Fundamental Analysis of Stocks

Have you ever noticed how everyday items have become more comfortable in recent years, with ergonomic designs that feel right in your hand? Or the increasing reliability of our communication networks and healthcare systems?

The combination of design and technology has helped companies create innovative products that are easy to use and positively impact people’s lives. And companies like Tata Elxsi play a considerable role. The world’s leading provider of design and technology services across industries.

In this article, we will do a company analysis of Tata Elxsi Ltd. and check out its share price history.

Overview of Tata Elxsi Ltd.

Tata Elxsi commenced its business on 5 May 1989 in Bangalore and is mainly involved in developing and promoting electronics, embedded systems, and software applications. Over the years, it has evolved its business structure and offering and is recognized as a premium engineering service provider globally.

The company operates across various industries and offers a diverse set of services, such as:

Product Design and Engineering: The company helps its clients develop innovative and aesthetically designed products across industries such as automotive, healthcare, consumer electronics, railways, and more. It offers mechanical design, 3D modeling, simulation, and prototyping to develop physical products and components.

Embedded Systems and Software: Tata Elxsi specializes in developing embedded software and firmware for different applications. Embedded software and firmware is a type of software that controls hardware devices but not computers. For example, remote controls, in-vehicle computers, digital cameras, IoT devices, etc. It offers software for testing and quality assurance services for checking the performance and reliability of software and embedded systems.

Automotive and Transportation Solutions: It assists companies in product design and development, including interior, connected systems, infotainment systems, etc., and advanced systems related to autonomous vehicles, electric mobility, etc.

Broadcast and Communication: In the broadcasting and media industry, it offers services, including content creation, digital transformation, and streaming solutions.

Similarly, in the communications segment, it provides services like infrastructure design, network management, signal processing, and wireless protocol solutions for telecom operators.

Healthcare and Life Sciences: It offers design and development of medical devices, healthcare software, telemedicine solutions, healthcare IT services like electronic health record (EHR) implementation, data analytics, etc.

Tata Elxsi also leverages Artificial Intelligence (AI) and Machine Learning (ML) to develop solutions for various industries, such as predictive maintenance, data analytics, voice and speech recognition, etc. It also offers services to the Aerospace and Defense industry, semiconductors, etc.

Tata Elxsi Business Overview

As defined in the Accounting Standard 108- operating segments, the company has identified two business segments:

• Software Development & Services
• System Integration & Support Services

In FY23, Tata Elxsi reported a total revenue of ₹3,218.5 crores and has earned a significant share of the revenue from the transportation vertical, followed by media & communication and healthcare.

Tata Elxsi Management Team

Tata Elxsi has a workforce of over 12,000 people spread across 16 countries. The company is led by:

• Mr. Manoj Raghavan, who is the Managing Director & CEO. He has been with the company since 1997 and began his career with the Tata Group in 1993 as a Graduate Trainee Engineer at Tata Motors.
• Mr. Nitin Pai is the CMO and Chief Strategy Officer. He joined Tata Elxsi in 1996 as a product manager and has held various leadership roles in the marketing and design division. Mr. Pai is a Mechanical Engineer from BITS Pilani.
• Mr. Gaurav Bajaj is the Chief Financial Officer at Tata Elxsi. He joined Tata Elxsi in January 2021, previously working for Wipro Ltd. Mr. Gaurav is an ICAI-certified chartered accountant.
• Mr. Philip Mammen is the Vice President- Human Resources and has been with the company since January 2007.

Shareholding Pattern

Tata Elxsi Financial Review

Revenue

In FY23, Tata Elxsi reported a 27.9% year-on-year rise in revenue to ₹3,218.5 crores from 2,515.3 crores in FY22. And, in Q1FY24, total income rose by 18.5% to ₹872.5 crores, from ₹736.2 crores in Q1FY23.

Segment-wise Revenue Breakup

Geographic-wise Revenue Breakup

EBITDA

In FY23, the company reported an EBITDA of ₹961.1 crores, an increase of 25.5% year-over-year, compared to ₹765.7 crores in FY22. The EBITDA margin in FY23 was 30.6%, compared to 31% in FY22. In Q1FY24, EBITDA witnessed a year-on-year growth of 5.6% to ₹251.5 crores from ₹238.2 crores.

