Tata Elxsi hosted a conference call on January 23, 2024. In the conference call, the company was represented by Mr Manoj Raghavan-CEO & MD, Mr NitinPai – Chief Marketing and Chief Strategy Officer and Mr Gaurav Bajaj – Chief Financial Officer.

Key Takeaways of the call

Revenues of the quarter stood at Rs914.2 crore in Q3FY2024. A growth of 3.0% QoQ and 9.4% YoY in constant currency terms.

Growth was across portfolio of customers including and beyond top 5 and top 10customers which reflects the differentiated proportion which the company brings to the customers.

EPD business contributed 84.7% of the total revenues, IBD contribution stoodat  12.3% and System integration at 3% of the total revenues in Q3FY2024.

With respect to regions, the company witnessed healthy growth in the Europe region growing at 5% QoQ, also smart growth was witnessed in Japan and Rest of the World. The company won some large deals in automotive sector.

Within EPD, transportation business grew at 1.9% QoQ. Delays in ramp up due to the shorter quarter and holidays. The company is in good position to capture growth opportunities in this segment  and software designed vehicle space. The company has strong deal pipeline.

Media & communication: Business environment for media, telecom and communication is challenging. Revenue declined marginally by 0.1% in CC terms QoQ. The company continues to engage with its key customers and drive efficiencies in current operations and also drive new revenue streams for them. The company has significant contribution from US for Media and communication vertical and Media and communications vertical was the most impacted in US region.

Health care and life sciences vertical performed strongly with growth of 3.9% QoQ in cc terms. The company won some large deal in regulatory and new product engineering services.

Design digital strategy continued healthy growth with Industrial design vertical growing at 1.7% QoQ in cc terms. During the quarter the company’s design team has executed some land mark projects.

Margin: EBITDA margin stood at 29.5% for the quarter down 30 bps QoQ.

There was an impact to the tune of 70-75 bps due to increase in other expenses on account of increase in travelling expenses and sales promotion activities, also there was some increased on training of campus batch; impact of around 40 bps due to training of employees in AI capabilities and building AI infrastructure and 10 bps impact due increase in employee expenditure. This was offset to the tune of 55 bps due to decline in project and project related cost and 40 bps on account of exchange benefit.

Other Income: Other income increased in Q3 to Rs 34.93cr when compared to Rs 31.13 crore in Q2 resulting in similar PBT margins in both the quarters. Also there was some exchange gain in Q3FY2024.

Human Resource:  Net additions were 350 employees in Q3FY2024 taking the total head count net additions to 1357 for 9 months.

Attrition declined to 12.9% in Q3FY2024.

Employee cost increased from 50.5% of the total revenues in Q3FY2023 to 54.5% in Q3FY2024. This is because the company has made some investments in employee addition keeping in line the projects which the company has signed. As the revenue growth picks up, ramp up of project happens employee in bench will be utilized and also there will be increase in utilization which will drive down employee expenditure.

Outlook:

Automotive: The deal pipeline is strong.  Revenue growth was soft in Q3 however, the company is bullish on deals being chased. The company has closed some deals. The ramp up which were expected in Q3 were delayed. Delays were from customers end and some union issues with some of the customers which has been resolved.  The company has made investment in talent and in sales which will start yielding results.

Lot of deals closed in the recent time in transportation segment are long term.

Media and communication: Because of shorter quarter, increase in furloughs and impact in US revenue growth in media and communication vertical was impacted in Q3. However, there is lot of Mergers and acquisitions happening in this vertical and lot of cost take out opportunities are available. The company is working towards consolidating its position and increasing its wallet share.

Media and communication business is still week and is difficult to comment on how it will pan out next financial year. The company wants to wait for one more quarter to know how the industry will pan out. The company wants to remain relevant for its customers and increase its market share in the vertical.

Health care: The company witnessed some good deals wins.  MDR related regulated business which contributed 70-80% of the health care business is now down to 25%. New product lifecycle which was impacted in COVID period has commenced. The company has made lot of investment in this space and is bullish on how this vertical will pan out in next 4-6 quarters.

The company had earlier told that the revenue from health vertical will be around 20% of the total revenue by 2026 and the company is on track to achieve the same.

North America business: The company’s North America business is driven by tier I suppliers. Tier I suppliers themselves have been impacted by slow down. However, the company relationship with its top OEM’s is intact. The company is carefully managing its OEM business in North America .

The company focus is towards consolidating and winning market share with the existing OEM’s.

Management commentary:

Commenting on the performance Mr. Manoj Raghavan, CEO and Managing Director said:

“We are happy to report a healthy performance in the third quarter  quarter with a top-line growth of 3.7% QoQ and 11.8% YoY in a challenging quarter for the industry.

Our Healthcare & Life sciences business executed strongly to report a growth of 4.6% QoQ and 13% YoY. This was backed by large deals in regulatory and digital health services.

Our transportation witnessed steady growth of .7% QoQ in a short quarter. While we had some delays in planned ramp-ups and deal closures due to short quarter and holidays, we are positioned well to capture growth opportunities in the continued transformation of the automotive industry and Software Defined Vehicles.

Our Media & Communication business has done well in a deteriorating business environment for the media, telecom and technology industry, growing 0.6% and 3.4% YoY. We are staying close to our customers and building on both growth and efficiency offerings for customers in this industry.

 Our Design-Digital strategy is continuing to drive differentiation and growth, with our Design business growing at 12.3%, Our design teams have executed some land mark projects that spans usewr research, design and implementation to lead the way for our customers to transform customers experience across industries. This also paves the path for capturing downstream value of technology implementation as well as managed services for our system integration business.

While we have continued to invest strongly in talent addition with over 350 Elxsians in this quarter and a net of 1357 Elxsians over the past nine months, we have done well to maintain our EBITDA well over 29% band. This underlines our strong focus on delivery and operational excellence, and our confidence in the future and long term demand for our differentiated offerings.

As we step into the last quarter of the financial year, the confidence of our customers in our differentiated Design Digital proposition and delivery excellence, and a strong deal pipeline provides us the foundation for sustained growth.”