IT is one sector which I don’t understand at all. I kept Infosys in my portfolio, and TCS is still in my portfolio, but that is all about the dividend factor. But there are some companies which I hardly understand. Tata Elxsi is one out of it.
I am not at all an IT guy. But this company was something I saw from 3 digits to 4 digit share price. I saw them in 2013. So this is my try to study.
Industry Profile: India is the world’s largest sourcing destination, with the largest qualified talent pool of technical graduates worldwide. According to the National Association of Software and Service Companies (Nasscom), the Indian IT industry’s revenue is estimated to reach US$ 194 billion in FY21, an increase of 2.3% YoY. The sector is the largest employer within the private sector. This push towards cloud services has boosted hyper-scale data center investments, with global investments estimated to exceed ~US$ 200 billion annually by 2025. As a result, India is expected to gain a significant share in the worldwide market, with the country’s investment expected to hit ~US$ 5 billion annually by 2025. The IT industry accounted for 8% of India’s GDP in 2020. Exports from the Indian IT industry are expected to increase by 1.9% to reach US$ 150 billion in FY21. In 2020, the IT industry recorded 138,000 new hires.
Company Profile: Tata Elxsi is among the world’s leading design and technology services providers across industries, including Automotive, Broadcast, Communications, SEMi conductor, Home appliances, Healthcare, and Transportation. We help customers reimagine their products and services through design thinking and applying digital technologies such as IoT (Internet of Things), Cloud, Mobility, Virtual Reality, and Artificial Intelligence. Automobile and media are two of their most significant revenue contributors contributing around 75%. JLR is one of the biggest customers. Indeed COVID affects that part.
Tata Elxsi gets the most significant share of its revenue—around 52 percent—from the automotive and transportation segment, according to a note by HDFC Securities. Its clients include automakers, auto parts suppliers, and software providers with expertise in active safety, telematics, body and chassis electronics, and infotainment. It also has an autonomous car platform called ‘Autonoma.’
Nearly a third of the company’s revenue comes from the broadcast and communications business which registered a 10 percent growth sequentially in the first quarter of FY20, according to HDFC Securities. The vertical caters to clients such as Comcast, Arris, Sagemcom, Echostar, and Technicolor, where it manages payment gateway integration, multiple third-party applications, and catalogs. Healthcare, a smaller segment comprising just 6 percent of its revenue, witnessed 35 percent growth in the same period. The industrial design segment supports design and technology services for product engineering and includes clients like Panasonic and Marico BP Castrol.
Financils and ratios [table id=223 /]
Shareholding: BSE Data
Future Prospects: Tata Elxsi targets annual revenue growth of 15 percent and hopes to keep its operating margin within 22-25 percent over the next few years. There are significant engineering, research, and development opportunities for Tata Elxsi, HDFC Securities said, suggesting increased software development expenditure. The company, it said, will benefit from the “re-location of budgets towards embedded systems and electronics with a focus on autonomous vehicles, connectivity, and shared mobility.”
