MOSL: TATA ELXSI (Buy)-Transportation and Broadcast to frame the growth story
​TATA ELXSI: Transportation and Broadcast to frame the growth story
(TELX IN, Mkt Cap USD0.7b, CMP INR1327, TP INR1607, 21% Upside, Buy)
- PAT grows 8% despite lower other income: TELX's overall revenues grew 11% to INR3,260m (est. of INR3,380m) in 4QFY17 from INR2,940m in 4QFY16. EBITDA rose 13% to INR758m (est. of INR794m) from INR672m in 4QFY16, with the margin expanding 40bp YoY from 22.8% to 23.2% (est. of 23.5%) led by lower other expenses (-140bp, as % of sales). Thus, PAT grew from INR411m in 4QFY16 to INR445m (est. of INR501m), implying YoY growth of 8%. For FY17, revenue grew 15%, EBITDA margin expanded slightly by 50bp to 23.8% and adj. PAT rose 12.6% to INR1,753m.
- Pressure on margins to ease: The company's employee strength stands at ~5,500, similar to that in the previous quarter. Thus, employee cost was flattish, and a similar trend is expected going forward. TELX has also hinted at a hiring only against specific requirements. Further, it will restructure deals on 'part payment for effort and part payment for success' method, which should subsequently boost margins by 100-200bp.
- Key segments continue growing: Transportation (+35%) continues to be the fastest growing segment for TELX. Growth in Broadcast (25% of total revenues and 40% of EPD) has also been steady, led by OTT. Apart from the US and Europe, TELX has developed a strong pipeline of customers in Japan, the realizations from which are expected in coming quarters.
Tata Elxsi Limited is engaged in the design and development of computer hardware and software. The Company operates in two segments: System integration & support, and Software Development & Services. Its system integration & support segment is engaged in implementing and integrating systems and solutions for computing, broadcast, virtual reality, storage, and disaster recovery. Its software development & services segment comprises three business divisions: Embedded Product Design, which provides technology consulting, new product design, development, and testing services for the broadcast, consumer electronics, healthcare, telecom and transportation industries; Industrial Design (ID), which services a range of industries, including automotive, consumer electronics, retail and consumer goods and healthcare, and Visual Computing Labs (VCL), which provides three dimensional (3D) animation services, addressing content development for feature films, television and advertising commercials.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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