Ladies and gentlemen, good day and welcome to the Tata Elxsi Q2 FY 2021 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the call, please signal an operator by pressing star then zero on your touch-tone phone. Please note this conference is being recorded. Also, we'd like to inform participants that this call is for approximately 60 minutes and will end by 3:55 P.M. Indian Standard Time. I now hand the conference over to Mr. Vaidyanathan. Thank you, and over to you, sir.
Thank you. Good afternoon. I welcome all of you to the H1 Q2 FY 2021 earnings call. We have here with us Mr. Manoj Raghavan, CEO and MD, and Nitin Pai, CMO and CSO. The agenda goes like this. Manoj will give a brief of the results of Q2, and thereafter you can pose your queries and restrict one query per person participant so that we can give chance to others. Now I hand over to Manoj Raghavan to take it over.
Thank you, GV. Good afternoon, everybody. Thank you for joining us today. I hope you and your families are safe. I'm happy to report that we have delivered a very robust Q2 FY21. I'm sure you've seen the matrices that were published. It was really an all-round performance, both top line, bottom line, growth in both our key divisions, the EPD, Embedded Product Design division and the Industrial Design & Visualization division. Also broad-based growth across all industry verticals and geographies. I think it is a very satisfying performance. Our revenue from operations grew by 7.4% quarter on quarter and 11.5% year on year. There was a request that we need to declare constant currency growth. This actually translates to a constant currency growth of 6.9% quarter on quarter and 4.4% year on year.
As you can see, most of this quarter-on-quarter growth has been volume-led. More than 93% of sequential growth in the quarter gone by was volume-led. All this data has been published in our fact sheet that has been put up on our website on our investor relation page. As far as profitability goes, we grew our PBT by 17% quarter-on-quarter and 56.1% year-on-year. Again, a pretty satisfying growth as far as bottom line is concerned. The company's growth was driven primarily by both its key businesses, that is EPD and IDV. EPD, which is the company's largest division, grew by 7.1% quarter-on-quarter and about 15.1% year-on-year. IDV also posted smart growth of 15.1% quarter-on-quarter. This is with pretty good design project wins and so on.
Within the EPD business, medical and healthcare continues to grow faster than the rest of the verticals. This quarter we grew at 14.1% quarter-on-quarter. Media and communication delivered another quarter of steady growth at 6.7% quarter-on-quarter. What is also satisfying is the transportation vertical showed a smart growth of 5.6% quarter-on-quarter. Definitely we are seeing recovery in automotive market. Of course, as you may have already seen, we have closed some good deals, including a multi-year deal with an European Tier 1 supplier for vehicle electronics and software. We have also added a new automotive OEM as a customer. In a sense, we want to say that we are back to our pre-COVID momentum as far as growth rates are concerned and we expect this momentum to continue into H2 this financial year.
As we enter into the second half of the financial year, we're pretty confident with strong deal pipelines across various verticals. A good number of deal momentum, large deals that we are pursuing. Because of the performance that we have been able to generate, we are announcing salary hikes for our employees with effect from October 1. With that, I would want to hand it over to GV for the Q&A session. Thank you and look forward to your questions.
Thank you.
Yeah.
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a questions may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, that is star and two. Participants are requested to use handsets while asking questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Gabriel Asher. It's an individual investor. Please go ahead.
Hi, sir. Congratulations for the great set of numbers. The question which we want to ask is, are the margins sustainable, and can it grow forward in times ahead?
Yeah. Our focus is to ensure that we maintain our margins. As I just announced, we would be giving a salary hike also. Having said that, we would continue to guide in the 22%-24% PBT, and we would hope to be at the upper end of that spectrum.
Sure, sir. Thank you.
Thank you. The next question is from Kunal Shah, from IDBI Mutual Fund. Please go ahead.
Thank you for the opportunity, and congratulations for a good set of numbers.
Can you be louder, please?
Yeah, sure. Is it audible now, sir?
Yeah, very much.
Congratulations, in the first place, for a good set of numbers, sir. Just continuing the question on the margins front. You did guide about 22%-24% PBT. Just wanted to understand three, four aspects. How should one look at the other expenses going ahead? Because there will be a lot of discretionary expenditure, I believe, which would have been curtailed. Also, our onsite-offshore mix has tilted very much in the favor of offshore from 57.4% - 65.3% in the recent quarter. How should this shape up going ahead, having effect on our employee costs and other expenses? Any thoughts?
