TATAELXSI

Tata Elxsi shares tumbled as much as 6% on Tuesday, hitting a more than five-year low of Rs 3,469.70, a day after the company reported a sharp decline in June quarter earnings. The weak results prompted several brokerages to cut their FY27 and FY28 earnings estimates, citing persistent margin pressures and a slower-than-expected recovery in key business segments. The company reported a 23% sequential decline in net profit to Rs 171 crore for the first quarter of FY27. Revenue from operations, however, rose nearly 3% quarter-on-quarter to Rs 1,063 crore. In constant currency terms, revenue grew 1.3% sequentially, broadly in line with analysts' expectations. Profitability remained under pressure, with the EBIT margin declining to 19% from 22.3% in the March quarter, largely due to elevated project costs and continued strategic investments. Following the earnings announcement, brokerages lowered their earnings per share (EPS) estimates for FY27 and FY28, describing the June quarter margin performance as weaker than expected. They also pointed to a slower recovery in the transportation business. While some of the margin headwinds were considered one-off, analysts expect the recovery to be gradual, weighed down by ongoing investments, wage hikes scheduled for the September quarter, and an uneven demand environment. Analysts noted that the first quarter was weaker than anticipated despite healthy growth in the Transportation and Media & Communications verticals. Margins were affected by higher project execution costs and strategic investments. Although Tata Elxsi's management continues to target high single-digit revenue growth in FY27, backed by a healthy pipeline of large deals and an expected recovery in the Healthcare business, analysts remain more cautious. They cited continued weakness in the European automotive market and delays in healthcare order conversions as key risks that could weigh on the company's growth outlook.