Tata Elxsi Q2 results preview: Revenue growth expected at 7-8% YoY, net profit to remain flat

The earnings season for the quarter ending September 2024 kicks off this week, and several big companies, including IT giant TCS and state-owned IREDA, are set to release Q2 financial reports.

Tata Elxsi, which provides design and technology services to clients in the automotive, broadcast, communications, healthcare, and transportation industries, is expected to post single-digit revenue growth for the September quarter.

According to Investing.com, the Tata group firm is likely to post revenue of ₹947 crore to ₹954 crore, reflecting growth of 2-3% quarter-on-quarter and 7-8% year-on-year, in the second quarter of FY25.

The company is expected to post 7-8% QoQ growth in net profit but on a YoY basis the net profit may remain flat, according to experts. The Tata Group firm’s net profit is likely to touch ₹200 crore in the second quarter of FY25.

In the September quarter of FY24, the company reported revenue of ₹881.7 crore and a net profit of ₹200 crore. The margins stood at 29.9% in the September quarter of FY24.

Tata Elxsi posted single-digit revenue growth in June quarter

The technology solutions provider posted a top-line growth of 2.3% QoQ in the first quarter. Revenue stood at ₹926.5 crore, up 9% YoY. The company reported a net profit of ₹184 crore in the June quarter.

The company’s transportation business led the growth, expanding by over 20% annually. Its EBITDA margins were 27.2% in the June quarter of FY25, compared to 28.8% in the March quarter of FY24.

Commentary on AI development

Investors will be keenly watching the development of AI, as leading IT companies reported increased revenue shares of the emerging technology.

The company has been investing in digital, AI, and Gen AI technologies across its verticals, targeting efficiency and quality in product engineering and novel applications of Gen AI. The company aimed to have 25% of its talent pool ready for AI by December of this year. Investors will look for the impact of these investments on revenue numbers and margins.

Deal pipeline

Tata Elxsi started the second quarter with the confidence of a strong deal pipeline and expansion of business with strategic customers across verticals. Investors will look out for the realisation of those deals and impact on its margins as well as revenue.

In the first quarter, the company won multiple multi-million US dollar deals from automotive OEMs to support Software Development, Advanced Simulation and Digital Twin programmes. Deals bagged included from a leading Japanese supplier, a telecom operator in North America, and a multi-year large deal from a Top 5 global medical devices manufacturer.

Geographical performance

For Tata Elxsi, Europe has been a key revenue contributor. The region accounted for around 42% of its revenue in the first quarter against 40% in the previous March quarter of FY24.

The company's revenue share of the key US market has declined from 40% in the June quarter of FY24 to 36% in the March quarter and further to 33% in the June quarter of FY25. Investors will look to see if the company arrests the fall in the September quarter.

In addition, investors will also keep a close look at attrition levels and commentary on employee retention. Tata Elxsi reported an attrition rate of 12.3% in the first quarter of FY25 and 13.7% in the September quarter of FY24.

Tata Elxsi share price

Tata Elxsi's share gained for the third straight day. The stock opened on a positive note on Thursday ahead of the result announcement. At 12:00 pm, the stock traded at ₹7,834 per share, up 2.89% on the NSE.