Tata Elxsi : Financial Reporting Document

"Tata Elxsi Ltd. Q1 FY22 Investors Conference Call"

July 16, 2021

MANAGEMENT: MR. MANOJ RAGHAVAN - MANAGING DIRECTOR &

CHIEF EXECUTIVE OFFICER, TATA ELXSI LIMITED

MR. NITIN PAI - CHIEF MARKETING AND CHIEF

STRATEGY OFFICER, TATA ELXSI LIMITED

MR. MURALIDHARAN H.V. - CHIEF FINANCIAL

OFFICER, TATA ELXSI LIMITED

MR. GAURAV BAJAJ - CHIEF FINANCIAL OFFICER-

DESIGNATE, TATA ELXSI LIMITED

MR. G. VAIDYANATHAN - CHIEF, INVESTOR

RELATIONS OFFICER, TATA ELXSI LIMITED

MR. LOKESH PAREEK, CHRISTENSEN ADVISORY

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Tata Elxsi Limited

July 16, 2021

Moderator:Ladies and gentlemen, good day and welcome to the Q1 FY'22 Investors Conference Call for Tata Elxsi limited. I now hand the conference over to Mr. Lokesh Pareek from Christensen Advisory. Thank you and over to you, sir.

Lokesh Pareek: Thank you, Aisha. Good afternoon to all the participants on this call. Before we proceed to the call, let me remind you that the discussion may contain forward-looking statements that may involve known or unknown risks, uncertainties, and other factors. It must be viewed in conjunction with our businesses that could cause future results performance or achievement to differ significantly from what is expressed or implied by such forward-looking statements.

To take us through the results and answer your questions today, we have the Senior Management of Tata Elxsi, represented by Mr. Manoj Raghavan - M.D. and CEO; Mr. Nitin Pai -- Chief Marketing and Chief Strategy Officer; Mr. Muralidharan H V -- Chief Financial Officer; Mr. Gaurav Bajaj - CFO-Designate and Mr. G. Vaidyanathan - Chief Investor Relations Officer.

We will start the call with a Brief Overview of the past Quarter by Mr. Manoj Raghavan followed by the Q&A Session.

We would appreciate your cooperation in restricting yourself to two questions per participant to allow others an opportunity to interact too. If you do have further questions, do join the queue, and we would be happy to respond to them if time permits.

I now hand over the call to Mr. Manoj Raghavan. Over to you, sir.

Manoj Raghavan: Thank you, Lokesh. Good afternoon everybody. Thank you for joining us today and hope you and your families are safe. I am happy to report that we have delivered another quarter of strong all round performance. We have actually carried our momentum from the last fiscal year to the current one and we continue to execute strongly on both top line and bottom line.

Our revenues from operations for the quarter gone by was Rs.558.3 crores, translating to a growth of 7.7% quarter-on-quarter and 39.4% year-on-year. The growth was predominantly volume-led, with a constant currency growth of 6.4% quarter-on-quarter and 37.4% year-on- year. The PBT for the quarter was Rs.153.9 crores, registering a growth of 63.9% year-on-year and net profit for the quarter stood at Rs.113.4 crores, reporting a growth of 64.6% year-on-year.

Please note that, as disclosed in our fact sheet as well, the bottom line factors an additional Rs.33 crores of employee expenses on account of the special one-time bonus for all our employees as conveyed in the previous investor call.

Growth was driven primarily by strong performance in both our key divisions -- EPD and IDV. The Embedded Product Design, (EPD) our largest division grew by 7.5% quarter-on-quarter and 31.4% year-on-year, and the Industrial Design & Visualization business (IDV) posted a smart growth of 13.9% quarter-on-quarter and 132.1% year-on-year.

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So geography wise, our growth was led by the Americas with 17.5% quarter-on-quarter and 69.3% year-on-year growth. Europe grew by 5.4% quarter-on-quarter and 30.1% year-on-year.

