Ladies and gentlemen, good day, and welcome to the Tata Elxsi Limited Q1 FY2023 Earnings Conference Call. As a reminder, all participant lines will be in listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Shashank Ganesh from EY. Thank you, and over to you, sir.
Thank you very much, Steven. Good afternoon to all the participants on the call. Good morning if you're logging in from the Western side. 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. Therefore, it must be viewed in conjunction with the business risk that could cause further result performance or achievements that 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, Managing Director and CEO, Mr. Nitin Pai, Chief Marketing and Chief Strategy Officer, Mr. Gaurav Bajaj, Chief Financial Officer, and Ms. Kaveri Sriram, Company Secretary.
We will start the call with a brief overview of the past quarter by Mr. Raghavan, followed by a Q&A session. We would appreciate your cooperation and restricting yourself to two questions to allow participants an opportunity to interact. If you have any further questions, you may join the queue, and we will be happy to respond to them if time permits. Having said that, I would like to hand over the call to Mr. Manoj Raghavan. Over to you, Manoj.
Thank you, Shashank. Good afternoon to everybody, and thank you for joining us today, and hope you and everyone in your family is safe and healthy. I'm happy to report that we had a robust first quarter performance. Our growth momentum from last financial year continues, and our top line and bottom line growth stayed strong. Our revenue from operations in the first quarter was INR 725.9 crores, growing 6.5% quarter-on-quarter and 30% over the same quarter of the previous year. This growth was predominantly volume-led. Our EBITDA for the period was INR 238.2 crores, growing 9.6% quarter-on-quarter and 58.8% year-on-year. There was a 36 basis point expansion of EBITDA margin over the previous quarter.
Our profit after tax for the quarter was INR 184.7 crores, showing a robust growth of 15.4% quarter-on-quarter and a 62.9% year-on-year. Both of our key divisions, EPD and IDV, performed very well. EPD, our largest division, grew by 6.2% quarter-on-quarter, and our industrial design and visualization business too witnessed a strong growth of 6.6% quarter-on-quarter, fueled by design-led deals and AR/VR, you know, deals. The robust performance of our EPD division was contributed by all the industry verticals. Our media and communication business reported a steady performance of 4.9% quarter-on-quarter and 29% year-on-year growth.
Our transportation business unit reported another strong quarter with 6.3% quarter-on-quarter and 41.8% year-on-year growth. Our healthcare business continues with its stellar performance and has grown by 10% quarter-on-quarter and 63.6% year-on-year. This business is now almost INR 100 crore per quarter, contrasting with just over INR 36 crore, you know, eight quarters before. Almost a 3x growth in two years. We're very happy with the growth of the healthcare business. In terms of our performance by region, our U.S. geography contributed 42.8% of our revenue during the quarter. Recorded a strong quarter-on-quarter growth of 10.6% and a year-on-year growth of 27.4%.
Europe grew by 3% quarter-on-quarter and 28.1% year-on-year. India reported a robust performance of 16.5% quarter-on-quarter growth and 68.8% year-on-year. We are focusing on deeper customer engagements and mining, both for our top 10 accounts, and carefully curated portfolio of strategic accounts beyond the top 10. This is actually helping us with, both, you know, wallet and market share growth. On the employee front, I'm happy to share, that the Tata Elxsi family is now over 10,000 people strong. Our net addition during the quarter was 971, which is more than double the net addition of Q4 FY 2022. This has been supported by our concerted efforts on employee engagement, reinforcing our employee brand proposition to attract the right talent from outside.
Our attrition rate has dipped marginally to 19% as compared to the previous quarter. To expand further our engagement with future design thinkers and to encourage young innovators to think out of the box to bring sustainable solutions to the market, we have launched Ignite, a global design innovation contest for sustainable design coinciding with the World Industrial Design Day on 29th June. Overall, it has been a pretty good quarter with consistent growth across our key divisions, key geographies and industry verticals. We continue to focus on growing our talent pool with both hiring and retention while maintaining and building on healthy margins. We are entering the second quarter with a strong order book and a healthy deal pipeline across our key markets and industries. With that, I hand over for the Q&A session. Thank you.
Thank you very much, sir. We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Bhavik Mehta from J.P. Morgan. Please go ahead.
Thank you, and, congratulations on a great set of results once again. I had a couple of questions. Firstly, to Manoj and Nitin, if you can just talk about what are you hearing from clients, so on their R&D budgets, so for this year as well as next year, given the macro concerns everybody is talking about? If you can also give a flavor across your three verticals, so on this topic. Secondly, you know, how are you looking at the supply situation, given that attrition still remains at elevated levels? Is there a plan to do another wage hike in FY2023, or should we assume that the wage hike for this year is done and the next cycle will be in FY2024? One question for Gaurav is if you can just provide the percentage on the margins, so for this quarter?
I think, regarding your first question regarding what we are hearing from the market and from customers, yes, we all are aware of the macroeconomic situation, the war and so on and so forth, right? Inflation in the U.S. and so on. I think so far, I mean, we are a very niche engineering service provider, you know, working on the ER&D business. From all our major customers, we really have not heard any intent to, you know, reduce budgets or a lso if you look at our deal inflow and, you know, lead deal pipeline, as well as the sort of, you know, order book that we have and so on, I think quarter-over-quarter it has only improved. Yes, there is the macroeconomic situation. We are aware of it. We are watching it very carefully.
