Scripscan:Tata Elxsi ltd
Buy range:200-220 rs
Story:Seriously had one heck of a time in choosing the special Diwali pick.I satisfied myself through every means,studied each and every details meticulously,presumed retail gullible investors mindset and zeroed in on the company name penned above.Its not a small cap which you folks would clamour about limited volumes in the bourses or its not the typical large known cap which has presumably got its future return capped at 10-15% CAGR for coming few years.Tata Elxsi is all about the class,the Sunrising business model company with an amazing future ahead.
Quote:'CMC, Tata Elxsi, CRL & Tata Tech are each a TCS in the making in their respective sectors'-S Ramadorai.
Note:Now when that comes from the man who is responsible for TCS's 4 lakh crs marketcap(ya you read that correct 4 lakh crs)you ought to feel the Midas touch already.It would be prudent to note that Mr Ramadorai is the Chairman of my recommendation today.One may question me about why the discrimination among the four companies he named?Why tata elxsi and not the other three?The answer is simple folks.Among the companies he named we only have Cmc and Tata elxsi listed in the bourses.Am not here to piss one off by suggesting the 1300 bucks 4000crs mcap CMC for sure.That leaves me with Tata elxsi which not only provides a healthy 5-7 bucks dividend per share but also is available at a mere marketcap of only 600 odd crs.Now how many company from the respected TATA stable is available at such low valuation?
Business:A part of the USD 100 billion Tata Group, Tata Elxsi provides embedded product design, industrial design, animation & visual effects and systems integration among others.Headquartered in Bangalore, it has offices in Dubai, France, Germany, Japan, Malaysia, Singapore, South Africa, UAE, the UK and the US.As I have mentioned in several of my earlier research notes,Intellectual property/Brain of the guy at helms is one of my major criteria for choosing a company.Mr Ramadorai is the man for me here.And on his words,"It is a company which is specially into- design & development, industrial designing, and animation & special effects. In the first two areas, our capabilities are exceptional.They are total intellectual assets.We have done some cutting-edge work for onboard electronics, design of water filters.Visual computing is slightly different. It touches on aspects like special effects, which plays a part in launches of cars like Tata Motors’ Manza, Tata Motors’ Aria, where the entire special effects were created purely from the engineering data.So there was no actual car used for creating those special effects. The animation business is also making progress with the company setting up a studio in the US".
Fiscal 2012-13:The total consolidated income during the fiscal was Rs. 626.51 crores as against Rs. 542.91 crores in the previous year,registering an overall increase of 15.4%.The Profit after Tax (PAT) was Rs. 21.31 crores, as against Rs. 34.59 crores in the previous year. The decrease in profit is mainly due to retiring of the corporate guarantee given to bank for securing the loan for its JV entity, A2E2 and share of loss in the said JV entity.
Software Development & Services:The businesses constituting this segment are Embedded Product Design,Industrial Design, and Visual Computing Labs. This segment reported a revenue of Rs. 552.95 crores in FY13, registering an increase of 21.7% over the previous year. The segment''s profit was Rs. 62.39 crores.
How they fared:-
a)Embedded Product Design:The Embedded Product Design division provides technology consulting,new product design and development, and testing services for the broadcast consumer electronics, healthcare, telecom, and transportation industries. It also creates and licenses intellectual property and software components, helping customers create product differentiation, and reduce development costs and time-to-market.
b)Industrial Design:The Industrial Design division helps customers develop winning brands and products by using design as a strategic tool for business success.It provides an end-to-end design and innovation service for new products from consumer research and ideation, to interaction design,prototyping, and manufacturing support.It addresses the FMCG,Automotive, Healthcare, Consumer Electronics, and Retail sectors.It has designed award-winning packaging in the food, beverage,personal, and home care segments, for leading brands in India and overseas.It also executed several projects for interior and exterior styling of vehicles and the design of cutting-edge products for consumer electronics and healthcare.In the interaction design area, its design for an interactive e-sales book for Mahindra and Mahindra won the award for the best User Interface Design at the CII Design Excellence Awards 2012.In the FMCG packaging area, its packaging design for Ocean Herbal, a new Ayurvedic personal care brand, was conferred with the India Design Mark (I Mark). The ''I Mark'' is a prestigious design standard given by the Indian Design Council.This division has been successfully certified for ISO 13485:2003, a management systems standard relating to the design and development of medical devices.
c)Visual Computing Labs:Visual Computing Labs (VCL) offers Animation, Visual Effects (VFX) and 3D stereoscopic content for feature films, episodic television and advertising. It also offers custom content development for visualization and product marketing.VCL won several national and international awards including the Best VFX Shot of the year and Best Animated Feature Film(Theatrical) awards at the prestigious FICCI Frames BAF Awards 2013.It won the Best Special Effects award for ''Ek Tha Tiger'' at the Star Guild Awards 2013 (also known as Apsara Awards). It also won the Best Animated Feature Film (Theatrical) award for ''Arjun - The Warrior Prince'' at the Infocom-Assocham EME Awards 2013.
Systems Integration & Support:During the last fiscal, the segment turnover and profit were Rs.68.72 crores and Rs. 1.70 crores respectively.This business segment integrates, installs and commissions complete systems and solutions for areas such as Computer Aided Design, Analysis and Manufacturing, Virtual Reality, High Performance Computing and Storage for enterprise customers. It provides best-of-breed solutions through partnerships and distribution agreements with leading international software and hardware vendors. It also provides infrastructure management, support and maintenance services.This business will continue to focus on a solutions-centric approach that drives higher composition of software and services in the business mix to improve margins.
1st quarter results:It reported an over three-fold rise in its consolidated net profit at Rs 8.92 crore for the first quarter ended June 30, 2013. The firm had posted a net profit of Rs 2.61 crore in the year-ago period.Its consolidated net sales rose 18 per cent to Rs 173.17 crore in the April-June quarter of 2013-14 fiscal against Rs 146.19 crore in the same quarter of previous fisca
2nd quarter Results:Consolidated operating income rose by 22 per cent to Rs 189.97 crore in the recent september quarter, compared to Rs 155.36 crore in the year ago period.It reported 11-fold jump in consolidated profit at Rs 19.93 crore for the July-September quarter, against Rs 1.81 crore in the same period last year, on the back of currency gains and higher income. The company reported other income, including currency gains, of Rs 6.53 crore during the quarter.The revenue from the software development and services segment rose to Rs 172.40 crore in Q2 FY14, from Rs 136.33 crore in Q2 FY13.Emerging markets focus along with and the under tapped potential at the bottom of the pyramid has been the other demand driver for its services.
Ratio parameters:Debt to equity ratio stands at a healthy .3.ROE and ROCE stands at a robust double digits figures.The company has a book value of 63 bucks as on the last balance sheet figure.Dividend yield is around 2.5%.The company generates decent cash flows from its operating activities.
Conclusion:Its continuing investments in R&D and technology development, as well as the exploration of new and adjacent markets. These will provide the foundation for future business and help de-risk any downturns in specific industries and markets.The company always had the potential but never couldn't move out of the woods.The present time it certainly seems its moving to the rich league which it always belonged.The company is set to report earnings of 14 bucks for the present fiscal(800-850crs sales and a PAT of between 40-46crs for fy13-14 consolidated numbers).Applying a modest PE multiple of 20(average historical PE of last five years has been even higher) helps me to arrive at a target price of 280 bucks.Enjoy the 30% target return over a period of 6-8 months.
btw:Its also a long term multibagger call.I would keep on reviewing it from time to time in future course.People looking for midcap/smallcap positional call professional service may rush a mail at my mail id email@example.com to know more about it.