Release Date: October 10, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Tata Elxsi Ltd (BOM:500408, Financial) reported a steady quarter with revenues from operations growing to INR955.1 crore, marking a quarter-on-quarter growth of 3.1%.
- The transportation business continues to drive growth, with a healthy revenue increase of 4.4% quarter-on-quarter in constant currency terms.
- The company secured a landmark USD50 million multiyear deal from a global OEM headquartered in Europe, enhancing its position in the automotive engineering sector.
- EBITDA margins expanded by 70 basis points to 27.9% for the quarter, indicating improved operational efficiency.
- Revenues from India grew by 31.2% year-on-year, while Japan and emerging markets saw an impressive growth of 81.9% year-on-year.
Negative Points
- The media and communication business declined by 2.2% quarter-on-quarter in constant currency terms due to pending customer decisions and project completions.
- The healthcare and life sciences business reported a significant decline in top line by 11.2% quarter-on-quarter in constant currency terms, attributed to delays in program renewals.
- Attrition remains a concern, although it is under control at 12.5%, indicating potential challenges in talent retention.
- The company is cautious about headcount additions, reflecting a conservative approach amidst uncertain market conditions.
- The media and communications sector is experiencing significant challenges, with tightening budgets and consolidations impacting growth prospects.
Q & A Highlights
Q: How should we think about the growth in the transportation vertical given the current environment where global OEMs are cutting back on EV targets?
A: Manoj Raghavan, CEO, stated that despite the general softness in the automotive market, Tata Elxsi has secured deals that will support growth. The company remains hopeful for decent growth in the second half of the fiscal year due to these secured deals and ongoing bids.
Q: Are the headwinds in the healthcare sector from the US behind us, and can we expect growth to return in the third quarter?
A: Manoj Raghavan, CEO, believes the healthcare sector has bottomed out in Q2. He expects growth to resume in Q3, supported by ongoing customer conversations and the anticipated recovery of a major customer.
Q: Can you explain the margin expansion this quarter?
A: Gaurav Bajaj, CFO, explained that operating margins expanded by 70 basis points due to favorable cross-currency movements, reduced other expenses, and offset by salary hikes and costs related to lab setups and tools.
Q: Is there any loss of customers in the healthcare segment due to renewal issues?
A: Manoj Raghavan, CEO, confirmed there is no loss of customers. The delays are related to the start of new programs with existing customers.
Q: How do you see the transportation sector performing in the next fiscal year, FY26?
A: Manoj Raghavan, CEO, mentioned it's difficult to predict FY26 due to industry dynamics. However, he is confident about H2 growth due to existing deals and a strong pipeline.
Q: What is the outlook for the media and communications vertical, given its prolonged weakness?
A: Manoj Raghavan, CEO, described the media and communications sector as challenging, with budget tightening and consolidations. The company is focusing on cost-efficient solutions and remains cautiously optimistic about growth.
Q: Can you provide more details on the large deal won this quarter and its timeline for revenue contribution?
A: Manoj Raghavan, CEO, stated that the five-year deal will start ramping up in the middle of the current quarter, with major contributions expected from January onwards.
Q: How is the JLR ramp-up progressing, and what are the expectations for H2?
A: Manoj Raghavan, CEO, noted that JLR remains a steady customer with strong capabilities in software-defined vehicles and EVs. While JLR faces its own challenges, Tata Elxsi expects growth from other OEMs in H2.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