We have nothing to report from either our key customers or what we hear from the market, right? That could change maybe a couple of quarters from now. As of now, I think it is business as usual. Our order book, the deal inflow, et cetera, continues to be pretty strong. Yeah, second question was about wage hikes and supply situation and so on. I think we'll take it as it comes, right? You know, I mean, we have done our wage hike, a substantial wage hike in January for most of the junior level, and we have done one in April for all the seniors, folks. We will wait and watch. The attrition is still high, but I think we have come off the peak of the attrition. It is coming down. Supply is still a challenge.
I mean, a challenge in the sense that, you know, we really need to put in a lot of effort to bring in the resources and my HR and recruitment team has done an excellent job in the last quarter, and the results are there to see. I think the situation is improving. We'll wait and watch. Whether we do a wage hike again, at this point in time it's difficult to tell. Maybe a couple of quarters from now we will relook at the situation and then take a call.
Yeah. I think your third question was on the margin, you know, performance for the quarter. I think we are very satisfied with the margin that we're able to deliver in this quarter. As I, you know, mentioned in our last earnings call also that I think we feel very confident and not as such worried about the margin situation. Of course, there are inflationary pressures when we did the wage hikes, but at the same time we have other levers, you know, which help us to mitigate a bit of some of those wage hikes, you know, impact on our margins, be it operating leverage or price hike we're able to secure from the customer.
Also the SG&A, you know, optimization of SG&A with the scale also help us in terms of, you know, sustaining our margin as we did in the last quarter. Plus, this quarter we also moved some of our operation into the SEZ which boosted our profit after tax.
Okay. That's very helpful. Thank you.
Thank you. Before we take the next question, a reminder to the participants, please limit your questions to one per participant. For any follow-up, you may be requested to rejoin the queue. The next question is from the line of Vimal Gohil from Alchemy Capital. Please go ahead.
Thank you for the opportunity, and many congratulations on robust performance. My question was on the hiring target that you have for FY2023. If you could highlight what kind of numbers are we looking at for the full- year of FY2023, and how much, what is the fresher intake possible in this year?
Yeah. In FY2023, we are looking at hiring about 3,000 to 3,500 fresh intake. Laterals will be, of course, as per the business needs and so on, and we could add about 1,000 or 1,500 of laterals.
Sir, just to clarify, the INR 1,000 to INR 1,500 will be included in this INR 3,000 to INR 3,500 or is it separate?
No, no. It is on top of that. The freshers is.
Okay.
You know, that we hire from university is about 3,000 to 3,500.
Got it, sir. Just wanted to get a sense on margins again. If you could just maybe highlight the 32 basis points of expansion that we've seen in your EBIT this time, if you could just breakdown between what was the impact of the wage hike and how much did your cross-currency impact. Because you have a pretty significant exposure to euro and GBP. So if you could just highlight what were the headwinds because of these two issues and how did you offset that?
Okay. Hi, this is Gaurav. I will take your second question first on the, you know, the currency headwinds and all. If you see our results, both actual and the constant currency has delivered the same 6 points, right? Of course, there were headwinds and tailwinds when we, you know, compare USD, EUR and GBP. I mean, one appreciating, other depreciating, but the way our mix of the portfolio is, it, we're able to, you know, use the constant, both actual and the constant, deliver at the same growth rate. As such, there is nothing from those, you know, getting into the bottom line.
On your margin, I think as I already alluded on the previous question, the basically the expansion of the margin is because of the, you know, the scale which optimize, you know, SG&A expenses that we have. Then other operating lever in terms of the utilization able to, you know, get a better utilization this quarter. Compared to the last quarter, we also were able to secure certain price hikes. While we won't be able to break down the impact, but yeah, 30 basis point can be, you know, can be concluded, towards the operating lever and, you know, utilization pyramid and, some of the hikes that we're able to secure from the customers.
Fair enough. Sir, lastly, what your forecast or your outlook on the comms vertical. Autos we all know that, you know, it's in a structural decline. If you can just maybe highlight what is your outlook on the communications vertical? Plus, you have also highlighted that healthcare will probably move towards the 20% number, which is. The progress there has been quite good, I must say. If you could just highlight your outlook over there, you know, given the macro situation we are in. Any headwinds that you're seeing in communications? Because now at this point in time, it's the largest vertical, even larger than auto. Yeah, your outlook over there will be fine.
Yeah. I think you know, all the three verticals have been growing pretty satisfactorily over the last seven to eight quarters, right, or eight to nine quarters. Healthcare, as you said, is the fastest growing vertical, and it's been growing you know, pretty well. You know, this quarter you know, we grew 10%. But having said that you know, and we have also talked about how you know, over a period of you know, couple of you know, a period of three years how the industry vertical mix would be, right? 40% and 20%. 40% media and communication, 40% auto, and 20% the healthcare and medical you know business.
If you see over the last many quarters, we have been trending towards this particular ratio. I mean, it is, it's still the medical is about 15% or so. I guess, you know, in under two years timeframe, we would hopefully reach that 20%, you know, guidance that we have been giving, right? So the media and communication vertical definitely is over the last six quarters have shown very good growth rate, consistent growth rate, rather I would say. This quarter also we've had a pretty good growth rate.
All our key customers, you know, we continue to be very significant and very relevant to those customers. There is of course new opportunity with 5G coming in with lot of investments that we are doing on the ad tech space and, you know, OTT space and so on, right? I still continue to you know remain you know bullish. Growth rates would you know of course you know on quarter-over-quarter that would be ±2% to 3%. I don't think we need to make too much about it. You look at the long-term growth path and see how it is you know consistent. I think all our businesses, we have a pretty steady ticket, and I continue to be, you know, pretty bullish on the growth prospects of these three verticals.
Got it, sir. Thank you so much and all the best.
Thank you. The next question is from the line of Bharat Sheth from Quest Investment. Please go ahead.
