Tata Elxsi hosted a conference call on Jan 19, 2022. In the conference call, the company was represented by Mr Manoj Raghavan-CEO & MD, Mr Nitin Pai – Chief Marketing and Chief Strategy Officer, Mr. Muralidharan H.V. – Chief Financial Officer and Mr Gaurav Bajaj – Chief Financial Officer.

Key Takeaways of the call

The company has delivered another quarter of consistent strong growth. Revenues for the quarter stood at Rs 635.4 cr a growth of 6.7% QoQ and 33.2% YoY. Growth was entirely volume led reflecting Constant currency revenue growth of 6.5% QoQ, 32.7% YoY. Growth in revenues is due to ramp up of deals which the company won in last quarter.

On the bottom line the company has delivered another quarter of industry leading performance. The company's PBT grew by 17.1% QoQ and 36.9% YoY to Rs 200.3 cr.

Net profit stood at Rs 150.95 cr a growth of 20.4% QoQ and 43.5% YoY. The company crossed the mile stone of PBT of Rs 200 cr and Net profit Of Rs 150 cr in one quarter.

The company's growth was powered by Embedded Product Design (EPD), the company's largest division, which grew at 9.9% QoQ and 36% YoY. This the second quarter in which the EPD division of the company is growing by around 10% QoQ.

Within EPD growth was broad bases across verticals. Transportation business posted a third quarter of strong growth of 9.7% QoQ and 30.9% YoY, with secular growth across Electric, Autonomous and Connected technologies, and continued momentum with both OEMs and suppliers for design, technology and digital services across geographies.

Media & Communications delivered another quarter of consistent growth with 6.5% QoQ and 31.1% YoY growth respectively, supported by the addition of marque global customers, and strategic platform and solution-led multi-year deal wins.

Healthcare was the fastest to grow in when compared to transportation and media and communication vertical. Healthcare grew by 22% QoQ and 73.4% YoY, supported by large deals and continued growth in digital health, digital engineering and regulatory services.

The company has continued to add marque clients to its customer base and win new strategic deals across all the 3 verticals. The company is focusing on building a customer base in each vertical that can drive consistent growth for the company.

In spite of a client project put on hold in the company's Design business(IDV) which impacted Q2 and Q3 revenues, the company's business grew by 61.7% on a Year-to-date basis.The company expects to resume the project in the coming quarters. Revenue in IDV business is volatile and cannot be compared on a quarterly basis. IDV business is critical for the company and sometimes it adds to EPD business for the company.

Human Resource: The company continues to add talent in the last three quarters. It added 500 fresh engineers in Q2 and 150 fresh engineers in Q3. The company expects to invest in large amount to bring in talent in the next three quarters.

The company is doing a lot of things internally including salary hikes to reduce attrition.

Demand: The company has a strong order book and healthy deal pipeline across key markets and industries.

Margins: Operating margins increased both QOQ and YoY. The company expects to deliver industry leading margin going forward. Improved margins are led by 1) volume growth and consistent growth in business in all the verticals;2) Quality of revenue and multiyear deals with better pricing; 3) cost leverage kicking in due to operating leverage and arbitration. Earlier utilization stood at 73-75% which has increased to 83% and offshore on shore mix with offshore mix cementing. Earlier onshore mx was around 35-36% which has now reduced to 24-26%.

Margins are higher in the medical business followed by transportation and media and communication.

Transportation vertical: Earlier in the transportation vertical the company had deals primarily from passenger vehicles. However, in the last 6-8 quarters the company has diversified into commercial vehicles and off road farm equipment's and rail segment. The company is seeing steady progress and has won some good deals in commercial vehicle space in the last quarter. The rail business is also growing steadily. The company targets 20% of its revenues in the transportation from adjacent business over next 3 years.

Skill set and Pricing: The company is able to negotiate better prices with customers.

Revenue Mix: In the 3 years road map which the company put forward, the company targets a revenue mix of 40:40:20 between transportation: media and communication and health care.

Deal Structures: The company has become more and more strategic for its clients. The company is winning lot of large deals from its clients.

Customers: JLR business is looking up in last couple of Quarters. It was affected due to semiconductor shortage. The company expects the JLR business also to improve once semiconductor shortage eases.

The company has its largest customer in Media and communications vertical.

Electric Vehicles: Both traditional OEM's who are in EV business and the new age customers who entering EV business.

Average length of the deals in Electric vehicle space is the range of 12-18 months and in some cases 24 months.

IPR revenue: IPR revenue contribution is less than 5% of the total revenues, however, it helps the company in winning deals and also in go to market. Fixed price: Revenue contribution from fixed price contracts stood at 50% in Q3FY2022 and the company expects the same to increase to 55-60%.

Cash: The company will hold some cash for inorganic growth through acquisitions and return the balance to shareholders. However, the decision with respect to the same will be taken in next board meeting.

Outlook: The company has sustained the growth in the last 8 quarters and the company is bullish on sustaining the growth going forward.

Management Commentary:

Commenting on the performance, Mr. Manoj Raghavan, CEO and Managing Director, Tata Elxsi said: “We are pleased to report another quarter of consistent and strong growth, supported by differentiated offerings and industry leading operational excellence.

We continue to execute strongly on all our key strategies, driving growth across our three primary industry verticals and regions, building on our software and digital product engineering capabilities.

We are seeing significant growth in the automotive market, with large and strategic deals with both Original Equipment Manufacturers(OEMs) and suppliers across Electric, Autonomous, connected and digital underscoring our technology and engineering leadership.

The superior top-line and bottom-line performance was supported by industry-leading operational excellence and talent retention. We are continuing to invest in our talent pipeline to support continued growth.

We are entering the fourth quarter with the confidence of a strong order book and a healthy deal pipeline across key markets and industries.”