On Friday, JPMorgan (NYSE:JPM) analyst Bhavik Mehta revised the price target for Tata Elxsi Ltd (TELX:IN) to INR 5,400, down from the previous INR 5,700, while maintaining an Underweight rating on the stock. The decision followed Tata Elxsi's third-quarter earnings for 2025, which fell short of expectations, marking the second consecutive quarter of disappointing performance.
The company's constant currency (CC) revenue growth was flat quarter-over-quarter, falling 100 basis points below JPMorgan's estimate (JPMe). Additionally, earnings before interest and taxes (Ebit) margins decreased by 160 basis points quarter-over-quarter, which was 180 basis points below JPMorgan's forecast.
The analyst noted that the automotive sector's growth outlook appears weak in the near term, citing delays in deal ramp-ups and closures due to a global slowdown in electric vehicles (EVs). Tata Elxsi anticipates it will take at least a couple of quarters for this situation to stabilize.
Despite facing headwinds, the Media & Telecom (BCBA:TECO2m) and Healthcare verticals have reached a point of stability. However, the analyst indicated that it would take more time for growth acceleration to occur in these areas. The decline in Ebit margins was attributed to the combined impact of wage hikes and unfavorable foreign exchange movements.
The challenges across Tata Elxsi's broad portfolio are expected to result in a weak exit rate of 0% for the fourth quarter of 2025, complicating the company's ability to achieve even high single-digit (HSD) growth in the fiscal year 2026. The analyst also expressed concerns that the lower growth trajectory would likely constrain margin expansion in the fiscal year 2026.
In light of these factors, JPMorgan has adjusted its earnings projections for Tata Elxsi, reducing them by 3-5% for the fiscal years 2026-2027. The price target has been cut by 5% to INR 5,400 from INR 5,700. The Underweight rating reflects JPMorgan's cautious stance on the stock, particularly given what they consider an excessive price-to-earnings (PE) ratio of 41 times the firm's 2026 earnings estimate.
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