CMP 178.60

Target Price 193.00

ISIN: INE670A01012

AUGUST 2nd

, 2013

TATA ELXI LIMITED Result Update: Q1 FY14

BUYBUYBUYBUY

Stock Data

Sector IT (Design)

BSE Code 500408

Face Value 10.00

52wk. High / Low (Rs.) 252.00/170.05

Volume (2wk. Avg ) 33315

Market Cap ( Rs in mn ) 5561.25

Annual Estimated Results (A*: Actual / E*: Estimated)

Years FY13A FY14E FY15E

Net Sales 6046.86 6772.48 7382.01

EBITDA 593.94 745.73 849.08

Net Profit 209.88 286.87 337.94

EPS 6.74 9.21 10.85

P/E 26.50 19.39 16.46

Shareholding Pattern (%)

1 Year Comparative Graph

BSE SENSEX TATA ELXI LTD

SYNOPSIS

Tata Elxi Ltd is a design company that blends

technology, creativity and engineering to help

customers transform ideas into world-class

products & solutions.

The company’s net profit registered a 324.70%

increase and stood at a record Rs. 103.50 million

from Rs. 24.37 million over the corresponding

quarter last year.

Tata Elxsi has unveiled its latest system

integration program for the deployment of the

RDK platform from Comcast.

Tata Elxsi was declared winner of the first

Automotive Grade Linux (AGL) User Experience

Contest in the “Best User Experience” category.

Tata Elxsi announced the launch of the second

edition of Ignite Design Contest.

Tata Elxsi has signed on “Big V Telecom” for

incub@TE - its recently launched incubation

centre program to nurture and support aspiring

start-ups.

Tata Elxsi is working with leading design colleges

by offering internships, conducting workshops,

etc. to bridge the industry-academia gap.

The industrial design industry in India is a sunrise

sector, and is estimated to be US$70-80 million.

Net Sales and Operating Profit of the company are

expected to grow at a CAGR of 13% & 5% over

2012 to 2015E respectively.

Peer Groups CMP Market Cap EPS P/E (x) P/BV(x) Dividend

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Tata Elxi Ltd 178.60 5561.25 6.74 26.50 2.90 70.00

Infosys Ltd 3005.00 1727560.80 159.55 18.86 4.79 840.00

TCS Ltd 1844.00 3610877.00 67.71 27.25 14.59 2500.00

Wipro Ltd 441.25 1088769.30 24.31 18.18 4.47 300.00

Investment Highlights STANDALONE

Results updates- Q1 FY14,

Tata ELXI Ltd achieved a turnover of Rs. 1722.01 million for the 1st quarter of the current year 2013-14 as

against Rs. 1435.24 millions in the corresponding quarter of the previous year. The company has reported an

EBITDA of Rs. 218.21 millions and a net profit of Rs. 103.50 million against Rs. 24.37 million reported

respectively in the corresponding quarter of the previous year. The company has reported an EPS of Rs. 3.32 for

the 1st quarter as against an EPS of Rs. 0.78 in the corresponding quarter of the previous year.

Months JUNE-13 JUNE-12 % Change

Net Sales 1722.01 1435.24 19.98%

PAT 103.50 24.37 324.70%

EPS 3.32 0.78 324.70%

EBITDA 218.21 98.92 120.59%

Expenditure :

Break up of Expenditure

Rs. Millions

Q1 FY14 Q1 FY13

Purchases 244.09 121.74

Depreciation 57.58 54.78

Employees Benefit Expenses 938.29 864.20

Other Expenditure 405.20 330.94

Segment Revenue

Latest Updates

• Tata Elxsi has unveiled its latest system integration program for the deployment of the RDK platform from

Comcast. Tata Elxsi will assist operators in determining specific requirements, integration, application

development, pre/post testing and deployment in an efficient and cost effective manner as an RDK System

Integrator.

• Tata Elxsi was declared winner of the first Automotive Grade Linux (AGL) User Experience Contest in the

“Best User Experience” category. The AGL contest was centred on the theme ‘Designing the Future of

Automotive Infotainment User Experience’.

• Tata Elxsi announced the launch of the second edition of Ignite Design Contest.

• Tata Elxsi has signed on “Big V Telecom” for incub@TE - its recently launched incubation centre program to

nurture and support aspiring start-ups. Big V is an emerging tech start-up that offers customized Business

Telephony Solutions for businesses and consumers. It has already deployed its solutions in select regions in

India, and is looking to scale its presence across India and the global market.

Company Profile

A part of the $ 100 billion Tata group, Tata Elxsi is a design company that blends technology, creativity and

engineering to help customers transform ideas into world-class products and solutions. Tata Elxsi Limited

provides product design and engineering, and systems integration and support services in India and

internationally. The company provides customized design solutions to companies across the globe from

Automotive to Aerospace, Enterprise to Consumer Electronics, Entertainment to FMCG, Media to Storage,

Semicon to Telecom.

