Rs 1 lakh to Rs 9.91 lakh: This multibagger midcap IT stock gave 891% returns in five years

Long-term investors have made a huge profit by investing in Tata Elxsi as it has surged by 891% in the last five years.

The stock of multibagger Tata Elxsi rallied from Rs 621 in November-2016 to Rs 6,160 today, surging 9.91x times in the last five years. An amount of Rs 1 lakh invested in 2016 would have become Rs 9.91 lakh in 2021.

From the beginning of the year 2021, the stock has rallied 229%, from Rs 1,867 to Rs 6,160. Rs 1 lakh invested in Jan-2021 would have become Rs 3.29 lakh today in just 10 months.

Unique Business model

Tata Elxsi is a software and product development IT company, unlike traditional IT businesses like Infosys and TCS where their main business is software support and maintenance. Tata Elxsi revenue drivers are Embedded product and design (88% of total revenue) provides technology consulting, new product design, development and testing services for various sectors like automotive, broadcast, consumer electrics, healthcare, telecom and transportation industries.

It works with leading OEMs and suppliers in the automotive and transportation industries for R&D, design, and product engineering. It also addresses the complete product development lifecycle from R&D, new product development and testing for broadcast, consumer electronics and communications.

Double-digit growth

In the last five years from FY16 to FY21, revenue has grown at a CAGR of 11% and profit has grown at a CAGR of 19% which shows the steep growth of the company. There is a decent increase in operating profit margin from 21% in FY16 to 29% in FY21, due to optimization in employee cost.

Valuation and Outlook

Digital engineering continues to grow as companies across the industries are prioritizing their R&D efforts towards building new-age digital products and services, resulting in a strong growth opportunity for ER&D companies. Geojit has recommended Accumulate rating for Tata Elxsi by valuing the stock at 53x FY24E EPS with a target price of Rs.6,513.

Though the stock had a massive rally in the past with strong performance, do you still think the company can utilize the present situation and gain momentum?