Hi. Congratulations, Mr. Raghavan and Nitin on the excellent performance over last 16 quarters. Raghavan, if we have to look into other player like who are also in engineering R&D, their growth is pretty much lower than what we are doing and their margin is also. That is giving this kind of a confidence that we are talking.
Thank you, Mr. Bharat Sheth. You're asking me to disclose something very confidential, and how do I do that?
No, sir. I mean, if you can give some color or broader outlook.
You know, the color I give, you know, I'll not be able to answer that question, right? It doesn't make sense to answer that question in a public forum like this, right? Yes, we have our strength, we have our capabilities, we are focused. We have a very strong, you know, execution, you know, methodology, where we plan for the long term, and we execute our strategies very, very carefully. We stay consistent, right?
Correct.
That's quickly for our, you know, execution.
Yeah. Mr. Sheth, maybe I can just add a little.
Yeah, I'll be grateful.
Yeah. Now, I would only suggest that, one should look at it as a combination of, factors and levers, right? Because it is never one single thing that contributes to success. It's really the combination.
Okay.
of these. Therefore, if you look at how we have driven the focus on three key verticals, rather than saying do only one because then you're subject to huge market risk versus many, where you're then subject to a lack of attention and focus. We have picked a set of verticals. We believe that there is enough growth and space in these verticals to grow, and we are investing in them deeply. Two, we are also looking at the maturity of our delivery process, right, which is again very differentiated. That maturity results in the ability to drive offshore because it is not offshore just because you want it offshore.
Correct.
It's sometimes also offshore because your customers trust you to be able to deliver. If you look at that offshore on-site ratio, if you look at how we are driving fixed bid concentration, again, not too much. The idea is not to become 100% fixed bid or 100% time and material. I think it's the combination of these four or five elements that you'll find reflecting in, one, growth and two, margins.
Okay. I mean, Nitin, taking forward this, how much, I mean, this new designing will aid as a capability to be more, I mean, right from the inception stage, I mean, concept level stage with the customer to deliver?
Yes. As I said, I would encourage that this should also be treated as one more element of what drives that overall growth and margins because design by itself will not drive all the growth.
Correct.
We look at it as one more lever where you're able to say why is Tata Elxsi different from the others, because we are able to look at the customer experience part of the objective of the customer. We're also able to look at what products need from a perspective of human-centric design that will make it more desirable or more successful. In that sense, it gives us one, a differentiation when we stand there in front of the customer along with the same set of other tier one companies that you're referring to. The second is it also allows us to add a little more value to the success of the customer. Success of the customer is not just in schedule, quality, time, and that project if it did well.
It's really in the success of the product when it goes to market. I think it's just those little things that add, if I may say, that the masala that makes it more tasty f or lack of a better comparison.
Well, last question on this particular quarter, our India business has grown substantially. How do we look at India business quarter-on-quarter, which has grown? Do we see the sustainability of India business revenue also becoming a larger pie?
Indian business is a combination of factors, right? You know, of course, if you look at it, our IDV business has grown. Th at growth comes entirely from India that has also contributed to the overall, you know, India business growth. Of course, you know, we have, we work with a lot of the captive, you know, MNC customers, here, and that business has also been growing pretty well for us.
Thank you and all the best, both of you.
Thank you.
Thank you.
Thank you so much. Before we take the next question, a reminder to the participants. Anyone who wishes to ask a question may press star and one at this time. The next question is from the line of Ravi Naredi from Naredi Investments. Please go ahead.
First, congratulations on our market cap now INR 50,000 crore, which show Manoj and your team how you are dedicated for working of the company. Sir, my next point, the tax rate in this quarter is 19% versus 27% in March. What is the reason behind that?
Hi, Ravi, this is Gaurav. I think I answered part of it in my, you know, to your first question. We said that we expanded our capacity in Kundrathur, where we have moved into the SEZ, you know, office, MEPZ SEZ, which has helped to, you know, bring our tax rates down. Also last quarter, there was, you know, one-time tax impact that we have took. To that extent also, there is a, you know, when you are comparing from the last quarter to this quarter, there you will see a, you know, a bigger contrast. Having said that, I think with the SEZ expansion and that helping us into our overall effective tax rate to bring it down, I think we believe that this year we will be, you know, lower on our effective tax rate.
Means this year we may have tax rate around 19% to 20%, right?
We won't be able to, you know, project that, but yes, it will be lower compared to the last year.
Thank you. Thank you very much.
Thank you.
Thank you. The next question is from the line of Arun Maroti, an individual investor. Please go ahead.
Yeah. Where are you, sir?
Sir, if you can take the phone off speaker, please.
Hello? Yes. Where are you, sir?
Sir, please proceed with your question.
Yeah. Thank you to the management for doing this opportunity. Congratulations for the stellar performance. Sir, only I have one single question that despite revenue growth, our other activities are-
Sir?
Yes. Hello?
Sir, we are unable to hear you. Your audio is too muffled. If you can take the phone on handset mode, please.
Just one second. Yeah. Am I audible now?
Yes, sir. Please proceed.
Congratulations to the management for the stellar performance, sir. Only I have a single question that despite revenue growth, our other expenses are same as of last quarter. We would like to understand the delta gain that will be whether there was something one-off in last quarter or something else.
In other income.
No other, you said other expenses?
Yes. Yes, sir.
Yeah, other expenses, you know, it's not directly proportionate to our revenue scale. Those are some of the other discretionary expenses that we have at the company level. There we don't see any major, you know, variation in any of the cost line items. Hence, if you see, those are not very different from the last quarter t o build our capacity and capability ahead of, you know, all of our operations, you know, knowing that growth rate that we are, you know, achieving and delivering quarter-and-quarter. To that extent, there is no incremental spend.
