Tata Elxsi Q1FY26 Results: Transportation Steadies, But Is the Stock Still Overvalued? | PL Capital
- 16th July 2025
- 01:30:00 PM
- 4 min read
Mumbai | July 16 – Tata Elxsi’s Q1FY26 results were a mixed bag, with stabilisation in the transportation vertical but renewed concerns over profitability and valuation. While revenues came in line, a significant miss on margins and weak performance in key verticals continue to weigh on the stock’s near-term outlook.
The company posted a 3.9% QoQ decline in constant currency (CC) revenue to $104 million, and EBIT margins dropped 190 bps sequentially to 18.2%, below consensus. Profit after tax stood at ₹1,444 crore, down 16.3% QoQ and 21.6% YoY.
“The margin miss was sharper than expected. With continued investment intensity and weak vertical growth, the earnings trajectory for FY26 looks muted,” said Pritesh Thakkar, Analyst at PL Capital.
Financial Snapshot: Q1FY26
- Revenue: ₹8,921 crore, down 1.8% QoQ, 3.7% YoY
- EBIT Margin: 18.2%, down 190 bps QoQ
- PAT: ₹1,444 crore, down 16.3% QoQ, 21.6% YoY
- Attrition: 15%, up 170 bps QoQ
- Net Employee Decline: -287 headcount
Transportation Holds Firm, But Other Verticals Falter
Tata Elxsi’s transportation vertical, which now contributes nearly 56% of overall revenue, was flat QoQ—a relief after a sharp 9.7% contraction in Q4FY25. Deal ramp-ups from OEMs in areas like ADAS and connected vehicle platforms aided stability.
“OEMs are clearly driving the growth story here, while Tier-1 contribution continues to taper,” Thakkar added. “But that’s only one piece of the puzzle.”
In contrast, Media & Communications and Healthcare & Lifesciences reported QoQ CC declines of 5.5% and 6.7% respectively. Tariff-related uncertainty and R&D spending cuts hit these segments hard.
Geographically, India declined 12.3% QoQ, while Americas fell 2.4%. Europe (+3.4%) and RoW (+14.5%) offered some offset.
Margins Under Pressure, Outlook Slashed
The EBIT margin came in well below PL Capital and street expectations. PL revised its FY26 EBIT margin forecast to 19.9%, and expects FY26 revenue to fall 3.5% in CC terms. “The key worry is that despite large deal wins, the operating leverage is missing. Costs are upfront, while growth recovery is staggered,” said Sujay Chavan, Analyst at PL Capital. Management expects wage hikes in Q3, which could add further pressure, though they aim to restore EBITDA margins to 28–30% in the medium term.
Valuation Disconnect: Rich Multiples, Limited Justification
Tata Elxsi currently trades at 43x FY27E earnings, a premium not supported by its revised growth trajectory. PL Capital values the stock at 33x FY27E, leading to a revised target price of ₹4,750 and a reiterated ‘SELL’ rating.
“We’re looking at single-digit earnings CAGR and falling margins. That doesn’t support a 40x+ valuation,” Chavan added.
Strategic Diversification, but Execution Risk Remains
The company is expanding into aerospace, drones, and defense—with management aiming for ₹500 million in FY26 revenues from these segments. They’ve also indicated interest in tuck-in acquisitions, particularly around niche digital engineering capabilities.
“The long-term diversification story is credible, but it’s still early days. Right now, investor focus needs to remain on how quickly core segments recover,” Thakkar said.
What Should Investors Do?
PL Capital maintains a ‘SELL’ rating with a ₹4,750 target price. While the automotive engineering pipeline remains robust, challenges in healthcare, communications, and cost management dilute the bullish case.
“We advise caution. The fundamentals aren’t keeping pace with the valuation premium,” said Thakkar. “It’s a classic case of a good company priced for perfection—without perfect execution.”
Read the full PL Capital report on Tata Elxsi Q1FY26 results here
PL Capital
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.