Profit After Tax

In FY23, Tata Elxsi Ltd. reported a 37.4% year-on-year rise in net profit to ₹755.2 crores from ₹549.7 crores. In Q1FY24, the company reported a 2.2% increase in net profit to ₹188.9 crores from ₹184.7 crores.

Tata Elxsi Key Financial Ratios 

Current Ratio: At the end of FY23, the current ratio stood at 4.83 times, compared to 4.13 times at the end of FY22.

Debt-to-equity Ratio: The company has no long-term debt, and the debt-to-equity ratio is stable at 0.09 times at the end of FY23.

Net Profit Margin: In FY23, the net profit margin increased to 24.01% from 22.25% in FY22.

Return on Equity (ROE): The ROE of the company at the end of FY23 was 40.97%, compared to 37.23% at the end of FY22.

Return on Capital Employed (ROCE): The ROCE of the company declined slightly to 42.05% at the end of FY23, compared to 43.4% at the end of FY22.

Tata Elxsi Share Price History

Tata Elxsi has given a stellar return to investors, becoming a tremendous success. It launched its IPO in 1995, and from September 1995, the stock has surged from ₹13.5 to reach an all-time high of ₹10,760 in August 2021.

If an investor had invested ₹1 lakh in this stock in September 1995 and remained invested during this period, the value of the stock would have turned more than ₹13 crores today.

The company issued bonus shares in the ratio of 1:1 on 18th September 2017 and has a consistent track record of paying dividends to shareholders. It paid ₹24 in 2021, ₹42.50 in 2022, and ₹60.60 in 2023 as dividends.

As of 27 September, Tata Elxsi share price has given a CAGR return of 45% and 79% in the last five and three years, respectively. The market cap of the company at this date is ₹45,466 crores.

Tata Elxsi Ltd. Company Analysis

Tata Elxsi has experienced remarkable growth since its establishment, continuously evolving to adapt to changing times and shifting customer preferences. Its growth journey over the years is divided into four stages:

Gen 1 was between FY94 and FY03, wherein the company focused on developing system integration services (SI) and Engineering, Research & Development (ER&D).

Gen 2 growth stage lasted from FY04 to FY13; the company launched the Industrial Design business and Visual Computing Labs for visualization and animation.

In the Gen 3 growth stage, which lasted from FY14 to FY19, the company merged the VLC division with Industrial Design, entered the medical electronics business, and achieved leadership in Auto, Media, and Communication.

Gen 4: In its ongoing growth stage from FY20, the company is now focusing on Design-led Engineering for scaling growth. During this period, the CAGR growth in revenue has been 24.5%.

Financial Performance Review

Tata Elxsi is majorly earning from three verticals- Transportation, Healthcare, and Media & Communications.

Transportation

During FY23, The company’s transportation business grew by 32.7% and contributed ₹1,177 crores to the revenue, aided by large deals and growth across segments like EV, software-defined vehicles, and connected cars. The company is a leading provider of transformative technologies for connected, autonomous, and electric cars, with solutions like the AUTONOMIA platform for driverless cars and Tata Elxsi’s e-Cockpit. Besides, it has a vast suite of EV solutions, electric motor solutions, and battery management systems.

Media & Communications

The media & communications division posted 18.5% year-on-year growth, generating ₹1,132.2 crores in revenue. In media, the company has benefitted from the shift towards digital streaming and services. Its award-winning solutions help streaming platforms and media companies stay on top of the game, including content curation. The growing availability of 5G networks has also created an enormous opportunity and has won strategic deals from leading operators from EMEA and a leading multi-system operator in North America.

Healthcare

In FY23, the healthcare division posted strong year-on-year growth of 37.6%, contributing ₹423.5 crore to the top line. The company is offering services in the areas of digital and connected healthcare. And solutions like TEngage and TEDREG help pharmaceutical companies to monitor and capture real-time updates to global healthcare standards.