Yeah, I know the onsite-offshore ratio tilting towards the offshore is what everyone dreams of, right? I think that's in the right direction. If it continues and if we can move more work from onsite to offshore, our margins will only improve. That is positive. Other expenses, see, even as we speak, 95% of our employees are working from home. Literally a lot of other expenses are not there. Discretionary expenses, employee celebrations, travel, a number of those expenses, I think at least for one quarter till we see opening up of the travel and so on, will continue to be muted. I can't predict when things will get back to normal, but based on what people say, it looks like only next financial year we'll get back to normal.
Okay. How about the onsite-offshore, sir? Should we see this remaining same at least for the one quarter and then see how it goes ahead?
Yeah, definitely, I think at least for the next quarter or even maybe for the next two quarters. Again, it all depends on how countries open up and travel restrictions are removed. You have all those reinfections coming in and western countries are now more and more cautious and so on. You can safely assume at least for one quarter these ratios will continue, maybe for two quarters.
Okay. You did talk about the hike from October 1st for the employees. Any quantification you would say how this would pan out in the employee expenses?
We are looking at between 6%-8%. Final details are being worked out right now.
Great, sir. Just moving on the deal pipeline, the commentary was pretty optimistic. Just wanted to understand the scenario out there. When it comes to the auto sector, and we are doing very good when it comes to broadcast and communication. How do you see in your interactions with the clients? We see a lot of companies now first trying to move towards a cloud, which seems to be very important, and then trying to spend on R&D and all this stuff. How do you see that panning out for the company in your interactions with the clients across segments?
Sir, I think you've asked a number of questions. I think we should be fair to other investors, having said that, let me answer this quickly. Deal pipeline is looking good, both in all the three verticals that we are operating in. The order book that we are carrying forward is also very healthy. I think that's why I said we are back to our pre-COVID momentum in terms of both the pipeline and the sort of large consolidation opportunities and many opportunities that they're looking at. I'm pretty optimistic that we'll record back to our growth rates in the pre-COVID times.
Thank you. The next question is from the line of Hasmukh Gala from Finvest Advisors. Please go ahead.
Hello, sir. Congratulations for a great set of numbers. Sir, I just basically wanted to know that recently, you have announced certain long-term partnerships with, say, NVIDIA, then GEC Schaeffler, and partnering with Google. I just wanted to understand what kind of revenue model you will have by dealing with these kinds of opportunities .
Right. Yeah. Hi, Mr. Gala. This is Nitin here.
Yeah, Nitin.
Yeah, hi. If you look at partnerships, I'll take Schaeffler out because Schaeffler is not so much a partnership, it's a few.
Clear customer relationship.
Okay.
What we announced with them is a global engineering center. You can think of it as an offshore development center for a customer.
Achha, okay.
Of course, it will be multi-skilled, multi areas, it will be multi-year. That's the signature of [Tech Mahindra]. If you look at partnerships like INVIDI or Google, we represent how we can go to market with somebody else. It is a joint go-to-market with somebody else so that we can provide larger or more complete solutions to our customers.
For example, if you look at OTT, Google and the Widevine solution that we have partnered for, is really being used to protect content. The idea being that, for example, if somebody has rights over IPL and they want to make sure that their IPL video is being transmitted only to people who have subscriptions or who are legal subscribers, then you need some way of confirming this, and therefore digital rights management and the content protection that Google offers rides along with any OTT service. Now how does that work for us? It is a natural complement when we go into the market to help customers integrate OTT services that, look, we also take care of content protection.
Similarly, if you look at INVIDI is one of the world's leaders in addressable ads, which is how do you deliver an advertisement to a subscriber based on their profile, their background, which home they are in, which geography they are in, and so on. Again, naturally, it complements our capabilities and our offerings in OTT by saying, "Look, we not only can help you deliver a great video OTT platform and a service, but we'll also bring you opportunities to protect content. We'll also bring you opportunities to monetize content by providing better addressable ads, better targeted ads, and so on." Partnerships are typically used, one, to make our services more complete and to improve our own value proposition.
Okay, thank you. Before we take the next question, a reminder to participants to please limit your questions to one per participant. The next question is from the line of Mayank Babla from Dalal & Broacha. Please go ahead.
Good evening, thank you for taking my question. My question pertains to the top client. We've seen some sort of improvement in the top client accounts in this quarter. Going ahead, if you could give us some qualitative guidance if we can expect similar momentum or better than this in the second half?
Again, it is good that we've had a good quarter as far as the top customer is concerned. We'll be happy to retain at this level, because the outlook is definitely better than what we have seen in the previous quarters. Still there are some uncertainties, so we don't want to guide anything saying that things are rosy and things will be very different. We're happy with this current level.
Thank you. The next question is from Dipan Mehta from Elixir Equities. Please go ahead.
