Tata Elxsi
hosted a conference call on July 17, 2023. 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
Revenue grew by
17.1% YoY despite challenging macro-economic environment. In constant currency
terms revenue grew by 1.2% QoQ and 11.9% YoY.
Healthcare and life
sciences business grew by 3.2% QoQ a significant improvement when compared to
previous 2 quarters. The vertical also reported new product development deal
wins for medical diagnostics and smart hospital equipment.
In the
transportation business the company continues to see good traction and strong
deal pipeline especially in software defined vehicles. Transportation vertical
grew 1.8% QoQ and 17% YoY in CC terms. While some deal closures were delayed in
this quarter, the company won significant new deals including a strategic
multi-year multi-million US$ SDV deal with a leading Asian OEM for their SDV
platform and software development, and a multi-country licensing and deployment
of the company’s connected vehicle platform with a global Top 5 OEM.
Media and
communication business grew creditably. The company retained and grew market
share. The absolute revenue growth was muted. Revenue grew by 0.2% QoQ in CC
terms. The company won its first
multi-year deal for its 5G network orchestration and automation suite with a
leading telecom operator. Media and telecom sector is still soft globally and
the company remains cautious on the short-term growth for the sector while
remaining close to the key customers and focussing on intelligent AI power
solutions and technology that will drive next leg of transformation in the
industry.
Customer
contribution to revenue:
Revenue from top
5 customers grew from 39.8% in Q4FY2023 to 42% in Q1FY2024 and revenue from top
10 customers grew from 49.4% in Q4FY2023 to 51.9% in Q1FY2024.
EBITDA margin: EBITDA
margin came in at 29.6% despite wage hike and strong employee addition.
Margin walk:
EBITDA margin declined by 20 bps QOQ. There was a margin impact of 140 bps due
to salary hike and 1 month ESOP cost. This was offset by around 40-50 bps by
reduction in contract cost, foreign
exchange gain to the tune of 20 bps, and gain of another 50 bps due to
operating leverage and better utilization.
Effective tax
rate: Effective Tax Rate (ETR) in this quarter has increased on account of
lower tax exemption due to completion of 5 years for two of its SEZ units,
impacting the company’s PAT Margins.
Effective tax
rate for the remaining quarters of the financial year will be similar to Q1.
Human
Recourse:
Net employee
addition during the quarter stood at 422 taking the total head count to more
than 12000.
Attrition
further dropped to 15.6% in Q1FY2024.
ESOP expenses to
be in the range of 0.4-0.5% during quarters going forward.
The company has
rolled out salary hikes for 70% of the employees in Q1. It will roll out salary
hikes to 30% of employees from 1stjuly. Impact of increase in salary
expenses will not be significant on margins in Q2.
Utilizations
stood at 72.5% in Q1. The company plans to increase the utilisation and take it
80% going forward by utilising the bench strength.
The company
plans to hire 1800-2000 engineers during the financial year. However, lateral
hiring will be need based.
The company says
that Tata Technologies and itself can co-exist as two different companies on
account of different verticals and services they offer.
Geography:
European business is led by automotive while US business is led by Media and
communication. US also has medical business. The performance of the geography
is based on the performance of verticals. The company will continue to invest
in these geographies and expects growth to return eventually.
Generative AI:
On the engineering side the impact of generative AI is limited however the
impact is significant on CSR and marketing side like KPO and BPO side.
Outlook:
Transportation
vertical - Some of the deal closures are taking time. However deal pipeline is
strong. Large deals are being chased by the company. Lack of conversion is
resulting in low revenue growth. However going forward it is expected to accelerate.
What was to be closed on early quarter is still open. Customers are cautious
and careful. The company expects additional revenue to kick in from Q2 and is
confident in growth.
Media and
telecommunication- The entire industry is witnessing de-growth. However, the
company has held the ground. The company has maintained the business from Top-5
clients resulting in market share gain. The industry is still soft. The company
wants to wait and watch how the deal closures will progress in Q2.