Key Highlights from Earning Calls

• Deal closure in Q1FY24 has been slow in the transportation segment and affects revenue growth. The management is hopeful of an accelerated deal pipeline closing in the next two quarters.

• The media and communication segment is witnessing a slowdown, affecting revenue growth.

• The healthcare division recorded a sequential growth of 3.4%, a significant improvement over the last two quarters. The company is hopeful to continue the growth momentum in subsequent quarters on the back of good new deals and product wins.
• Operating margins fell 341 basis points sequentially in Q1FY24 to 27.05%, owing primarily to higher employee costs and subcontracting expenses. However, management expects that margins will improve in the coming quarters. This will be driven by increasing employee utilization from 72.5% to 80% and decreasing subcontracting expenses.
• In FY24, the company plans to hire 1800-2000 employees, and despite the uncertain demand outlook, the management is hopeful of strong deal wins and client transformation in the industry.

*Disclaimer Note: The securities quoted, if any, are for illustration only and are not recommendatory. This article is for education purposes only and shall not be considered as recommendation or investment advice by Research & Ranking. We will not be liable for any losses that may occur. Investment in securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL, and certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.

FAQs

Introduction to HAL

Hindustan Aeronautics Ltd. (HAL) is one of the oldest Indian companies specializing in aircraft and helicopter manufacturing and related services, and it plays a strategic role in India’s defense program. It is also one of the world’s oldest and largest aerospace and defense manufacturers.

Let us understand what the company does and analyze the share price of HAL.

HAL Overview

Hindustan Aeronautics Ltd. (HAL) is a government-owned aerospace and defense company. They design, develop, manufacture, and supply aircraft, helicopters, avionics, and communications equipment for military and civil markets. The company was founded in Bangalore in 1940 by Walchand Hirachand and the Government of Mysore to manufacture aircraft in India.
HAL has 20 Production and 10 R&D Centres co-located with the Production Divisions. These divisions /R&D Centres are in ten locations in seven states nationwide.

These divisions are organized into five complexes with current & future operations given below:

• Bangalore Complex (BC): Production and ROH (Repair and Overhaul) of Fixed-wing Aircraft and Engines (Indian and Western origin), Spacecraft Structures, Castings, Forgings, and Rolled Rings.
• MiG Complex (MC): Production and ROH of Fixed-wing Aircraft and Engines (mainly of Russian origin), Civil MRO, and UAV Projects.
• Helicopter Complex (HC): Production and ROH of Helicopters (Indian and Western origin).
• Accessories Complex (AC): Production and ROH of Transport Aircraft. Production and ROH of Accessories and Avionics for Fixed-wing and Rotary wing Platforms (Indian, Russian, and Western origin). Depot Level Maintenance of UAVs.
• Design Complex (DC): R&D of Fixed-wing and Rotary wing Aircraft, Unmanned Aerial Vehicles (UAV), Aeroengines, Avionics, and Accessories.

Hindustan Aeronautics Ltd (HAL) Company Journey

The history and growth of HAL are synonymous with the development of the Aeronautical industry in India for more than 79 years. Here are some of the critical milestones in the company:

●: 1940:The company was incorporated on 23 Dec 1940 in Bangalore by Walchand Hirachand in association with the then Government of Mysore.

● 1941: In March 1941, the Government of India became a shareholder in the company and took over its management in 1942.

● 1951: In January 1951, Hindustan Aircraft Ltd was placed under the administrative control of the Ministry of Defense, Government of India.

● 1963: In August, Aeronautics India Ltd was incorporated as a Company wholly owned by the Government of India to manufacture MiG-21 aircraft under license. Factories were set up at Nashik (Maharashtra) & Koraput (Odisha).

● 1964: Hindustan Aircraft Ltd and Aeronautics India Ltd merged on October 1, 1964, creating Hindustan Aeronautics Ltd (HAL) as per the amalgamation Oder by the Government of India.

● 1971: The Avionics Design Bureau was established in Hyderabad to develop and manufacture components such as IFF, UHF, HF radios altimeters, and ground radars.