	India grew by 2.8% quarter-on-quarter and 47.6% year-on-year.
	And again within EPD, the growth was broad-based across industry verticals. Healthcare
	continues to grow faster than other industry verticals with the growth of 19.3% quarter-on-
	quarter and 80.2% year-on-year. Media and Communications delivered another steady quarter
	with 8% quarter-on-quarter and 31.6% year-on-year growth. Transportation business continues
	to show revival with a 3.4% quarter-on-quarter and a 20% year-on-year growth.
	So if you look at it, the growth in our business was primarily driven by deep mining in our
	existing customers, especially in the top five customers. Even as COVID first started to affect
	our customers around the world, we pivoted quickly and supported by our mature offshore
	delivery capabilities and for the past few quarters, as a business we have been focusing on
	creating sustainable and long-term engagements that allow higher degrees of predictability and
	order book as we progress from one quarter to another. We have been constantly improving on
	this front with all our customers which actually builds confidence as we move forward. Equally,
	we have been focused on high quality customer additions, especially led by solutions and design-
	led digital engagements. I am pleased to see that it is starting to work well and sets up a platform
	for larger growth and mining.
	So all in all, it has been a pretty satisfying quarter with growth across our key divisions, all our
	key geographies and all industry verticals. We are entering the second quarter with a strong order
	book, and a healthy deal pipeline across key markets and industries.
	With that, I hand it over for a Q&A session and we look forward to interact with you investors.
	Thank you.
Moderator:	We will now begin the question-and-answer session. The first question is from the line of Mr.
	Vimal Gohil from Union Asset Management. Please go ahead.
Vimal Gohil:	Sir, my first question was on your automotive vertical. So if I were to look at the numbers, your
	top customer has grown at about 12% on a quarter-on-quarter basis, but if I were to exclude that
	from the automotive business, non-top automotive business has actually shown a decline. So if
	you could just give me some reason as to why that has happened? If you could just provide an
	overall outlook on your automotive business going forward? The next question I have is on
	margins, the company continues to surprise on the upside. So if I were to look at your adjusted
	margins, they are still 30%-plus. And I think they are above the band that you have sort of
	provided of 25% to 27% EBITDA margin band. Is there a need to sort of relook at that band and
	probably revise it upwards given the fact that you have been very consistent in reporting these
	numbers, this is notwithstanding the eventual salary hikes or wage hikes that we see next
	quarter? And lastly, if you could just give us the wage hike number that you are planning to do
	in Q2 of FY'22?

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Manoj Raghavan:	From a wage hike perspective, I think it will be in line with what we have done in the last year
	about 7% to 8% will be the average wage hike and the wage hike will be effective from July 1.
	From a margin perspective, yes, if you look at adjusted margins, yes, I think we are in line with
	what we delivered in the last quarter. However, again, I would like to reiterate that these are
	extraordinary times and there will be expenses which will go up once travel and everything
	starts. So, I think we are pretty comfortable with what we reported in this quarter and that is
	something that we would focus on. Regarding the top customer, I think the automotive industry
	in general has had picked up for us which is good, and we have been continuing our growth from
	the previous two quarters. If you look at it when COVID hit, most of our competition both in
	India as well as abroad had a revenue dip of anywhere between minus 10% to minus 6% or so,
	but we managed to be almost flat YoY. So, from that I think we have grown almost 3%, right.
	So, that is a very creditable growth. And, you had inferred the top customer, I would like to say
	that that is a wrong inference as the customer that you have indicated is not the top customer. So
	from that effect, your assumptions are wrong. You need to relook at it.
Moderator:	The next question is from the line of Bharat Sheth from Quest Investment. Please go ahead.
Bharat Sheth:	Mr. Raghavan, in these last two quarters we have added more than 1,000 employees which is
	roughly around 15% of the total employees as of June 30. So how do that infer from the gross
	perspective since we are on very good strong order book, so if one has to really look at our
	medium term growth number, this quarter, we have grown 7%. And if we continue to do so our
	growth number anywhere annual should be around what we were aspiring about 30%-plus, so
	do you think this number indicate those kinds of things?
Manoj Raghavan:	The fact that we have been adding significant headcount would give you an indication of how
	we see our business, and how confident we are of our business. So, what we are doing is, we are
	building capacity to address the pipeline that we see, and address the deals that we have already
	won, and that shows the confidence that we are moving in the right direction. Whether we will
	achieve the numbers that we have talked about, that is secondary but what we are doing right
	now is, we see the pipeline, we see the strong order book that we have, and we are building
	capacity to address what we have.
Bharat Sheth:	In this quarter, we have won a new deal including EV space also. Earlier you were talking much
	on the EV side also. So how do we really look at our company?
Manoj Raghavan:	If you look at automotive industry, automotive industry is moving towards the electric vehicles,
	right, most companies, most OEMs, most suppliers are investing in that. So I think there was a
	little bit of slowness because of COVID and because of all the structural issues in the industry.
	We see that situation slowly improving, and we see a lot of deals coming our way and we have
	been preparing for this, and I do not think this is the first deal that we have, we have had earlier
	deals also in the space. But we are calling it out now because these are significant deals for us,
	and we hope that will help us. As the automotive industry recovers, and investments begin to
	flow in, we are ready to catch on the opportunities that come our way and deliver value to our
	customers. So that is the way I see it.

