TCS - with a P/ E of 25+ and M/Cap to Sales above 5 is valued higher than Elxsi. Hence, merger is not a threat from valuation perspective though the actual gain or loss will depend on the swap ratio.
Thanks for the views Aman. Valuation is a very subjective concept in itself. Not super attractive valuation in my opinion and you have highlighted all the relevant things we could use in terms of historical + DCF kind of models. The only thing I could add is:
Big part of valuation in companies trading at fair to high multiple zone goes to ability to grow along with market size opportunity, business longevity with minimal impact of disruption leading to possible terminal value
Now these things differ based on once understanding of sector, market size opportunity and belief in company’s strength to leverage it. I think their journey has been benefited by electronification of auto sector and M&E sector through technical knowledge of embedded system and design. Now, they are getting into right areas which may look small but considering their experience, they can do well in areas like automation of vehicle, OTT platform design, Smart Transport, Smart homes driven by internet of things. Key will always remain execution and technological agility and not market size opportunity.
At less than 15x cash earnings with similar growth, I would jump to buy, between 15-20, would like to nibble slow and steady till it remains there, 20-30 i would do nothing and above 30 may like to offload a bit taking some profit home keeping all the other factors remain as it is. This is how I treat valuation n buy sell behavior
Edit: some corrections on views on valuation, ve corrected