Tata Elxsi hosted a conference call on October 10, 2024. 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

Q2FY2025:

The company has delivered steady quarter of growth in Q2FY2025.

Revenues in Q2FY2025 stood at Rs 955.1 crore growing 3.1% QoQ and 8.3% YoY.

In constant currency (CC) terms revenue growth was flat with a modest growth of 0.2% QoQ and a growth of 5.1% YoY.

During the quarter, the company’s revenue from India grew by 31.2% YoY, while Japan and emerging markets grew by 81.9% YoY.

Segment wise Transportation vertical revenue grew by 4.4% QoQ in CC terms. This was aided by large deals including one land mark deal of US$ 50 million with a leading global OEM headquartered in Europe. This encompasses SDV and multi domains of automotive engineering. The deal is for tenure of 5 years and ramp up is expected from January 2025.

Media and telecommunication vertical revenue declined by 2.6% QoQ in CC terms. The company is delighted with its world’s first RDK Broadband implementation for Qualcomm, which allows global telecom operators to adopt this first-of-its kind solution to deliver high-speed home and enterprise broadband services through their 5G networks. The company is witnessing green shoots for growth in the sector.

Healthcare vertical revenue declined 11.2% QoQ in cc terms impacted by delays in deal renewal and ramp-ups. However, the company has added key new customer in the vertical. It is a strategic deal for advanced surgical imaging and AI + cloud powered software platform development.

Profit: EBITDA margins expanded by 70 bps to 27.9% for the quarter.

Margin expanded by 70 bps QoQ of which 160 bps was contributed by cross currency exchange rate which was positive and other expenses declined by 130 bps. This was offset to the tune of 120 bps due to increase in salaries to junior staff effective July 1,2024 and to the tune of 100 bps due to increase in cost of goods sold.

PAT increased by 24.6% QoQ to Rs 229.4 crore. PAT was also aided by R&D incentives and tax credits from previous years.

Human Resource: 

Attrition stood at 12.5% and was comfortable.

The company has increased the wages for junior staff from July 1^st of 2024.

The company will be cautious in hiring head count. However, the company will go ahead and hire people with specialised and critical resources as and when required.

The company will hire fresher’s from colleges in Q3FY2025.

The company is not facing challenges from supply side for talent currently.

Utilizations for the company stood at 69.5% and has sufficient room for growth.

Outlook:

The company intends to grow in double digits in cc terms in FY2025. The company expects superior performance in H2 FY2025

The company is confident of achieving the growth on back of strong deal pipeline, large deal wins and healthy transport vertical performance.

Despite softness in transportation vertical, the company expects decent growth in transport vertical on back of deal wins and ramp ups and strong deal pipeline.

Auto OEMs are growing faster than tier 1 supplier’s and not only top OEM all the OEMs are growing faster. However, only few tier 1 suppliers are growing and some are de-growing.

The company witnessed that the health care vertical has bottomed out in Q2 and expects it to recover from Q3FY2025.

The company has not lost any customer in healthcare vertical. Delays in decision making and slow start of new programs from existing customers led to decline in revenues.

The company witnessed blood bath in media and communication vertical. Most of the overseas media companies are tightening their budgets and lot of consolidation is happening. Most of the deals are cost takeout deals.

The company expects H2 margins to be better.

Slowdown in US and Europe will be a tail wind for the company as more jobs will be coming to India.

Management Commentary:

Mr. Manoj Raghavan, CEO and Managing Director, Tata Elxsi, commenting on the company’s performance said “I am happy to report a steady second quarter with revenue from operations growing to Rs. 955.1 crores, registering a QoQ growth of 3.1%. Our operational and offshore delivery excellence, fiscal discipline, and differentiated offerings have contributed to our EBITDA margins expanding by 70 basis points to 27.9% for the quarter. Our PAT grew by 24.6% QoQ to 229.4 Cr, with superior bottom-line performance further aided by R&D incentives and tax credits from previous years.

Our transportation business continues to power growth for the company, registering a strong revenue growth of 8.8% QoQ. We won a landmark US$ 50 million multi-year deal from a global OEM headquartered in Europe, which encompasses SDV and multiple domains of automotive engineering.

In our Media & Communication business, I am especially delighted with our world’s first RDK Broadband implementation for Qualcomm, which allows global telecom operators to adopt this first-of-its kind solution to deliver high-speed home and enterprise broadband services through their 5G networks.

Our Healthcare & Lifesciences business added some new marquee customers, including a strategic deal for advanced surgical imaging and AI + cloud powered software platform development.

Our strategic focus on expanding our business in Japan, emerging markets and capitalizing on the India opportunity, is now starting to significantly contribute to our growth. During the quarter, our revenue from India has grown by 31.2% YoY, while Japan and emerging markets grew smartly at 81.9% YoY.

We step into the third quarter of this financial year with the confidence of our design-digital proposition, a healthy deal pipeline, continued growth in our transportation business, large deal wins and recovery in our other key verticals”