Analyst Meet / AGM     10-Jan-25
Conference Call
Tata Elxsi
Revenue growth to be soft in FY2025

Tata Elxsi hosted a conference call on January 09, 2025. In the conference call, the company was represented by Mr Manoj Raghavan-CEO & MD and Mr Gaurav Bajaj – Chief Financial Officer.

Key Takeaways of the call

Q3FY2025:

The company has delivered steady quarter of topline in Q3FY2025 which is seasonally weak quarter for the company.

Revenues in Q3FY2025 stood at Rs 939.2 crore growing -1.7% QoQ and 2.7% YoY.

In constant currency (CC) terms revenue growth was flat on a QoQ and a growth of 2% YoY.

The company witnessed positive outcomes from strategic focus on Japan, India and Emerging Economies. During the quarter, the company’s revenue from India grew by 21.9% YoY, while Japan and emerging markets grew by 66.8% YoY. This will serve the company well over the next few quarters even as the company navigates geopolitical uncertainty, currency volatility and industry specific challenges in Europe and US.

Automotive industry has witnessed significant business challenges in the past few quarters with OEM’s specifically in US and Europe facing sales and growth challenges in their major markets. This impacted new deal wins and Tier 1 supplier spend. Amid this business environment, the company has continued to do well to win and execute on large deals won over the current year and demonstrated differentiated values to customers to protect and grow the automotive revenues challenges

Segment wise Transportation vertical revenue grew by 0.5% QoQ in CC terms, amidst longer deal closure cycles being witnessed in the automotive industry. During the quarter, the company announced an Offshore Development Centre for Suzuki Corporation, Japan to support their global technology, software and engineering development.

OEM’s revenue contribution increased from 67% to 72% in Q3FY2025.

The company is delighted to be launching our AVENIR SDV software suite at the CES 2025 Conference in Las Vegas, the premier global showcase for technology innovation. AVENIR encompasses a cloud-native virtual development platform and a hybrid global validation platform, and is powered by the Snapdragon Digital Chassis platform, in partnership with Qualcomm. The company offers a compelling proposition of a ready-to-adopt solution, coupled with deep digital and software expertise and scaled talent base, to help global OEMs shift-left and accelerate their SDV and future mobility roadmaps.

Media and telecommunication vertical revenue grew by 0.4% QoQ in CC terms in a quarter that is traditionally soft and impacted by furloughs. The company is well positioned in Media and Entertainment and telecommunication industries on all 3 levels of growth, efficiency and innovation.

The company won a large multi-year deal with a US headquartered MSO to develop and manage their portfolio of applications and expect to ramp this up over the next few quarters.

Healthcare vertical revenue grew by 1.1% QoQ in CC terms with new customer wins and traction from digital and Gen AI powered offerings.

Systems Integration (SIS) business witnessed decision delays in some large projects that had a significant impact on revenues in Q3FY2025.

Lot of revenue growth in Q3FY2025 has come from Asia Pacific and Japan who are not part of top 10 clients. Top 10 clients are primarily from US and Europe and this has led to decline in revenue growth from top 10 clients.

 

Profit: EBITDA margins declined 163 bps QoQ to 26.3% for the quarter. In Q3FY2025 full impact of salary increases were seen. Margins in the quarter was also impacted by adverse currency movements in GBP, Euro and JPY. This impacted margins to the tune of 140 bps. There was an impact to the tune of 100 bps due to wage hike which was mitigated through some of the operating levers including pyramid optimization and improved utilization. There was also increase in other expenses as the company had to take some third party contractors to fulfil some positions and also due to increase in travel and visa cost which had an impact of 60 bps. However there was an positive impact to the tune of 45 bps on account of reduction in goods sold and depreciation cost.

Margins in Q2FY2025 was aided by 1 time R& D incentives and tax credits from previous years.

PBT margins for the quarter stood at 26.1% for the quarter

Human Resource: 

Attrition stood at 12.4% and was comfortable.

Q3 was the first quarter with full impact of salary increase impact.

The company has added 85 employees on a net basis into the system.

Tax Rate: Tax rate was lower in Q2FY2025 due to one of tax credit of earlier years. This quarter was also tax rate was lower due to differentiation in deffered tax assets and MTM of exchange related resulting in tax rate of 22.5% in Q3FY2025. On a YTD basis tax rate is at 24.1% and the company expects tax rate to be around 24.5-25% for Fy2025.

On a normalised basis the company expects tax rate to be upwards of 25%.

