Good Morning Dear MMS Reader,
A minion in the Tata group of companies, Tata Elxsi is having its moment in the sun, a very competitive entity of Tata groups. As one of the costliest stocks among Indian software companies, Tata Elxsi has left behind TCS, Tata group's crown jewel, in the price-to-trailing earnings valuation.
While it’s true that the mid-tier IT space has seen a rerating, with the digitisation wave fuelling engineering service outsourcing, still, the company has performed much better than its peers. That, in a year when transportation, long a mainstay of Tata Elxsi, went off the growth rails.
The engineering services company had been trying to hedge its business for a while; it has now all come together. Group company JLR has ceded the top customer position to one of the biggest names in media and communication—Comcast.
Good things come in small packages. With 300% growth in its share price, public shareholders, who control 55.5% of its shareholding, must be very happy, as must be its parent Tata Sons, which has ~42.2% shareholding. The company’s bull run jives with the resurgent spirit in the Tata group, which is making bold bets in new areas under the umbrella brand Tata Digital.
In a recent interview, TCS CEO, said the group flies in the V-formation of migratory birds where the bird in front creates lift for the next one. Every few decades, a new bird takes the lead. If TCS is leading the formation now, 20 years later it could be Tata Digital. Whether Tata Elxsi finds a place in this formation front or rides its tailwinds will depend on how much its current spectacular growth run is backed by customer expansion and further hedging. Because unlike IT services, engineering service contracts usually have small ticket sizes and are not scalable. Every now and then, reports emerge of Tata Elxsi’s merger with TCS. It hasn’t happened but it can’t be ruled out either