Okay. Thanks a lot, sir.
Thank you.
Thank you. The next question is from the line of Tushar Bohra from MK Ventures. Please go ahead.
Yeah, thanks for the opportunity and, congratulations to the management, for an excellent set of numbers. I would like to understand, the management's focus and efforts being taken to increase, beyond our top three domains today. In the past, you've referred briefly to, you know, maybe aerospace, maybe off-road, you know, railways and other verticals. If you can just help us understand what is the work that we're doing in this area.
I think what we have told earlier is that apart from the three main verticals, we have adjacencies to these three verticals, right? From an automotive or transportation industry perspective, it is off-road, it is rail, you know, it's a commercial vehicle side and so on. I think that's going pretty well and, you know, we have even in the last quarter, we have one deal in the adjacency, especially on, you know, off-road vehicles and the commercial space. That's something that we continue to invest in. From a media and communications verticals, you know, the adjacency we look at, you know, the new media and, you know, the entire digital space as an adjacency. There we have been doing pretty well.
You know, a lot of, you know, projects that we have been doing on the OTT side and so on, you know, are part of this adjacency. From a medical and healthcare side, yes, again, on the digital side as well as on the pharma side, we have been investing in. That also we have, I mean, we have launched, you know, TE Engage, that's our digital health platform. That's part of this overall strategy for the adjacency. I think we've shown that in, you know, multiple trade shows around the world. Good traction building. I think we are pretty satisfied with the adjacency, you know, framework that we have built.
We believe over the next, you know, three tot five years, we will see, you know, decent growth from these adjacencies, which essentially should de-risk the main, industry verticals that we are in, just in case those industry verticals go through, you know, any macroeconomic situation and so on. I think from that perspective, we are pretty well covered and I think I'm pretty satisfied with the growth that we see on all these three adjacencies.
Sir—
Note that we are also, you know, looking at a few other areas that we are investing in, whether it's from the, you know, Industry 4.0 side, manufacturing side and, you know, the entire, you know, augmented reality and, you know, virtual reality side and so on. There are a lot of other things that we are investing in, building capabilities, building POCs, doing trial projects with customers and so on. We will, you know, as of now, it is still a pretty small, you know, revenue numbers from those new areas. As and when they're significant, we will get back to you.
Sir, just related to this, also wanted to understand, we had this engagement with Panasonic a few years back on consumer electronics. If, you know, if we build up on that further globally, if you're working with other players or any thoughts around that. If I may quickly slip in a second question, how is that innovation, you know, thought process working out? Meaning, IP-based revenues or any clarity around that or any outlook for the future?
Yeah. Panasonic continues to be a key customer for us. We have set up, you know, an offshore dedicated center for them in our Bangalore facility. It's now more than five years. We have completed five years of engagement with Panasonic. I think we've seen, you know, good, I mean, good business growth as well as good projects that we have done. We have built a lot of capabilities in the consumer appliances space. We, you know, apart from Panasonic, there are a few other customers that we work in the consumer appliances, you know, space.
From an innovation perspective, IP perspective, yes, we have built, you know, our own, you know, products, our own frameworks, which we license to customers and, you know, get royalties and so on. That is also that continues to be a focus. We continue to invest in, you know, new products, building new products and so on. Again, from a revenue perspective, it is still not very significant to report. It's less than 5%. We believe, you know, once we have good traction in this, that's a good, another good opportunity for us to, you know, build up a good revenue base without really, you know, hiring a lot more resources and so on, right? Non-linear pace is what we are driving at, but it's too early at this stage.
Got it, sir. Thank you so much for your question.
Thank you. The next question is from the line of Hiren Ved from Alchemy Capital Management. Please go ahead.
Yeah, hi, Manoj, Nitin, Gaurav. I don't have any questions, but just wanted to congratulate on fantastic set of numbers and great execution as usual. All the best.
Thank you, Hiren. Yeah. Thank you so much.
The next question is from the line of Apurva Prasad from HDFC Securities. Please go ahead.
Thanks for taking my question. Congratulations on the numbers. Manoj, can you share some progress on the adjacencies across the different verticals? You touched upon some of that, but if you could, you know, just expand further. That is the first question. The other one, Gaurav, is on margins. How should we look at it? You think the current margins are sustainable? What are the different puts and takes in the more near term that you see on this?
Yeah. Hi, Apurva. This is Nitin here. Maybe I'll take the first one. When we called our adjacencies, and we called it out both as an opportunity to grow the addressable market as well as to de-risk the cyclicity, if any, in the industries that we currently operate in. To that extent, what we have also looked at as a long-term goal is 80/20 ratio, right? Again, we like to set some numbers, and the idea is that they create lighthouse directions for us. It's not a matter of whether we get there precisely, it's a matter of trending there. I think that is what we are doing very well on. For example, if you look at media and communications, our progress on new media far exceeds the milestones that we had set, right?
Which means that we are going far, far better than what we had set out as milestones on that journey of 80/20. If you look at the transportation business, we had added off-road as well as rail. We looked at two markers there, right? One marker is about whether you're adding marquee customers. You just need to get those logos in first, irrespective of the revenue or dollar numbers against them. The second is absolute revenues. I think we are doing well there, just about on target. While you look at healthcare, of course, we have to give them credit because they've been so busy growing their primary business that sometimes there's no breathing space for anything called adjacency.
