Is Tata Elxsi a Multibagger Stock based on Warren Buffet Analysis?

Tata Elxsi Ltd.

NSE Code TATAELXSI.NS
BSE Code 500408
URL https://www.tataelxsi.com/
CMP 850
Free Report Yes
Publish Date May-24-2019

In this post we would like to Explore the Multibagger Stock Potential of Tata Elxsi.

Tata Elxsi Multibagger Stock

Tata Elxsi provides product design and engineering services to the consumer electronics, communications & transportation industries and systems integration and support services for enterprise customers. It also provides digital content creation for media and entertainment industry.

Company is Core Technology oriented & should benefit from upcoming IoT trends, Robotics, 3D printing, Autonomous Vehicles, Nanotechnology, AI, Automation, ML etc.

tata-elxsi-ai-iot

Tata Elxsi implements and integrates complete systems and solutions for specialized applications such as High-Performance Computing, Computer Aided Design, and Virtual Reality.

Globally, telecom operators are moving towards virtualization and creating Software Defined Networks (SDN) to reduce capital & operating expenditures.  Tata Elxsi has a comprehensive portfolio of SDN and virtualization services.  In the past year Tata Elxsi has been chosen by Airtel as Technology Partner.  The company has developed and integrated key software components to ensure that the Android TV application suite provides a seamless user experience whether the viewer accesses online or offline content.   Tata Elxsi has also partnered with Zee Entertainment multi-platform front-end application development of its new digital entertainment platform.

Positive Factors

Company is showing Consistent EPS Growth of 20% above in the Past 5 years.

Company has high ROCE 56% and ROE 37%.

Company has a Strong Moat of Technology Talents, Patents & Products.

Company gained several awards in categories of Best Electronics Design Company, Supplier Excellence, Women Empowerment etc.

Company has licensed Autonomous Vehicle Middleware PLatform AUTONOMAI scaled to Top 5 in world.

From the House of TATA.  Thus gets Preferred Supplier benefit from JLR (Jaguar Land Rover)

Company expanded its Solution Portfolio with 3D Printing in past year.

Company is growing in SDN segment.

Tata Elxsi is Debt Free. (Debt free companies are Essential Quality to survive in the Bear Market of 2020 created due to Corona)

Company had issued bonus shares in the ratio of 1:1 to all shareholders  past year.

Company is witnessing Increase in Net Reserves.

Company has good Revenue & Net Profit Growth.

profit-and-loss-result-tata-elxsi.jpg

Tata Elxsi is gaining various awards in respective fields.  It have been awarded the Jaguar Land Rover Supplier Excellence Award for 2017. This award recognizes
excellent on-time delivery, continuous quality, technical innovation and consistently meeting production and design challenges. This is a testimony to the customer focus and delivery excellence that Tata Elxsi provides to its clients.

tata-elxsi-awards.JPG

Concern Factors

Profit & Loss Statement shows Other Income of 43 Crores constituting 20% of Net Profit. Thus the Real Net Profit Margin should be re-calculated for Growth positioning.

Company have 90% Revenue from Global customers. Any Global slowdown affects the Revenue of the company.

Company is trading 5X of book value.

Debt is Zero. It is Good but also says company is Reluctant on Leveraged Growth.

Employee Bad Reviews are bit high about the company. Link

Warren Buffet, Value & Growth Checklist

Following are the Checklist parameters:

Capitalization 5000 Crore (Largecap) – but ample growth opportunity is there. bce05 green e1587451073732
History of Consistently Increasing Sales, Earnings & Cash Flow Yes. bce05 green e1587451073732
Durable Competitive Advantage Yes. bce05 green e1587451073732
Future Growth Drivers / Sector Growth Yes. bce05 green e1587451073732
Conservative Debt (long term debt < 3 Net Profit) Yes bce05 green e1587451073732
Debt Equity Ratio, Current Ratio Debt is Zero.

 

Current Ratio is 5.3

bce05 green e1587451073732
Return on Equity must be Above Average Yes. ROE is whopping high of 37%!! bce05 green e1587451073732
Low CAPEX required to maintain current operations Yes. bce05 green e1587451073732
Inventory Turnover Ratio, Debtor Days, ROCE Constant
Management is holding / buying the stock Flat
Market Price < Intrinsic Value Yes. Intrinsic Value at Rs. 1800 Intrinsic Value Calculator bce05 green e1587451073732
Stock Price is consolidating (now) Yes bce05 green e1587451073732
Stock Price is growing in past years along with EPS growth Yes. bce05 green e1587451073732
Consolidated PE, PB Ratio, PEG Ratio PE 20 (high)

 

PB 5 (high)

PEG 0.4 (Good)

Cash Flow Positive, Net Profit % greater than 8% Cash Flow: Negative

 

Net Profit: Yes

bce05 green e1587451073732
Paying Dividends, Tax Yes bce05 green e1587451073732
EPS Growth Rate 20% above bce05 green e1587451073732
Jump in Trailing Result EPS Yes bce05 green e1587451073732
Jump in Quarterly Result EPS Yes bce05 green e1587451073732
Expected Gain in 5 Years 400-500% bce05 green e1587451073732
Price Movement Graph, 52 Week High & Low Okay bce05 green e1587451073732
Volume Analysis 2.5 Lakh
Power of Brand Yes bce05 green e1587451073732
Corporate Governance, Reputation of Leaders Yes bce05 green e1587451073732
Fraud reported No.  But high remuneration ration & increments for core promoters bce05 green e1587451073732

Summary

Based on the above analysis I would like to say that the Tata Elxsi possess Multibagger properties in Indian Stock Market & One can Invest during 2019 year.  Company aligns with Warren Buffet principles of Value & Growth Investing.  It  can be considered as Low Risk High Returns investment.

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