99% stake buy

Tata Elxsi share price movement

The software and consulting firm's stock rose as much as 2.12 per cent during the day to ₹4,965 per share. The stock pared gains to trade 1.5 per cent higher at ₹4,939 apiece, compared to a 0.34 per cent advance in Nifty 50 as of 1:13 PM. 

 

Shares of the company snapped a three-day decline, falling 6.8 per cent in the process. The counter has fallen 27 per cent this year, compared to a 9.5 per cent advance in the benchmark Nifty 50. Tata Elxsi has a market capitalisation of ₹30,796.79 crore.