● 1973: A design wing was set up in Lucknow to design and develop accessories such as under-carriage and hydraulic systems, static inverters, fuel control systems, etc.

● 1979: The company began manufacturing ‘Jaguar’ aircraft after obtaining a license agreement with British Aerospace and partnering with Rolls Royce-Turbomeca for Adour engines.

● 1982: The company entered into an agreement with the USSR and started production of swing-wing Mig-27 aircraft at the Nasik Division of the company

● 1983: The Korwa Division of HAL in District Sultanpur (U.P.) was established to manufacture the Inertial Navigation System.

● 2000: An independent profit center was established to offer airport-related services in May.

● 2006: A new MRO Division was created in Bangalore to carry out ALH overhaul activities

● 2018: On 28 March, HAL was listed on BSE and NSE

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Hindustan Aeronautics Ltd Management Profile

• Mr. C.B. Ananthakrishnan is the Chairman, Director (Finance) & CFO, and Managing Director of the company. He is a commerce Graduate with a postgraduate degree in Business Administration from Madras University. He received management and leadership training from the Indian Institute of Management in Ahmedabad and the Institut of Aeronautique et. Spatiale (IAS) in Toulouse, France. He is also a member of the Institute of Cost Accountants of India. He has over 35 years of experience in both public and private sectors. He has worked in various industries, including merchant banking, pharmaceuticals, fertilizers, and aerospace. He joined HAL in 2004.
• Mr. Jayadeva E. P. is the Director (Operations) of the company. He holds a bachelor’s degree in Electrical Engineering from the University of Visvesvaraya College of Engineering, Bangalore, and did a Master’s from IIT Madras in Aircraft Production Engineering. He joined the company in 1987 as a management trainee and has about 33 years of experience in Manufacturing, Assembly, Overhaul, Upgrades, Customer support, Indigenisation, and other Management functions.
• Mr. Shailesh Bansal is the Company Secretary and Compliance Officer of the company. He is a fellow member of the Institute of Company Secretaries of India and an Associate Member of the Institute of Cost& Management Accounts of India. He’s also a qualified Chartered Secretary from the Institute of Chartered Secretary and Administrators in the U.K. He has vast experience in both the public and private sectors in managing the overall Corporate Affairs of the companies. He was appointed Company Secretary and Compliance Officer on March 28, 2023. Before this, he worked as a Joint Company Secretary at HAL.
• Mr. Atasi Baran Pradhan is the company’s Director (Human Resources). He holds a Bachelor’s degree in chemistry (Hons.) and a PG in Personnel Management and labor Welfare from Utkal University, Bhubaneswar. He also holds a Bachelor of Law (LLB) from University Law College, Bhubaneswar. He has 35 years of experience in Human Resources, serving in both Public and private sectors with exposure to various industries such as Engineering, Metallurgy, Paper, Aerospace & Defence across India. He joined HAL in 2005.

Hindustan Aeronautics Shareholding Pattern

Financial Analysis of HAL

HAL posted revenue from operations of INR 26,928 Cr during FY23 compared to INR 24,620 Cr during FY22, an increase of 9.37%. On the profitability front, the company has posted a PAT of INR 5,811 Cr for FY23 as against the PAT of INR 5,087 Cr for FY22, an increase of 14.23%.

If we look at the financial performance over the Financial Year 2019 – 2023, the company has posted a Revenue CAGR of 7.71% and a PAT CAGR of 25.45%, which is relatively good. HAL has consistently delivered operating margins (EBITDA %) in the range of 24.67% to 30.95% since 2019.

ROCE

The ROCE of HAL is 31% in FY23, which is relatively good. HAL has consistently delivered ROCE of 24% over the last five years.

HAL Fundamental Analysis

• Hindustan Aeronautics Limited (HAL), a prominent company in India’s defense and aerospace industry, has a robust long-term growth plan supported by a strong order book and promising prospects in the near and long term.
• During this year, the company secured contracts for producing and supplying 70 Nos. HTT-40 Basic Trainer aircraft and 6 Nos. of Dornier 228 Aircraft, respectively. As of March 31st, 2023, the Company’s Order Book position is INR 81,784 Cr.

