Ladies and gentlemen, good day and welcome to the Q1 FY 2022 investor conference call for Tata Elxsi Limited. 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 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. Lokesh Pareek from Christensen Advisory. Thank you, and over to you, sir.
Thank you, Aisha. Good afternoon to all the participants on this call. 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. It must be viewed in conjunction with our businesses that could cause future result performance or achievement to 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, MD and CEO; Mr. Nitin Pai, Chief Marketing and Chief Strategy Officer; Mr. Muralidharan H.V., Chief Financial Officer; Mr. Gaurav Bajaj, CFO Designate; and Mr. G. Vaidyanathan, Chief Investor Relations Officer. 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 in restricting yourself to two questions per participant to allow others an opportunity to interact, too. If you do have further questions, do join the queue, and we would be happy to respond to them if time permits. I now hand over the call to Mr. Manoj Raghavan. Over to you, sir.
Thank you, Lokesh. Good afternoon, everybody. I hope my audio is clear.
Yes.
Thank you for joining us today. Hope you and your families are safe. I'm happy to report that we have delivered another quarter of strong all-round performance. We have actually carried our momentum from the last fiscal year to the current one. We continue to execute strongly on both top line and bottom line. Our revenues from operations for the quarter gone by is INR 558 crores, translating to a growth of 7.7% quarter-on-quarter and 39.4% year-on-year. The growth was predominantly volume-led, with a constant currency growth of 6.4% quarter-on-quarter and 37.4% year-on-year. The PBT for the quarter was INR 153.9 crores, registering a growth of 63.9% year-on-year. Net profit for the quarter stood at INR 113.4 crores, reporting a growth of 64.6% year-on-year. Please note that I think we have even disclosed in our fact sheets that the bottom line factors an additional INR.
33 crores of employee expenses on account of the special one-time bonus for all our employees, as conveyed in the previous investor call. Growth was driven primarily by strong performance in both our key divisions, EPD and IDV. The Embedded Product Design, EPD, our largest division, grew by 7.5% quarter-on-quarter and 31.4% year-on-year. The Industrial Design & Visualization business, IDV, posted a smart growth of 13.9% quarter-on-quarter and 132.1% year-on-year. Geography-wise, our growth was led by the Americas with 17.5% quarter-on-quarter and 69.3% year-on-year growth. Europe grew by 5.4% quarter-on-quarter and 30.1% year-on-year. India grew by 2.8% quarter-on-quarter and 49.6% year-on-year. Again, within EPD, the growth was broad-based across industry verticals. Healthcare continues to grow faster than other industry verticals, with growth of 19.3% quarter-on-quarter and 80.2% year-on-year. Media and communication delivered another steady quarter with 8% quarter-on-quarter and 31.6% year-on-year growth.
Transportation business continues to show revival with a 3.4% quarter-on-quarter and a 20% year-on-year growth. If you look at it, the growth was, in our business, was primarily driven by deep mining in our existing customers, especially in the top five customers. Even as COVID first started to affect our customers around the world, we pivoted quickly and supported by our mature offshore delivery capabilities. For the past few quarters, we have been focusing as a business on creating sustainable and long-term engagements that allow higher degrees of predictability and order book as we progress from one quarter to another. We have been constantly improving on this front with all our customers, which actually builds confidence as we move forward. Equally, we have been focused on high-quality customer additions, especially led by solutions and design-led digital engagements.
I'm pleased to see that starting to work well and sets up a platform for larger growth and mining. All in all, it has been a pretty satisfying quarter with growth across both our key divisions, all our key geographies, and all industry verticals. We are entering the second quarter with a strong order book and a healthy deal pipeline across key markets and industries. With that, I hand it over for the Q&A session and would look forward to interacting with you investors. Thank you.
Thank you very much. We will now begin the question and answer session. The first question is from the line of Vimal Gohil from Union Asset Management. Please go ahead.
