Good Annual Report by Tata Elxsi, simple & neat, the way an AR should be. No Consolidated vs. Standalone, no ESOPs, no Goodwill, no complications. No excessive gloss either.
The DSO has deteriorated a bit, but despite that cash flows have improved. The business is looking more balanced now with Communications & Broadcasting sector inching closer to Automobiles. And with Medical Equipment growing even faster than the two, the portfolio will become more balanced in future. JLR contribution is just 16% now, so that should no longer continue to be a concern. Overseas Travel Expenses were Rs.68 crore for the year. Hopefully, much of this will be saved in the current year, which is not a small amount considering yearly PAT was Rs.256 crore.
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These are my observations⌠If anyone can throw some light
Why are Non executive Directors getting commission to the tune of half of the CEO salary?
How to account for the shares transferred for the incubating companies?
Company itself being in the software domain, why it is paying Consultant fees for Software Development that too almost 30% of the PAT?
what can be inferred with the 178 Cr in Current Account as it almost 70% of the PAT
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Do you think the hits taken by Tata motors and Tata steel will hit Elxsi in any way. The 16% sales they were receiving from Tata motors and JLR will have impact. However, is there any other effect that you think can have an effect?
The no-debt and good cash situation is sweet and might help them consolidate some smaller companies in the sector.
I donât think they have much business with Tata Steel. TaMo & JLR will have an effect, but the proportion of non-automobile business has been growing lately leading to a more balanced portfolio. Hence it is okay I think.
Do you know how Tata Elxsi is different from TCS. I know that they are not an IT company and are more towards the engineering R&D side. However, cannot seem to find any management interviews about how they want to take Elxsi further.
From the investments in the media and medical division as well as the runway potential it seems like this could be a bright and emerging star in the TATA group. However, I wonder if TCS will just observe Elxsi (through a merger). Do you have any sources to management opinion on this?
Q: You talk about synergies. Do you see synergy in merging Tata Elxsi with TCS or even Tata Technologies?
Ans: All these companies are doing well. If it has to happen, it will happen but itâs not a priority.
This is how I look at them. TCS mainly focuses on the high level language stuff whereas Elxsi mainly focuses on the mid level and machine level language stuff. With the advent of IOT, 5G, Autonomous Vehicles I see a tremendous scope for the company if it can able to scale and exploit the opportunity.
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TCS does everything under the sun. Tata Elxsi is focused on niche areas like automobiles, broadcasting & communication and medical. Elxsi is a more high risk, high return business model. The best way to understand the company is to go through its quarterly concalls & annual reports (and this thread).
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Please can anyone explain why in AR2020 they do not show business (revenues, trade receivables, anything else) with JLR/Tamo in related party transactions? Isnât it necessary to report even affiliate or associates of the parent (tata sons)?
My observations post reading 10 year Annual Report
I was looking for lacunae and hence my observations are built around it. Didnât come across any major ones though.
It hardly grew in the Systems Integration and Support in the last 15 years or so. It reported turnover of 47 crores and profit of 6 crores in 2019-20 compared to the 40.28 crores and 4.70 crores during 2004-05. Itâs stagnant to say the least.
Hows it saying Ceiling as per the Act (1% of the profit calculated u/s 198 of the Companies Act, 2013) is 357.00 when the 1% reported PAT 256 Crore is 2.56?
Itâs always making provision for doubtful recoveries in the receivables or loans. I thought IT companies receivables are as good as bank deposit
Why is it acting as guarantors for the housing loans taken by the employees?
Itâs always doled out loans to the employees. Itâs sister company,TCS in which I almost worked for decade stopped this dole out around 2010 or so if Iâm not wrong.
Any idea on the other payables in the related party transactions to KMP and Other related parties?
Why is it not including the salary of CFO and Secretary while calculating the 5% ceiling?
Shouldnât it equity get dilut when it allotted shares to incubating company?
It has Cash and Cash Equivalent of 664 Cr which is increasing at the CAGR of more than 20%.
Annual Report 09-10 didnât talk about Singaporean subsidiary.
Company extended loan to A Squared Elxsi Entertainment LLC, USA in 12-13 to the tune of 5.03 Cr when its share application money was already marked Doubtful
Invested at lower level.
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Q3 deal closures at a record high.
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- Brilliant results by Tata elxsi
- With very good growth operating leverage into play
- Excellent deal pipeline
- Very good growth on focus vertical -Media and communication
- Employee attrition (6%)at same very low level which is excellent by any standard
- Still Bullish commentary by MD who seems taking Tata elxsi from "good to great "
Tata elxsi 121021 qtr 3 results .pdf (835.0 KB)
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Tata Elxsi is already 3.5X in 9/10 months from my first buy .My 2nd largest holding .
