Tata Elxsi: Q2-25 Earnings Call Highlights
Steady Q2 FY25 performance. Challenges in Media & Healthcare verticals. Strong position in transportation business. Focus on operational efficiency. Exploring of new growth verticals
tataelxsi.com | NSE: TATAELXSI
1. Key Takeaways
1.1 TLDR
Tata Elxsi reported steady Q2 FY25 results with revenue growth of 3.1% YoY, reaching ₹950.51 crores.
Transportation business remained the key growth driver, registering a 4.4% QoQ growth in constant currency terms.
Secured a landmark US$50 million multi-year deal with a European OEM for SDV and automotive engineering solutions.
Media and Communication business declined by 2.2% QoQ in constant currency terms due to delayed customer spending decisions and project completions.
Healthcare and Life Sciences business declined by 11.2% QoQ in constant currency terms due to delays in renewals and new program starts with a key US-based customer.
EBITDA margins expanded by 70 basis points to 27.9% for the quarter.
PAT grew by 24.6% QoQ to ₹229.4 crores, aided by R&D incentives and tax credits.
Revenue from India grew by 31.2% YoY, while Japan and emerging markets grew by 81.9% YoY.
Attrition remained under control at 12.5%.
Overall, Tata Elxsi delivered a steady Q2 FY25 performance. While challenges persist in certain verticals, the company's strong position in the transportation business, focus on operational efficiency, and exploration of new growth avenues are expected to contribute to a positive outlook for the remaining financial year.
2. Key Themes and Insights
2.1 Transportation Business Continues to Drive Growth
The transportation business continues its strong performance, driven by robust demand for ADAS, connected electric, and software-defined vehicle (SDV) capabilities.
The US$50 million deal win from a European OEM further solidifies Tata Elxsi's position in the global automotive industry transformation.
Management expects continued growth in the transportation segment in H2 FY25, fueled by deal wins and ongoing ramp-ups.
"As far as Tata Elxsi is concerned, because of some of the deal wins that we had that we will ramp up and some of the deals that we have already bid for, we are still hopeful that you know, we will have a decent growth in H2." - Manoj Raghavan, MD & CEO
2.2 Headwinds in Media & Communication and Healthcare & Life Sciences:
The Media & Communication segment faces a challenging environment with tightening budgets and industry consolidations.
Healthcare & Life Sciences segment is experiencing delays in customer decisions and new program starts, impacting revenue.
Management believes that the healthcare business has bottomed out and expects a recovery in Q3 and Q4 FY25.
"We strongly believe that we have bottomed out. I mean even in our Q1 we did indicate that we have this softness in the market. We believe we have bottomed out in Q2 and Q3. We should uh see growth." - Manoj Raghavan, MD & CEO
2.3 Focus on Operational Efficiency and Margin Improvement
Despite headwinds in certain verticals, Tata Elxsi achieved a 70 basis point expansion in EBITDA margin, reaching 27.9%.
This improvement is attributed to currency benefits, controlled operating expenses, and disciplined cost management.
Management remains committed to maintaining margins within the expected band communicated earlier.
"Our operating margin expanded by 70 basis points sequentially compared to the quarter one. Uh the major ups and downs for the margin walk... So that sums up to, you know, up to 70 basis point increase in our operating margin on a quarter-to-quarter basis." - Gaurav Bajaj, CFO
2.4 Exploration of New Growth Verticals
While Tata Elxsi's existing three verticals provide a diversified revenue base, the company recognizes the need for exploring new growth avenues to mitigate cyclical volatilities.
Management has confirmed active evaluation of new industry verticals and potential M&A opportunities to ensure more consistent and structural growth.
"So, having said that, uh, um we are looking at, you know, newer areas, um newer industry verticals to to get in. There are many options, uh that we have been evaluating." - Manoj Raghavan, MD & CEO
2.5 Talent Management and Hiring Strategy
Tata Elxsi implemented a cautious approach to headcount additions, focusing on critical resources and leveraging existing bench strength.