Yes. My one question has been answered regarding the top client. Second is that this work from home, is it really a viable option to reduce cost or it is a passing phase and eventually costs will come back to their normal levels?
The cost as far as travel times and all of that is reduced, right? IT costs and all of them have gone up. Actually, if you look at it, they cancel out. Unless you start closing down your offices and trying to reduce costs in that way, you will not gain any significant cost advantage by employees working from home. As of now, we have not closed any offices. We continue to maintain all our offices. We'll take a call based on how this entire pandemic pans out.
Thank you. The next question is from Raj Rishi, who is an individual investor. Please go ahead.
Yeah, hi. I just want to find out what sort of possibility is there for non-linear growth?
Hi, Raj. This is Nitin here.
Yeah.
If you look at opportunities for non-linear growth, obviously, they would be similar to any company that you would see in this space, which is, one, you either go significantly towards products. The logic being that you build it once and you sell it to many, unlike services, which is headcount and linear. Option two would be that you go and acquire somebody else, and therefore, inorganically look at accelerating the revenue. We have initiatives going on both.
Okay. Presently, how much of it would be IPR-based revenue as a percentage?
Right now it is sub 5%. It is low single digit.
Okay. What's the aspiration, if you can share it with us, in, say, two, three years?
I would rather not call it so much as a product versus services aspiration. I think it is really a movement towards solutionizing. Idea being that as customers look at what they need to do in their own digital transformation, it's not just products that will answer it. There are solutions that couple products and certain accelerators along with services. I think that is our aspiration, that it should strengthen our value proposition rather than become the value proposition.
Okay. Can I squeeze another question if it's possible?
Since we are limiting it to an hour, if you can kindly come back.
Okay. Thanks a lot. Thank you.
Thank you.
Thank you. The next question is from the line of Nitin Shakdher from Green Capital Single Family Office. Please go ahead.
Hi, good afternoon, Manoj, and good afternoon, Nitin. Great set of results. My question pertains to the cash reserves and the cash on books. Approximately there is about INR 900 crores-INR 950 crores approximately in the quarter. Now, what is the plan or strategic plan of the company to improve the return on capital employed, and return percentage on the cash which is on the books? Is there any strategic form of payouts or buyouts or acquisitions plan? Thank you.
As Nitin has answered the previous question, we are definitely planning to see how we can use this cash reserve for inorganic options. Yes, there are some discussions going on. This issue of capital allocation is also discussed at our board level. We are working out certain options in terms of if you're not able to use these reserves effectively, what do you do with it? There are some deliberations happening. It's pretty early to come back and tell you what the allocation policy will be, however, subsequently, we'll get back to you on this.
Thank you. I hope that sooner than rather later, because last quarter also we discussed this.
Yeah.
I'm assuming that the management has taken a call on that in improving the ratios on that. Thank you.
Sure.
Thank you. The next question is from the line of Naveen Bothra, who is an individual investor. Please go ahead.
Congratulations for excellent set of operating numbers.
Thank you.
I must say highest ever top line and bottom line on TTM basis we have achieved. Congratulations to the team. My question is regarding the capital allocation policy. You have already solved the earlier parts. My question is regarding the platforms business. We are having around, I think, eight - 10 platforms. What is our overall strategy to monetize the platform business and how many are in the business we are using and how many are in the development stage?
Yeah. Mr. Bothra, this is Nitin here. Maybe I'll take that question.
Yes.
In some sense, I'll go back to the products part, though products look very nice in the sense that it does look like you just had to develop it once and you can sell it infinitely without any further cost or effort. The reality is platforms and products do require continuous investment. In that sense, at times they can also be more difficult than the services business. With the services you deliver when required. While products you'll have to keep enhancing, keep developing even if there are no active customers, simply because you want to make sure that it can compete successfully in the market that it operates. To that extent, I think what we are definitely and consciously doing is making sure that these platforms are part of the value proposition that we take to customers.
For example, products like FalconEye or an Automate, which are products meant to automate test and validation for media or for automotive, is part of our service offering for test and validation services. Similarly, if you look at OTT, even as we go and talk to customers about how we can help them with OTT services, TEPlay becomes a platform approach. It's not that every customer will take a platform. There are certain customers who may only choose to take a part of what we have, like AutonomAI. Meanwhile, it's a full autonomous platform. Customers may choose only a single module, but what it leads to is services around that module and others.
Our hope is, and our plan is definitely to make sure that for every percentage of revenue that a product or a platform brings, we would like 2, 3 more percentage to come from services and that services to continue beyond the first year. It will become a longer tail of revenues. That is really the goal.
Okay. Regarding how many platforms are currently in business?