• The HAL-L&T consortium was awarded an INR 860 Cr contract to develop five Polar Satellite Launch Vehicles (PSLV) for New Space India Limited (NSIL) on September 5, 2022.
• The company continues to develop new platforms, products, and technologies to enhance its capabilities and stay ahead of future technological challenges. These efforts have resulted in major achievements such as successful flights of various aircraft and the development of advanced projects like the LCA Mk II and Indian Multirole Helicopter. This will improve visibility for future platform orders.
• The company spent INR 2,494 Cr on R&D, 9.46% of the turnover. Additionally, INR 539 Cr (15% of Operating PAT) was transferred to the R&D corpus in FY 2023. HAL supplied four Gas Turbines to power INS Vikrant, India’s first indigenous aircraft carrier, commissioned by the Prime Minister in Kochi.
• In FY 2022-23, HAL spent INR 2,081.73 Cr on Capital Expenditure (CAPEX) to maintain infrastructure, develop systems/platforms for Defence Forces, and become Atmanirbhar Bharat. Investments were made towards the Green Field Helicopter project, augmentation of LCA facilities, ROH of SU-30, ROH of AL-31 FP Engine, etc.
  Honorable President of India, Smt. Droupadi Murmu inaugurated HAL’s Integrated Cryogenic Engine Manufacturing Facility (ICMF) in Bengaluru on September 27, 2022. The facility will manufacture rocket engines for ISRO.
• Honorable Prime Minister Narendra Modi dedicated HAL’s new helicopter factory in Tumakuru to the nation on February 6th, 2023, and unveiled HAL’s indigenously designed and developed LUH.
• The Company produced 22 new aircraft and helicopters annually, including LCA Tejas, Dornier Do228, ALH Dhruv, Light Combat Helicopter (LCH), and Light Utility Helicopter (LUH). In addition, it produced 51 new engines and accessories across its various divisions. The Company also overhauled 216 aircraft/helicopters and 535 engines during the year.

HAL Share Price History

HAL was listed on the Indian Stock Exchange on 28 March 2018 at a price per share of INR 1,130 and currently trades at 3,869.25 per share (as of 17 August 2023). HAL has delivered a stupendous three-year stock price CAGR of 46%. Over the last year, HAL’s share price grew 69 %. HAL’s share price is expected to grow over the long term due to its monopoly in the Aircraft and Helicopter manufacturing and service industry.

HAL -What’s Next?

After the COVID-19 pandemic, the Aerospace and Defense (A&D) industry is recovering in both the civil and defense sectors. The defense sector is expected to grow in 2023-24 due to global geopolitical conflicts, as many countries have significantly increased defense budgets to strengthen their military capabilities.

In the civil sector, global passenger traffic has improved significantly in 2022, and it is expected to reach 2019 levels by the end of 2023 or early 2024. This has become a driving factor for large-scale manufacturing orders and aftersales activities in the industry.

As part of the Atmanirbhar Bharat initiative, the Indian government is supporting the growth of domestic industries to decrease defense imports and reliance on foreign OEMs. This will benefit HAL as India’s sole player in this segment.

The company plans to expand its manufacturing unit, production capability, and geographical reach. It also invests in R&D for innovation, doing partnerships with other companies for future growth, thus creating shareholder value.

The company announced it had a strong order book of `81,78,400 lakh and anticipated significant revenue growth from the existing and upcoming contracts.

HAL signed an MoU with Safran to establish a joint venture for developing, producing, selling, and supporting helicopter engines. In March 2022, they signed an MoU with IAI (Israel Aerospace Industries) to convert civil passenger aircraft to multi-mission tanker aircraft.

Key risks:

● Fluctuations in the prices of raw materials and delays in the availability of critical components may affect the execution.
● Allowing private companies into the defense sector could increase competition.
● Change in preference of Defence customers by moving from nomination to competitive procurement.
● Little presence outside India in the export market.
● Dependency on foreign OEMs for supply of critical Components and Spares required for the manufacture and overhaul of Aircraft/ Helicopters

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Read more:  How Long-term investing helps create life-changing wealth – TOI.