Key takeaways of the call

The company reported all-round growth QoQ across key verticals, business divisions and geographies in the financial quarter ending Dec 31, 2019.

This performance was led by strong execution and ramp-ups in large deals won in the previous quarters, along with the addition of leading customers and wins in the electric vehicles, medical devices and the OTT segments.

The company has achieved its highest ever quarterly top-line in its history in Q3FY20 with core embedded product design (EPD) that account for 86.9% of revenue of the company in Q3FY20 registering a growth of 9.8%QoQ. Similarly the IDV segment registered a growth of 9.9%QoQ.

In EPD segment, the revenue of Transportation vertical that accounts roughly about half of the EPD segment revenue, grew by 10.4% QoQ. While the healthcare grew faster at 40.6%QoQ, the Media and Communications delivered another quarter of steady growth at 5.3% QoQ. The design business also showed strong growth at 9.9% QoQ. While the transportation segment accounted for 48.6% of EPD revenue that of B&C, Healthcare and medical devices accounted for 8.3% of EPB segment.

While Europe accounted for 41.6% of revenue in Q3FY20, the USA, India and ROW accounted for 33.7%, 12.5% and 12.2% respectively.

The utilization in Q3FY20 was 75% this is a gradual improvement from about 70% earlier.

Employee attrition stood declined to 9% in Q3FY20 from about 11.6% in both Q3FY19 and Q2FY20.

The share of top client (JLR) to revenue of the company stood at 15.7% down from 16.3% in Q2FY20 and 22% in Q3FY19. The share of top 5 clients and top 10 clients was at 37.8% and 50.8% respectively compared to 38.4% and 50.7% in Q2FY20 and 41.2% and 51.7% in Q3FY19.

In Auto, while the JLR business has bottomed out the other accounts have grown faster. The company is hopeful of recovery in JLR business going forward as it seems bottomed out.

Auto/transportation there is slowdown with lot of deals the company is bidding for has been pushed back or postponed. So at current movement it is difficult to comment on sustainability of current growth momentum over medium/longer period, but for at least next few quarters the company expects the growth momentum to sustain considering the deals won in recent past.

However the company is confident of continuing this growth momentum in next fiscal as well as the base continue to be low. In 3 years the medical business is to account for about 20-25% of the EPD segment revenue.

In case of Media & Communication and medical devices the business is as usual with customers are not holding back spending. The company continues to be positive from its new business development response.

The medical business is long term with contract tenure ranging more than 1 year. Key markets for this vertical are Europe followed by US. The margins of medical business are superior to other business verticals.

Salary hike for offshore employees was roughly about 8% and this has been fully reflected in Q3FY20.

Margin will remain in the band of 22-24%

The company targets a revenue growth of about 5-6% in Q4FY20 on sequential basis. Thus for this fiscal the company may end up with a flat top line.

The company is still evaluating adoption of new tax rate and will decide post union budget.