17 August 2017
Update
| Sector:
Technology
BSE SENSEX
31,771
S&P CNX
9,897
Tata Elxsi
Buy
CMP: INR1,692
TP: INR1,992 (+18%)
Optimum blend of design and technology
Exciting opportunities ahead
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Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val, INRm
Free float (%)
TELX IN
31
1775 / 1022
0/3/-9
50.6
0.8
714
55.4
Tata Elxsi (TELX) held its investor meet in Mumbai, where Mr Madukar Dev (CEO) and Mr
Nitin Pai (Head – Marketing) spoke in detail about its businesses and strategy for future
growth. The company remains confident of exploring opportunities that lie ahead in its
specialized verticals of automotive, video broadcasting, healthcare and industrial design
& visualization. The company plans to identify technologies that can be implemented in
these verticals and then build capabilities to invest in solutions. With the advent of
Internet of Things (IoT), Robotics and AI, etc., the focus would be on adopting such
technologies and blending it with solutions such as OTT, driverless cars and automated
testing to cater to various ecosystems, including consortiums, R&D institutions, start-ups
and silicon vendors.
Automotive – use of electronics in transportation to provide opportunities
Automotive continues to be the fastest-growing and highest revenue contributor
(~48% of overall revenue and ~60% of EPD revenue) for the company. Growth in
the segment has been primarily driven by investments in solutions related to
infotainment, active safety, connected cars, and body electronics, among others.
The company’s advanced autonomous vehicle middleware platform ‘AUTONOMAI’
was recently licensed by one of the world’s top five automotive OEMs for its
driverless car R&D. The platform not only provides carmakers and tier-1
automotive suppliers with a solution covering perception, GNC and drive-by-wire
systems to build, test and deploy autonomous vehicles, but also allows rapid
region-specific adaptation through its pre-integrated validation datasets and AI &
deep-learning capabilities.
The company has also implemented solutions like “ConnectNext” infotainment for
Zest and “JukeCar” app for Tiago. However, the primary focus, going forward,
would be to further develop capabilities in active safety, with implementation of
driverless cars as the end-goal.
The company recently conducted a study for a leading German OEM, visualizing the
services a car would offer by CY25. TELX is building capabilities on similar lines with
a view to develop intelligent cars, which would provide customized services to the
user. The car would not only monitor the location and speed of itself, but also of
surrounding cars, keeping the user informed at all times regarding the decision the
car intends to take (whether to overtake or follow).
With the use of electronics in cars on the rise, TELX will continue identifying
technologies that can be molded and implemented in the automotive segment,
providing the company with enough opportunities to grow, in our view.
Financials Snapshot (INR b)
2017 2018E 2019E
Y/E Mar
Net Sales
12.3
14.2
16.4
EBITDA
2.9
3.4
4.0
PAT
1.8
2.1
2.5
EPS (INR)
56.3
67.4
79.7
Gr. (%)
13.2
19.7
18.3
BV/Sh (INR)
179.5 222.9 272.6
RoE (%)
37.1
33.5
32.2
RoCE (%)
37.1
33.5
32.2
P/E (x)
30.1
25.1
21.2
P/BV (x)
9.4
7.6
6.2
Shareholding pattern (%)
As On
Jun-17 Mar-17 Jun-16
Promoter
44.6
44.6
44.6
DII
6.5
5.9
3.5
FII
10.1
9.0
12.5
Others
38.9
40.5
39.4
FII Includes depository receipts
Stock Performance (1-year)
Tata Elxsi
Sensex - Rebased
2,000
1,750
1,500
1,250
1,000
Niket Shah – Research analyst
(Niket.Shah@MotilalOswal.com); +91 22 6129 1535
Aksh Vashishth – Research analyst
(Aksh.Vashishth@MotilalOswal.com); +91 22 6129 1553
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Tata Elxsi
Video broadcasting – steady growth led by OTT: The segment contributes ~32% of
overall revenue and ~40% of EPD revenues, with a steady growth rate, primarily
driven by OTT. The company is the prime integration partner for Airtel Internet TV,
and is now pioneering in the field of software defined network (SDN) by developing
a solution for network segmentation and security for the US multinational
technology company, Avaya. The solution is being implemented in the healthcare
industry – it enables the movement of data and equipment around the hospital,
ensuring privacy and security.
Furthermore, the company has developed a multi-screen test automation, diagnosis
and monitoring device called ‘Falcon Eye’, which has already been licensed to six
operators. The solution helps in automation of testing, workflows and monitoring
the development with increased efficiency.