Business Area

Embedded Product Design

The Embedded Product Design division provides technology consulting, new product development, system

integration, and testing services for the broadcast, industrial and consumer electronics, transportation, wireless

communications, and convergence industries. It also creates and licenses intellectual property and software

components, helping customers create product differentiation and reduce development costs and time-to-

market.

Industrial Design

The Industrial Design division helps customers develop winning brands and products by using design as a

strategic tool for business success. Its expertise extends across consumer insight, branding, product design,

packaging design, transportation design, visual design, design engineering, and manufacturing support. This

division has worked with prestigious FMCG brands in packaging design. It has developed award-winning designs

in the food, beverage, personal and home care segments, for leading brands in India and Overseas.

Visual Computing Labs

Visual Computing Labs 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, and is a leading provider of engineering and animation services for mobile, online and console games.

VCL has worked with leading international studios like FOX, Disney, Sony and Columbia Pictures, Industrial Light

& Magic, MGM, on some of their features including Jack The Giant Slayer, Gullivers Travels, The Darkest Hour,

Terminator 4, Ironman, Indiana Jones, Spiderman 3, Into the blue, Ghostrider, XXX 2 etc. VCL continues to

execute visual effects for a number of Bollywood films like Ra-One, New York, Prince, Rab Ne Bana DI Jodi, Drona,

Bachna Ae Haseeno, Jodhaa Akbar, Taare Zameen Par, Dhoom 2, Rang De Basanti and many more.

VCL has also worked on numerous television commercials for leading brands like Bisleri Mountain Water,

Videocon Innovation Labs, Panasonic Eco Navi, Samsung Mobile, Sony, Toyota Corolla Altis, Chevrolet, Honda, Elf

Moto, MSN, Nissin, Reebok, Lux, Kelloggs, Pillsbury, Coke, Colgate, Pepsi, Thums Up, Wrigley, Cheetos, Pillsbusy,

to name a few.

Financial Highlight STANDALONE

Balance sheet as at March31, 2012

(A*- Actual, E* -Estimations & Rs. In Millions)

FY12 FY13 FY14E FY15E

EQUITY AND LIABILITIES:

Shareholders’ Funds:

Share Capital 311.38 311.38 311.38 311.38

Reserves and Surplus 1579.35 1607.09 1893.96 2231.90

Net worth (a) 1890.73 1918.47 2205.34 2543.28

Non-Current Liabilities:

Deferred Tax Liabilities [Net] 37.20 44.70 52.75 61.71

Long Term Provisions 68.87 48.47 49.92 51.42

Long term liabilities (b) 106.07 93.17 102.67 113.13

Current Liabilities:

Short-term borrowings 341.56 585.06 789.83 1026.78

Trade Payables 477.77 471.10 475.81 485.33

Other Current Liabilities 222.36 286.83 338.46 399.38

Short Term Provisions 260.13 190.13 193.93 197.81

Current Liabilities © 1301.82 1533.12 1798.03 2109.30

Total (a+b+c) 3298.62 3544.76 4106.05 4765.71

ASSETS:

Non-Current Assets:

Fixed Assets:

Tangible Assets 767.23 724.92 797.41 877.15

Intangible Assets 231.51 266.48 325.11 419.39

Capital work-in-progress 10.60 44.71 80.48 128.76

Intangible Asset under Development 94.01 167.92 255.24 352.23

(d) 1103.35 1204.03 1458.23 1777.53

Non Current Investments 2.87 2.87 2.87 2.87

Long Term Loans and Advances 505.45 544.40 590.13 637.34

(e) 508.32 547.27 593.00 640.21

Current Assets:

Inventories 0.21 3.12 3.90 4.02

Trade Receivables 1235.41 1347.17 1535.77 1720.07

Cash and Bank Balances 235.51 204.89 220.41 247.66

Short Term Loans and Advances 103.30 80.87 72.78 65.50

Other Current Assets 112.52 157.41 221.95 310.73

(f) 1686.95 1793.46 2054.81 2347.98

Total (d+e+f) 3298.62 3544.76 4106.05 4765.71

Annual Profit & Loss Statement for the period of 2012 to 2015E

Value(Rs.in.mn) FY12 FY13 FY14E FY15E

Description 12m 12m 12m 12m

Net Sales 5148.55 6046.86 6772.48 7382.01

Other Income 57.28 62.26 68.49 73.96

Total Income 5205.83 6109.12 6840.97 7455.97

Expenditure -4473.92 -5515.18 -6095.23 -6606.90

Operating Profit 731.91 593.94 745.73 849.08

Interest -23.26 -39.08 -42.99 -46.00

Gross profit 708.65 554.86 702.75 803.08

Depreciation -205.19 -237.25 -268.09 -294.90

Profit Before Tax 503.46 317.61 434.65 508.18

Tax -164.00 -107.73 -147.78 -170.24

Net Profit 339.46 209.88 286.87 337.94

Equity capital 311.38 311.38 311.38 311.38

Reserves 1579.35 1607.09 1893.96 2231.90

Face value 10.00 10.00 10.00 10.00

EPS 10.90 6.74 9.21 10.85

Quarterly Profit & Loss Statement for the period of 31 DEC, 2012 to 30 SEP, 2013E

