Highest Dividend of Rs 70/Sh; Tata’s IT Stock Drops After Q4; Kotak Offers Rs 5,400/TP, Brokers Indicate Underweight

The 35-year-old IT startup Tata Elxsi, funded by the Tata Group, has released its Q4FY24 financial results. However, this IT company has recommended its highest-ever dividend of Rs 70 per share, notwithstanding this.

However, Tata Elxsi’s share price fell sharply by more than 5.3% to an intraday low of Rs 7000.70 each on the BSE, as a result of the firm now being the worst-performing Tata company in Q4. After this, Kotak Institutional Equities remained neutral on the stock with a fair value of Rs 5,400, while two international brokerages are underweight on the Tata Elxsi share price.

Price of Tata Elxsi Shares: During the opening trading, the price of Tata Elxsi shares dropped by as much as 5.3%, reaching an intraday low of Rs 7000.70 per share. Tata Elxsi’s market value as of Wednesday was around Rs 44,259.87 crore.

This IT stock began down at Rs 7173.15 per share, and from the closing price of Rs 7393.85 per share in the previous session, its intraday high is also lower at Rs 7231.70 per share.

The 52-week high and low prices for Tata Elxsi are Rs 9,191.10 and Rs 6,228.30, respectively.

Tata Elxsi Dividend: The company announced, “We are happy to notify you that, for the fiscal year 2023-2024, subject to tax, the Board of Directors has recommended a dividend of 700% at Rs. 70/-, per equity share of Rs. 10 each. This dividend is expected to be paid or dispatched on or after the seventh day following the conclusion of the 35th Annual General Meeting, contingent upon the approval of the company’s shareholders.”

Tata Elxsi’s biggest payment in 2023 was Rs 60.60 per share, before 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. 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.

Tata Elxsi Q4 Results: In the last quarter of FY24, the company reported that sales increased by 8.1% YoY and 0.9% QoQ to Rs 905.9 crore. PBT was up 4.9% YoY at Rs 262.4 crore. The margin for EBITDA was 28.8%.

Tata Elxsi’s total revenue for FY24 was Rs 3,552.1 crore, representing a 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%.

Tata Elxsi Target Prices: Kotak Institutional Equities said the following in relation to the quarterly earnings: “In 4QFY24, revenues decreased 0.6% QoQ, which was much below our forecasts. The show lacked vibrancy in all directions. The main cause of the EBIT margin’s decline to 25.8% was fewer sales. After yet another underwhelming quarter, we lowered our EPS projections by 2–4%. Although TELX has a well-diversified revenue mix and a stronger exposure to embedded engineering, there is a risk associated with the company’s growing reliance on its top-5 customers and their subscale relationships.”

This Tata corporation is predicted to see a near-term downturn. According to Kotak’s remark, TELX has been shifting its focus more and more toward customers that have more capacity to invest in the creation and design of new goods. The business is progressively reducing its exposure to media clients, equipment vendors, and automotive Tier-1 suppliers.”

This ought to support a steady comeback in growth. Moreover, a few sizable agreements that were inked in the preceding quarters have not yet ramped up. For example, by the conclusion of the June 2024 quarter, a multi-year engagement with a worldwide top-5 car OEM is anticipated to ramp up. According to Kotak, JLR is probably going to keep expanding quickly, which will support overall growth.

However, given the difficulties with telecom demand and TELX’s heavy reliance on short-term agreements in the healthcare sector, Kotak does not see a material increase in growth in FY2025E. For FY2025E, it projects a 9.5% c/c sales increase.

“We note that the company’s performance was adversely impacted in the past due to a high exposure to JLR,” Kotak’s report on the valuation said. Over FY2024–34E, our reverse DCF value predicts a 19% US$ sales CAGR.”

Global brokerages Morgan Stanley and JP Morgan have kept their stock ratings at “underweight,” with a neutral outlook. JP projects a target price of Rs 5,800, while Morgan has set a target price of Rs 6,880.