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Bharat Sheth:	When we say a large deal, can it be upward of a 25 million or what is our definition for the large
	deal if you can give some color?
Manoj Raghavan:	I do know that even a few of our competition talks about large deals, but those are typically
	projected deals, right, assuming that the deal will go on for three years or five years, but typically
	in our engineering space, customers would start off with about 12 months an opportunity and
	then as we grow that particular engagement, it converts into a multi-year opportunity and so on.
	So, in my view, if a deal is around 5 million, especially a new customer, I would consider it as
	a large deal.
Moderator:	The next question is from the line of Hiren Ved from Alchemy Capital. Please go ahead.
Hiren Ved:	I had one question on your QoQ run rate. You mentioned Americas was 17.5%, I mean, that's
	quite staggering, right, and Europe was just 5.4%. So, was there something in the base in
	America that we have had a strong quarter, or it is just organically a strong quarter, and do we
	continue to see a strong run rate in the US? And why is Europe still lagging compared to
	Americas. So just wanted to understand this geographical run rate is quite differential 17.5 and
	5.4 for Europe, considering both of these are significant geographies for you.
Manoj Raghavan:	Number one, we have been investing in the US geography for quite some time, including
	building up sales capacity, consultants, and so on and so forth. Europe is also important for us,
	no doubt about it. But if you look at our revenue distribution, our automotive business tends to
	be a lot more Europe-centric, and Media and Communications and Healthcare business tends to
	be a lot more US-centric. So if you see the growth that we have had, we had significant growth
	both in media, communications, and healthcare again. And automotive also grew, but at a slower
	rate. So that naturally reflects in the regions also, US versus Europe.
Hiren Ved:	And therefore, you believe you will continue to see strong growth in the Americas going
	forward?
Manoj Raghavan:	We are pretty confident the way business is going, we are pretty confident that we have done all
	the right things as far as US is concerned and we hope that whether we will have such a strong
	growth, it is a very difficult question to answer, but we believe we have some sustainability there
	on the customer pursuit and so on. So all the investments that we have done, we believe will
	continue to help us grow our business in the US. We also expect Europe will recover and that is
	something that we are definitely working towards. And we hope it will be driven by the new
	spending in the automotive customers there.
Moderator:	The next question is from the line of Naveen Bothra, an individual investor. Please go ahead.
Naveen Bothra:	First question is regarding the gross incremental revenue and against that adjusted salary increase
	is Rs.5 crores. So, how would you like to describe this due to utilization improving or offshoring
	increasing, or the major incremental revenues are coming from platform and licensing, my
	question is regarding the platform and licensing revenues. How much this is contributing to this

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