Value(Rs.in.mn) 31-Dec-12 31-Mar-13 30-June-13 30-Sep-13E

Description 3m 3m 3m 3m

Net sales 1521.34 1576.32 1722.01 1773.67

Other income 35.59 -26.07 85.77 77.19

Total Income 1556.93 1550.25 1807.78 1850.86

Expenditure -1364.47 -1359.35 -1589.57 -1598.08

Operating profit 192.46 190.90 218.21 252.79

Interest -12.50 -9.71 -7.75 -8.53

Gross profit 179.96 181.19 210.46 244.26

Depreciation -61.51 -58.82 -57.58 -62.19

Profit Before Tax 118.45 122.37 152.88 182.07

Tax -38.16 -45.24 -49.38 -60.08

Net Profit 80.29 77.13 103.50 121.99

Equity capital 311.38 311.38 311.38 311.38

Face value 10.00 10.00 10.00 10.00

EPS 2.58 2.48 3.32 3.92

Ratio Analysis

Particulars FY12 FY13 FY14E FY15E

EPS (Rs.) 10.90 6.74 9.21 10.85

EBITDA Margin (%) 14.22% 9.82% 11.01% 11.50%

PBT Margin (%) 9.78% 5.25% 6.42% 6.88%

PAT Margin (%) 6.59% 3.47% 4.24% 4.58%

P/E Ratio (x) 16.38 26.50 19.39 16.46

ROE (%) 17.95% 10.94% 13.01% 13.29%

ROCE (%) 43.69% 36.78% 39.54% 39.18%

EV/EBITDA (x) 7.60 9.36 7.46 6.55

Book Value (Rs.) 60.72 61.61 70.82 81.68

P/BV 2.94 2.90 2.52 2.19

Charts

Outlook and Conclusion

� At the current market price of Rs.178.60, the stock P/E ratio is at 19.39 x FY14E and 16.46 x FY15E

respectively.

� Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs.9.21 and Rs.10.85

respectively.

� Net Sales and Operating Profit of the company are expected to grow at a CAGR of 13% and 5% over 2012 to

2015E respectively.

� On the basis of EV/EBITDA, the stock trades at 7.46 x for FY14E and 6.55 x for FY15E.

� Price to Book Value of the stock is expected to be at 2.52 x and 2.19 x respectively for FY14E and FY15E.

� We recommend ‘BUY’ in this particular scrip with a target price of Rs.193.00 for Medium to Long term

investment.

Industry Overview

The Indian Information Technology (IT) and Information Technology enabled Services (ITeS) sectors go hand-in-

hand in every aspect. The industry has not only transformed India's image on the global platform, but also fuelled

economic growth by energising higher education sector. The industry has employed almost 10 million Indians

and hence, has contributed a lot to social transformation in the country.

Furthermore, Indian firms, across all other sectors, largely depend on the IT & ITeS service providers to make

their business processes efficient and streamlined. Indian manufacturing sector has the highest IT spending

followed by automotive, chemicals and consumer products industries.

Industry body National Association of Software and Services Companies (Nasscom) predicts that the ITeS

industry will bring in around US$ 225 billion by 2020, wherein 80 per cent of the growth would come from the

presently untapped sectors and regions.

Market Size

The Indian IT & ITES industry has continued to perform its role as the most consistent growth driver for the

economy. Service, software exports and business process outsourcing (BPO) remain the mainstay of the sector.

Over the last five years, the IT & ITES industry has grown at a remarkable pace. A majority of the Fortune 500

and Global 2000 corporations are sourcing IT/ITES from India and it is the premier destination for the global

sourcing of IT & ITES accounting for 55 per cent of the global market in offshore IT services and garnering 35 per

cent of the ITES/BPO market.

India's IT and BPO sector exports are expected to grow by 12-14 per cent in FY14 to touch US$ 84 billion - US$ 87

billion, according to Nasscom.

Internet industry of India is expected to contribute US$ 100 billion to the country's gross domestic product

(GDP) and generate about 22 million jobs by 2015, as per a report titled 'Online and Upcoming: The internet's

Impact on India', released by McKinsey and Co.

IT spending in India is projected to reach US$ 71.5 billion in 2013, an increase of 7.7 per cent as compared to US$

66.4 billion projected for 2012, as per a report by Gartner.