Yeah.
How many are under development?
Right. At any point of time, we have about one or two active in every vertical. If you look at media, we have TEPlay, FalconEye. If you look at automotive, we have AutonomAI, we have Automate. If you look at medical at this time, we really do not have a full platform. We are investing in one or two in each of these verticals, at this time. There are some in development which are not yet announced.
Thank you. The next question is from the line of Vijay, who's an individual investor. Please go ahead.
Hello. Hi. Excellent results from [evaluation stream, and et cetera]. My question, I have two. One is on the new opportunities that you were actually looking at, like, to stabilize your numbers. How do you get the space technology, which will have the potential of INR 50 billion in our country by 2024? That's one. Number two, I think, a month back, I think, I've seen something on the parking technology that you were about to come on. Can you also give some progress and throw some light onto that?
Yeah, this is Nitin here again. Can you repeat the second one please?
Auto parking.
Auto parking. Okay. Perfect.
The parking.
Yeah, parking. Sure. I'll just take them one by one. On the space side, yes, we have examined the opportunity. We have worked in space programs before, including the Mangalyaan mission. Where we delivered the telemetry unit that went on to the Mars Orbiter. It actually was part of the Mars Orbiter unit.
We have delivered certain work for space. We are looking at what we can do, but however, we also recognize that a lot of these are government-led programs. To that extent, the conditions of working and how we deliver, et cetera, are quite difficult. We are not expecting to have any large revenues out of space, per se. On the auto parking, yes. In many ways, for us, that is the way we see how AutonomAI will play out. AutonomAI is meant to be delivering full level five, full autonomy, while the reality is that many of the emerging markets can never achieve full autonomy because the roads aren't suited and the infrastructure doesn't suit it, and the finances don't suit it. We believe that many markets will actually leverage features rather than full autonomy.
For example, auto parking valet systems are something that are quite interesting for many automotive companies. Similarly, traffic jam assist, where in a traffic jam, the car moves automatically. You don't have to keep pressing the accelerator or the clutch or the brake. Certain smaller features of autonomy will become more popular. We are, in many ways if you think about it, remastering AutonomAI to suit features which we think will come to market much before full autonomy. That is something we are actively investing in.
Thank you. The next question is from Pranal Thakker, who is an individual investor. Please go ahead.
Yeah. Hello, sir. Congratulations for a great set of numbers. My question is regarding the previous reference to the previous meeting, wherein Nitin has updated that the software which is used for telecom industry, that's rightly coincided with the pandemic, and one supervisor can monitor the employees sitting at home. Just want to understand that this previous platform, what is the update on this, and whether this can also be used in other industry as well?
Right.
Hello.
This is Nitin here. Hi. I'll take that question. I'm not precisely clear about what you're referring to, because I remember that we talked of automation of operations, definitely in telecom. When we talk of network operations automation, it's more to do with the network itself and how you can automate some of the monitoring and control of the network to make sure that subscribers don't have any disruption to their services. That continues. In fact, we are seeing very strong interest from quite a few operators in the solution that we have developed and we are developing. In many ways, that is one of the platforms that we are investing in. Will that apply to other industries? Yes. Not directly, but we see that the whole concept of remote monitoring and remote management is a concept that can apply to any enterprise.
We definitely are looking at how we can adapt it to some of the other industries that we work in.
Thank you. The next question is from Ravi Navedi from Naredi Investment. Please go ahead.
Thank you, Manoj and Nitin. My maximum questions have been answered, but just I would like to know how many new hiring we are going to do?
We are going to make in the current quarter, is that the question?
Yeah.
We have actually hired about 300 fresh grads from the colleges, and they have not yet been onboarded because of the pandemic. We plan to onboard them in this quarter, in Q3. On top of that, we may have anywhere between 100 and 150 lateral people that we would hire. That again depends on the requirement and so on. As an average, that's what we've been hiring.
Thank you. The next question is from Deepak Poddar from Sapphire Capital. Please go ahead.
Thank you very much for the opportunity, sir. Just I wanted to understand in terms of your revenue, like if I see last 10 quarters-12 quarters, we have been in the range of INR 380 crore-INR 420 crore. In that range we have been doing. When do you see the next leap of growth that would be coming to us, maybe if you take a view of next two to three years? Thank you.
I'm not sure when you say 10 quarters that we have been in the 380. I mean, 10 quarters, maybe we have been from 300 levels or 320 levels, we would have grown to the 430s and so on. Our expectation is we'll be able to continue this sort of a growth. There won't be any sudden jumps, because sudden jumps will happen maybe if we have an inorganic option and so on. Otherwise, the accelerated growth that we have demonstrated in the quarter, we hope we will be able to maintain that growth near about the same levels for next few years.
