Geojit Investments has upgraded Tata Elxsi to Buy from Hold, citing a gradual recovery in demand and strong growth prospects. The brokerage maintains its target price of ₹5,135 per share, representing a 22% upside potential from current levels of ₹4,213. According to the latest reports, the upgrade reflects the company's entry into a recovery phase, led by robust performance in its transportation segment. The upgrade is based on expected growth in Software-Defined Vehicle (SDV) deals within its key transportation segment, which makes up over 55% of its revenue.
Tata Elxsi's transportation division showed renewed strength with 7.7% quarter-on-quarter growth, driven by Software-Defined Vehicle (SDV) projects with vehicle manufacturers (OEMs) and the stabilization of major client work. The company is investing in electrification, advanced driver-assistance systems (ADAS), and connected car technologies to benefit from ongoing strong customer spending in these fast-growing areas. Management aims to grow the non-passenger vehicle part of its transportation business from about 7-8% of revenue to 20% within three years, showing a clear strategy for future expansion supported by rising industry spending and new clients. High growth areas like electrification (EVs and hybrids), ADAS, and connected car platforms continue to see strong customer spending, as reported by Geojit.
Tata Elxsi posted a 2% YoY revenue decline in 9MFY26, as reported by Moneycontrol. However, sequential recovery was visible with 3.9% growth, led by the 7.7% rebound in Transportation on SDV-driven OEM ramp-ups and normalization of key client engagements. The company's EBITDA margin declined 534 bps YoY to 22% in 9MFY26, though it expanded 220 bps QoQ. The sequential improvement was driven by approximately 200 bps utilization-led operating leverage, 80-85 bps cost discipline, and 35 bps forex gains, partly offset by a 110 bps wage hike impact. The company has reduced its workforce by 2.9% quarter-over-quarter and 9.9% year-over-year, with an attrition rate of 15.6%, indicating a strategy to cut costs and increase worker utilization from about 75% towards 80-85% using automation and AI. Geojit notes that margins may face near-term pressure from wage hikes & Chinese competition, but rising utilization & operating leverage provide expansion potential without large-scale hiring.
According to Moneycontrol reports, most geographies posted YoY declines in 9MFY26, but sequential recovery was led by Europe (+5%) and North America (+13%) on broad-based traction across accounts and verticals. India fell 9% due to weaker automotive supplier demand. The company's capabilities span across Automotive, Broadcast & Communications, and Healthcare industries, positioning it as a leading provider of IT ER&D services. Geojit expects the lagging healthcare and media & communications sectors to bounce back gradually from Q4FY26, with anchor client recovery anticipated over the next 1-2 quarters.
As reported by Moneycontrol, anchor client recovery is expected over the next 1-2 quarters. While OEM decision making remains cautious, strong value propositions and offshore execution continue to support deal wins and gradual demand recovery. However, near-term margin pressures are a key concern with rising wages and increasing competition from Chinese firms potentially hurting profits. The company currently trades at a trailing P/E ratio of 52.4x, higher than KPIT Technologies' 48.2x, suggesting investors already expect significant growth and efficiency gains. Geojit remains positive about the company's domain expertise, design-led approach, and offshore execution position it for sustained recovery, with the brokerage valuing the company at 33 times FY28E EPS and expecting a clearer recovery across transportation, Media & Communications, and Healthcare divisions starting in the fourth quarter of FY26.
