Why Did Tata Elxsi’s Stock Surge 15% Today? Heavy Trading Volumes Drive Gains

On August 27, Tata Elxsi's stock experienced a remarkable 15% increase in value, fueled by a surge in trading volumes. This gain not only marked the fourth consecutive session of rising stock prices but also contributed to a substantial 22% increase over just two days.

The trading activity saw an impressive 38 lakh shares of Tata Elxsi changing hands, a significant leap from the average daily trading volume of one lakh shares over the past month. By 2:20 pm, the stock was trading at Rs 8,833.80 on the NSE. This sharp rise has also led to an increase in the company's market capitalization, which now stands at Rs 55,039 crore. The stock is currently trading at a trailing twelve-month (TTM) price-to-earnings (PE) ratio of 69.1.

In recent forecasts, brokerage firm Incred Equities has projected a compound annual growth rate (CAGR) for Tata Elxsi’s revenue in dollar terms at 12.1%, EBIT at 15.8%, and the bottom line at 14.2% over FY24-27. This positive outlook has likely contributed to investor confidence and the subsequent rise in stock price.

Despite the strong performance, Tata Elxsi saw a notable change in its shareholder base. Marcellus Investment Managers, led by Saurabh Mukherjea, recently exited its position in Tata Elxsi. This decision was part of the firm's strategy to reallocate investments to potentially higher-return opportunities, including Escorts Kubota, Coforge, and CMS Info Systems. Marcellus cited expectations of better internal rate of return from these new investments as a key reason for the exit.

Financially, Tata Elxsi reported a 6% sequential decline in net profit for Q1, falling to Rs 184 crore, while its revenue showed a slight increase of 2% to Rs 926 crore. Despite these mixed results, Tata Elxsi's stock has benefitted from a positive outlook for future growth.

Brokerage firm HDFC Securities has forecasted strong growth prospects for Tata Elxsi in FY25, driven by client demand and sub-segment performance. The company’s transportation vertical is expected to lead growth through FY25-26, while recovery is anticipated in the media, communications, healthcare, and life sciences segments by FY26. The trajectory of valuation multiples will be influenced by the pace of recovery in the non-transportation segments, following a period of de-rating over the past two years.

The current surge in Tata Elxsi's stock is thus a combination of heavy trading volumes, positive growth forecasts, and investor sentiment driven by recent market activity and sector performance.