Thank you for the opportunity, and congratulations to the team on a very good set of numbers. Sir, my first question was on your automotive vertical. If I were to look at the numbers, your top customer has grown at about 12% on a quarter-on-quarter basis. If I were to exclude that from the automotive business, the non-top automotive business has actually shown a decline. If you could just give me some reason as to why that has happened. If you could just provide the overall outlook on your automotive business going forward. The second question I have is on margins. The company continues to be surprised on the upside.
If I were to look at your adjusted margins, they are still 30% plus, and I think they are above the band that you have provided of 25%-27% EBITDA margin band. Is there a need to relook at that band and probably revise it upwards given the fact that you've been very consistent in reporting these numbers? This is notwithstanding the eventual salary hikes or wage hikes that we see next quarter. Lastly, if you could just give us the wage hike number that you are planning to do in Q2 of FY 2022? Thanks.
Sure. I'll take the easy question first. From a wage hike perspective, I think it'll be in line with what we've done in the last year, about 7%-8%. That will be the wage hike, and the wage hike will be effective from July 1st. Right? From a margin perspective, yes, I think if you look at adjusted margins, yes, I think we are in line with what we delivered in the last quarter. However, again, I would come to the situation that, look, these are extraordinary times. There will be expenses which will come up once travel and everything starts. I think we are pretty comfortable with what we reported in this quarter, and that is something that we would focus on.
Regarding the top customer, I think the automotive industry in general has picked up for us, which is good, and we have been continuing our growth from the previous two quarters. If you look at it, when COVID hit, most of our competition, both in India as well as abroad, had a revenue dip of anywhere between -10% to -6% and so on. We managed to be almost flat. Right? From that we have grown. I think we have grown almost 3%, right? That is a very creditable growth. Again, you had inferred the top customer at 12%. I would like to state that is a wrong inference that you have taken. The customer that you have indicated is not the top customer. From that effect, all your assumptions have gone wrong. You need to really look at it.
Okay. If you talk about the top customer. Okay. Fair enough. I'll probably get back to the queue. I'll probably take the next question offline then. Thanks a lot.
Thank you.
Thank you. A reminder to the participants, anyone who wishes to ask a question, may press star then one now. The next question is from the line of Bharat Sheth from Quest Investment. Please go ahead.
Hi, Mr. Raghavan and Nitin team. Congratulations on good set of numbers.
Thank you, Sheth.
Mr. Raghavan, in these last two quarters, we have added more than 1,000 employees, which is roughly around 15% of the total employees as of June 30th. How do that inferred or from the growth perspective, since we are on very good, strong order book? If one has to really look at medium-term, our growth number, this quarter we have grown 7% and if we continue to do so, our growth number would be anywhere annual should be around what we were inspiring about 30% plus. Do you think these numbers indicate those kind of things?
The fact that we have been adding significant headcounts would give you an indication of how we see our business and how confident we are on our business. What we are doing is we are building capacity to address the pipeline that we see and address the deals that we have already won. That shows the confidence that we are moving in the right direction. Whether we will achieve the numbers that we have talked about, that is secondary. We are doing right now what we see. We see the pipeline, we see the strong order book that we have, and we are building capacity to address what we have.
Okay. Second question. In this quarter, we have won a new deal including EV space also. How do we won as to really, which earlier we were talking much on the EV side also. With the EV side play, how do we really look at our company?
No, if you look at automotive industry, automotive industry is moving the electric vehicles way. Most companies, most OEMs, most suppliers are investing in that. I think there was a little bit of a slowness because of COVID and because of all the structural issues in the industry. We see all of that slowly, situation improving, and we see a lot of deals coming our way. We have been preparing for this. I don't think this is the first deal that we have. We have had earlier deals also in this space. We are calling it out now as because these are significant deals for us, we hope that will help us as the automotive industry recovers, investments begin to flow in. We are ready to catch on the opportunities that come our way and deliver value to our customers.
That's the way I see it.
Last question, when we say large deal, can it be upward of $25 million, or what is our definition for the large deal, if you can give some color?
