Shares of Tata Elxsi fell as much as 8.6 percent after the company reported a slowdown in growth for the July-September quarter. At 11:05 am shares of Tata Elxsi were trading at Rs 7,847, down by 7.02 percent from the previous close on the BSE.

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For the July-September quarter, Tata Elxsi’s constant currency revenue growth went up by 4.7 percent as compared to the average growth of nearly 7 percent over the last four quarters.

Revenue from operations for Tata Elxsi for the quarter stood at Rs 763.2 crore increasing 28.19 percent from the numbers in the corresponding period a year ago. However, it fell short of brokerage firm Morgan Stanley’s estimate of 30 percent.

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The company said that supply-side challenges impacted the growth as it could not address new deals due to supply challenges, especially at the mid and senior levels.

Tata Elxsi’s EBITDA margin for the quarter declined by 310 basis points on a quarterly basis to 29.7 percent. The company added 1,532 employees in the quarter making it the highest number of hiring in a quarter by Tata Elxsi in its history, which impacted utilisation and hence margin.

Campus hires impacted margin by 120 basis points. Other margin headwinds were lateral employees addition, onsite salary correction, increase in travel, higher facility expenses as employees return to offices and higher recruitment and training expenses.

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The IT company reported slow growth at one percent on a quarterly basis in the media and communication segment impacted by challenges in the UK and Europe. “We are gaining market share in both Automotive and Media & Communications, especially in Europe. The numbers are muted in the region due to unfavourable currency movement,” said Manoj Raghavan, CEO and Managing Director, Tata Elxsi in a regulatory filing.

Meanwhile, profit after tax for the July-September quarter stood at Rs 174.2 crore declining over 5 percent from the previous quarter.

What do analysts say?

Global brokerage firm Morgan Stanley has an underweight call on the shares of Tata Elxsi with the target price at Rs 5,800 per share, implying a downside of 31.4 percent from the closing price on October 14, 2022.

The brokerage firm believes that macro-led slowdown and tight supply chain impacted the company's growth for the quarter. With that investments and normalisation Of costs led to a decline in margin.

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