I would give them great credit that they have done a lot of efforts in terms of building out the service portfolio for pharma and digital health, right? I think the launch of TE Engage, which was done in March of this year, I think is a very, very big milestone for us in that journey. Why? Because for that view, part of the journey will be product and platform driven, part of it will be services. I think we are making sure that they have the right milestones and markers for knowing that we make progress. So Apurva, to that extent, I think we're still far from starting to declare what the adjacency numbers are and so on. It's not required because you see that it is an integral part of our growth. We can assure you that we are on track.
Hey, Apurva. Hi, this is Gaurav. Apurva, on your second question on the margin outlook and all, I think we tried to answer on some of the other questions. Okay, yeah, we don't give an outlook or the projections. I think what we can say that you know, at least in the short term to the extent that we have a visibility and given all the macroeconomic you know, environment and situations, I think we continue to believe and being confident with our tight execution and disciplinary you know, focus objectives. We should not be on something which is not something you know, worry us too much. We will continue to be in the range of that.
Of course, we have to see certain inflationary pressure, though wage hikes are already behind us, but we have to see whether we have to do so, you know, something more or not. I think that is something very difficult to say at this point of time. I think the other good factor is that given our, you know, target operating model, which is more offshore-centric and end-to-end governance, I think that gives us little bit more flexibility and lever in terms of tightening some of those things and setting, you know, set off some of those inflationary pressure. I think we sometimes, like, you know, we can, you know, have those levers available to us wherever we can, you know, have the expansion, do more offshoring.
I think other things, you know, other than the operating levers, we also, you know, able to expand into the SEZ, which also help us to, you know, build at least on our profit after tax, you know, giving the superior profitability. That will continue because, with that expansion, so our effective tax rate is going to come down this year. That will also, you know, add to the bottom line, you know, when it comes to the EPS and the profit after tax.
Gaurav, just to, you know, on the last point, Gaurav, what is the one time in the ETR for the quarter and what should be a normalized ETR go forward basis? On the margin point— Gaurav, the question that Apurva asked was a one time.
No, I would not be able to put up a number, but we feel that, at least 2% to 3%, we can drop our effective tax rate.
Versus FY2022 ETR rate?
Yeah. Yeah.
Okay. Just on that margin point, so based on your medium-term outlook of the delivery mix, do you think this 32%+ is a more sustainable normalized level? Or do you envisage additional increments and scope to bring this the margin structure down?
No, I mean, as I said that, I feel it is going to be the range about, we don't feel that there will be a significant, you know, change or the variation from the current level. Of course, there could be, you know, certain expansion, certain discretionary expense that may come back. But there are a lot of currently, there are a lot of macroeconomic, you know, things that has to be taken into account. From short to medium term, I think, it should be okay. I think we are comfortable there.
Got it. Thanks, Nitin, for the detailed answer. Thanks. All the best.
Thank you. The next question is from the line of Rohit Ingole from First Global Securities. Please go ahead.
Hello.
Yes, sir. Please proceed with your question.
Can you hear me?
Yes, we can.
Yeah, yeah. First of all, congratulations all the team of Tata Elxsi. I have only one question about the EBITDA margin. What were the reason of highest EBITDA margin we are reported?
Hi. I think we have already answered few times. We mentioned that even the scale, you know, the optimized engine with the economies of scale and the top line growth and other operating levers along with some of the rate hikes that we're able to secure from the customer, you know, as we're able to expand our EBITDA margin by 30 basis points.
Okay, sir. Thank you. Thank you, sir. Thank you.
Thank you.
Thank you. The next question is from the line of Chirag Kachhadiya from Ashika Institutional Equities. Please go ahead.
Congratulations on good set of numbers, sir. I would like to know your broader outlook on American market and European continent specifically.
I think as I talked earlier, right, so broadly both U.S. and I mean, the issues are different in both the markets, right? U.S. right now is, you know, it's a high inflation scenario. People talk that there is going to be a recession. If you look at it, everybody has a job. I mean, the job market is very hot. At the same time people say a recession is happening. There's a little bit of a contradiction there. Similarly in Europe, the issue is more about, you know, the war and other macroeconomic situation out there, right?
Having said that, again, you know, we are still small- to medium-sized organization. From our perspective and the revenues that we deliver, right, I believe, you know, these factors, you know, really don't play too much of a role, you know, for us. Our customers, we've not heard anything from our customers that they're going to reduce the spend or they're going they are stopping some projects or any of that. To that extent, both U.S. and customers in Europe, we hope that we'll continue to do well in these markets. Of course, in U.S. we have, you know, the dollar becoming stronger and stronger.
On the other hand, in Europe, you have both pound and euro becoming weaker, right? That, of course, will affect the net realization in INR in both these regions. Other than that, I think we continue to execute, we continue to keep close to our customers, we continue to deliver value to our customers. I believe, unless something drastic happens, definitely not in the short term, we don't see any short-term issues. Mid-term to long term, again, there are a lot of factors including how this war will continue and effect of that on the overall global economy and so on.
You know, whatever happens, it won't be that it's something very specific only to Tata Elxsi. We will still, I believe we'll be better off than a lot of our competition or other players in the IT industry, right? Whatever affects them will affect us also.
Okay, sir. I have one more question, if you allow me. Can I ask or shall I come in later?
Go ahead, please.
Yeah. Sir, I have a question in terms of the constant currency calculation because the normal growth and constant currency both had similar range. If you share some highlight on the mechanics of this calculation?
I think, Manoj also touched base upon that, USD appreciated and became, you know, strengthened day on day. On the other hand, again, if you see pound and GBP and some of the other currencies, those have been depreciating. Given our mix of the portfolio and the revenue we recognize this year, I think, both kind of, you know, played off to each other and the actuals and the constants are coming, you know, similar.
Okay, sir. Fair enough. Thank you so much, and best of luck.
