Company Update IT Software India Research Tata Elxsi Ltd. CMP: Rs. 1,192 Future Stallion.. BUY Nifty 10,742 Sensex 35,319 Nifty PE 26.66 Sensex PE 23.48 Stock Data Sector IT Software BSE Code 500408 NSE Code TATAELXSI FV 10 Market Cap (INR cr) 7,425 Market Cap (US$ mn) 1,103 Equity Cap.(INR cr) 62.3 Stock Performance (%) 52-week high/low Rs. 1,257 / 644 1M 6M 12M Absolute (%) 14.35 31.98 53.57 Shareholding Pattern (%) Sensex & Stock Movement 9 th May 2018 We at NVS had recommended Tata Elxsi (TEL), from the Tata stable as a strong investment candidate at the price of Rs. 1,338 per share on 19 Oct 2016. Thereafter, the stock touched a high of Rs. 1,257 (Rs. 2,515 cum 1:1 bonus) per share on 26 Apr 2018, thus registering a whopping gain of over 88% in 18 months time. For full report please visit our website: http://trutechwebs.com/cs/nvs/module/upload/nvs/company/reports/report_58_1477045048.pdf TEL, the embedded software technology company of the prestigious $144.8 bn Tata Group catering to the automotive industry, broadcasting & tele communications and healthcare sector has continued its march towards excellence with its robust financial performance for FY18. In FY18, the company s revenues were up by 14% at Rs. 1,430 Crs (Rs. 1,232 Crs in FY17), EBITDA was up by 16% at Rs. 346 Crs (Rs. 290 Crs) and PAT was up by 27% to Rs. 240 Crs (Rs. 175 Crs) on an equity base of Rs. 62.3 Crs (1:1 bonus issue), bolstered by addition of new customers and better revenue recognition from the existing customers. The company has provided a conservative guidance of 10% revenue growth for the next year with the EBITDA Margins remaining stable. The company has gained investor confidence by rewarding its shareholders with a 1:1 bonus issue (record date 19 Sep 2017). The company has been paying liberal dividends to its shareholders every year and has paid a dividend of ~110% (FV Rs. 10) post bonus this year. TEL derives 60% of its revenues from the automobile sector followed by broadcasting (30% revenue contribution) and healthcare (10% revenue contribution). The top 5 customers of the company contribute ~44% to the total revenues, with Jaguar Land Rover as the lead client at ~20% revenue contribution. TEL s software development services contributes ~96% and system integration and support contributes ~4% to the revenues of the company. The Indian government has already started its journey towards upgradation of the existing petrol/diesel/cng based automobile industry, with Tata Motors manufacturing electric vehicles (EV) for the government of India (~10,000 EVs). TEL, being a niche player in the automobile segment alongwith its technologically smart workforce (5,500 employees), is in a powerful position to grab the opportunity in the embedded software development of EVs for Tata Motors. At a CMP of Rs. 1,192, and MCAP of Rs. 7,425 Crs, TEL is commanding a P/E multiple of 27.7 times its FY19 EPS of Rs. 43 on the back of dividend payout to its shareholders, the company s debt free status and the synchronized execution of the Tata herd. We believe that this company is a high value investment and is highly discounted, with a potential to appreciate ~25% in the next 12-15 months time. Financials: INR Crs Q4FY18 Q3FY18 QoQ (%) Q4FY17 YoY (%) FY18 FY17 YoY (%) Revenues 395.0 352.3 12% 324.1 22% 1429.5 1231.9 16% EBITDA 95.1 93.5 2% 75.5 26% 346.0 468.2-26% PAT 70.3 62.8 12% 43.5 62% 240.0 174.8 37% EPS 11.3 10.1 12% 7.0 62% 38.5 28.1 37% EBITDA Margin 24.1% 26.5% 23.3% 24.2% 38.0% PAT Margin 17.8% 17.8% 13.4% 16.8% 14.2% Equity Cap (FV - Rs. 10) 62.3 62.3 31.1 62.3 31.1 Networth 738.3 557.7 Source: BSE website
I) TEL - Historical Financials at a Glance Particulars (In Rs. Crs) Consolidated Standalone # FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18* FY19E Equity Capital (FV - Rs. 10) 31.1 31.1 31.1 31.1 31.1 31.1 31.1 31.1 31.1 31.1 62.3 62.3 Networth 119.0 151.6 175.1 182.4 192.0 195.2 204.6 283.4 385.7 557.7 738.4 978.4 Book Value 38.2 48.7 56.3 58.6 61.7 62.7 65.7 91.0 123.9 179.1 118.6 157.1 Total Debt 55.3 13.1 34.0 25.4 34.2 58.5 - - - - - - Revenues 404.3 419.5 389.1 419.8 542.9 626.5 787.2 852.7 1087.0 1231.9 1429.5 1572.5 EBIDTA 74.8 81.5 68.0 47.2 74.0 56.2 136.4 177.3 247.2 289.5 346.0 377.4 PAT 52.8 58.2 48.8 32.5 38.7 22.4 72.3 102.0 154.8 174.8 240.0 267.3 EPS 17.0 18.7 15.7 10.4 11.1 6.8 23.2 32.3 49.7 28.1 38.5 42.9 Key Ratios EBITDA Margin 18.5% 19.4% 17.5% 11.2% 13.6% 9.0% 17.3% 20.8% 22.7% 23.5% 24.2% 24.0% PAT Margin 13.1% 13.9% 12.5% 7.7% 