31-Dec-2022

TATA ELXSI LIMITED

CASE STUDY
 ABOUT
ABOUT THE
THE COMPANY
COMPANY Case
CASEStudy
STUDY

Incorporated
DHD in 1989, Tata Elxsi Limited is amongst the world’s leading providers of design and technology services across industries
including Automotive, Broadcast & Communications and Healthcare. The company earns revenue primarily from providing
information technology, engineering design, systems integration & support services, sale of licenses and maintenance of equipment.
The company operates in 2 segments: Software Development & Services and System Integration & Support. The Software
Development & Services segment is further sub-divided into Embedded Product Design (EPD) and Industrial Design & Visualization
(IDV) division. The EPD division provides technology consulting, new product design, development, and testing services for
Transportation, Media, Broadcast & Communication and Healthcare sectors. IDV services span across consumer research and strategy,
branding and graphics, product design, service design, user experience design, transportation design, 3D-prototyping, visualization
and manufacturing support. The System Integration & Support segment provides professional services for cloud and infrastructure
management, Virtual Reality (VR), 3D Printing and Robotics.
Tata Elxsi works with leading OEMs (original equipment manufacturer) and suppliers in the automotive and transportation industries
for R&D, design and product engineering services from architecture to launch and beyond. It is engaged with broadcasters &
operators to create solutions for smarter living, engaged entertainment and a digital future driven by IoT, analytics and artificial
intelligence. At the device level, it have powered the next generation voice-based user interfaces and integration across platforms
including Android, iOS, Web as well as Android TVs. It also works with leading telecom operators in their digital and network
transformation journeys, supporting integration, workflow automation and roll-out of new services. In the Healthcare segment, it
designs next-generation products in critical care, patient monitoring, and drug delivery. It is working on cloud-based platforms that
help consolidate and provide valuable data for analytics on the digital side.

1
 ABOUT
ABOUT THE
THE COMPANY
COMPANY Case
CASEStudy
STUDY

DHD
Revenue mix- Geography (FY22) Revenue Mix- Segment (FY22) Industry Wise Breakup of the EPD
Segment (FY22)

11%
2% 14%
11%

16% 42%
46%

41%
31%
87%

Embedded Product Design Broadcast & Communications Transportation

Americas Europe India RoW
Industrial Design & Visualization
System Integration & Support Healthcare & Medical Devices

1
 GROWTH
ABOUT THE COMPANY Case
CASEStudy
STUDY

DHD SALES GROWTH

In FY22, the net sales grew by 35.3% YoY and stood
at ₹2,471 cr. The growth was almost entirely volume
led with constant currency growth of 34% YoY.
The company's growth was powered by the EPD,
which is its largest division and saw a growth of 36%
YoY in FY22. Within EPD, the growth was broad
based across verticals: healthcare 72% (on account of
lower base), broadcast & communications 32% and
transport 29% YoY.
There was a growth in revenue across geographies
led by India and US, which rose by 62% and 56% YoY,
respectively.
In H1 FY23, revenue stood at ₹1,489 cr, with 13%
growth v/s H2 FY22. This was across verticals and
geographies.

5 Year CAGR: 14.8%

1
 GROWTH
ABOUT THE COMPANY Case
CASEStudy
STUDY

DHD EBITDA GROWTH

In FY22, EBITDA grew by 46.7% YoY to ₹766 cr from
₹522 cr in FY21 on account of higher revenue from
operations, increased offshore mix (was 74.5%).
The contribution of the top client in operating
revenue increased from 11.8% in FY21 to 13.6% in
FY22 and the top 5 clients contribution increased by
190 bps. However, the top 10 clients contribution
reduced by 30 bps in FY22 on a YoY basis.
In H1 FY23, EBITDA stood at ~₹464 cr, an increase of
8% as compared to H2 FY22. The impact of wage hike
and increase in other expense like certain one time
costs related to recruitment, onboarding. But there
would be ongoing expenses also like travel cost,
facilities and maintenance, utilities that have come
back. This was partially offset by other operating
levers present in the organization in terms of
utilization & better realization.
5 Year CAGR: 20.9%