Large deal when we say many of the deals when we start off unlike IT deals, or I do know that even a few of our competition talks about large deals. Those are typically projected deals. Assuming that the deal will go on for three years or five years. Typically in our space, in the engineering space, customers would start off with about a 12-month sort of an opportunity. As we grow that particular engagement, it converts into a multiyear opportunity and so on. In my view, if a deal is around $5 million, especially a new customer, I would consider it as a large deal.
Thank you. We would request the current participant to please come back in the question queue for any follow-up questions, as we have several participants waiting for their turn. The next question is from the line of Hiren Ved from Alchemy Capital. Please go ahead.
Yeah. Hi, Manoj, Nitin, and rest of the team. Congratulations on yet another great quarter.
Thank you, Hiren.
I had one question on your QoQ run rate. You mentioned Americas was 17.5%. That's quite staggering, right? Europe was just 5.4%. Was there something in the base in Americas that we've had a strong quarter, or it's just organically a strong quarter, and do we continue to see a strong run rate in the U.S., and why is Europe still lagging compared to Americas? Just wanted to understand this geographical run rate is quite differential, 17.5% and 5.4% for Europe, considering both of these are significant geographies for you.
If you look at it, number one, we have been investing in the U.S. geography for quite some time, including building up sales capacity, consultants, and so on and so forth. Europe is also important for us, no doubt about it. If you look at our revenue distribution, our automotive business tends to be a lot more Europe-centric, and our media and communication and healthcare business tends to be a lot more U.S.-centric.
Right.
If you look at it, if you see the growth that we've had, we had the growth both in media and communication and healthcare, again, significant growth. Automotive also grew, but at a slower rate. That naturally reflects in the regions also, U.S. versus Europe.
Therefore, you believe you'll continue to see strong growth in the Americas going forward?
We are pretty confident the way business is going. We are pretty confident that we've done all the right things as far as U.S. is concerned, and we hope that whether we will have such a strong growth, it's a very difficult question to answer. We believe we have some sustainability there on the customer pursuits and so on. All the investments that we have done, we believe will continue to help us grow our business in the U.S. We also expect Europe will recover, and that's something that we are definitely working towards. We hope it will be driven by the new spending in the automotive customers there.
Right. Okay, thanks. I'll come back later on.
Thank you. The next question is from the line of Naveen Bothra, an individual investor. Please go ahead.
Yeah. Congratulations on strong set of operating performance continuing from the last financial year. When we see the results and adjusted profit margins are quite good. My first question is regarding the INR 40 crores incremental revenue, and against that, adjusted salary increase is INR 5 crores. How would you like to describe these sales due to utilization improving or offshoring increasing or the major incremental revenues are coming from platform and licensing revenues? Basically, my question is regarding platform and licensing revenues, how much this is contributing to operations this quarter as compared to last quarter? That is my first question. Second is regarding, sir, our Tata Elxsi Vision 2026. When we see on the public platforms, our website, social media, we are giving data from 2021.
We have various research reports, which says that this sector is going to grow 42% in 2021 to 2026, and all these things. We would request you to kindly throw more light on our Vision 2026. It will help investors very well, sir. Thank you, sir.
Regarding the platform and licensing, our licensing revenues are still below 5%. That is not really the metric that we track there, because we really look at how these enable us to really win new customers, or within existing customers, how does these platforms and intellectual property that we have, how are we able to differentiate ourselves with respect to competition and ensure that our business continuity is assured with some of these customers, right? Because of the investments that we have made, because of the strong intellectual property that we have, that is embedded in the solution that we provide for customers. It is very difficult for some of our customers to really move. Of course, if we're not delivering value, the customers will definitely move out. There is definitely a barrier for them. It's not an easy decision.
To that extent, yes, we continue to look at the products and intellectual properties that we have and use that to really get into new customers and also strengthen our relationship with existing customers. Regarding Vision 2026, that is an internal thought process inside Tata Elxsi. It's nothing that, at this point in time, that we would like to talk to investors about. It's something that we are planning on a very ambitious goal. It is at a very early stages, though. We are refining it and so on. Maybe at an appropriate time, we will let you know, but there's nothing at this point in time to disclose.
