Tata Elxsi is an ER&D software company
Tata Elxsi is amongst the world’s leading providers of design and technology services across industries including Transportation, Media, Communications and Healthcare & Medical Devices. It provides integrated services – from research and strategy, to electronics and mechanical design,software development, validation and deployment, and is supported by a network of design studios, global development centers and offices worldwide. It helps customers reimagine their products and services through design thinking and application of digital technologies such as IoT (Internet of Things), Cloud, Mobility, Virtual Reality and Artificial Intelligence.
There is no doubt that the Electric Vehicles space provides a very big opportunity for investors. It can be played either directly or indirect.
The direct way to play the theme would be to buy the OEMs who are manufacturing Electric Vehicles such as Tesla. The indirect way to play the theme would be through the suppliers who supply components to the OEMs. Amara Raja is an example of this as it has set up a plant to supply batteries to the OEMs.
The Enterprise Research & Development (ER&D) software companies are another way to capitalize on the theme as they work with the OEMs and provide engineering and design assistance. Tata Elxsi and KPIT are two examples of these companies.
According to the latest investors presentation, Tata Elxsi recently won a multi million-dollar automotive deal from a leading automotive company for autonomous driving and driver experience.
Hiren Ved of Alchemy Capital is bullish about Tata Elxsi
In his latest interview, Hiren Ved revealed that his Fund is invested in Tata Elxsi as it will be a beneficiary of the EV revolution. “If you want to play an India opportunity, you buy an auto ancillary or a battery company. You want to play a global EV opportunity, you buy a software company because for them the customers are global,” he said.
“Right now, the most efficient way to play this theme is to do it indirectly. It is like a pick and shovel approach, You do not want to buy the diamond company but you want to buy the guy who is mining the diamond and I think you have to do the same thing when it comes to these two themes,” he added.
Ved explained that Tata Elxsi and KPIT are two classic examples of companies that benefit from the whole electric vehicle revolution around the world because they are not limited to India. They are supplying software and technology to all the OEMs around the world so the globe is their market and this is a global opportunity, not just an India opportunity.
“In these two, there is a very long-term trend and we will find more companies over the next couple of years where we will be able to bet directly,” he added.
Saurabh Mukherjea added Tata Elxsi to the Rising Giants portfolio
It is well known that the Rising Giants PMS portfolio invests primarily in high quality mid-sized companies (less than Rs 75,000 crores market-capitalisation, predominantly in the Rs 7,000 crores – 75,000 crores range) with: 1) Strongly moated dominant franchises in niche segments; 2) A track record of prudent capital allocation with high reinvestment in the core business and continuous focus on adjacencies for growth; and 3) Clean accounts and corporate governance. From a universe of ~450 companies in this segment, a portfolio is constructed of 15-20 companies which make it past Marcellus’ proprietary forensic accounting & capital allocation filters as well as its bottom-up stock selection & position sizing frameworks.
Tata Elxsi is the latest addition. The rationale for adding the stock to the portfolio is explained in a succinct manner:
“Tata Elxsi is an engineering research and development (ER&D) company providing designing and product engineering services to Transportation, Broadcasting & Media, Healthcare and other industries. It has consciously developed design as its core strength which acts as a key differentiator for the Company. This also helps in engaging with customers at a very early stage of the product lifecycle and with access to the C-suite (rather than, say, only R&D and Chief Information Officer (CIO) level customer personnel). The ‘Tata’ brand name helps the Company to attract customers as well as employees which is also visible in its higher offshore mix of projects vs peers. It has also invested in R&D (R&D expense as a % of sales has averaged 1.6% over the past five years) and filed numerous patents, thereby developing the various platforms/products like Autonomai (platform for auto OEMs and Tier 1 automotive suppliers), TEPlay (an end-to-end OTT video delivery), etc. The company has been engaging with customers to drive projects around Autonomous Driving (AD), Advanced Driver Assistance Systems (ADAS), electrification projects and digitalisation. It has also been investing in developing adjacencies for sub-segments like Off-Highway Vehicles, Aerospace and Railways to de-risk the revenues. To maintain its low-attrition advantage, the Company continues to invest in offices at two-tier cities of Kerala (where more than 50% of its workforce is located as per our channel checks). In the last six months, Tata Elxsi has inaugurated a new office at Thiruvananthapuram (which will house around 2,500 engineers) and a new office at Kozhikode (which will house around 1,000 engineers).“