1
 GROWTH
ABOUT THE COMPANY Case
CASEStudy
STUDY

DHD PAT GROWTH

In FY22, PAT grew by 49.5% YoY to ₹550 cr from ₹368
cr in FY21 on account of higher operating profit.
The company benefits from the tax holiday available
for units set up under the Special Economic Zone Act,
2005. The effective tax rate for FY22 was 26.3% (v/s
28.1% in FY21). With the increase in SEZ (special
economic zone) capacity in the upcoming year, tax
rate is expected to be in the range of 25%-26%.
In H1 FY23, PAT stood at ₹359 cr, an increase of
15.5% v/s H2 FY22. Rise in the net profit was led by
higher EBITDA flow combined with lower effective
tax rate (ETR) mainly due to more spending into
special economic zone (SEZ).

5 Year CAGR: 25.7%

1
 GROWTH EDGE METER: 4
An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since
judgement on equity is subjective because different people will have different expectation from their investments, it is better to study
each aspect and give an individual grading to arrive at the final evaluation of a stock.
 PROFITABILITY
ABOUT THE COMPANY Case
CASEStudy
STUDY

DHD EBITDA MARGIN

EBITDA margin in FY22 stood at 31%. It expanded on
account of higher revenue and lower employee
benefit expenses as a percentage of total revenue.
One of the reasons for margin increase can also be
attributed to the increase in offshore revenue as a
percentage of total revenue.
With better operational leverage combined with
higher utilization and price hikes that they procure
from their customers helped the company to expand
its EBITDA margin in Q1 FY23, which stood at 32.8%.
However in Q2 FY23, Increase in employee cost,
facilities operations costs on the back of resumption
of hybrid mode of work, opening of new offices,
higher travel cost etc., affected the margins of the
company resulting in margin contraction to 29.7%.
Thus on a combined basis EBITDA margin was
marginally effected in H1 FY23 to 31.2%, a drop of
146 bps as compared to H2 FY22.

1
 PROFITABILITY
ABOUT THE COMPANY Case
CASEStudy
STUDY

DHD PAT MARGIN

The company has been maintaining a healthy PAT
margin in the range of ~14%-24% for the past few
years.
In FY22, the metric stood at 22.3%. It improved on
account of higher operating margin.
The PAT margin expanded to 24.1% in H1 FY23 v/s
23.6% in H2 FY22, led by higher EBITDA and due to
more spending into SEZ.

1
 PROFITABILITY
ABOUT THE COMPANY Case
CASEStudy
STUDY

DHD ROCE
The return on capital employed of the company
increased to 51.2% in FY22.
The company has been generating healthy return on
its capital employed.
The capital employed has been increasing for the
past few years mainly on account of increase in the
retained earnings of the company. This was further
supported by increase in the EBIT in FY22.

1
 PROFITABILITY
ABOUT THE COMPANY Case
CASEStudy
STUDY

DHD ROE
The return on equity of the company improved to
37.2% in FY22. This was primarily on account of
significant increase in net profit.

1
 PROFITABILITY EDGE METER: 4
An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since
judgement on equity is subjective because different people will have different expectation from their investments, it is better to study
each aspect and give an individual grading to arrive at the final evaluation of a stock.
 EFFICIENCY
ABOUT THE COMPANY Case
CASEStudy
STUDY

DHD CASH FLOWS

Cash flow from operations of the company has been
strong for many years. In FY22, CFO increased to
₹483 cr on account of increased profits. However,
the increase was marginal due to working capital
adjustment.
Cash outflow from investing activities was at ₹108 cr
due to investments in fixed deposits of ₹66 cr and
purchase of property, plant & equipment of ₹71 cr.
Cash flow from financing activities remained negative
on account of the regular dividends paid by the
company.

