Tata Elxsi hosted a conference call on July 15, 2022. In the conference call, the company was represented by Mr Manoj Raghavan-CEO & MD, Mr Nitin Pai – Chief Marketing and Chief Strategy Officer and Mr Gaurav Bajaj – Chief Financial Officer.

Key Takeaways of the call

The company delivered robust performance in both revenues and margins in Q1FY2023. The growth momentum continued in Q1.

In Q1FY2023, the company reported Rs. 725.9 cr of revenue from operations, a growth of 6.5% QoQ and 30.0% YoY.In constant currency terms also, the growth was 6.5% QoQ.

The growth was volume led and supported by robust growth across divisions, verticals and key markets.

Segment wise Embedded Product design(EPD) grew 6.2% QOQ, Industrial design and visualization grew at 6.6% QoQ and System integration and support grew at 19.8% QoQ.

In EPD, Transportation grew 46.3% YoY and 7.8% QOQ, Media and communication grew by 27.8% YoY and 3.7% QOQ and Healthcare and medical grew by 47.6% YoY nd 3.7% QOQ.

Transportation, media and communication contributed 41.5% 43.7% and 14.9% respectively of the total EPD segment revenues and the company in medium targets 40:40:20 revenue contribution from the Transportation, Media and Communication and Healthcare segments of EPD.

The adjacent business of transport(off road, rail, commercial vehicles), Media and communication( new media and digital) and Medical (Digital and platform) business are doing good and the company expects the same to grow decently in next 3-4 years.

Deeper customer engagement and client mining has helped the company gain market share and increase the wallet share. 98% of the company's revenues in Q1FY2023 was from existing customers and the balance was from new customers. Over period of time, the company expects contribution from new customers to increase.

Margins: Operating margin expanded 35 bps QoQ to 32.8% in Q1FY2023.Improvement in margins were due to operating levers, better utilization, increase in offshore mix and improved pricing.

The company expects to maintain the margins at current levels in the short to medium term as it has levers.

Tax rate: Effective tax rate stood at 19% for the quarter. Decline in Effective tax rate was on account of SEZ unit being opened in Trivandrum and one-time tax impact which the company had in Q4FY2022. The company expects the effective tax rate to be lower when compared to last year.

Human resource: Net additions during the quarter stood at 771 which was double the number when compared to Q4FY2022. The company plans to hire 3000-3500 freshers in FY2023 and lateral hiring of around 1000-1500 in FY2023.

Attrition: LTM attrition stood at 19% in Q1FY2023.

Wage hike: The company has done substantial wage hike to 85% of the junior employees in Jan 2022 and the balance of senior levels got the wage increase in April 2022.

Onsite Offshore mix: The company plans to maintain current share of onsite offshore mix in the ratio of 25:75, plus or minus 1 or 2 %. The clients of the company are reaping benefits from the offshore mix of the company and the company expects that there will not be any major shift.

Outlook:

The company has a strong order book and healthy deal pipeline.

The company is in the niche engineering segment and has not heard anything from the clients with respect to reduction in budget in FY2023 and FY2024. however, the company expects that it might change after couple of quarters as most of them are talking about recession.

Inflation in US and the prevailing macroeconomic environment and war in Europe might not have an impact on the company as the company works on machine critical things.

Management commentary:

Commenting on the performance Mr Manoj Raghavan, CEO and Managing Director said: “We are starting FY23 on a strong note with 6.5% QoQ revenue growth in constant currency. This was all volume-led and supported by robust growth across divisions, verticals and key markets. We continue to maintain and expand our margins with our EBITDA growing at 58.8% YoY and PAT growing at 62.9% YoY.

Our differentiated delivery capability powered by Domain, Design, and Digital, is helping us continue to win deals which are of strategic importance to our customers.

I am delighted that the Tata Elxsi family is now over 10,000 people strong. We added 771 employees on a net basis in the quarter, more than doubling from the previous quarter. This has been aided by concerted efforts in reinforcing our employer brand proposition and employee engagement that have helped reduce our attrition rate in the quarter. We are also expanding our delivery presence with a new center in Kozhikode.

We are taking a seminal role in fostering future design thinkers and innovators for sustainability, with the launch of iGNITE – a global design and innovation contest for sustainable design, coinciding with the World Industrial Design Day on 29th June.

I am delighted to start the financial year with robust growth in revenues, margins, employee and customer additions. We are entering the second quarter with a strong order book and a healthy deal pipeline across key markets and industries.”