10%, 12% is what is?
Annually, constant currency basis, we should definitely grow 10%, 12%.
Thank you. The next question is from the line of Harish Kawalkar, who's an individual investor. Please go ahead.
Sir, good afternoon, and congratulations for your results. I'm just going through your customer concentrations. You have that presentation. What is the reason basically customer concentration decreases over the period of quarter on quarter basis? Could you please throw some light on that? You had added more customers or you have less revenue from the same customers?
We are more or less where we were in the previous quarter, right? There's not been any great change, I would say. If you look at the top 10 customers, they're being at 49%, 50% and odd, right? That's been the case in Q2. Last year we were at 50.7. In Q1, we came down to 48.6. This quarter, we came up to 49.3. We are in and around the same. Essentially what we're trying to say is the top 10 customers, as the company grows, the top 10 customers have also been growing and growing almost in the same ratio. I think this is a good metric to have.
Thank you. The next question is from the line of Ashish Agarwal from Principal Asset Management. Please go ahead.
Yeah, thanks. Sir, most of my questions have been answered. Just a couple of things. First of all, on the industrial design business, that business has been very volatile.
Yeah.
This quarter has been seeing a good growth. We have indicated there is good pipeline. Just wanted to get some sense on that business, and maybe some sense on the profitability of that business. Secondly, on the offshore onsite mix. Obviously there is a significant increase in offshore. Wanted to understand, once things become normal, do you think that this ratio could change towards onsite as there will be more travel et cetera? Do you think that this type of a shift over a longer two to three-year period is here to stay? Thanks.
Let me take the second question first. Personally, I would tend to believe that this business is here to stay. It may not skew so much once the travel restriction has relaxed. Maybe onsite ratios may go up slightly, but it'll never go to the 50/50 or 60% onsite and 40% off. Those days are gone, I think. I think maybe we'll eventually settle down to 60%-40% or 40% being onsite and 60% being offshore, or even lower than that. Customers and individuals have realized that you can achieve a lot, you need not necessarily be next to the customer. You can work remotely. Personally I feel that, look, you might more see a 60%-40% or a 65%-35% sort of a ratio eventually. Right? Coming to the first question on ID&V. Yes, ID&V has been volatile.
In the beginning of last quarter, we have a management change there. We have a new person who has taken over as the head of the Industrial Design business. We are rethinking the strategy and we are aligning that business more towards the EPD verticals. We have also restructured the sales team. Lot more EPD sales team members are now carrying ID&V numbers also. There is a lot of cross-sell happening with existing customers. I would say the focus for us is definitely to be a design-led company. That is a clear differentiation that we have with regards to our competition. In the next two to three years, I would see ID&V revenues growing much faster than EPD revenues. That is what as an organization we are focused on. That is where our investments are going in.
That's where the sales team focus is there. I believe that next two to three years, this will be a very key focus area and business for us. Margins are definitely lower than EPD at this point in time. That is because the top line has not grown. The billability is on the lower side. Once we have this customer acquisition and so on, margins will go back. A lot of the investments on the ground in terms of people and so on have happened. There is a leg room for increasing billability. I think margins can only go up as long as our business grows. I hope I've answered your questions.
Thank you. The next question is from Hiten Jain from Invesco. Please go ahead.
Yeah, hello. I hope I'm audible.
Sure. Yes, you're good.
Yeah. What explains the 14% sequential growth in other expenses? Given that a large part of it is from travel and discretionary, which should have also ideally been muted this quarter. What explains sequential growth of 14% in other expenses?
I think that is the H1B visa charges that we have to address. It has been charged in this quarter. It's a one-time sort of a thing.
Okay. The other income was quite low this quarter. Was there a significant Forex loss?
It's about INR 1.9 crore loss. I think it is not that significant. Also other thing is, because the interest proportions came down because we had paid out our dividends last quarter. The amount, the interest-bearing deposits came down. I think that is another reason why other income is down. Of course, interest rates are also going down. Banks don't give us good interest what they used to.
Thank you. The next question is from the line of Rohan Advani from Multi-Act. Please go ahead.
Yeah. Am I audible?
Yes, you are audible.
Yeah. Sir, two quick questions. First, on medical devices. In the past, you said that it could contribute 25% of revenue over three years. Just wanted to understand, how is that vertical moving? How do you see the pipeline? I think it's margin accretive, so does that stand? Is this more an annuity business or is it a typical ER&D business where project ramp up, ramp down can give way to lumpiness? This is first. Secondly, sir, on export incentives, there has been some, I think, notification that it will drastically reduce going forward. Can you quantify how much export incentive did you get, say, last year and if you heard anything on whether you will get them this year? Thank you, sir.