1
 EFFICIENCY
ABOUT THE COMPANY Case
CASEStudy
STUDY

WORKING
DHD CAPITAL CYCLE
Working capital days of the company remained
negative in FY22.

1
 EFFICIENCY
ABOUT THE COMPANY Case
CASEStudy
STUDY

DHD FREE CASH FLOW

Free cash flow per share increased to ₹70 in FY22 on
account of higher operating cash flow.

1
 EFFICIENCY
ABOUT THE COMPANY Case
CASEStudy
STUDY

ASSET
DHD TURNOVER RATIO
For FY22, the asset turnover ratio of the company
increased to 1.28x due to an increase in sales.
During FY22, total assets of the company increased
to ₹2,160 cr because of rise in the total current
assets and fixed assets.
Human resource being the main asset for IT
companies, it is necessary to look at the attrition
rate. It refers to the number of employees who have
left the organization, therefore, a low attrition rate
for IT companies is a strength. During the year, the
company hired a net of 1,532 new employees and its
attrition rate increased to 18.7% (TTM), however it
remained on a lower side compared to its peers.

1
 EFFICIENCY EDGE METER: 4
An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since
judgement on equity is subjective because different people will have different expectation from their investments, it is better to study
each aspect and give an individual grading to arrive at the final evaluation of a stock.
 SOLVENCY
ABOUT THE COMPANY Case
CASEStudy
STUDY

DHD DEBT TO EQUITY

The company has remained debt-free since long.

1
 SOLVENCY
ABOUT THE COMPANY Case
CASEStudy
STUDY

INTEREST
DHD COVERAGE RATIO
The company does not have any meaningful interest
cost as on date.

1
 SOLVENCY
ABOUT THE COMPANY Case
CASEStudy
STUDY

DHD CURRENT RATIO

The company has sufficient resources to meet its
short-term liabilities.
In FY22, it had a current ratio of 4.13x.
Current assets of the company constituted ~78% of
total assets of the company. Other bank balances
represented the majority of current assets.
Current liabilities accounted for ~19% of total equity
& liabilities of the company. Other current liabilities
represented the majority of the current liabilities.

1
 SOLVENCY EDGE METER: 5
An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since
judgement on equity is subjective because different people will have different expectation from their investments, it is better to study
each aspect and give an individual grading to arrive at the final evaluation of a stock.
 VALUATION
ABOUT THE COMPANY Case
CASEStudy
STUDY

DHD PE RATIO
Tata Elxsi Ltd. is currently trading at a TTM PE
multiple of 58.44x.
It is currently trading at a premium valuation;
however, the company is offering significant growth
opportunities going forward.
It is a major contributor to the transformation to
electric vehicle.

1
 VALUATION
ABOUT THE COMPANY Case
CASEStudy
STUDY

DHD DIVIDEND YIELD

The company has been consistent in paying dividend
to its shareholders over the past few years.
It paid ₹42.5 per share as final dividend, implying a
dividend payout ratio of 48.2%.

1
 VALUATION
ABOUT THE COMPANY Case
CASEStudy
STUDY

DHD KEY LEVELS

After a sharp rally from ~₹500 in Nov 2016, to a high
of ₹1490 in July 2018, the stock witnessed significant
selling pressure and moved back to ~₹600 by Aug
2019. Its volatile move continued, and the stock re-
tested a low of ₹500 at the onset of the Covid-19
pandemic.
Since then, Tata Elxsi has exhibited tremendous
strength. In Oct 2020, the stock broke above the
₹1500 mark and since then it has been in complete
control of the bulls rising manifold. It made a lifetime
high of ₹10760 in Aug 2022.
The zone of ₹5500-₹6000 would act as a strong base
for the stock.