Investments

Indian IT's core competencies and strengths have placed it on the international canvas, attracting investments

from major countries.

Between April 2000 and December 2012, the computer software and hardware sector attracted cumulative

foreign direct investment (FDI) of Rs 52,377.08 crore (US$ 9.63 billion), according to the Department of

Industrial Policy and Promotion (DIPP).

More recently, online retailing, cloud computing and e-commerce are the major driving forces behind the rapidly

increasing growth in the IT industry. Online shopping has increased with the emergence of internet retailing and

e-commerce.

Some of the major initiatives in Indian IT and ITeS sector:

• Tata Consultancy Services (TCS) has set up a new delivery centre in Liverpool, expanding its operations in

the UK. The new facility will provide a secure applications development and maintenance centre for business

applications

• Mumbai International Airport Ltd (MIAL) has entered into a 10 year contract with Wipro Infotech for the

new integrated terminal T2. Under the contract, Wipro will provide managed services across the entire IT

landscape at MIAL

• Mahindra Satyam has acquired 51 per cent stake in Complex IT, a SAP consulting provider in Brazil. This

acquisition will focus on developing solutions for the enterprise solutions market within Brazil

• Mu Sigma plans to set up a development centre in the US. The company also plans to recruit another 1,000

personnel by December 2013, adding to its current headcount of 2,300 employees

• Wipro has partnered with New Zealand-based Pingar. With this partnership, Wipro has gained access to

areas such as artificial intelligence and data mining

• HCL Technologies has entered into a multi-million dollar engineering services agreement with UK-based

Cobham. HCL will support multiple Cobham sites across the globe with a range of services-hardware,

software, embedded, mechanical and testing

Government Initiatives

As a part of the National Electronics Policy, the Government of India is planning to set-up 15 new laboratories

under public-private-partnership (PPP) model for hardware and software testing. The labs, for which the

locations are yet to be decided, will facilitate registration and testing of IT products before they are launched in

the market.

Meanwhile, in order to boost investments in Indian Special Economic Zones (SEZs), the Government is likely to

announce incentives for the IT-oriented export hubs. Among all the SEZs across various sectors, the IT-related

ones contribute the most to the exports. Thus, the Ministry of Commerce plans to streamline the incentives to

encourage such zones to establish their set-ups in tier-II and tier-III cities. The incentives would majorly aim at

simplifying standards for setting up SEZs and not have any direct revenue implications.

FDI upto 100 per cent under the automatic route is allowed in Data processing, software development and

computer consultancy services; Software supply services; Business and management consultancy services,

Market Research Services, Technical testing & Analysis services.

Some of the major initiatives taken by the Government to promote IT and ITeS sector in India are:

• The Government of West Bengal plans to spend Rs 41 crore (US$ 7.54 million) to roll out citizen-centric

services electronically across 19 districts including Kolkata

• Kerala has set an ambitious target of becoming a cent per cent digital state in governance, said Mr P K

Kunhalikutty, Minister for Industries and Information Technology, Government of Kerala. The State has

around 600 small, medium and large IT firms employing over 80,000 professionals directly and nearly three

times the number indirectly

• The Cabinet has recently approved the National Policy on Information Technology 2012. The policy aims to

increase revenues of IT and ITES industry from US$ 100 billion to US$ 300 billion by 2020 and expand

exports from US$ 69 billion to US$ 200 billion by 2020

• The Government of India plans to set up 15 new laboratories for testing hardware and software products

under public-private partnership (PPP) model

• The Ministry of Finance has issued a circular to chairmen of public sector banks and regional rural banks,

that all payments to customers, staff, vendors and suppliers as well as disbursement of loans and payments

towards investments should be made only through the electronic mode

Road Ahead

Indian corporate, across various industry segments, are installing and accepting IT products and services in a big

way to improve their operations throughout the entire organisation. There are estimates that spends over IT

services, across the industry segments, will witness quantum jump in the years to come. For instance, IT

spending by the Indian BFSI sector is expected to reach US$ 3.5 billion by 2014, according to advisory firm

Zinnov.

Similarly, IDC Manufacturing Insight predicts that IT spend by Indian manufacturers would grow at an average

rate of 14.5 per cent between 2012 and 2016 to reach US$ 8.78 billion, which would be the double of

manufacturing IT expenditure inculcated in 2011.

Hence, it can be fairly concluded that India Inc is increasingly updating and automating its business processes by

embracing modern IT products and services with open arms.

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale

of any financial instrument or as an official confirmation of any transaction. The information contained herein is

from publicly available data or other sources believed to be reliable but do not represent that it is accurate or

complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall

not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. This document is provide for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision.

Firstcall India Equity Research: Email – info@firstcallindia.com

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