Sure. Yeah. I have maintained that in a three-year timeframe, our medical business should be about 20%, not 25%. I think we are on the journey there. I think this quarter, almost 9% of our revenues came from medical business, which is definitely positive. I think last year we were about 4% or 5%. Now we've come up to 9%. Definitely there is a lot of focus happening on the medical side. As I told in the previous call also, investments in terms of sales and consultants and so on and so forth, all of them have happened. That is something that we are pretty positive of. Medical business has multiple types of opportunities. Yes, there is ER&D, there is a product design sort of a business that could be a contract-based business. We have this entire regulatory piece, which is more annuity-based.
You have a mix of both project-based as well as annuity businesses. The good thing is we do see a lot of long-term, multi-year contracts in this business. As you said, margins are pretty positive there. From a medical business perspective, definitely we continue to be bullish. Regarding the export incentives. The export incentive rates are still not announced by the government, and we really don't know what will be the rate and so on. Last year it was about INR 4 crore per quarter. Okay. I think from the last quarter onwards, we have not shown this incentive at all. We are still waiting for the government to announce the rates and so on. It is approximately INR 4 crore per quarter. The last two quarters, I think we have not considered this amount.
Thank you. The next question is from the line of Hasmukh Gala from Finvest Advisors. Please go ahead.
Yeah. Sir, I would just like to continue my question because I was cut off. These new deals, et cetera, which we are entering, how are they going to change our revenue profile? Are we going to get any revenue share from these partnerships or how is it going to work out?
It all depends on deal by deal basis. There is no one answer there. Some deals are on revenue share, some deals are the traditional time and material or fixed bid.
Okay.
Having said that, we are pretty open to see, depending on the nature of business and the customer that we are dealing with. We are pretty okay to even go from a revenue share perspective. We have actually done such deals, and I think that has been, at least in our experience, it has been pretty good. However, it increases the risk profile and we have to be careful while we are picking up such deals.
Sir, COVID has opened up some new opportunities for us?
What has opened up new opportunities?
New opportunities.
COVID, huh?
Yeah.
I can take that, Mr. Gala. I think COVID has two things.
Yeah.
One is it has accelerated transformation towards anything that allows operations to continue without disruption.
That is why I think one of the previous investors had asked about what you're doing in automation of operations and so on. If you think about that is really coming from is being accelerated by COVID, where operators and enterprises want to make sure operations are not disrupted. Can you do remote monitoring, remote management, remote subscriber service management, and so on. The second part that is happening is that certain classes of devices in medical have also seen accelerated development. For example, ventilators and so on, including re-engineering of ventilators to build them for lower cost profiles and so on. I think we have seen projects like that.
Great. What is happening on the telemedicine? I think in one of the interviews, our CMD said that you look at good opportunities in telemedicine space.
That's right. We are already working with certain customers in telemedicine. We already are supporting certain telemedicine providers in software development and platform development. However, we are also looking at what parts of a telemedicine solution we can support with our service.
Okay. Sir, the last question from my side. You said that you are looking at some M&A opportunities. Can you give us broad outline as to which are the areas we are looking at?
Yeah. That's not publicly declared, but you can imagine.
Okay.
It is to accelerate our current verticals and our current game.
Okay. Thank you very much, sir. Wish you all the best.
Thanks. Thank you.
Thank you. The next question is from the line of Bharat Sheth from Quest Investment Advisors. Please go ahead.
Hi, sir. Congratulations, Mr. Raghavan and Nitin, on very excellent performance.
Thank you, sir.
Mr. Raghavan, you just made a remark that now we are back to pre-COVID level growth in terms of the growth and all, and still deal pipe is very strong. If we expect to grow, say, in the 6% kind of a Q2 run, 5%-6%, which implies that annualized growth of around 20%+. How do we really see from three years perspective?
First thing I would like to say is, I would really want to wait for a couple of quarters more to see that this growth that we have demonstrated is sustainable. We believe it is sustainable, and we are working in that direction. Even before talking about this, of course, we have our three-year plans and our strategies around that. If we are able to continue to grow in these growth rates in a three-year timeframe, we will definitely be able to produce pretty good results. Nitin.
Yeah, I can just add, I think what we're essentially saying is we feel very clear of markets based on customers, industry progress, technology progress, and so on. We look at COVID, that is a disruption, and it's caused uncertainty both on the demand side and on the supply side. That uncertainty cannot be addressed by any direct projection. I think we just have to wait a little bit. We are making sure that we cover all the other parts. Projecting where industry will go, technology will go is our job. What happens fundamentally in terms of economics and macroeconomics, we cannot say.