Jaguar and Land Rover(JLR) : JLR is a significant customer for the company,however its dependence has come down.

Outlook:

The company steps into Q4 with the confidence of large automotive deal wins during the year and ramp ups during the quarter despite volatility in automotive market. The stability and return to growth in healthcare and media and telecommunication verticals and large strategic deals in the pipeline across verticals.

Automotive vertical in Europe may take some time to recover. A quarter or couple of quarters to witness pain in automotive market.  The company is witnessing traction in the US in automotive vertical. It should recover in coming quarters and in Asia and India, automotive vertical is expected to grow and expected to accelerate.

Large tier 1’s are winning less deals in automotive verticals as such their outsoursing to the company has also reduced and the company is focussing on the OEM’s side.

OEM’s are reconsidering the nearterm projects with respect to EV’s however, long term EV strategy continues. There is refocus on hybrids by OEM’s.

The company is working on adding adjacencies including Commercial vehicles, off-road, aero and defence.

The company is witnessing greenshoots in both healthcare and media and telecommunication vertical. The company has won some large deals and also expects to close some deals in Q4. The company expects pick up in Healthcare and media and telecommunication vertical from Q4 or latest by Q1FY2026

The company expects margins to improve  once growth comes back. The company is focusing on reducing cost.

The company expects revenue growth to be soft in FY2025.

Management Commentary:

Mr. Manoj Raghavan, CEO and Managing Director, Tata Elxsi, commenting on the company’s performance said “We are happy to report a steady quarter with revenue from operations at Rs. 939.2 crores. During the quarter, EBITDA margins stood at 26.3% and the PBT margin was reported at 26.1%.

We continue to see positive outcomes of our strategic business focus on Japan, emerging markets and capitalising on the India opportunity. During the quarter, our revenue from India has grown by 21.9% YoY, while Japan and emerging markets grew at 66.8% YoY. This will serve us well over the next few quarters even as we navigate geopolitical uncertainty, currency volatility and industry specific challenges in Europe and US.

The automotive industry has seen significant business challenges in the past few months, with OEMs especially in the US and Europe reporting sales and growth challenges in their major markets. This has impacted new deal closures, and Tier 1 supplier spend.

Amidst this business environment, Tata Elxsi continues to do well to win and execute on the large deals won over this year and demonstrate differentiated value to customers, to protect and grow revenues in a difficult quarter for the entire automotive industry.

 

During the quarter, we announced an Offshore Development Centre for Suzuki Corporation, Japan to support their global technology, software and engineering development. Suzuki’s Chief Technology Officer, Katsuhiro Kato highlighted the importance of the centre as a strategic and core component of Suzuki’s innovation strategy, helping it accelerate software and virtual development across Connected, Autonomous and Electric technologies.

We are delighted to be launching our AVENIR SDV software suite at the CES 2025 Conference in Las Vegas, the premier global showcase for technology innovation. AVENIR encompasses a cloud-native virtual development platform and a hybrid global validation platform, and is powered by the Snapdragon Digital Chassis platform, in partnership with Qualcomm. We offer a compelling proposition of a ready-to-adopt solution, coupled with deep digital and software expertise and scaled talent base, to help global OEMs shift-left and accelerate their SDV and future mobility roadmaps.

Our Media & Communication business reported QoQ CC growth in a quarter that is typically soft and affected by furloughs. We are positioned well to help customers in the media, entertainment and telecom industry on all three levers of growth, efficiency, and innovation.

We won a large multi-year deal with a US headquartered MSO to develop and manage their portfolio of applications and expect to ramp this up over the next few quarters. We are positioned well in some very large deals across the world, with decisions and outcomes expected in the coming quarter and beyond.

Our Healthcare & Lifesciences business reported growth of 1.1% QoQ. We continue to win new marquee healthcare customers, and our Gen AI powered regulatory, digital engineering and sustainability offerings are seeing significant traction in the market.

Our Systems Integration (SIS) business witnessed decision delays in some large projects that had a significant impact on revenues in the quarter. While we are aiming to win and execute them over this quarter and beyond, we continue to work on pivoting the business away from project-based to annuity and service based revenue streams.

We step into the fourth quarter of this financial year with the confidence of large automotive deal wins in the year and quarter that will see continued ramp-ups even as we navigate the current volatility in the automotive market; the stability and return to growth in our healthcare and media & communications verticals, and large strategic deals in the pipeline across all our key verticals”.

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