Thank you.
Thank you. The next question is from the line of Dipesh Mehta from Emkay Global. Please go ahead.
Thanks for the opportunity. A couple of questions. Just want to get clarity about salary hike. Salary hike we gave effective from April, and it is fully given or a certain set of employee only hike was given?
I think we gave first salary hike for all the juniors, almost 60%-70% of the staff, from January in the beginning of the year. The remaining set of staff was given a salary hike in April. It is fully done.
Okay. If I look at, say, this quarter, your employee expenses grew less than your headcount growth. In a way it is not getting captured in terms of inflation. Can you help us understand what explains that part?
No, I think, if you see the personnel cost, it is inclusive of both the wage hike that has been done for the, you know, for the middle and the senior management this time and also includes the incremental headcount that has been added during the quarter.
That is right. Your headcount growth, let's say quarter-over-quarter was 8%. Your employee expenses or wage bill grew 6%. Now, when you say you gave salary hike to almost half of the employees, it is not getting reflected. That is where I try to get some clarity.
Yeah. Maybe I can just clarify. It is because the added employees don't necessarily come in the beginning of the quarter, so they don't count for the full quarter. We add them throughout the quarter.
No, even if you take average, let's say 8% end to end, if I take 4% is average, still it is hardly any gap between.
You cannot average out that. Yeah. It has to be between the pyramid, the mix of the people, the regional mix. There are a lot of factors which goes into there. The personnel cost also includes other, you know, the contribution to the fund and the staff welfare and all other expenses. That straight math will not work like that.
Understand. Second question I have is about the opsources, which let's say we are seeing very steady improvement over last few quarter. Do you think considering things are opening up, that trend will now stabilize or may have some reversion? Or you think this trend likely to continue?
The offshore.
Offshore.
It was pretty steady. Do you see that continuing at that level, or do you see that? Yeah, I think over the last few quarters it has been pretty steady. Yeah, I think there's a slight uptick in the on-site revenues this quarter, but not a significant uptick. I think I would tend to continue that, you know, customers are reaping benefits from the offshore execution that we provide for these customers, right? I don't think they'll be in a hurry to move on-site.
Okay. You expect this 75% to 25% broadly stable likely to occur even on medium-term basis?
More or less. That could be a +1%, +2% here and there.
Yeah, that's fine. Broadly 75% to 25%.
Yeah, yeah.
Understand. Last question is about the adjacent PVC—
Sir.
Sorry.
Sir, sorry to interrupt, but for any follow-up question, may we request you to.
Sure. Thanks.
Thank you. The next question is from the line of Dev from Invest Yadnya. Please go ahead.
Hello, am I audible?
Yes, sir. Please proceed.
Thank you for giving me opportunity to ask the question. My first question was on pricing. You said that you had some price increase. Can you elaborate on that? Which were the hot skills where which were suitable so that you could get price hike from your customer and across which verticals was this phenomenon observed?
I won't say it is based on skills and so on. Of course, there are certain skills that you know traditionally also command a premium and so on. The price hike that we are talking of is customer engagement, right? Depending on you know how long they've been engaged and what value that we deliver to these customers over the COVID years and so on, right? We have been able to go back and negotiate you know price hikes with individual customers I mean based on the value that we bring to the table.
Okay, thank you. I have one more question. It was with respect to the automotive vertical. Your traditional versus OEM. What is your contribution to the New Age OEMs versus the traditional OEMs in the automotive vertical?
We continue to work with the New Age OEMs as well as the traditional OEMs. The New Age OEMs are primarily around you know the electric vehicles the connected car platforms the digital you know digital twins and all the new areas right? Whereas the traditional OEMs it's a mix of you know the traditional businesses of infotainment body chassis powertrain you know cockpit and so on. Plus of course the electrification scope and so on. At this point in time we're not in a position to tell you how much you know percentage or what you know we don't have the data.
Okay. Thank you.
Thank you. The next question is from the line of Jayraman Krishnamurthy, an individual investor. Please go ahead.
Hello, good evening.
Good evening.
I have a question basically on the healthcare revenue. It's expanding more than what we projected. Is this due to any tailwind or there is a concentrated effort to expand the revenue? Because what I know is we look at 20% of the revenue to be healthcare. The way we are growing, is there a possibility that we'll exceed this 20%? The second question is, with regards to the revenue, how much percentage of the new business that we are getting is from the existing clients? If you are not able to share the percentage, is it possible to at least share, is there any increase compared to the last financial year? Thank you.
Sure. Medical business, I mean, it is not this quarter alone. I think over the last eight quarters or so, we have been showing consistent high growth. To that extent, it's not something new. Whether we will exceed 20% or not, I think that we will, when we reach 20% we'll think about it. At this point in time, as Nitin said, we put the target and we want to hit the target first. Right. Of course, if there are opportunities to grow, we're not saying that we will not grow. We're not saying, "No, no, we can't grow beyond 20%," right? To that extent, we will continue to accelerate our focus on medical. We have made a lot of investments in that area.
I think we have built a very, very strong capabilities that is relevant to our customer base. I think we have a pretty good team, you know, executing that, right. From your second question regarding new business, I think you know, as I said in the beginning of the call, you know, we have been focused on deeper account mining and staying relevant to, you know, our key customers, right? To that extent, I think almost, you know, 98% of our revenues come from our existing customers, even in the quarter gone by, right? New customers only account for a very small fraction, you know, of our revenue.
Of course, over a period of time, the new customers also grow and then, you know, become significant. In the quarter in which we get into a new customer, it's typically, it's about 1%, 1.5% or so it would be new customers.
Yeah, Jayraman, just to add a little—
Thank you very much.