Yeah.
Thank you. Before we take the next question, a reminder to participants to please limit your questions to one per participant. The next question is from Naveen Bothra, who's an individual investor. Please go ahead.
Yeah. Just continuing from the last question, some different type. If you see the last four quarters result, ex of JLR, we are growing by 15%-16%. When we see ex of JLR top 10 accounts for the last three quarters, we are growing by 21%, 22%. In view of the commentary, how would you like to guide us? Because in the Q con call, you said that we will be doing Q3 of last year. We have not only done the Q3 of last year. In this Q2, we have exceeded that by-
Yeah.
3%. If you can guide for the second half, seeing all the trends of ex of JLR. Are we going to have around 18%-20% of growth, seeing the strong deal pipelines? If you can guide us, sir. Thank you.
We don't give these guidances. That's the dilemma that we have. You can see that the confidence of the management. I think definitely H2 will be much better than H1 because we had a poor Q1, and that's because of COVID, and that's not just us, but the entire industry. The good thing is we have been able to bounce back faster and much more aggressively than some of our competition including the large companies, of course, because of our small base. I think this sort of a growth is sustainable, and we see that deal pipeline in H2. I can't give any further commentary other than saying that we are bullish.
Thank you. The next question is from the line of Mayank Babla from Dalal & Broacha. Please go ahead.
Sir, I would just like to ask, will a second round of lockdown in Europe impact our revenues from there? If you could give your opinion or views, please.
The revenues, even now we are considering it as lockdown only. We have not been able to travel. Nobody's going. Everything is done virtually. Whether a lockdown is officially announced or not, it is almost like lockdown for us only. I don't think it will matter for us.
Thank you. The next question is from Nimish Shah from Emkay Investment Managers. Please go ahead.
Yeah. Thanks for the opportunity. This Schaeffler deal, has the revenue started flowing in or basically when will the revenue from that deal start flowing in?
Mr. Shah, yes, we've already started on an engagement, so we already start off with the initial core teams, and we expect that to continue and grow. There is some revenue that we have reported already in the quarter that has actually come from the Schaeffler engagement.
Thank you. The next question is from the line of Varun Sharma from Franklin Templeton. Please go ahead.
Hi, Manoj. Hi, Nitin. My question is basically on how have our sales teams and approach to newer customers changed because of COVID? If you can just elaborate on that. How are we taking up marketing activities and selling to newer customers in this environment?
Varun, I'm not sure we heard the question right. Can you just repeat that, please?
How was the sales during COVID, how are we doing sales, and how are marketing activities?
Sales, I think the good thing is, because of COVID, what has happened is everybody's working from home, including senior people in our customer's organization or the prospects' organization. They're all working from home. We believe that because of COVID, we have been able to reach to the decision-makers quickly. They're able to give time to us. Everybody's working remotely. Instead of going to office and having those meetings, we are having those meetings remotely, and that is working perfectly fine. In fact, I would say better than during the pre-COVID era. Marketing, yes, a lot of marketing now is focused on digital marketing and so on.
If you look at it, our social media presence, you would see Tata Elxsi social media presence has increased drastically in the last quarter. Number of releases that we are making and solutions that are being offered and so on. Yes, marketing is moving digital, and I think that is the way to go.
Thank you. The next question is from the line of Senthil Manikandan from ithought Financial . Please go ahead.
Hello. Can you hear me?
Yes, please.
Yeah. My question is specifically to the transportation vertical. How do you see the automobile side, the OEMs or the tier one players, how they are giving any outlooks or deal structures over there?
Yes. We have seen growth in the automotive sector. What that means is demand is picking up. Has the demand picked up to an extent of pre-COVID? I would say it is still maybe a couple of quarters more. Definitely what is happening because of COVID is, we see either OEMs and tier ones trying options to consolidate vendors and to bring down their overall costs, to move away from high-cost outsourcing to low-cost countries and so on. We see definitely demand is better than Q1. I would maybe wait a couple of quarters more to really see if we have touched the pre-COVID sort of demand momentum.
Thank you. The next question is from Bharat Sheth from Quest Investment Advisors. Please go ahead.
Hi, sir. Thanks again, sir. Earlier, I wanted to understand that when we are talking of moving from, say, on-site to offshore and all, Of course, it's some better profitability, but revenue side, could there be any impact because of that?
Of course, there is an impact. What is hidden in this is the sort of deals that we have won to be able to accelerate our revenues in spite of the on-site offshore ratio going the other direction. I hope you are able to understand that that's the type of deals that we have won.