Appreciate, sir. Coming back to the platform and licensing revenue, my question was basically the incremental revenue in this quarter out of INR 40 crores, how much we would attribute to platform and licensing revenue? The salary increase, excluding the bonus, is INR 33 crores. Excluding INR 33 crores, that's INR 5 crores. Is it due to better utilization?
Yeah. Utilization has improved. The offshore/onsite ratio has improved. We've also had other income. There is a foreign exchange gains were there. If you look at it, all of that has helped us really bridge that gap.
Okay. My last question is regarding, sir, recently we have signed a MoU with KINFRA, Kerala government institution, regarding our Trivandrum expansion, where we are talking about in three to five years, scaling up from 2,500 employees to around 7,000 employees. If you can throw more light on this MoU, which we have recently signed. In a single city, in next four to five years, we are going to expand our current strength from, say, 2,500 to 7,000. If you can throw more light on this.
Yeah, I wouldn't request you to go by that. I think that release is given by the government of Kerala. Yes, we have signed an MoU with them. We are entering into a new SEZ there. It's an extension of our current SEZ. The phase I would be about 1,500-1,600 seats. At this point of time, we are only focused on that. Maybe two, three years down the line, if things go well, and as per our growth plans and so on, we have an option to take another similar facility again at the same, another 1,500 or 1,600 seating capacity. At this point of time, the commitment is primarily on the 1,500 seating that we are looking at. That should come maybe by end of this calendar year, December or January timeframe is what we expect.
Okay. Thank you very much. Congratulations again.
Thank you.
Thank you. The next question is from the line of Mayank Babla from Dalal & Broacha. Please go ahead.
Hello, am I audible?
Sure.
Yes.
Yeah. Who would be our direct peers in the global space, if you could give us some names? Second question would be in terms of headcount, what would be the percentage of people on-site and offshore? Related to that, what was the utilization level during the quarter, if you could give me that? Thank you.
Nitin here. Maybe I'll take the first part of the question, and then, of course, I can comment while I let Manoj and Gaurav take the other two. On the competition set, you really have to remember that we compete with a spectrum of players, right? At one hand, we do compete with everybody who is a scaled IT player, so whether it's an Accenture, Capgemini, TCS, Wipro, HCL and so on. They've always been there. They've always had some amount of engineering work, and we continue to compete with them. We compete with different organizations among this set in specific industries. For example, in media and communication, we always treat Accenture as a primary competition. Similarly, for other industries, somebody else. That's layer one. There's another layer, which is specialized players, right?
Those specialized players include some which have already been acquired, like Altran and so on, and some which are still there, AKKA, ALTEN, Bertrandt in Germany. All these represent multi-industry as well as very auto or transportation-focused players. As you come to India, of course, you have companies like KPIT and LTTS and so on, right? In that sense, if you look at the global landscape, we compete with two, three different sets of competitors. India-headquartered, headquartered outside of India, but pure play ER&D, and then the large IT players who have always been around. That's a quick note on the first point. On utilization, I think we have moved up 2% from 77% to about 79%, right? To the earlier question from Mr. Bothra, yeah, this is also one part of the reason why our margins have improved or contributed to margin improvements.
The last question was on.
On-site, offshore, at head count perspective, I think about 10% of our employees are on-site. Approximately 90% is offshore.
Thank you so much, sir, and best of luck for the rest of the year. Thanks, sir.
Thank you.
Thank you.
Thank you. The next question is on the line of Sanjay S from Ampersand. Please go ahead.
Yes, sir. Congratulations on a very strong growth. I just noticed that your attrition level has gone up quite a lot despite you announcing such a massive bonus. Is it because employees have become quite restive about opportunities outside?
Yeah. The market, as you know, is very hot right now, right? If you look at it, most companies, competition, everybody has shown attrition figures like 15%, 16%, and so on. Yes, there are a lot more opportunities for employees, given the fact that everybody's working from home and so on. Earlier, if you're based in Bangalore, typically you would look for work only in Bangalore. Right now, situation, as I said, you can look for work in maybe next 12 months to 18 months, most companies would allow people to work from home. There are a lot more options for employees. Definitely, attrition is picking up, and that's an industry issue. It's not a Tata Elxsi issue alone.