Healthcare: Last
2 quarters did not show any growth due to concerns in Europe. However, in
Q1Fy2024 the company has done well with new deals and product launches. The
company is pretty optimistic on the succeeding quarters as well and aims to get
back to earlier growth rates.
Industrial
business(IDV) is a smaller business for the company. It had a healthy growth in
the previous financial year however; growth was soft in Q1 on QOQ basis. The
company expects Industrial business division business to grow significantly for
the next 3 quarters of financial year.
Management commentary:
Commenting on
the performance Mr. Manoj Raghavan, CEO and Managing Director said:
“We are happy to
report a healthy growth of 17.1% YoY in the current macro-economic environment,
while delivering industry leading EBITDA margin of 29.6%. While the overall
global economic outlook remains challenging, our customer focus and targeted
efforts to keep the growth momentum going is showing good results.
During the
quarter, our Healthcare & Lifesciences business has reported a healthy QoQ
growth of 3.4% which is a significant improvement over the performance during
the earlier two quarters. This vertical also reported new product development
deal wins for medical diagnostics and Smart Hospital equipment.
In the
Transportation business, we continue to drive differentiated software
capability and scale, and see good traction and a strong deal pipeline,
especially in Software Defined Vehicles and EV. While some deal closures were
delayed in this quarter, we won significant new deals including a strategic
multi-year multi-million US$ SDV deal with a leading Asian OEM for their SDV
platform and software development, and a multi-country licensing and deployment
of our Connected vehicle platform with a global Top 5 OEM. To expand our
automotive and smart mobility focus in North America, we have opened an
Innovation Hub and nearshore engineering centre in Troy, Michigan that will
innovate along with leading institutes and technology ecosystem in the region.
We also signed a
Memorandum of Understanding (MoU) with the Indian Institute of Technology,
Guwahati (IIT-G) to jointly work on developing and commercializing
state-of-the-art solutions for the fast-evolving space of electric mobility.
Our Media &
Communications business performed creditably to retain and grow market share
even though absolute revenue growth was muted. We won our first multi-year deal
for our 5G network orchestration and automation suite with a leading telecom
operator. This is an important milestone for the renewed portfolio we are
building for this industry vertical. However, the Media, Telecom and Technology
sector is still soft globally and we remain cautious on short-term growth in
this sector, while staying close to our key customers and focusing on
intelligent AI powered solutions and technologies that will drive the next wave
of transformation in this industry.
I am delighted
by the all-round customer excellence demonstrated by Elxsians that has allowed
us to grow strongly with our key customers and positioned us well for
competitive differentiation and new project considerations across our customer
base.
On the people
front, we continue to invest in our talent base. With a net add of 422 Elxsians
in this quarter, the Tata Elxsi family is now 12,000+ strong, with attrition
dropping further to 15.6%.
We have driven
strong operational excellence across the organization and protected our EBITDA
margins, despite wage hikes and strong employee additions in the quarter. Our
Effective Tax Rate (ETR) in this quarter has increased on account of lower tax
exemption due to completion of 5 years for two of our SEZ units, impacting our
PAT Margins.
In our
aspirational journey of being carbon neutral by 2030, we were awarded a silver
medal by EcoVadis, the world’s largest and most trusted provider of business
sustainability ratings. The silver medal underscores our ESG standing amongst
the global corporate community, and demonstrates our commitment to responsible
practices across areas including environmental impact, labour conditions,
ethical sourcing, and business conduct.
It is a matter
of great pride for all of us at Tata Elxsi to partner with ISRO and play a role
in the Gaganyaan project. This collaboration will help push the boundaries of
technology, and provide us a unique opportunity to advance our capabilities
while strengthening India’s space mission. We wish ISRO the very best as it
progresses further in the ambitious Human Space Flight mission.
As we step into
the second quarter of this financial year, the confidence of our customers in
our differentiated Design Digital proposition and delivery excellence, and a
strong deal pipeline especially in the automotive, healthcare and design
businesses, provides us the confidence and foundation for accelerating growth
through the year.”
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