Thank you. The next question is from Vijay, who is an individual investor. Please go ahead.
Hi, thanks for taking again. One question I have on the Tata Group itself. I think the group is coming up with Super App. Is Tata Elxsi also playing some role in that?
No, we are also listening to or reading about the articles. We are talking to Tata Digital, the company that is making those apps. There are some opportunities, especially from the industrial design perspective. We are discussing with them. Right now, we are not doing anything. There's no activity that Tata Elxsi is performing on the Super App. That could change moving forward.
Thank you. The next question is from Umang Shah from Asian Markets Securities. Please go ahead.
Hi, sir. For the R&D is done in auto companies for the next four to five years. Sir, I wanted to ask, whatever R&D was done by you in, say, 2015, 2016, how much do you see on-road its implementation in 2019, 2020? Sir, connected to this, do you think that the delta in innovation is declining or it's accelerating in the automobile itself?
Right. Mr. Shah, this is Nitin here. I'll take your question. If you look at how we work with automotive companies, whether it's suppliers or OEMs, we work on programs that stretch anywhere from the next year's model year to very advanced R&D, which may be only about seven, eight years back, where you get into advanced research, you confirm that it's production worthy, and then you implement, and then you deploy. To that extent, I think every year we will see work that we've done in the past. Partly because some of it is very near term, it was projects done one, two years back. Some of it is projects done a little longer back. That way, you will always see a stream. In terms of innovation and change, that delta will increase, but it'll increase in certain areas.
For example, OEMs will, and the automotive industry will spend a lot more on digital and software. They'll spend lesser on mechanical and materials.
The overall spend may increase or decrease, but proportion of spend towards software, electronics, and digital, I think, is what will go up.
Thank you. The next question is from the line of Manish Bhandari from Vallum Capital. Please go ahead.
Hi, good afternoon. I have one question regarding the use of excess capital on your balance sheet. You did towards evaluating some kind of inorganic growth potentially. Is there any thought process which is going on or maybe there would be a better use with which you can do the TCS and a buyback also? Thank you.
No, we've discussed this at a board level. There's nothing to report, as and when we have certain decisions, we will get back to you. Yeah, there are some thought processes for, I think, this question.
Thank you. We'll be able to take one last question. We take the last question from the line of Apurva Prasad from HDFC Securities. Please go ahead.
Thanks for taking my question, and congrats, Manoj and Nitin, great set of numbers. My question is on the sub-segments within transportation and media broadcast. How are they tracking? I believe there's a lot more focus there, and it was, I think, mid-single digit as a percentage of its revenue. How would that be tracking the last few quarters? That would be my first one.
Apurva, this is Nitin here again. As far as automotive is concerned, I think what we are seeing, and we continue to see, is that connected and infotainment continues to lead and accelerate. That's very near term, while electric follows and ADAS comes last. ADAS, we have definitely seen slowdown, I think what we are seeing pick up in is in the implementation of features which are a little more immediate, rather than full autonomy, auto park, parking valet or traffic jam assist. Features like that. When it comes to media, I think we're seeing almost all around growth and similar acceleration. Within that, I think two pieces accelerate most. One is OTT, you know it even from consumption patterns. The second is broadband and data-led services, simply because that is an enabler for OTT in any case.
Irrespective of who you consume media from, you definitely need broadband and data services from your operators. That is the way I would look at it. Medical, I think, has been unaffected, so it continues.
Yep. Nitin, how would the size scale of these sub-segments be currently? Be it new media, OTT, or some of the adjacencies that also you are looking at within the transportation segments.
I understand we are not really calling out this percentage, Apurva. Hopefully we will mature to that in a quarter or two in terms of starting to call out the sub-segments. I think as far as adjacencies go within transportation, I think we have mentioned that is about 4%-5%. What we're doing in rail, off-road, et cetera, has been in the single digits for us right now as far as overall automotive or the transportation business goes.
Got it. Just finally, any scale consideration in terms of the inorganic, which is planned, any ballpark numbers in terms of what is the scale of acquisitions that you're looking at?
Not really. Not at all.
Okay, all the best.
Yeah. Thank you so much.
Thank you very much. We'll take that as the last question. I would now like to hand the conference back to Mr. Vaidyanathan for closing comments.
Yeah. On behalf of Tata Elxsi, thank you all for joining the con call, and I would also like to thank Nitin and Manoj for taking the queries. Hope to see you in the next con call in January. Thank you.
Thank you.
Thank you. Have a good day.
Thank you very much. On behalf of Tata Elxsi Limited, that concludes this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.