Are you comfortable with the wage hike that you are planning, which is similar to last year, despite this change in attrition level?
The wage hike, as I said, is an average wage hike, right? We know who are the key people, and we will ensure that our key people continue with us.
Okay. Sir, just two more questions. I noticed that the revenue from India geographies has fallen sequentially through this quarter. Has it got something to do with COVID? Otherwise, your numbers should have been better.
Yeah. It is not just low in India, but yeah, India also, right? Yeah. Yes, COVID is definitely one of the issues that resulted in numbers showing that.
Is it a loss of revenue, or you will be able to kind of get that back in quarter two?
We hope that we'll be able to bring that back. Again, it depends on if there's going to be a wave three or not, and so on and so forth.
Okay. Sir last question is that your offshore mix has improved quite substantially, you are thinking that once travel opens up, something will change. Do you think that there will be, again, the offshore mix will go down to previous levels, or it will stay at around this level despite travel opening up?
Once the travel lifts, we will definitely see an increase in our on-site. Even though a lot of our customers have got comfortable with Tata Elxsi delivering value from offshore, still, there are a few customers who would prefer engineers being closer to them and so on. Yes, if travel restrictions are removed, there will be some increase in our on-site numbers. It may not go back to the pre-COVID, it will settle somewhere in between, I would say.
Thanks a lot, sir. If I can just ask last question that you just said that you have prepared or be about to prepare vision statement for Vision 2026. While you don't have to really give us numbers or anything, can we just get some thoughts like what really is going to shape that vision statement?
The vision statement, definitely we have our own, as employees, as senior management, we have our own aspirations for this company, right? Of course, there is the Tata Group from a board of directors and so on also, there are aspirations in terms of where this company can go. There is the whole market, the business out there that we can tap into. It's a combination of all of this, and we believe that there is significant growth potential and significant opportunities for us to tap into. We are working on those lines.
Understood. Thanks a lot, sir, and all the best.
Thank you. The next question is from the line of Anish Mumba from GFC Investments. Please go ahead.
Yeah. Good afternoon, sir. Sir, my first question is, so we have observed that most of the global auto companies are facing huge supply chain pressures due to the semiconductor issues, and much of their cash flows have evaporated. This situation looks to be over, will be over in the next 18 months and not before that until the new foundry capacity will come online. What makes the OEMs continue to spend hefty amounts to be future-ready when they will continue to face VUCA type situations on a consistent basis? What would you attribute to us gaining market share in a de-growing auto ER&D market? Thank you.
Maybe I can take that first. On one hand, you have to note that certain short-term pains cannot have magical answers in the short term either, right? For example, if you're looking at the kind of electronic software and hardware that goes into cars, and that is where the chip shortage comes from. The ability to substitute one component for the other or one product for the other is not very easy, and nor is it going to deliver in the short term either, right? To some extent there are some measures going on. There is some participation from our side in some of these switch-over programs, but we also know that there are no short-term or magical fixes, right? That is part one. Part two is if you look at customers and R&D spend, yes, of course, R&D spend is always discretionary.
I can choose not to continue to do any R&D. That is not true. All companies have to do R&D because you will be that much more of a dinosaur two years later if you decided that you want to stop everything from now, right? Equally, what I will decide on, even as I reduce R&D spend, is where do I want to spend it on? I think that alignment is important, that if we are aligned and we deliver services in the areas that they would want to invest and where they see their future, then you're in a good place. If you're in a place where it is that particular R&D spend does not bring as much bang for the buck in the future, yes, you would find yourself cut out.
I believe based on this, we are in a reasonably good place, especially set for the future.
Thank you, sir. My next question will be, what are the initiatives other than the INR 33 crore one-time bonus that the company has undertaken to showcase the best attrition rates in the industry, and that too quite consistently. Do you see it as a big risk going forward that there is a supply-demand mismatch for good engineers which will lead to higher than expected inflation in the upcoming years? What's the plan for the company to increase its employees from the current 8,000 odd to 50,000 odd, the 20,000 or 50,000? Yeah.