7.1% 3.6% 9.2% 12.0% 14.2% 14.2% 16.8% 17.0% ROCE (%) 36.5% 39.9% 25.0% 16.3% 25.5% 14.7% 55.7% 54.7% 61.3% 47.4% 49.3% 40.2% RONW (%) 44.4% 38.4% 27.9% 17.8% 20.2% 11.5% 35.3% 36.0% 40.1% 31.3% 32.5% 27.3% Dividend (annualised%) 70.0 70.0 70.0 70.0 70.0 50.0 90.0 110.0 140.0 160.0 110.0 * 1:1 bonus issue on 19 Sep 2017. # The company had closed its only subsidiary Tata Elxsi (Singapore) Pte. Ltd. w.e.f. from 20 June 2016. Thereafter, the company has been reporting standalone results. In FY18, the company s revenues were up by 14% at Rs. 1,430 Crs (Rs. 1,232 Crs in FY17), EBITDA was up by 16% at Rs. 346 Crs (Rs. 290 Crs) and PAT was up by 27% to Rs. 240 Crs (Rs. 175 Crs) on an equity base of Rs. 62.3 Crs (1:1 bonus issue), bolstered by addition of new customers and better revenue recognition from the existing customers. TEL has maintained an excellent EBITDA Margin at ~23% and PAT Margin above 14%. The company is totally debt free and has an excellent RONW at ~30%. During the last 3 years, TEL s topline has grown at a CAGR of 14.7%, EBITDA at 18.3% and PAT has grown at 24.5%. However on a conservative basis, TEL, a company with high corporate governance standards has provided a guidance of 10% revenue growth for the next year with the EBITDA Margins remaining stable. The company has gained investor confidence by rewarding its shareholders with a 1:1 bonus issue (record date 19 Sep 2017). The company has been paying liberal dividends to its shareholders every year and has paid a dividend of ~110% (FV Rs. 10) post bonus this year.
II) Outlook on Electric Vehicles Industry The National Electric Mobility Mission Plan (NEMMP) has targeted sales of ~7 mn electric and hybrid vehicles by 2020 in sync with the government s mission to convert India into a 100% EV nation by 2030. The Indian government has already started its journey towards upgradation of the existing petrol/diesel/cng based automobile industry towards the EV future with its FAME (Faster Adoption and Manufacturing of Electric Vehicles) Phase I. This step of the government is likely to provide significant business to the automobile and automobile software industry. Tata Motors has invested considerably in the research and development of battery led EVs is manufacturing EVs for the government of India (~10,000 EVs). TEL, being a niche player in the automobile segment alongwith its technologically smart workforce (5,500 employees), is in a powerful position to grab the opportunity in the embedded software development of EVs for Tata Motors. The key concern of the EV industry is number of EV charging stations in the country, the time taken for charging one vehicle (DC fast charger 40 mins and AC charger 6 hours) and the number of kilometres covered in one charge. Thus, switching towards 100% electric power is currently a herculean task in India due to the high cost of setting up of EV charging stations. However, Tata Power in the process of setting up charging stations across the country for faster adoption of EV. III) Valuation and Recommendations TEL, being a niche player in the automobile segment alongwith its technologically smart workforce (5,500 employees), is in a powerful position to grab the opportunity in the embedded software development for EVs manufactured by Tata Motors for the government of India. Tata Power is in the process of setting up charging stations across the country to address the key concern of charging the EVs, which is currently a herculean task due to the high set up cost. During the last 3 years, TEL s topline has grown at a CAGR of 14.7%, EBITDA at 18.3% and PAT has grown at 24.5%. However on a conservative basis, TEL, a company with high corporate governance standards has provided a guidance of 10% revenue growth for the next year with the EBITDA Margins remaining stable. The company has gained investor confidence by rewarding its shareholders with a 1:1 bonus issue (record date 19 Sep 2017). The company has been paying liberal dividends to its shareholders every year and has paid a dividend of ~110% (FV Rs. 10) post bonus this year. At a CMP of Rs. 1,192, and MCAP of Rs. 7,425 Crs, TEL is commanding a P/E multiple of 27.7 times its FY19 EPS of Rs. 43 on the back of dividend payout to its shareholders, the company s debt free status and the synchronized execution of the Tata herd (TEL, Tata Motors, Tata Power). We believe that this company is a high value investment and is highly discounted, with a potential to appreciate ~25% in the next 12-15 months time.