Healthcare – in nascent stage, but significant growth opportunities
The healthcare vertical of TELX is a relatively new business. Despite being in the
investment phase, the business has gained significant traction. The company in the
recent past has won key customers by developing major products such as:
‘Sternum saw’ to assist in open heart surgery (developed in association with
Narayana Hrudalaya).
Portable blood group classifier and sample analyzer.
Infusion pumps to regulate and monitor drug delivery.
The company also recently tied up with Hemex Health to engineer and design its
diagnostic device, which would allow quick, accurate and affordable diagnosis of
malaria and sickle cell disease. The product will be focused on the rural segment on
account of its easy portability and affordable diagnosis (expected price per diagnosis
to be less than INR100).
With increased focus of the US healthcare policy makers to prevent relapses and
enable better care at home too, the company sees significant growth opportunities
on horizon, such as at-home sensors to monitor health parameters, gas stove, water
overflow and door sensors (will monitor every activity of the patient and raise an
alarm if it witnesses anything abnormal – e.g., opening of the door in case of a
patient suffering from dementia and no door close activity is recorded for more than
a certain time).
Industrial design & visualization – leveraging on changing design needs
The industrial design industry is witnessing a shift toward intelligent packaging and
product design. This provides TELX with opportunities to explore technologies,
which in blend with design can be implemented as solutions. The company already
is involved in packaging design for many leaders of the industries such as HUL, P&G,
Bluestar, Mother Dairy, Emami, L’Oreal and Protex. The company has also partnered
with TAL for the design of ‘Make in India’ robot.
Apart from packaging design, the industry is witnessing significant traction in
experience design solutions. In that domain, TELX has already designed passenger
space for Mumbai T2 Terminal, Mumbai Monorail, Bangalore International Airport,
17 August 2017
2

Tata Elxsi
Chennai, Bangalore and Kochi Metro. It has also recently been selected by Airports
Authority of India (AAI) to improve passenger experience at all AAI-managed
airports, with the work already started across the shortlisted 10 airports – Goa,
Kolkata, Varanasi, Lucknow, Chennai, Bhubaneswar, Pune, Trivandrum, Coimbatore
and Guwahati.
Valuation and view
We believe significant growth opportunities lie ahead for TELX. Considering this and
the company’s continuous efforts to optimize cost, we expect revenue CAGR of 16%
and PAT CAGR of 19% over FY17-19. The company has further hinted to try new
deals on ‘part payment for effort and part for success of product’ with a view to
boost margins above 25% over the next 2-3 years. With offshore contributing ~60%
of overall revenue and being much higher in terms of efforts, a revenue sharing
model linked to efforts as well as success is set to boost margins by 100-200bp.
We value the stock at 25x FY19E EPS, arriving at a TP of INR1,992. Maintain
Buy.
Operating metrics
Exhibit 1: Key operating metrics
Assumptions
Software Development
Systems Integration
Total Revenues (INR m)
Software Development
Systems Integration
Total Revenue Growth (%)