Sorry, what is it, INR 20,000 or INR 50,000?
To increase the base, sir.
To increase the employees number from the current 8,000 and also deliver consistent numbers regarding the attrition.
Sure. Attrition is a function of many parameters, right? Including the market situation, including the competition play, including the investments by multinational companies and so on and so forth, right? We have been through these cycles multiple times. This is not the first time that we're seeing attrition go up. Even in Tata Elxsi, we have seen earlier attrition up to 15% and so on, and we have been able to manage attrition. We will continue to do it. Why do employees continue to work with us? It's primarily because the quality of work, the sort of employee-friendly policies that we have, the sort of open communication that we have with all our employees. In effect, we are like one big family wherein each one of us support each other to ensure that ultimately the company moves forward in the right way.
I am extremely proud of the culture that we have built in this organization. A lot of that will help us as we move forward. Of course, we are investing in our employees. As I said, we've done a bonus for our employees to ensure that during the tough times, right, especially when COVID was hitting, we took care of our employees. We've had lot of support for employees from medical whatever services that we have provided, the vaccination camps that we have run, the sort of mental health campaigns that we have provided for employees. There are a number of things that we do to take care of employees. It is not just money at the end of the day, it is what do employees feel about working for us? I'm proud that, look, we did an employee satisfaction survey in the midst of COVID.
When COVID was happening, we did that survey, and as compared to the previous survey, we increased our employee satisfaction points by almost 22%. That is a pretty significant thing that shows that employees are committed and value working with us, right? Yes, there will be short-term issues, short-term pains, slightly higher attrition. I think in the long term, I think we have a great culture that we're building here, and definitely the quality of work will motivate good engineers to really come and work with us, right? Yes, and moving forward, we will definitely take steps as and when we see attrition is picking. We would take care of it. We have hand and feet, eyes and ear on the ground. We will take appropriate action.
Yeah, noted, sir. Thank you so much.
Thank you. The next question is from the line of Pranav Thakur, an individual investor. Please go ahead.
Yeah. Thank you for the opportunity, and congratulations for great set of numbers. If you can throw some light on the opportunities that lies within India, especially with EV initiative, and how it drives in Tata Elxsi with Tata Motors, and also if there are some opportunities that lies with the Indian Railways.
Sure. Tata Motors is an existing customer of ours. We look at that opportunity, especially as Tata Motors pivot into the EV space. There will definitely be a significant role for us. That's something that we are discussing with Tata Motors. Of course, not just with Tata Motors, but there are a number of other customers also in India. I think we're pretty confident that there will be recovery in this space, especially in India. A company like us would stand to benefit because of the deep domain knowledge and capability that we have been building and our experience with global customers, which will definitely help us deliver value to our Indian customers. Indian Railways is something that we have been working with for quite some time.
We have been working on especially from improving the station infrastructure. We have done a number of projects for Railways and also for companies that supply into Railways. We have been already working. I think as modernization happens and as government spends a lot more money on that, we have a very good opportunity to really get a pie of that.
Right. A follow-up question to this, that how many automotive players, like exactly, if you can give number of accounts Tata Elxsi is working with?
Specifically, number of accounts, I don't think I'll be able in a position to tell you that. I can say five of the top 10 OEMs are our customers.
About eight of the top 20.
Eight of the top 20 suppliers are our customers.
Great. Thank you so much, and all the best.
Thank you.
Thank you. The next question is from the line of Ashish Agarwal from Principal India. Please go ahead.
Yeah, thank you. Sir, just one clarification. Most of my question has been answered. In one of the earlier questions you mentioned and indicated that the top client is not from the auto vertical. Just wanted to get some clarification, because that would mean, given the fact that we are expecting more than $30 million of revenue from JLR this in FY22, will that mean that the top two customers will be around 25% of our revenue?
Sorry, the question was not clear at all. What is the 25%?
