Tata Elxsi hosted a conference call on May 18, 2023. In the conference call, the company was represented by Mr Manoj Raghavan-CEO & MD, Mr Nitin Pai – Chief Marketing and Chief Strategy Officer, Mr Gaurav Bajaj – Chief Financial Officer and Ms Cauvery Sriram-Company Secretary.

Key Takeaways of the call

For the full year FY2023, the company has delivered strong performance with revenue growing 27.3% YoY and PAT growing 37.4%. During the financial year the company crossed the Rs 3000 cr revenue mile stone.

Q4FY2024:

For Q4FY2023, the revenues of the company stood at Rs 837.9 cr a 2.5% QoQ growth and 22.9% YoY growth. In US $ terms QoQ growth was 2.9%.

EBITDA for the quarter stood at Rs 249.5 cr which translates to a EBITDA margin of 29.8%. PAT for the quarter was 201.5 cr.

In a scenario of macroeconomic uncertainties and challenges the company was able to grow its revenues and protect its margins.

The company’s Embedded Product Design (EPD) division grew 1.6% and 13% YoY. The IDV and SIS had a remarkable growth during the financial year. Industrial Design & Visualization grew 52.8% YoY and System Integration &Support delivered 77.6% growth YoY.

With respect to verticals, the company had a steady quarter for all the verticals and more importantly, healthcare and media communication have returned to growth from last quarter despite moderately.

Across the 3 verticals, the growth has been primarily volume led and witnessed strong growth across large accounts. Across the key accounts, the company has increased wallet share against competition underscoring differentiated value proposition and offshore delivery capabilities.

Margin:

On a QoQ basis EBIT margins were impacted  to the extent of 30 bps due to campus on-boarding, investments in people, subject matter experts and sales and marketing people.

However, PBT increased from 28.7% in Q3 to 29% in Q4 due to increase in other income. Increase in other income was on account of higher interst, Research and development gains and exchange gains.

Margin levers of the company include higher utilization.

The company expects the margins to sustainable in FY2024 and targets PBT margin of 28-29% to operating revenue in FY2024.

Human Resource:

Attrition-The annualized attrition of the company has declined to 17.3% which is one of the lowest among the peers.

Supply side constrains have eased. The company has built up bench strength and will use bench strength to grow revenues.

Hiring- The company plans to hire around 2200 people during FY2024 of which 1800 are fresher’s and the balance 450-500 are lateral hiring.

ESOP- the company has introduced ESOP and expects around Rs 4.5 cr expense per quarter towards ESOP.

Wage hike will be according to regular wage cycle.

Operating cash flow: Operating cash flow was impacted due to some receivables due to some system transformation. Cash flow will be back and normalised in next 1 quarter.

Other Expenses: Other expenses have been volatile for the last 3 quarters. Most of the expenses which were not there during covid, have returned.

Tata Tech: Tata Elxsi and Tata Technology offer different services to customers which are complementary to each other and Tata Tech will not impact the business of the company.

Deal Wins:

Tata Elxsi has been chosen by Alps Alpine to establish a Global Engineering Centre (GEC) in Thiruvananthapuram. The GEC will focus on software-led innovation and engineering to support Alps Alpine’s vision for future mobility.

The company has also won a multi-year deal from European OEM.

Outlook: The company is building a strong deal pipeline and expect to see large dela pipeline picking up over the current quarter and beyond.

The management is excited about the opportunity ahead in automotive and transportation business, the scale and rate of transformation needs to undertake changes driven by regulatory, sustainability and evolving customer consumer preferences. This will provide healthy opportunities and this transformation demands deep domain knowledge, scale in software development and application development in digital technologies like artificial intelligence, Internet of Things and more importantly design will take centre stage in creating consumer delight. The company is in the right place and bring the right capabilities and are engaged in the right conversation with the global automotive leaders in their transformation journey.

The company has signed some deals in the quarter. The company has witnessed some deferrals in some clients however the company expects growth to come back in Q1. The company is witnessing strong deal pipeline and expects the growth to replicate in FY2024 as seen in Fy2023.

The company also witnesses emerging opportunities in application around 5G that allow enterprises to garner the speed and reliability of the technology. The company is witnessing deals with operators and enterprises to make this a reality.

The company’s health care and life-sciences vertical was impacted due to extension of regulatory deadlines which cut companies existing revenues and work. However, the vertical has recovered within a quarter and is building a strong pipeline of deals and penetrating into new marquee customers.

In Media and telecommunication the company is witnessing some green shoots with no challenges in medium to long term.

The company expects to grow in the Top 10 and top 20 accounts.

Despite macro -economic challenges some customers are continuing to make investments. However some customers are deferring their discretionary spends due to pause in their R&D spends.

Dividend:

The Board of Directors at their meeting held on 18th May 2023, has recommended a final dividend of 606% at Rs. 60.60 per share for the financial year 2022-23.

Management Commentary:

Commenting on the performance, Mr Manoj Raghavan said “Financial year 2023 has been another year of strong operational performance, driving healthy revenue growth and strong margins despite the macroeconomic uncertainties and challenges that the industry has been facing since last few quarters. In a matter of just two financial years, our top line has grown by 72% to Rs. 3144.7 Cr and our PAT has almost doubled to Rs. 755.2 Cr.

During the financial year, our transportation business, which accounts for more than 43% of our Embedded Product Design (EPD) division, grew strongly by 32.8% in constant currency terms. The Healthcare & Medical Devices business too registered a robust growth of 28.4% in constant currency terms. Our Media & Communications business witnessed a stable and sustained growth of 14.6% in constant currency terms during the financial year.

The key strategies deployed over the last two years have played out well with strong synergies between the design, product engineering and deployment support services of Tata Elxsi. This is enhancing deal sizes, durations and value delivered to customers. This is reflected in the strong Q4’23 growth from IDV (52.8% YoY in constant currency terms) and SIS (77.6% YoY in constant currency terms).

We are entering the new financial year with a strong commitment to keep our growth momentum going, and the continued confidence of our customers in our differentiated design-led engineering capabilities.”