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Tata Elxsi Limited (NSE:TATAELXSI), is a ₹80.34b small-cap, which operates in the software industry based in India. The sector has significantly been impacted by technology megatrends, which have changed how industrial and consumer-oriented companies operate. Tech analysts are forecasting for the entire software tech industry, a positive double-digit growth of 22.0% in the upcoming year , and a massive growth of 96.1% over the next couple of years. This rate is larger than the growth rate of the Indian stock market as a whole. Today, I’ll take you through the tech sector growth expectations, as well as evaluate whether Tata Elxsi is lagging or leading in the industry.
See our latest analysis for Tata Elxsi
What’s the catalyst for Tata Elxsi’s sector growth?
The battle for competitive advantage has led businesses to adopt new the cutting-edge technology, or risk being left behind. In the past year, the industry delivered growth in the thirties, beating the Indian market growth of 21.8%. Tata Elxsi leads the pack with its impressive earnings growth of 43.8% over the past year. However, analysts are not expecting this industry-beating trend to continue, with future growth expected to be 14.9% compared to the wider software sector growth hovering in the twenties next year. As a future industry laggard in growth, Tata Elxsi may be a cheaper stock relative to its peers.
Is Tata Elxsi and the sector relatively cheap?
The software tech sector’s PE is currently hovering around 17.67x, relatively similar to the rest of the Indian stock market PE of 19.33x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 10.4% on equities compared to the market’s 9.3%. On the stock-level, Tata Elxsi is trading at a higher PE ratio of 30.57x, making it more expensive than the average software stock. In terms of returns, Tata Elxsi generated 35.3% in the past year, which is 24.9% over the software sector.
Next Steps:
Tata Elxsi is an tech industry laggard in terms of its future growth outlook. In addition to this, the stock is trading at a PE above its peers, meaning it is more expensive on a relative earnings basis.If Tata Elxsi has been on your watchlist for a while, now may not be the best time to enter into the stock. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the tech sector. However, before you make a decision on the stock, I suggest you look at Tata Elxsi’s fundamentals in order to build a holistic investment thesis.