On Tata Elxsi’s June 2021 earning call, it took just one question to get under the skin of the company’s MD and CEO, Manoj Raghavan. What ticked him off was a question from an analyst that insinuated that global auto major Jaguar Land Rover was the company’s top client.

The misconception seemed minor. JLR—another Tata company—is one of Elxsi’s marquee clients. Indeed, for years—all the way up until the year ended March 2021—it was the design-led technology services firm’s top client. It was only in the June quarter that JLR was finally displaced from pole position, with a company from the media and communications vertical taking that honour.

Raghavan’s frustration seemingly stemmed from what this change represented—the company’s successful efforts to cut its client concentration risk weren’t being acknowledged.

Over the past couple of years, the transportation vertical—once the company’s mainstay—had ceded its spot as the top revenue generator to the media & communications vertical. This business includes clients such as OTT platform Disney+ Hotstar and global media player Comcast, which is now the company’s largest client, says an IT sector analyst. The analyst, like others quoted in the story, did not want to be named as they are not authorised to speak to the media.

Elxsi’s diversification has played a major role in the spectacular rally of its stock over the past year. The company—a dwarf within the Tata Group and also among Indian software companies—has seen its stock zoom nearly 300% over the past year, and is now within kissing distance of the Rs 5,000 ($68) mark. Tata Elxsi’s public shareholders, who hold about 55% stake in the company, and the promoters—Tata Sons and Tata Investment Corporation—which account for the other 45%, won’t be complaining. In contrast, Tata Consultancy Services (TCS)—the largest Tata company and the biggest Indian software service provider—is up a solid but relatively modest 61%.

For perspective, Tata Elxsi’s revenue of Rs 1,826 crore ($248 million) in the year ended March 2021 is a fraction of TCS’ Rs 1,64,177 crore ($22.3 billion). Yet today, the price-to-trailing earnings price-to-trailing earnings price-to-trailing earnings The price-to-trailing earnings (P/E) ratio is a valutaion metric that measures a stock's market price relative to the company's earnings per share in the past year. Higher the ratio, costlier the stock. valuation of the Tata Elxsi stock at nearly 74X is way ahead of the 40X of TCS’ stock. In fact, Tata Elxsi is now among the costliest stocks among Indian software providers, next only to Happiest Minds that quotes at 142X. We had written about the irrational exuberance in Happiest Minds Happiest Minds The Ken Irrational exuberance in Happiest Minds Read more in February.

AUTHOR

Anand Kalyanaraman

A certified Chartered Accountant, Anand chose to pack the power of numbers with words when he left a career of seven years in accounting, putting together MIS reports, and investment research to enter journalism. Before joining The Ken, Anand was Deputy Editor at The Hindu BusinessLine, a newspaper he worked at for 11 years.

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