Shares of Tata Elxsi Ltd. rallied over 8% in Wednesday's trade, hitting a high of Rs 3,706, following the release of its second-quarter fiscal year 2027 results. The IT firm reported a sequential improvement, with revenue growing 2.3% in constant currency (CC) terms. The company's EBIT margin also expanded by 70 basis points to 19.7%, despite recent wage hikes.
Growth during the quarter was broad-based, with strong contributions from Media & Communications (up 3.4%), Healthcare & Life Sciences (HLS) (up 3.5%), and Transportation (up 2%). This performance fueled hopes that the second half of FY27 would bring stronger revenue growth for the company.
Analysts Maintain 'Sell' Ratings
Despite the positive stock movement and sequential growth, at least five brokerages have maintained or initiated a 'Sell' rating on Tata Elxsi. The Bloomberg consensus target price, based on a dozen brokerage updates, stands at Rs 3,442, implying a potential downside of 5.8% over the next 12 months.
Brokerages like MOFSL highlighted that while the deal pipeline offers visibility, conversion and ramp-up remain critical. They also noted that weak automotive demand in Europe is likely to persist as a key growth constraint. MOFSL maintained its 'Sell' rating with a target price of Rs 2,970.
Key Concerns: European Demand & Deal Conversions
Choice Institutional Equities, which maintained an 'ADD' rating with a target of Rs 3,520, acknowledged encouraging broad-based sequential growth and better-than-expected margins. However, it pointed to ongoing uncertainty in the automotive segment and weak demand in Europe as significant risks. Delayed deal conversions and the fact that Aerospace & Defence programmes are still two to three quarters away from making a meaningful contribution are also constraining near-term growth.
Other analysts expressing caution include Sameer Pardikar of Mirae Asset Securities, who suggested a 'Sell' with a target of Rs 3,020. Kawaljeet Saluja of Kotak Securities set a target price of Rs 3,200, while Pulkit Chawla of 360 ONE Capital issued the lowest target on the Street at Rs 2,840. Conversely, Ravi Menon of Axis Capital has the highest target price so far, at Rs 4,950.
Demand across Europe continues to be subdued, impacting automotive engineering spending and deal closures due to cautious customer spending and delayed decision-making. While the US and India are expected to remain relatively supportive, and growth in other verticals may partially offset European weakness, the overall outlook remains tempered by these significant headwinds.