Not selling anything 1)I expect all verticals doing better than before as multi year large deals won by them ,plus growth from existing deals
2) clear sharp focus on healthcare and broadcast /communication vertical including looking out for acquisition in healthcare space
3)revival in transportation vertical /Jaguar
Risk : If market crashes ,Tata Elxsi would also crash and we should be ok for it ,as its definitely a long term growth story (Covid has only preponed everything for this company for better )âŚlets see how future pans out
Like always plan to attend the investor call at 2pm today
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Tata Elxsi Q3FY21 Concall KTAs:
Strong and broadbased commentary and outlook
[Dalal & Broacha Research]
- 90% of sequential growth was volume led
- Sustained recovery in automotive market for 2nd consecutive quarter
- Recovery in design business (YoY) for the first time in several quarters â have won some large deals in this segment
- Have reached pre-COVID levels of growth
- Strong order book as we enter FY21 with furor
- No IP led growth as it is lower than last quarter â growth purely volume led
- Would be in this margin band but difficult to comment during such unusual times (somewhere between 22-30%) â
- Utilization rate (95% in current Q3FY21) and certain pricing arrangements for Offshore billing have aided margins
- Previously, Q3 would have several furloughs but there was not much this time therefore was able to book strong revenue
- Growth momentum â management is extremely bullish and not been in such a healthy scenario before
- Very small legacy semi-con business in Comms â otherwise not pushing this space
- 9% of revenue is design business
- Cater to Supply boxes, PayTV operators (airtel , tata sky), studio and broadcast channels in Media. Expect latter 2 to grow and former to become stagnant eventually
- Top client outlook: will exit Q4 with a bang in top client
- Average deal durations have increased from 6-12 months previously to 12 months+ now
- Expect adjacencies of current business (such as Off-highway and truck in Transportation and Pharma in Lifesciences and Healthcare) to work as key growth drivers over the next 3-5 years
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Thatâs great as you got best growth in your top holding. How do you compare Tata Elxsi with LTTS considering both are in engineering IT space and focus on Healthcare, automotive etc. Along with IP⌠thoughts welcome
Thanks .
In tech space I have Tata elxsi and HCL tech .Dont follow LTTS ,hence cannot comment .
Regards
Debashish
Tata Elxsi P/E is 45. The P/E expansion has been almost 3X over the last 7-8 months. This is no FAANG stock and seems highly overvalued now.
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With all due respect to FAANG stocks but Indian IT story is not about FAANG, at least not directly. Agree 45 PE maybe overvalued but 15 PE was extremely undervalued in hindsightâŚconsidering this PE expansion has come on the back of multiple engines kicking in - Diversification of revenues, new big deals win, margin expansion and excellent revenue growth. Same is case of most Indian IT Services and Engineering IT services companies like LTI and LTTS etc⌠Albeit some have more growth than other and hence trade at like vise valuations.
My personal view is that they may not be overvalued provided the growth momentum in revenues continue and margins remain sustainable.
Product IT companies in India are yet to rerate and also show good growth (I track only OFSS in Product IT in India)
No comments on FAANG stock as do not directly track them and cannot invest in them.
Disc: Invested in IT names mentioned above and hence would be biased. Not a buy/sell recommendation. Only personal thoughts on business. Tata Elxsi is a small part of my portfolio and I regret of not having bought more. Followed a more basket approach to IT but in hindsight now feel Tata Elxsi deserved a much bigger percentage. Investing is a true learning experience. Views invited.
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Indian IT Story is not about FAANG - it is about IT services. Think like outsourced pharma business of Syngene. Infosys, Wipro, TCS are into traditional IT services mostly - Tata Elxsi is more into engineering IT services. They donât make products. All IT stocks were actually helped by the pandemic due to preponed & increased customer spending which has made the last 4 quarters look much better. The coming quarters are going to see some effect of the preponement
It was definitely a steal at P/E of 15 and price of 700.You will still not lose money in the long term in a company with such a good history as below, as the earnings growth over time will see the same price after several years.
However at these prices, buying has no margin of safety. At these prices, valuations are very stretched and I would not be suprised with a 50% correction in the medium term.
What I meant about FAANG is that they own the IP, they own the products and the growth can be exponential as the product sells more. Tata Elxi, LTI, LTTS are not like that. They donât have upside in the client product sales. They get what is in the contract. Also, none of these 3 companies are the most sought after employers of software engineers in India nor are they the biggest paymasters. Surely the best talent in India is working elsewhere. To have FAANG like P/E in the context of their limited headway for growth limited to client contracts and the hiring they are able to do, this is definitely stretched valuations at this point.
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I dont think its right to compare outsourced IT with outsourced Pharma. Once few years back, I also tend to do that and now realize that the business dynamics are extremely different.
I had also written off Indian IT at some point of time because of the low end job they used to do. But the progress they made in digital and having seen the dependency of the Amazon, Google etc on Indian IT for partnering for their digital offerings - Indian IT growth is here to stay.
Tata Elxsi and LTTS are in different league with their niche offerings. I believe the true engineering IT growth and capabilities are not yet known or seen.
Regarding growth in recent quarters - Preponement is one factor and realization of importance of digital is another. Its not that all companies that want to go digital and the extent to which they want to go have all gone in these 3 Quarters - the journey has only begun. Who will capture the benefits of that journey is another question alltogether.
Now coming to corrections in crash - I agree that risk is very much there. There is nothing called as âMargin of Safetyâ. People just remain in illusion citing the Margin of safety if they buy at lower levels. Today, its all your money so the Margin of safety for someone who bought at 700 is same for someone who bought today as even though the first person who bought at 700 has all his money invested today and is as good as buying today.
Risk of big downsides and upsides remain in Technology companies. Probably thats why I did not allocate bigger percentage to Tata Elxsi and missed on the huge upside risk on a higher allocation.
If the traction in revenue growth and deal wins subdue, I agree the downside risk will come into picture.
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