1:1 Bonus, Up to 700% Dividend Payout Soon: Choice Broking Buys Tata’s Top IT Stock for Rs 8,095/TP

Since its mixed-Q4 results, Tata Elxsi, a 35-year-old IT business sponsored by the Tata Group, has been under the spotlight. Positively, Tata Elxsi has said that it would pay the biggest dividend distribution in history, amounting to Rs 70 per share, in the next weeks. But Choice Equity does not stop there. The management of Tata Elxsi has established a plan for closely integrating its design business with its important industrial verticals, enhancing its software and digital business with a design-led offering, according to Broking’s most recent report.

And because of this strategy’s significant benefits for the business, Choice Broking advises acquiring Tata Elxsi shares at a target price of Rs 8,095 crore.

As to Choice Broking, the management strategy of Tata Elxsi is expected to augment the company’s competitive edge, provide preliminary insight into client product roadmaps, and generate more substantial downstream development agreements.

Choice Broking went on, “Management is quite optimistic and believes the Healthcare division will lead the company in the next quarters. The media and communication sector is predicted to rebound from FY25E, having seemed to reach a bottom.”

Additionally, the brokerage thinks that there are ways to increase revenue by allowing optical reductions to automation and network operations transformation, as well as advertising technology. The SIS company is shifting its focus to value-added services, innovation-driven initiatives like experience centers, and downstream product and platform deployment and run management. The company anticipates FY25E to surpass FY24.

AI is now popular in the industry, and many IT businesses have developed plans to take advantage of this trend and accelerate development.

In the context of AI and Gen-AI, Choice Broking’s comment on Tata Elxsi said, “The company continues to ramp up talent across the company and invest strongly in solutions, POCs, and projects.” In order to have 25% of its engineers AI-ready by Q3FY25E, it has developed and implemented specific programs. The business is trying new things and experimenting with GenAI in software and design. It is aimed at commercial domains like coding and automated testing that are being proactively offered to clients and might be influenced by GenAI.”

Additionally, the corporation said that, depending on demand, it intends to hire between 1,500 and 2,000 new engineers in FY25E.

Regarding the price, Choice Broking stated, “The management is committed to growth backed by strategic relationships built over the years with key customers, the qualitative change in revenues towards OEMs and SDV programs, entries into new operators and marquee healthcare logos, investments and talents in hiring, investments in strategic technology areas in AI and a strong deal pipeline.”

“We maintain our rating to BUY with a revised target price of Rs 8,095 implying a PE of 45x on FY26E EPS of Rs 180,” Choice Broking’s note stated.

Tata Elxsi’s total revenue for FY24 was Rs 3,552.1 crore, representing double-digit YoY increase of 13%. In constant currency, the company’s growth in software development and services was 9.3% YoY, while in the system integration and support sector, it was 18.6% YoY. For the first time, PBT surpassed the Rs 1,000 crore threshold, rising 11.9% to Rs 1,048 crore. The EBITDA margin was 29.5%.

Furthermore, for the fiscal year 2023–2024, subject to tax, this Tata Tech player recommended the highest dividend payout of 700%, at Rs. 70/-, per equity share of Rs. 10 each. The payout is contingent upon shareholder approval and is expected to be paid or dispatched on or after the seventh day following the conclusion of the 35th Annual General Meeting.

Tata Elxsi’s biggest payment in 2023 was Rs 60.60 per share, before to the impending Rs 70 per share dividend.

According to Trendlyne statistics, Tata Elxsi has paid out up to 24 dividends since June 2001. In 2023, the highest dividend payment per share was Rs 60.60. But in the seven years total since its bonus issuance in 2017, the corporation has paid out as much as Rs 208.1 per share in dividends.

Up till now, Tata Elxsi has only paid one bonus share in addition to dividends. In September 2017, Tata Elxsi became ex-bonus on the 18th of the month for a 1:1 bonus issuance. Tata Elxsi paid one bonus share for each share that was already in place.

One of the top global suppliers of design and technology services for a variety of sectors, including broadcast, communications, healthcare, and transportation, is Tata Elxsi.