Software Development
Systems Integration
Total Revenue Mix (%)
Software Development
Systems Integration
Total EBITDA (INRm)
Software Development
Systems Integration
Total EBITDA Margin (%)
Software Development
Systems Integration
Total EBITDA Mix (%)
FY13
5,530
687
6,217
22%
-19%
15%
89%
11%
100%
624
17
721
11%
2%
12%
97%
3%
100%
FY14
6,827
921
7,748
23%
34%
25%
88%
12%
100%
1,379
84
1,364
20%
9%
18%
94%
6%
100%
FY15
7,817
676
8,493
15%
-27%
10%
92%
8%
100%
1,763
59
1,766
23%
9%
21%
97%
3%
100%
FY16
10,075
667
10,741
29%
-1%
26%
94%
6%
100%
2,597
67
2,471
26%
10%
23%
97%
3%
100%
FY17
11,665
667
12,332
16%
0%
15%
95%
5%
100%
2,998
67
3,074
26%
10%
25%
98%
2%
100%
FY18E
13,553
667
14,220
16%
0%
15%
95%
5%
100%
3,578
67
3,537
26%
10%
25%
98%
2%
100%
FY19E
15,779
667
16,446
16%
0%
16%
96%
4%
100%
4,324
67
4,249
27%
10%
26%
98%
2%
100%
Source: Company, MOSL
17 August 2017
3

Tata Elxsi
Story in charts
Exhibit 2: Rising share of software development business
Software Development
6%
Systems Integration
5%
5%
4%
13%
89%
88%
FY14
92%
94%
95%
95%
96%
10%
2%
FY12
FY13
FY15
FY16
FY17
FY18E FY19E
FY12
FY13
11%
9%
FY14
9%
FY15
10%
FY16
10%
FY17
10%
10%
Exhibit 3: EBIT margins higher in software development
Software Development
23%
26%
Systems Integration
26%
26%
27%
16%
11%
12%
8%
20%
84%
FY18E FY19E
Source: Company, MOSL
Source: Company, MOSL
Exhibit 4: Strong RoCE (%)
RoCE (%)
40
30
19
15
46
37
33
Exhibit 5: Robust dividend payout
85
73
32
45
40
34
34
36
38
Dividend Payout (%)
FY12
FY13
FY14
FY15
FY16
FY17
FY18E FY19E
FY12
FY13
FY14
FY15
FY16
FY17
FY18E FY19E
Source: Company, MOSL
Source: Company, MOSL
Exhibit 6: Healthy cash for inorganic growth opportunities
Cash on books (%)
% of Mcap
14%
267
1%
FY12
7%
18%
Exhibit 7: Strong free cash flow generation
Free cash flow (INR m)
2,879
2,461
233
1%
FY13
515
4%
2%
FY14
1,333
FY15
5%
1,825
FY16
1,289
342
FY12
382
FY13
FY14
1,101
1,026
1,288
2,515
FY17
4,648
6,175
FY18E FY19E
FY15
FY16
FY17
FY18E FY19E
Source: Company, MOSL
Source: Company, MOSL
17 August 2017
4

Tata Elxsi
Financials and Valuations
Consolidated - Income Statement
Y/E March
Total Income from Operations
Change (%)
EBITDA
Margin (%)
Depreciation
EBIT
Int. and Finance Charges
Other Income
PBT bef. EO Exp.
PBT after EO Exp.
Current Tax
Deferred Tax
Tax Rate (%)
Reported PAT
Adjusted PAT
Change (%)
Margin (%)
FY13
6,217
15.4
721
11.6
237
483
39
48
493
334
102
8
32.9
213
320
-7.6
5.1
FY14
7,748
24.6
1,365
17.6
350
1,015
18
126
1,122
1,122
376
24
35.6
723
723
126.1
9.3
FY15
8,494
9.6
1,766
20.8
247
1,518
0
41
1,560
1,560
535
-4
34.0
1,029
1,029
42.3
12.1
FY16
10,752
26.6
2,471
23.0
226
2,245
0
119
2,363
2,363
815
0
34.5
1,548
1,548
50.5
14.4
FY17
12,330
14.7
2,932
23.8
269
2,663
0
-48
2,615
2,615
882
-20
33.0
1,753
1,753
13.2
14.2
FY18E
14,220
15.3
3,413
24.0
298
3,115
0
50
3,165
3,165
1,068
0
33.7
2,097
2,097
19.7
14.8
(INR Million)
FY19E
16,446
15.7
4,013
24.4
327
3,686
0
58
3,743
3,743
1,263
0
33.7
2,481
2,481
18.3
15.1
FY20E
19,735
20.0
4,815
24.4
379
4,437
0
75
4,512
4,512
1,522
0
33.7
2,990
2,990
20.5
15.1
Consolidated - Balance Sheet
Y/E March
Equity Share Capital
Total Reserves
Net Worth
Deferred Liabilities
Total Loans
Capital Employed
Gross Block
Less: Accum. Deprn.
Net Fixed Assets
Capital WIP
Curr. Assets, Loans&Adv.
Inventory
Account Receivables
Cash and Bank Balance
Loans and Advances
Curr. Liability & Prov.
