MOSL: TATA ELXSI (Buy)-Macro weighing on near-term growth
Tata Elxsi: Macro weighing on near-term growth
(TELX IN, Mkt Cap USD0.8b, CMP INR913, TP INR1050, 15% Upside, Buy)
- In our earlier report on TELX’s 3QFY19 earnings, we had put our rating under review, pending details on the 3Q performance and clarity on the business outlook, after a weak quarter of growth. Management updated investors on the same in its analyst earnings call on 25th January 2018. Key takeaways:
- Growth hit by extended furloughs: TELX clocked 2% QoQ CC and 10% YoY CC growth during the quarter. Growth was impacted by extended furloughs, which affected the work both at onsite and offshore locations, and was broad-based across business units. Short-term anomalies on margins were a function of currency movements, but TELX remains confident that margins will continue to be ~25%.
- Automotive is the highest contributing vertical for TELX. The company has managed to re-risk the business significantly from its dependency on JLR, and the revenue run-rate from clients other than JLR is 2x that from the top client. Within the segment, TELX is developing IPs for autonomous driving in areas of car development and validation. While there is only little monetization in development of autonomous vehicles, major monetization is coming from validation. Contribution from the non-linear revenue stream should continue increasing gradually.
- Broadcast and Communication presence for TELX is spread across broadcasters, operators and STB vendors. TELX is witnessing strong traction in the OTT segment, and it should be a major growth driver as the business finds relevance in other major geographies too. TELX is witnessing some early traction from 5G in the areas of network transformation and testing.
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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