Fresher hiring will commence in Q3 FY25, while lateral hiring remains restricted to specialized skills.
"We will only add a headcount where, you know, that is any specialized skills that we don't have to execute the projects that uh that we have won, right?" - Manoj Raghavan, MD & CEO
3. Overall Outlook
Despite challenges in certain segments, management remains optimistic about H2 FY25 performance due to a robust deal pipeline and expected ramp-ups in the transportation business.
Achieving double-digit constant currency growth for FY25 remains the target, but the company acknowledges the demanding nature of this goal given the current global economic uncertainties.
"At this point in time I would say our, our target is definitely to go after, you know end the year with a double-digit uh you know constant currency growth. I know it is it is asking too much and it is tough but what uh what what really, you know what why I'm a little confident is the sort of deals that we're pursuing and the sort of pipeline that we are seeing." - Manoj Raghavan, Managing Director and CEO
Tata Elxsi Q2 FY25 Earnings Call FAQ
What were the key highlights of Tata Elxsi's Q2 FY25 performance?
Tata Elxsi reported steady growth with a 3.1% increase in operating revenue, reaching ₹950.51 crores. The transportation business performed exceptionally well, driven by wins with global OEMs for their connected, electric, and software-defined vehicle (SDV) offerings. The company secured a notable $50 million multi-year deal with a European OEM for SDV platform development.
What factors impacted the performance of the Media and Communications business in Q2?
The Media and Communications business experienced a 2.2% decline in revenue quarter-on-quarter in constant currency terms. This was primarily due to customer spending decisions on large deals and the natural completion of some projects. However, the company sees potential growth opportunities driven by its network transformation offerings and digital innovation in the media space.
What led to the decline in the Healthcare and Life Sciences business?
The Healthcare and Life Sciences business saw an 11.2% decline quarter-on-quarter in constant currency terms. This was attributed to delays in renewals and the start of new programs with a leading US-based customer. However, Tata Elxsi has acquired new customers in this segment, which are expected to contribute to growth in the coming quarters.
What is Tata Elxsi's outlook for the Transportation business in H2 FY25?
Despite a general slowdown in the automotive industry, Tata Elxsi remains optimistic about the growth of its Transportation business in the second half of FY25. This confidence stems from the ramp-up of secured deals and a healthy deal pipeline.
How does Tata Elxsi plan to manage its headcount in the coming quarters?
Tata Elxsi will exercise caution in adding headcount, focusing on hiring for specialized skills required for project execution. While lateral hiring will be limited, the company will onboard freshers from campus placements in Q3 and Q4.
Is Tata Elxsi still targeting a higher growth rate in FY25 compared to FY24?
While achieving a higher growth rate in FY25 compared to FY24 remains a goal, the company acknowledges the challenging market conditions and the unpredictability of industry cycles. They aim to achieve double-digit constant currency growth by the year-end but will reassess the target at the end of Q3.
What opportunities does Tata Elxsi see in the Defense and Semiconductor sectors?
Tata Elxsi is exploring opportunities in both the Defense and Semiconductor sectors. In Defense, the company sees potential in leveraging its capabilities in imaging, hardware design, and wireless technologies to contribute to projects with DRDO labs, ISRO, and other defense establishments. In the Semiconductor sector, Tata Elxsi aims to expand beyond software applications and explore opportunities in chip design, capitalizing on the investments being made in fabs and foundries.
What is Tata Elxsi's strategy to mitigate the impact of potential economic slowdowns in key markets like Europe and the US?
Tata Elxsi's business model, focused on offshore delivery with minimal on-site presence, helps mitigate the impact of economic slowdowns in Europe and the US. The company believes that its cost-effective engineering solutions and scalable talent pool in India will continue to attract customers even during economic uncertainty.
Source: Link to Earning Call Recording
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