1
 VALUATION EDGE METER: 3
An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since
judgement on equity is subjective because different people will have different expectation from their investments, it is better to study
each aspect and give an individual grading to arrive at the final evaluation of a stock.
 QUALITY
ABOUT THE COMPANY Case
CASEStudy
STUDY

DHD MANAGEMENT
The management intends to concentrate on only
three industry verticals and develops design-led
products for its clients.
Management’s strategic diversification, seamless
continuity of delivery & operations, investments in
improving offerings, sales & marketing enabled the
company to increase its operating revenue.
It is also focused on increasing its presence in the
Healthcare and Medical Devices vertical as it has the
capacity to generate higher margins for the company.
It focuses on leading customers in terms of industrial
presence and size, in order to generate these higher
margins.

1
 QUALITY
ABOUT THE COMPANY Case
CASEStudy
STUDY

SHAREHOLDING
DHD PATTERN
Promoter shareholding remained constant during the
quarter to 43.92%. Tata Investment Corporation
Limited sold 1.69% stake during the quarter.
FII shareholding increased to 15.37% in Q2 FY23, as
compared to 15.17% in Q1 FY23.
DII shareholding decreased to 3.91% in Q2 FY23, as
compared to 4.21% in Q1 FY23.
Top Public Shareholding:-
Axis Mutual Fund 1.87%

1
 QUALITY
ABOUT THE COMPANY Case
CASEStudy
STUDY

DHD SECTOR POTENTIAL

• According to NASSCOM, India’s contribution to the global ER&D market is predicted to increase from $31 billion in CY19 to $63
billion by CY25 at a CAGR of 12-13%. Of this, it is expected that Indian ER&D service provider’s market would be witnessing at an
impressive CAGR of around 17%.
• Geopolitical risks and foreign exchange rate volatility, coupled with some slowdown in key industries such as automobiles,
continue to present challenges for growth in the sector. However, technology and digital spend by customers across verticals are
set to increase, providing opportunities for service companies to pivot themselves and engage with customers.
• According to a report published by Deloitte, the global demand for new electric vehicles (EVs) is expected to grow from 2.5 million
units in CY20 to 31.1 million by CY30. It is expected that going forward, growth in passenger vehicles would be primarily
contributed by EV sales. With a expectation of gradual shift to EV in the coming years, the adoption of automated driving/
advanced driver assistance systems, in-car infotainment systems and other related technologies would also witness strong growth.
• Over the Top (OTT) platforms also witnessed a rise in demand, accelerated by temporary shutdowns of multiplexes and
amusement zones due to pandemic related concerns. The OTT market is currently valued at $44.5 billion and is expected to reach
$139 billion in CY28, with a CAGR of 17.7%.
• The global healthcare market is growing at a CAGR of 8.9% to reach USD 11.9 trillion in 2022 from USD 8.45 trillion in 2018. As the
healthcare industry evolves, medical devices, pharmaceutical, and digital health companies would shift their focus to care
affordability, accessibility, quality, and efficiency. Businesses are utilizing the latest technologies to lower the cost of operations and
improve process efficiencies.

1
 QUALITY
ABOUT THE COMPANY Case
CASEStudy
STUDY

COMPETITIVE
DHD LANDSCAPE
Tata Elxsi helps customers create innovative
products, services, and experiences to build brands
and help businesses grow. By intersecting design and
technology, it help clients globally to bring new ideas
and products to market.
It has also licensed its AUTOSAR (AUTomotive Open
System ARchitecture) software which will help
accelerate the development of connected
autonomous and driverless vehicles. Tata Elxsi’s AR-
V2X (Augmented Reality – Vehicle to Everything) is a
first-of-its-kind solution that fuses the concept of
Augmented Reality and Connected Car testing.
Other companies working in similar industry verticals
include Tech Mahindra, Coforge and Cyient.