Yeah. Just to add a little more color. The point is that given the nature of the business that we are in, which is R&D and product development, typically customers don't start off with a big bang, right? Because they're not going after renewal contracts and so on. So traditionally it would be small projects that you learn and the customer also learns and gauges you by, and you would build and expand on top of that. So that also kind of explains the ratio.
Okay. Thank you very much, both, for giving the background. Thank you.
Thank you.
Thank you.
The next question is from the line of Amit Thawani, an individual investor. Please go ahead.
Hi, Nitin. Hi, Manoj. Good to speak to you again. Just one simple basic question. The annual report mentioned about three more industries. One was the semiconductor, second one was the telecom and the consumer electronics. Because in our presentation we don't include that, so I'm just wondering in which segment would these three come in?
Right. Yeah. Amit, hi, this is Nitin here. Maybe I'll take that. If you look at semiconductor, because they form the foundation for electronics in every sector that you would work in. To that extent, we do have engagements even today with semiconductor companies, but addressing certain key markets. What is in the public domain, for example, is Renesas, right? Where we have been working with them on automotive electronics, and we've also announced a next generation EV innovation center, which builds on top of silicon from Renesas and then brings in softwares that we develop. There are similar relationships when it comes to 5G and telecom. There are similar relationships when it comes to healthcare. That is the semiconductor piece. Telecom is an integral part of media and communications.
When you look at media and communications, that's what we call the vertical. Telecom is that communications piece, right? We do not say telecom only for the reason that nowadays telecom players are also media players. They offer triple play, quad play and so on. That's why we call the vertical media and communications. As far as consumer electronics is concerned, it partly reflects in media and communications because there is some amount of consumer electronics is involved in media, right? Because when you work on set-top boxes, when you work on gateways, fundamentally you're working on consumer products. Part of it gets reflected in design.
Got it. That's it. I have no other questions. Thanks. Thank you.
Thank you. The next question is from the line of Vimal Gohil from Alchemy Capital. Please go ahead. Sir, your line is open. Please proceed with your question.
You can't remove.
As there is no response from the current participant, we move to the next question from the line of Bharat Sheth from Quest Investment. Please go ahead.
Hi, Raghavan. Thanks for the opportunity. Sir, in our earlier answer, we said that we plan to add around 3,000+ kind of a fresher and 1,500 lateral. That gives, which is almost forming around 40%-50% of existing headcount. Just kind, this kind of new hiring, what kind of a say short to medium term we look seems to be very bullish. Is that fair understanding?
Sir, you have to also take into account attrition, right? There will be attrition also that we need to plan for, r ight? You know, of course, this is a target that we have, 3,000 or 3,500, you know, freshers. In reality, we could, we may end up anywhere between 2,500 to 3,000 or whatever. It depends on how many of them really actually join, right? While we would target, it's not that 100% of the people would join us also, right? I think we should be around 3,000 people is what we target from freshers. From laterals, as I said, right, depending on the demand and how you know, attrition happens and so on, we will add anywhere between 1,000 to 1,500 people.
This kind of attrition, do we expect, I mean, offshore, to go a little up i n next four to five quarters?
I think it's a good percentage for offshore. It could marginally go up, but I think it won't be significant.
Okay. Last question on this margin side. Despite we are not adding much revenue from IP business. Does it really help us to improve our margin where we can deploy same into the client, service business?
Yeah. We have not yet reached that stage. Right now, our IP, the products that we have, is primarily like helping us get a foot in the door and, you know, opening new accounts, new customers, and so on. At a later point in time, hopefully, when some of these are mature products and we get repeat orders and so on, what you say would happen.
Okay. One more question.
Mr. Sheth, sorry to interrupt, but for any follow-up, may we request you to rejoin the queue, please. The next question is from the line of Khandelwal, an individual investor. Please go ahead.
Hi, good afternoon. I just want to understand. Right now our employee cost is around 50.38%. What is the trajectory going in future, the trend? Is it likely to increase or decrease? What is your opinion on this?
Yeah. I think, maybe, that calculation may not be accurate, but I think that trend, employee cost is directly proportionate to our revenue. I think we have been working on other, you know, products and IP related and non-linear kind of the revenue. Likely it will not exceed the current percentage. Of course, there would be, you know, intervention in terms of the wage hike and all those things as, you know, go along, and there could be other things. It's going to be in the similar range.
Okay. Thank you.
Thank you. The next question is from the line of Mayur Matayni from Maheshwari & Co. Please go ahead.
Thanks for the opportunity, and congratulations to the management on an excellent set of numbers. I have two questions. One related to our revenues from Asia apart from India. It has been declining as a percentage of revenues. Is it by choice that we are focusing on other regions and that is why our revenues are lower? Because Asia being a big market for automotive and communication. What would be your take on that? My second question would be on the initial response that we have got on a new healthcare platform.
Healthcare platform. Coming to revenues from Asia, yes, it has been declining. I think you know, especially revenues from China has come down because China has been hit by COVID really badly. You know, people are not being able to travel to China. There is no, you know, even within China, there are a lot of restrictions and so on. Similarly, I think both revenues from Korea and Japan also have come down. I think all these countries, you know, or the macroeconomic situation is not that good. Customer spend and customer confidence is also down there in that particular market.
I think naturally we don't see any large opportunities or big deals that are coming from that part of the geography. Yes, revenues are down, but at the same time, for us, from our perspective, you know, the other major markets, Europe and U.S. and India has been growing very rapidly. From a management focus also we have been focused to really grow you know the other geographies. At some point in time, definitely China and you know Japan and Korea would also come up and then hopefully in the near future we will see growth there.
