Tata Elxsi hosted a conference call on July 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

Q1FY2025:

The company has delivered steady quarter of growth in Q1FY2025. Q1FY2025 was a good quarter for the company with transportation vertical picking up.

Revenues in Q1FY2025 stood at Rs 926.5 crore growing 2.4% QoQ and 8.4% YoY in CC terms.

EBITDA for the quarter stood at Rs 252.3 crore staying flat at 0.3 % growth YoY.

PBT stood at Rs 252.4 crore as against Rs 262.4 crore in the previous quarter.

The company executed very well on operational excellence and fiscal discipline in Q1FY2025 towards bottom-line performance, despite the impact of an exceptional one-off expense in the quarter and an increase in the effective tax rate with the change in SEZ benefits for one of its  facilities.

EBITDA margin stood at 27.2% during the quarter. The company has made a contribution of Rs 19.78 crore to the Progressive Electoral trust which is included in other expenses(One off expense). If the same was not done, the company’s EBITDA margin would be 29.4% and PBT margin would be 28.4% for the quarter.

Vertical wise during Q1FY2025, the company’s transportation business reported a strong growth of 5.3% QoQ and 20.3% YoY in constant currency, and now accounts for more than 50% of the company’s Software Development & Services business.

Revenue growth in transportation vertical was broad based and due to ramp ups happening in some of the new deals won by the company.

The company is well positioned to capture growth opportunities in the coming quarters as it continues to enable the continued transformation of the automotive industry and Software Defined Vehicles.

Media & Communication business has done well in a difficult business environment for the industry, growing 0.9% QoQ in actual currency and 0.5% QoQ in constant currency. The company is building on its strong customer relationships. The company has won a NEURON platform-led deal from a leading North American telecom operator for their network transformation.

Healthcare & Life sciences business reported a decline in top-line by 4.3% QoQ in constant currency. This is largely due to delay in renewals of some projects at one of its large customers. The company continue to add marquee logos and some exciting start-ups to its customer base, laying the foundation for sustained long-term growth along with next-gen service offerings.

Human Resource:  Headcount stood at 13142 v/s 13398 in Q4FY2024.

Attrition declined to 12.3% in Q1FY2025 v/s12.4% in Q4FY2024.

The company has ramped up its resource pool in the last few quarters and further hiring will depend on improving utilization. Lateral hiring will be on need basis. The company will be cautious with respect to hiring when compared to last year as it has enough bench strength.

Freshers hiring will be spread in Q2 and Q3 and will depend on revenue uptick.

Wage Hike: Wage hike will be effective for junior staff from Q2 (July) and for senior staff from Q3(October). Average hike will be in the range of 5-6%.

The company expects people cost to be around 56-57% of the revenues.

The company will train its 25% of the work force in AI technology by December 2025.

IT services: The company is vigilant of the IT services company entering ER&D business through acquisitions. However, the company is confident about the offerings which it has built organically over the last 30 years and the relationships with its clients which are 10, 15 and 20 years old.

Top 5, Top 10 and Top 20 customers: The company expects top 5, Top 10 and Top 20 clients to grow significantly. The company will continue to focus lot more on these customers and be relevant with these customers. These customers are across transportation, Health care and Media and communication vertical. The company will mine deeper and build deeper relationship with these clients.

Geography: Europe contribution increased from 37.4% in Q1FY2024 to 42.2% in Q1FY2025 while America contribution declined from 40.2% to 33.7% during the same period. This is primarily due to increase in contribution from transportation vertical with OEM primarily from Europe, while America revenue contribution is from Healthcare and media and communication verticals.

Onsite offshore mix: Onsite mix increased marginally in the quarter due to uptick in new engagements. However, the company expects sustainable range to be in the 25: 75 for onsite and offshore respectively.

Tax rate: The company expects tax rate to increase in FY2025 due to some of the centers coming out of the tax holiday. In Q1FY2025, one more center came out of 100% tax exempt bracket to 50% tax exempt bracket.

Outlook:

The company expects growth to be led by transportation business. Deal pipeline and growth momentum is strong in transportation vertical and expects similar growth. The company has good visibility and opportunities to deliver growth. OEM contribution stood at 66% and the company witnesses’ lot of traction in OEM segment. Deal pipe line is a mix of large and small deals in transportation vertical. The company expects consistent growth in transportation vertical for next few quarters.

The company is witnessing green shoots in media and communication business. The company is seeing lot of customer traction and consolidation opportunities. The company is little bit more confident now in Media and communication business and is expecting it to bounce back.

The company expects Healthcare vertical to be subdued in H1FY2025 and expects it to recover from H2.

The company expects revenue growth in FY2025 to be better than FY2024.

Management Commentary:

Mr. Manoj Raghavan, CEO and Managing Director, Tata Elxsi, commenting on the company’s performance said As we step into the second quarter of the current financial year, I am happy to report a healthy performance in the first quarter with a top-line growth of 2.4% QoQ in constant currency terms.

Our Transportation business reported a strong growth of 5.3% QoQ and 20.3% YoY in constant currency, and now accounts for more than 50% of our Software Development & Services business. We believe we are positioned well to capture growth opportunities in the coming quarters as we continue to enable the continued transformation of the automotive industry and Software Defined Vehicles.

Our Media & Communication business has done well in a difficult business environment for that industry, growing 0.5% QoQ in constant currency. I am especially delighted with the NEURON platform-led deal from a leading North American telecom operator for their network transformation.

In the healthcare domain, I am proud of our association and work with Tata Power Trust on the India Neurodiversity Platform which is being rolled out across multiple districts of the country. This is powered by TEcare, Tata Elxsi’s Digital Therapeutics solution.

We continue to invest in digital, AI and Gen AI technologies across our verticals, targeting efficiency and quality in product engineering, as well as novel applications of Gen AI combined with domain and design expertise to solve complex business, product and engineering problems.

We step into the second quarter of this financial year with the confidence of a strong deal pipeline, continued growth in our transportation business and expansion of business with strategic customers across verticals.”