Tata Elxsi shares fell on Wednesday after brokerages flagged concerns over profitability and cut earnings estimates following the company’s June quarter results.

The stock settled nearly 5 per cent lower at ₹3,520.40, after hitting a 52-week low of ₹3,469.70 on the NSE, down 6.1 per cent from the previous close of ₹3,697.30. The decline came despite the company reporting higher revenue and net profit on a y-o-y basis, as brokerages highlighted a sharp margin contraction and uncertainty in key business segments.

The design and technology services provider reported an 18.17 per cent increase in net profit to ₹170.59 crore during the June quarter of FY27, driven by growth in key verticals and strong deal execution.

Revenue from operations rose 14.46 per cent to ₹1,021.1 crore in Q1 FY27, compared with ₹892.09 crore in Q1 FY26.

On a q-o-q basis, revenue grew by 2.7 per cent, while net profit declined by 22.58 per cent.

For the quarter, Tata Elxsi delivered a healthy performance with growth in our two primary verticals, supported by strong deal execution and continued momentum in large strategic engagements. The performance in the quarter reflects the strength and increasing relevance of our design-led and AI-enabled engineering capabilities in our chosen industries, Tata Elxsi CEO and Managing Director Manoj Raghavan said.

Brokerages flag margin pressures and demand uncertainty

JP Morgan retained a neutral rating on Tata Elxsi with a target price of ₹3,500, describing the quarter as mixed with a revenue beat but a sharp miss on margins. The brokerage said revenues grew 1.3 per cent in constant currency q-o-q, led by Media and Telecom, while Automotive and Healthcare remained drags on performance.

According to JP Morgan, Tata Elxsi continues to target high single-digit revenue growth in FY27 against its estimate of 6.4 per cent growth, although this depends on a recovery in Healthcare where uncertainty remains. The brokerage noted that management expects Media and Telecom growth to continue on the back of deal wins and ramp-ups, while acknowledging headwinds in Europe, which accounts for more than 40 per cent of the company’s Automotive business.

JPM said margins contracted sharply by 330 basis points q-o-q due to large deal transition and ramp-up costs, onsite delivery investments, talent investments, customer-related costs and provisions, and one-time annual costs. The brokerage cut earnings estimates by 1-13 per cent, mainly driven by margin reductions of 7-330 basis points over FY27-29 estimates.

Kotak Institutional Equities maintained a sell rating with a target price of ₹3,000, saying Tata Elxsi reported in-line revenues but disappointed on profitability. The brokerage said growth in the Media and Communications vertical was offset by modest declines in the Transportation and Medical Devices segments.

Kotak Institutional Equities said deal transition costs and upfront investments in go-to-market and delivery capabilities weighed on margins, adding that a large part of the cost inflation appears sticky and could impact the profitability profile. The brokerage cut earnings estimates by 10-14 per cent for FY2027-29 due to continued demand challenges in the automotive segment and moderate margin expectations.

Domestic brokerage Motilal Oswal lowered its FY27 and FY28 earnings per share estimates by around 5 per cent and 1 per cent, respectively, citing weaker-than-expected margin performance in the first quarter and a slower recovery in the Transportation business.

The brokerage said that while some margin headwinds are one-off in nature, margin recovery is likely to remain gradual amid continued investments, wage hikes in the second quarter and an uneven demand environment. Motilal Oswal revised its target price to ₹3,100, and reiterated its sell rating.

Elara Capital also maintained a sell rating on Tata Elxsi and lowered its target price to ₹3,300 from ₹3,800. The brokerage said the company continues to maintain guidance for higher single-digit revenue growth in FY27 on a rupee basis. Elara Capital said it had earlier factored in growth closer to double digits but has now trimmed its growth estimates to align with the company’s guidance.

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Published on July 15, 2026