Release Date: January 09, 2025
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 third quarter with revenues from operations at INR 939.2 crores, despite it being a seasonally weak quarter.
- The company saw significant growth in emerging markets, with revenues from India growing by 21.9% year on year and Japan and other emerging markets growing by 66.8% year on year.
- Tata Elxsi Ltd (BOM:500408) launched its Avenir software-defined vehicle suite at CES 2025, showcasing its innovation in the automotive sector.
- The healthcare and media and communication verticals showed signs of stabilization, with new large deals and green shoots indicating potential growth.
- The company maintained a low attrition rate of 12.4% during the quarter, reflecting employee satisfaction and stability.
Negative Points
- EBITA margins were impacted, standing at 26.3%, due to adverse currency movements in GBP, EUR, and JPY.
- The automotive industry faced significant challenges, particularly in Europe and the US, affecting new deal closures and tier-one supplier spending.
- System integration business experienced decision delays in large projects, impacting revenues for the quarter.
- The company's tax rate is expected to increase to upwards of 25% due to the expiration of certain tax benefits.
- There is a continued softness in the automotive market in Europe, which is expected to persist for a couple of quarters, affecting overall growth.
Q & A Highlights
Q: Can you talk about the outlook for the auto vertical and when you expect closures to normalize? Also, could you provide the margin walk for the quarter and future tax rate expectations?
A: (Manoj Ragh, CEO) The European automotive market may take a couple of quarters to recover, while the US market shows some positive signs. We see growth opportunities in Asia, particularly in India and Japan. (Gora, CFO) The margin was impacted by adverse currency movements and wage hikes, but we mitigated some of this through operational efficiencies. The tax rate is expected to be upwards of 25% for the full year, with a potential exit rate of 24.5% to 25%.
Q: What was the mix of OEMs within the auto vertical this quarter?
A: (Manoj Ragh, CEO) Revenues from OEMs increased from 67% to 72% this quarter. The tier-one suppliers continue to face challenges, particularly in the Western markets, leading us to focus more on OEMs.
Q: How is the software-defined vehicle (SDV) market outlook for Tata Elxsi?
A: (Manoj Ragh, CEO) We are confident in the SDV market, having invested in our own SDV framework, Avenue, in partnership with Qualcomm. We see interest from both passenger and commercial vehicle sectors, and we are engaged with OEMs to license our solutions.
Q: How does the rise of Chinese OEMs affect the automotive segment for Tata Elxsi?
A: (Manoj Ragh, CEO) The rapid growth of Chinese OEMs has impacted Western markets, leading to reduced budgets and a focus on ICE and hybrids. This presents both challenges and opportunities for us to provide solutions that help Western OEMs compete effectively.
Q: What is the outlook for the media and healthcare verticals?
A: (Manoj Ragh, CEO) We see green shoots in both verticals with large deals in the pipeline. While it may take a quarter or two to fully return to growth, we are confident in our ability to extract value and drive growth in these areas.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