Disclosures and Disclaimers: This report has been prepared and issued by NVS Wealth Managers Pvt. Ltd. "SEBI registered Investment Advisers". NVS Wealth Managers (NVS) is a subsidiary of NVS Brokerage Pvt. Ltd. (Stock Broking member of BSE & NSE, registered with SEBI). This report is prepared and distributed by NVS for information purposes only and neither the information contained herein nor any opinion expressed should be construed or deemed to be construed as solicitation or as offering advice for the purposes of the purchase or sale of any security, investment or derivatives. The information and opinions contained in the Report were considered by NVS to be valid when published. The report also contains information provided to NVS by third parties. The source of such information will usually be disclosed in the report. Whilst NVS has taken all reasonable steps to ensure that this information is correct, NVS does not offer any warranty as to the accuracy or completeness of such information. The ownership of any investment decision(s) shall exclusively vest with the investor after analyzing all possible risk factors and by exercise of his/her its independent discretion & NVS shall not be liable or held liable for any consequences thereof.. Prices are subject to market risks which may result in appreciation or depreciation of investments. Past performance is not necessarily indicative of future results. This report does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors must undertake independent analysis with their own legal, tax and financial advisors and reach their own conclusion regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. The reports issued from NVS are nondiscretionary and non-participation basis. In no circumstances it is to be used or considered as an offer to sell or a solicitation of any offer to buy or sell the Securities mentioned in it. The information contained in the reports may have been taken from trade and statistical services and other sources, which we believe are reliable. NVS or any of its group/associate/affiliate companies do not guarantee that such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice. Important: These disclosures and disclaimers must be read in conjunction with the report of which it forms part. Receipt and use of the report is subject to all aspects of these disclosures and disclaimers. Additional information about the issuers and securities discussed in this report is available on request. Certifications: The analyst(s) who prepared this report hereby certifies that the views expressed in this report accurately reflect the analyst s personal views about all of the subject issuers and/or securities, that the analyst/entity/associate have no known material conflict of interest, no financial interest and no part of the analyst s compensation was, is or will be, directly or indirectly, related to the specific views or recommendations contained in this report. The analyst has not served as an officer, director or employee of the subject company. The analyst and related parties have not dealt in shares of the subject company before 30 days of the report being made public and will not deal for the next 5 days, as per SEBI (Research Analyst) Regulations, 2014. Independence: NVS has established information barriers between Research & other business groups. As a result NVS does not disclose certain client relationships with or compensation received from, subject issuers in these reports. NVS has not had an investment banking relationship with, and has not received any compensation for investment banking services from, the subject issuers in the past twelve (12) months, and NVS does not anticipate receiving or intend to seek compensation for investment banking services from the subject issuers in the next three (3) months. The analyst/ entity or its associates have not received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months. The analyst/ entity has not managed or co-managed public offering of securities for the subject company in the past twelve months. The analyst or its associates have not received any compensation or other benefits from the Subject Company or third party in connection with the report. The subject company is not and was not a client during twelve months preceding the date of distribution of the report. The analyst or NVS is not a market maker in the securities mentioned in this report, although it or its affiliates may hold either long or short positions in such securities. NVS or the analysts do not hold more than 1% of the shares of the company (ies) covered in this report at any time immediately preceding the date of publication of the report. However, NVS, associate companies and their clients might be holding this stock in their personal capacities.
Suitability and Risks: This report is for informational purposes only and is not tailored to the specific investment objectives, financial situation or particular requirements of any individual recipient hereof. Certain securities may give rise to substantial risks and may not be suitable for certain investors.. It is therefore important carefully/personally review your entire investment portfolio to ensure that it meets your investment goals and is well within your risk tolerance, including your objectives for asset and issuer diversification. The value of any security may be positively or adversely affected by changes in foreign exchange or interest rates, as well as by other financial, economic or political factors. Past performance is not necessarily indicative of future performance or results. Sources, Completeness and Accuracy: The material herein is based upon information obtained from sources that NVS and the analyst believe to be reliable, but neither NVS nor the analyst represents or guarantees that the information contained herein is accurate or complete and it should not be relied upon as such. Opinions expressed herein are current opinions as of the date appearing on this material and are subject to change without notice. Furthermore, NVS is under no obligation to update or keep the information current. Copyright: The copyright in this report belongs exclusively to NVS. All rights are reserved. Any unauthorized use or disclosure is prohibited. No reprinting or reproduction, in whole or in part, is permitted without NVS s prior consent, except that a recipient may reprint it for internal circulation only and only if it is reprinted in its entirety. Caution: Risk of loss in trading can be substantial. You should carefully consider whether trading is appropriate for you in light of your experience, objectives, financial resources and other relevant circumstances. Method: We have not rated the stock. Rating Scale: This is a guide to the rating system used by our team. Our rating system comprises six rating categories, with a corresponding risk rating.. Please Note: Our recommendations are for a minimum period for one year. Corporate Office Address: 702, Embassy Centre, Nariman Point, Mumbai 400 021 Tel.:+91 22 6631 5511/12, Fax: +91 22 61539134 Email: info@nvswealthmanagers.com Website: www.nvswealthmanagers.com