The firm posted a profit of Rs 1.09 billion in Q3, lower than a year earlier, citing one-time increases in employee benefit provisions arising from revised wage structures mandated under the new labour codes.
The earnings miss triggered a 3.2% fall in Tata Elxsi’s shares to an intraday low of Rs 5,609.15 on the BSE.
Meanwhile, some brokerages have raised their price targets following better-than-expected revenue and margin performance; others remain cautious, citing valuation concerns and muted medium-term visibility in key segments such as Media & Communications and Healthcare.
Morgan Stanley: Underweight| Target price: Rs 5,350 | Downside potential: 7.7%
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Morgan Stanley has maintained an Underweight rating on Tata Elxsi with a target price of ₹5,350. The brokerage said growth trends in Q3 were better than expected and highlighted positive margin surprises, driven by utilisation rising to 75%, ahead of its earlier estimates for Q4 FY26.
It highlighted management’s optimism in the auto sector and a potential recovery in healthcare and media segments from Q4FY26, supported by large media deal wins. Morgan Stanley forecasted that utilization would reach 80% in the next two quarters and settle at 85% over the medium term. However, it remains unconvinced, citing rich valuations and an unfavourable risk-reward profile without material signs of sustainable growth.
PL Capital: Hold| Target price: Rs 5,500 | Downside potential: 5%
PL Capital has a Hold rating on Tata Elxsi with a raised target price of Rs 5,500. The firm noted that revenue performance (+3.2% QoQ CC) exceeded its estimates due to strong growth in the Transportation vertical. It attributed the momentum to anchor account ramp-ups and recovery in strategic top clients, though ex-top 10 accounts saw a 7.5% decline.
PL Capital flagged persistent weakness in Media & Communications and Healthcare segments, which reported another quarter of decline. However, it credited the company’s margin performance, which beat estimates by 140bps QoQ, and highlighted that decoupling of revenue growth and hiring could improve margins. It expects margins to expand by 70bps/40bps/20bps over FY26–FY28 and sees 9.8–11.6% revenue growth in FY27–FY28. The firm retains its cautious stance due to capped valuations.
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Elara Capital: Sell| Target price: Rs 4,520 | Downside potential: 22%
Elara Capital has reiterated a Sell rating on Tata Elxsi, while raising its target price to Rs 4,520. The brokerage noted better-than-expected Q3 performance, driven by delayed deal materialisation from Q2 and strong growth in the transportation vertical.
It has also been noted that while double-digit growth in transportation seems achievable due to recent deal wins and increased traction from top clients, sustaining such growth in healthcare looks challenging due to continued underperformance. It maintained its bearish view based on valuation metrics, assigning a 30x P/E multiple on FY28 earnings.
Choice Broking: Sell| Target price: Rs 4,700 | Downside potential: 19%
Choice Broking continued to maintain a Sell call on Tata Elxsi with a target price of Rs 4,700, based on 28x average FY27–FY28 earnings. The brokerage stated that while revenue growth was modest, it signals operational stability. It acknowledged margin recovery due to better utilisation and cost control, despite wage hikes.
However, Choice Broking flagged ongoing demand headwinds in Media & Communications and parts of Healthcare. It believes that much of the fundamental improvement is already priced in and that a sustainable re-rating would require consistent double-digit growth in the Transportation and HLS verticals, along with margin normalisation.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)