Account Payables
Provisions
Net Current Assets
Deferred Tax assets
Appl. of Funds
FY13
311
1,640
1,952
192
585
2,729
2,190
1,198
992
213
2,449
3
1,567
233
645
1,071
830
241
1,378
147
2,729
FY14
311
2,046
2,357
128
0
2,485
1,821
853
968
126
2,789
0
1,748
515
526
1,458
994
463
1,331
59
2,485
FY15
311
2,523
2,834
0
0
2,834
2,293
1,308
985
26
3,640
3
1,791
1,333
514
1,821
1,139
682
1,819
4
2,834
FY16
311
3,546
3,857
0
0
3,857
2,603
1,534
1,070
19
4,895
0
2,152
1,825
919
2,140
1,250
889
2,756
13
3,857
FY17
311
5,278
5,590
0
0
5,590
2,881
1,803
1,078
10
6,026
0
2,448
2,515
1,063
1,557
1,202
355
4,469
32
5,590
FY18E
311
6,629
6,940
0
0
6,940
3,181
2,101
1,080
0
8,416
0
2,653
4,648
1,116
2,588
1,414
1,174
5,828
32
6,940
FY19E
311
8,176
8,488
0
0
8,488
3,481
2,428
1,053
0
10,470
0
3,068
6,175
1,227
3,068
1,636
1,433
7,402
32
8,488
(INR Million)
FY20E
311
9,822
10,133
0
0
10,133
4,231
2,806
1,425
197
8,594
0
3,681
3,624
1,289
116
116
0
8,479
32
10,133
17 August 2017
5

Tata Elxsi
Financials and Valuations
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
BV/Share
DPS
Payout (%)
Valuation (x)
P/E
Cash P/E
P/BV
EV/Sales
EV/EBITDA
Return Ratios (%)
RoE
RoCE
RoIC
Working Capital Ratios
Asset Turnover (x)
Debtor (Days)
Leverage Ratio (x)
Current Ratio
Debt/Equity
FY13
10.3
17.9
62.7
5.0
85.5
FY14
23.2
34.5
75.7
9.0
45.3
72.9
49.1
22.4
6.7
38.2
16.5
14.9
15.1
2.3
92
2.3
0.3
33.6
30.0
31.7
3.1
82
1.9
0.0
FY15
33.0
41.0
91.0
11.0
39.9
51.2
41.3
18.6
6.0
29.1
39.6
39.6
60.3
3.0
77
2.0
0.0
FY16
49.7
57.0
123.9
14.0
33.8
34.0
29.7
13.7
4.7
20.6
46.3
46.3
84.3
2.8
73
2.3
0.0
FY17
56.3
64.9
179.5
16.0
34.1
30.1
26.1
9.4
4.1
17.1
37.1
37.1
70.3
2.2
72
3.9
0.0
FY18E
67.4
76.9
222.9
20.0
35.6
25.1
22.0
7.6
3.4
14.1
33.5
33.5
77.1
2.0
68
3.3
0.0
FY19E
79.7
90.2
272.6
25.0
37.6
21.2
18.8
6.2
2.8
11.6
32.2
32.2
106.1
1.9
68
3.4
0.0
FY20E
96.0
108.2
325.4
-36.0
-30.0
17.6
15.6
5.2
2.5
10.2
32.1
48.5
1.9
68
74.2
0.0
Consolidated - Cash Flow Statement
Y/E March
OP/(Loss) before Tax
Depreciation
Interest & Finance Charges
Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
Others
CF from Operating incl EO
(inc)/dec in FA
Free Cash Flow
(Pur)/Sale of Investments
Others
CF from Investments
Issue of Shares
(Inc)/Dec in Debt
Interest Paid
Dividend Paid
Others
CF from Fin. Activity
Inc/Dec of Cash
Opening Balance
Closing Balance
FY13
334
237
23
-177
-89
328
51
379
3
382
0
-307
-304
0
183
-39
-218
-35
-109
-34
267
233
FY14
1,122
350
16
-174
-99
1,215
73
1,288
1
1,289
0
-221
-221
0
-585
-18
-156
-26
-786
282
233
515
FY15
1,551
255
-54
-392
74
1,434
-4
1,430
-329
1,101
0
38
-290
0
0
0
-321
0
-321
818
515
1,333
FY16
2,363
226
0
-815
-445
1,329
0
1,329
-304
1,026
0
0
-304
0
0
0
-523
-11
-534
492
1,333
1,825
FY17
2,615
269
0
-902
-1,110
873
684
1,557
-269
1,288
0
0
-269
0
0
0
-597
0
-597
690
1,825
2,515
FY18E
3,165
298
0
-1,068
774
3,169
0
3,169
-290
2,879
0
0
-290
0
0
0
-747
0
-747
2,132
2,515
4,647
(INR Million)
FY19E
3,743
327
0
-1,263
-47
2,761
0
2,761
-300
2,461
0
0
-300
0
0
0
-934
0
-934
1,527
4,647
6,174
FY20E
4,512
379
0
-1,522
-3,627
-259
0
-259
-947
-1,206
0
0
-947
0
0
0
-1,344
0
-1,344
-2,551
6,174
3,624
17 August 2017
6

Tata Elxsi
NOTES
17 August 2017
7

Disclosures:
The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).
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public company, the details in respect of which are available on
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MOSL is registered with the Securities & Exchange Board of India (SEBI) and is a registered Trading Member with National Stock
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inquiry and adjudge violation of SEBI Regulations; MOSL requested SEBI to provide all documents, records, investigation report relied upon by SEBI which were referred in Show Cause Notice and also sought personal
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Tata Elxsi
Disclosure of Interest Statement
Analyst ownership of the stock
Tata Elxsi
No
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Registration details of group entities.: MOSL: NSE (Cash): INB231041238; NSE (F&O): INF231041238; NSE (CD): INE231041238; BSE (Cash): INB011041257; BSE(F&O): INF011041257; BSE(CD); MSE(Cash): INB261041231;
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