Mr. Motiani, just taking up the second question on the healthcare platform, this is Nitin here. I just wanted to clarify that, we've kind of announced and launched that just at the end of March, right? It's just been about three months since we've gone actively to market with it. You have to appreciate the fact that a digital platform like that is a fairly big and strategic decision for customers. In some sense, it does take time to make sure that customers see it, appreciate it, understand it, and then are able to move down the path of assessment and selection.
I think the big side effect for us is the fact that even as we go into greenfield opportunities where a particular target customer does not have a platform and wants to adopt ours, we're also already starting to see the benefits of brownfield, where they have platforms, they are not necessarily going to switch with ours, but they are seeing that we're bringing all the relevant design and digital capabilities that are necessary for such platforms. The elements of customer engagement, patient engagement, views that you provide for doctors, healthcare providers, patients. These are digital and design skills that are both compliant to industry standards, compliant to healthcare regulations, and deliver the right experience. We're already winning projects in terms of services that address digital healthcare platforms for customers, but our own wins are yet to come.
We have no doubt we will win some of those. I think the benefit will be both in terms of services that are coming off the platform demonstrations and services that are coming, and revenues that are coming from platform licensing and sale too.
Thank you. Ladies and gentlemen, we take the last question for the day from the line of Karan Danthi from Jetha Global. Please go ahead.
Yeah. Hi. Hi, management team. Many congrats on the great set of results. I wanted to just dig in a bit, a little more into just firstly the macro. Many software companies in the U.S. have started to see pressure, particularly from Europe. If you follow the hardware, supply chain within, you know, I guess the server complex, you know, you're starting to see some, I would say, some signs that, server deployment is slowing. It's very clear, and I think Morgan Stanley said this on the earnings call yesterday, that there is a prioritization, happening, where companies are saying, you know, there are certain projects that are prioritized and certain projects that are not. Now, I think we've done really well to reorient ourselves, you know, couple of energy tech projects.
I don't think we've seen any, if at all, impact from this. There's a good argument as to why that should continue to be the case. Let's take a scenario where, you know, there is a recession in some parts of the world, and the job market does get weaker in other parts of the world. What percentage of your project work would you decide is, would you say is discretionary for the customer? I.e., they would do it if they could, but if they have to put it off, they will because the trade-off of being innovative versus saving money just the math doesn't work at some point. It would be helpful if you could just frame that for me, and then I have one follow-up.
Yeah, maybe I'll take a first stab at that, Karan, because it's a complex question, and obviously we're dealing with possibilities here rather than something that's concrete. The way I see it, right, I think you're right in the sense that, over the period of years, consciously from our side and equally going through COVID, what has happened is a lot of the budget rationalization in favor of what is strategic, what is important has already been done. In that sense, I think COVID was a bigger recession than anybody else and not anything else. Because it clearly, truly squeezed, decisions on what is important, what is strategic, what should stay, what should go from many companies.
To that extent, I think to a large extent, the budgets that we're dealing with now and the kind of projects we're working on now are, like you said, mission-critical. If I were to then extrapolate to say now there is further pressure and customers still need to kind of think of what would they cut down on, I would still say that we stand a pretty good chance. I'll just justify why that is so because if you think about what are their options, their options is to do it in-house. The first option is not to do it at all, in which case there's no debate. Nobody wins. If their option is to say we have to do something but have to do it at the lowest cost possible, I think we become the most attractive option on the table. Why?
Because we are predominantly offshore. We are operating on very, very competitive rates. We deliver ownership and assurance of the objectives that the customer has or the outcomes that the customer has. In many ways, I think we are a better option for continue, even if it's a reduced continue than a stop. All I would say is that unless the decision is a stop, and therefore they're gonna fire their own employees or they're going to cut out all the work that they're giving out, we would most likely still be the second last or the last on their option list. I can only envisage our future that way.
Yeah. The only other thing I would say is that, look, these events happened, right? We have seen it happen when COVID hit us in the first quarter of 2020. We did have a situation where customers did pull the plug and lot of projects were scrapped and so on. The good thing about Tata Elxsi is that we have seen this before and, you know, we quickly reoriented ourselves, and we were able to come out of that situation within the quarter, right? Within a quarter. By the next quarter we are up and running.
I think there is a lot of confidence in the team that, in the case of a deep, you know, recession and, deep budget cuts and so on, we will figure out alternate ways to deliver, to come back and, you know, continue our growth, right? We have proven that, during the COVID time also. There is a confidence in the team.
Great. Thank you. My follow-up was, you know, the transport business. Just as you look forward, it seems like there's a growing chorus that the semiconductor shortages are essentially moving in the right direction as slack in PC and consumer shifted reallocated towards autos. Does that benefit you in any way? If production rebounds, where I guess the budgets don't change, people would have to innovate either way. I'm just curious whether that has a kind of a secondary impact.
Sure. If the semiconductor prices come down, then all our customers will be happy. You know, as we know right now, if you go to any auto dealer, you know, you don't have too many options. There is a huge waiting list for most models, right? What happens is when all this pressure automatically comes on, OEMs are able to sell more, which means automatically they generate a lot more you know money in the bank, and that will funnel a lot more new R&D projects. Definitely we will benefit.
Thank you. Ladies and gentlemen, due to paucity of time and that was the last question, I now hand the conference over to the management for their closing comments. Over to you, sir.
Thank you. Thank you all the investors who attended today's call. It was a satisfying quarter for us, and we hope to continue this trajectory and look forward to talking to you again, you know, after our Q2 results. Thank you so much.
Thank you. Ladies and gentlemen, on behalf of Tata Elxsi Limited, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.