Shares of Tata Elxsi were trading at ₹5,030.50, up 0.28 percent, during mid-day trade on August 26, with the stock moving in a narrow range of ₹4,988.50–₹5,040 amid moderate volumes.
In its latest research note, Prabhudas Lilladher shared insights following interactions with the company’s CFO, focusing on business momentum, sector trends, and valuation outlook.
Automotive Segment Shows Gradual Improvement
According to the brokerage, Tata Elxsi continues to make progress in the automotive vertical, with signs of structural recovery beyond transportation. Client decision-making cycles have improved, and sentiment has turned more constructive, even as R&D budgets remain tightly controlled.
Spending is currently being prioritised toward cost optimisation and fixing existing vehicle architectures, rather than new product development. Software efficiency and faster time-to-market for new features have emerged as critical factors as global OEMs attempt to stay competitive against aggressive Chinese automakers, while balancing vehicle pricing and cost structures.
China Market: Early Engagements, No Major Breakthrough Yet
While Tata Elxsi has not achieved a major breakthrough in the Chinese market, it has secured a few engagements with local players. Deal structures have largely remained unchanged, with average contract values (ACV) comparable to earlier engagements. Pricing continues to be a trade-off against right-shoring strategies, the report noted.
Valuation Still Rich Despite Stock Correction
Prabhudas Lilladher highlighted that Tata Elxsi’s stock has corrected sharply, falling around 33 percent in FY25 and about 2 percent in FY26 YTD, even as the Nifty IT index gained over 5 percent during the same periods.
Despite the correction, the brokerage believes valuations remain expensive, with the stock trading at around 35 times September 2027 earnings. It has assigned a multiple of 36x to Sep-27 EPS and revised its stance on the stock.
Rating Revised to HOLD
Given the sharp price correction but still-stretched valuations, Prabhudas Lilladher has upgraded its rating to HOLD, from an earlier REDUCE. The brokerage sees limited near-term upside until there is clearer visibility on stronger growth triggers and margin expansion.
The report reflects a cautiously optimistic operational outlook, tempered by valuation concerns in the current market environment.
