Tata Elxsi shares jump 7% after Q2 results, but Morgan Stanley, Motilal Oswal reiterate bearish calls
The company’s net profit for the quarter ended September 2026 stood at Rs 170 crore, compared with Rs 155 crore in the same period last year.
Revenue from operations rose 15% YoY to Rs 1,056 crore from Rs 918 crore a year earlier. Total income, including other income, gained 13% to Rs 1,090 crore, compared to Rs 967 crore a year earlier. Other income fell to Rs 35 crore from Rs 49 crore, partly weighing on the overall profit growth.
Buy, sell or hold Tata Elxsi shares?
Morgan Stanley maintained its Underweight rating on Tata Elxsi with an unchanged target price of Rs 3,400. Revenue and margins beat expectations, with constant currency revenue growth at 2.3% QoQ versus the estimated 1.6%. EBIT exceeded estimates by 3.4% and consensus by 4%, while PAT missed consensus due to a higher tax rate.
Management expects the third quarter to be seasonally soft, with margin improvement remaining calibrated at 170 basis points over two quarters. The brokerage raised its earnings per share estimates by 1.9% for FY28 and 1.6% for FY29. However, valuations remain rich and could cool unless the company sustains its growth momentum.
Motilal Oswal has reiterated a Sell rating with a target price of Rs 2,970, implying a 13% downside from current levels. The brokerage expects growth in 2HFY27 to be better than in 1HFY27 on a YoY basis. However, a sustained acceleration will depend on converting deal wins into revenue, as new engagements typically take 2-3 quarters to ramp up.
The brokerage expects recently closed deals to make a larger contribution in FY28 and estimates 8.2% YoY constant currency (CC) growth for the year. European automotive demand is likely to remain a key constraint, with subdued demand, cautious customer spending and delayed decision-making weighing on automotive engineering spending and deal closures. The US and India are expected to remain relatively supportive, while growth in other verticals and geographies should partly offset continued weakness in Europe.JM Financial maintains a Reduce call with a higher target of Rs 3,358 (2% downside) even as it expects H2FY27 revenue to exceed H1FY27, supported by automotive ramp-ups in the US and India, continued momentum in Media & Communications, and a recovery in Healthcare.
However, decision-making among European OEMs remains slow. Headcount declined 1.6% QoQ but rose 6.7% YoY. Revenue leakages have also reduced compared with a year ago, supported by large multi-year automotive and media deals and lower exposure to project run-offs as the company shifts from automotive suppliers to OEMs. Q3 has fewer working days, although the extent of furloughs remains uncertain, while engineering deals typically take two to three quarters to scale.
Disclaimer: This article has been written by Veer Sharma, who is not a SEBI-registered Research Analyst or an Investment Adviser. Veer Sharma and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here.
