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Thursday, April 21, 2022

Demand is not an issue for Tata Elxsi, supply definitely is: MD - Economic Times

“Demand is pretty strong. We continue to be very bullish and as long as we execute on our strategies, I believe we are on a good wicket to show consistent growth,” says Manoj Raghavan, MD & CEO, Tata Elxsi.

Your FY22 revenue growth was a solid 34%. Is this kind of growth rate sustainable? What is your assessment of demand versus what you saw 12 months ago?
We have a pretty good financial year with upwards of 35% growth in revenues and more importantly consistent quarter-on-quarter growth between 7% and 8% from Q1 to Q4. At this point of time, the demand is pretty strong, I do not see any reason why we should be worried about it. We continue to be very bullish and as long as we execute on our strategies, I believe we are on a good wicket to show consistent growth.

This quarter the growth was led by the European region which grew almost 10% quarter-on-quarter. Now with the inflationary pressure and geopolitical tension, are you seeing any impact on the client spend and the Budget given that inflation across the globe is at decadal high levels?
We really do not see any effect of the geopolitical situation. We do not have any customers or any business in the eastern European region and Russia. We really do not see a cause for worry. But the good thing about Tata Elxsi is that we are spread over the US, Europe and the rest of the world. Also we are well diversified among three different industry verticals.

We have de-risked our entire business portfolio as well as our geographical mix. So to that extent, even if there are some issues in a particular region or a particular industry vertical, I am pretty confident that we will be able to manage that because of exposure to other regions and other verticals.

The Tata Elxsi share price has been flirting in the Rs 9,000 zone. The way it has gone up year to date, what do you make of that? Is that a reflection of the earnings we are seeing today or what is it?
I do not really understand this market and why the share price is where it is. We are focussed on ensuring that we deliver consistent results. So I would say whatever you are seeing is a result of the consistent performance quarter-on-quarter and at the same time, we are engaging with various stakeholders, investors, coming out with a lot more disclosures, having a lot more conversation on a regular basis. All of this gives confidence to our investors that they are in safe hands.

Earlier you did say that you are going to see growth in the automotive market. Is there any change on that front given the way the automotive market is performing? Will the slowdown in everything from commodity inflation to supply solution have a trickle-down effect on Tata Elxsi?
Last financial year we had a dip in the growth of the automotive industry but this financial year, the growth has come back and the performance over the last three quarters has been primarily led by the automotive vertical. So we continue to clock new deals and grow our existing accounts, carrying out deeper mining of our existing accounts.

Our existing large customers are very bullish about their business and a lot of projects coming our way. So I am not really worried if the automotive industry is going to go down. In the next two to three quarters, I do not see that affecting us.

You have ended Q4 with an EBITDA margin profile of 32.5%. What should we expect for FY23 given that a wage inflation impact is likely on IT companies earnings as well?
We do not usually give these projections but at the same time, for a majority of our junior workforce, we have already done the wage hike in January. SO, the numbers that you see today are after the wage hike.

The embedded product design forms a bulk of your portfolio. It has reported robust quarter-on-quarter growth despite a heavy base. Is this growth rate also likely to continue?
The embedded product design business is the main business of Tata Elxsi and the growth over the last two to three years that we have seen in the organisation, is primarily because of the consistent growth in the embedded product design business.

Again, we are focussed on three verticals, the transportation business, the media and communication business and the healthcare vertical. What we look at is that over a period of three years, the business mix would be about 40-40-20 and that is where we are moving towards. Healthcare and medical has been the smallest business for us but it has been growing very rapidly.

In the last financial year, we grew almost 66 or 67% over the previous year and that will continue to lead our growth. In the automotive business, I do not see a slowdown happening and I am pretty bullish there also. Media and communication has been a very steady business for us clocking very good returns quarter-on-quarter.

What about attrition? It has come in at almost 21%. What is the game plan and how is this going to continue to eat into the balance sheet?
Yes, attrition is a prime sort of concern for any IT leader. We track the attrition very closely. Yes, attrition has shot up to slightly above 20% but compared to a lot of our competition and the larger industry, we are still in a better place I would say. We are taking a number of steps. We talked about the wage hikes, there are a number of other things that we are doing including learning and development opportunities, leadership development opportunities for our resources. So there are a number of things that we are doing internally to ensure that employees who work with us continue to work with us.

The challenge for us has been that during this pandemic, when a majority of our employees have been working from home, a lot of this attrition has been happening. I would say about 50-60% of the people who are leaving us have joined us in the last six or 12 months and there are people who have joined us virtually and has left us virtually. That is the main challenge that we are facing – a lot of infant attrition.

However many of the long termers are definitely continuing with us and the attrition among the key employees and the long term employees at least is much smaller than the reported attrition. So I would say attrition is under control. However, we are watching it on a day-to-day basis and taking steps to ensure that we do not get into a bigger mess.

What is the deal pipeline looking like?
The deal pipeline, the demand situation has never been stronger over many quarters and I have absolutely no concerns on that front. The sales engine is rocking. We have ramped up our sales engine over the last four quarters and that is really delivering results for us. The challenge for us would be to ensure that we service all the requirements that are coming our way with the attrition and with the hiring situation. So demand is not an issue, supply definitely is an issue and we need to figure out ways to address that.

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Demand is not an issue for Tata Elxsi, supply definitely is: MD - Economic Times
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