1
 QUALITY
ABOUT THE COMPANY Case
CASEStudy
STUDY

DHD FUTURE OUTLOOK

• The strategy followed by the company involves expanding its footprints in its existing key verticals instead of being operational in
all of the industry verticals.
• Going forward, revenue mix by industry towards the EPD segment from Transportation, Media & Communication and Healthcare &
Medical Devices segment is expected to be 40:40:20
• In recent years, the company’s contribution to the Automotive Electronics sector has been growing on the back of increasing
importance for electronically controlled units in vehicles across the world.
• The company is investing aggressively in the Automotive space as it believes that auto car parking, traffic jam assists and
remastering autonomy features are the future developments.
• For the Broadcast and Communication vertical, the management recognizes 3 sub-verticals – equipment vendors, operators and
broadcasters/media companies. Going forward, the operators and the broadcasters are expected to be the growth drivers.
• Tata Elxsi had collaborated with Lenovo to deliver smart XR solutions for enterprise and engineering applications.
• The company expanded presence in Kerala that will host teams and state-of-the-art technology labs for EV, Connected Car, OTT,
5G, and Digital technologies.
• Tata Elxsi and Renesas Electronics Corporation, a premier supplier of advanced semiconductor solutions, announced their
collaboration on a state-of-the-art design center in Bangalore that will develop targeted solutions for electric vehicles (EV). The
new Next Generation EV Innovation Center (NEVIC) was opened in January, 2022.

1
 QUALITY EDGE METER: 4
An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since
judgement on equity is subjective because different people will have different expectation from their investments, it is better to study
each aspect and give an individual grading to arrive at the final evaluation of a stock.
 FINAL
ABOUTEDGE
THE MATRIX
COMPANY Case
CASEStudy
STUDY

DHD
Edge Meter Aspects Grade
Growth 4
Profitability 4
Efficiency 4
Solvency 5
Valuation 3
Quality 4
TOTAL 24

The maximum grade for a company could be 30. Any company above grade 20
is worth considering. A grade below 15 is considered to be poor.
 ABOUT THE COMPANY Case
CASEStudy
STUDY

DHD

THANK YOU
This document and the process of identifying the potential of a company has been produced only for learning purposes. Since
equity involves individual judgements, this analysis should be used for only learning enhancements and cannot be considered to
be a recommendation on any stock or sector. Our knowledge team has limited understanding and we all are learning the art and
science behind this.

www.stockedge.com

1
 ABOUT THE COMPANY Case
CASEStudy
STUDY

DISCLOSURES
DHD
Neither Kredent Infoedge P Ltd. nor any of its associates have any financial interest in the subject company.
Neither Kredent Infoedge P Ltd. nor any of its associates have actual/beneficial ownership of one per cent or more securities of the subject company, at the end of
the month immediately preceding the date of publication of the research report or date of the public appearance.
Neither Kredent Infoedge P Ltd. nor any of its associates has, any other material conflict of interest at the time of publication of the research report or at the time
of public appearance.
Neither Kredent Infoedge P Ltd. nor any of its associates have received any compensation from the subject company in the past twelve months.
Neither Kredent Infoedge P Ltd. nor any of its associates have managed or co-managed public offering of securities for the subject company in the past twelve
months.
Neither Kredent Infoedge P Ltd. nor any of its associates have received any compensation for investment banking or merchant banking or brokerage services from
the subject company in the past twelve months.
Neither Kredent Infoedge P Ltd. nor any of its associates have 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.
Neither Kredent Infoedge P Ltd. nor any of its associates have received any compensation or other benefits from the subject Company or third party in connection
with the research report.
Neither Kredent Infoedge P Ltd. nor any of its associates have received any compensation from the subject company in the past twelve months.
Neither Kredent Infoedge P Ltd. nor any of its associates was a client during twelve months preceding the date of distribution of the research report.
Neither Kredent Infoedge P Ltd. nor any of its associates has served as an officer, director or employee of the subject company.
Neither Kredent Infoedge P Ltd. nor any of its associates has been engaged in Market making for the subject company.
Kredent Infoedge P Ltd shall provide all other disclosures in research report and public appearance as specified by the Board under any other regulations.