In one of the earlier questions you mentioned that the top client is not from the auto vertical.
Yeah.
If we are expecting more than $30 million of revenue from JLR in FY22, that would mean the top two customers will be closer to 25% of our revenue. Am I right in assuming that?
If JLR gives $30 million, is that what you're saying?
Yes, sir. JLR is not the top customer.
Maybe. I can't do the math immediately, but yeah, between 20%-25%, you can say.
The top two customers will be that 25% number.
Yeah.
Okay, got it. Thanks. Which vertical will be the top client now?
It's in the media and communication vertical.
Media and communication. Okay. Got it. Thank you.
Thank you. The next question is from the line of Apurva Prasad from HDFC Securities. Please go ahead.
Hi, good afternoon. I hope I'm audible.
Yeah, Apurva. Go ahead.
Great. Congratulations on the numbers. Manoj, just two, three questions from my side. I noticed the strong sort of number of strategic partnerships in the release. In terms of nature of deals, it does appear that deal sizes are increasing, becoming more strategic. Based on the overall demand environment and the kind of wins and the overall pipeline, you think it's fair to assume a similar sort of sequential run rate can be maintained in the near term?
That is the intent, but there are no assurances in this business, right? We are doing everything we can to really keep up that growth momentum.
Any color in terms of deals and how that is progressing to give confidence in terms of.
No, the deals are pretty. As we sit today, we really have a very strong order book, that is that confidence that we can continue to grow, at least in the short term. You would have seen the performance in the last four quarters.
Right. Secondly, this is more from a group entity's perspective. We've heard TCS as a group entity, focusing a lot more on areas which are core competency areas of Tata Elxsi. I'm referring to connected EV ADAS segment, or it is the OTT, based on some of the deals that has been out. A two-part question to that. Is there a joint go-to-market with TCS in automotive and the OTT side? If the related entity is competition, is there any demarcation really to avoid overlaps?
There is no demarcation or there is no collaboration per se, right? It's again, deal to deal. We collaborate, we coexist, we compete. It's everything together. However, it is not just only about TCS, right? You look at the global industry, in the last three, four years, ER&D segment has always been touted as the fastest growing segment. You know that companies like Accenture or Capgemini, they have made a number of acquisitions to really strengthen the ER&D space. It's not just about TCS. We see this focus on ER&D from all the big IT players. Not just that, we've always had strong companies like Wipro, HCL, Tech Mahindra, and so on, also getting a good % of their revenue from the ER&D space. This is not something new.
The large IT players have always been competition, and we continue to see that competition. We have to really deliver value based on our value proposition and based on our core competencies, customers decide to work with us and not with the large IT companies, right? This has always been there. It is not new for us.
Got it. Just your comments on strong growth in top five. You did talk about the top account, but broadly on top five, showed very strong growth. Has there been a churn within that or are there any driving factors which you can talk about?
No. When COVID hit us, we really took extra care to ensure that the relationships with the top five and the top 10 customers, we've ensured that we do everything possible to address their requirements. As I said, I think in Q1 of last year and so on, we even had discounts and rate cuts and so on, so that we take care of those customers. What has happened is that because of all that we have done to really be with the customers during the tough times, each of these customers, now we have a far deeper engagement with them. If you look at it, we have done extremely well in mining these customer relationships and strengthening these customer relationships. That really has helped us deliver the growth that we are seeing. We are now strategic to each of these customers.
I think that is something that we're very proud of and we would want to continue.
Got it. Just finally, on margins, just wanted to get your comments correct. You said that you're comfortable with margins where they are currently, notwithstanding the wage impact and some of the discretionary spend increasing.
Sure. I think we would strive. Unless suddenly everything opens up and our SG&A goes up, our travel budget goes up and so on. We should be pretty confident or comfortable is what I would say.
Got it. Thank you and all the best.
Thank you.
Thank you. The next question is from the line of Hansal Thacker from Lalkar Securities. Please go ahead.
Yeah. Thank you so much for the opportunity, and congratulations to the management. I'll just take Mr. Apurva's question a little further. Apart from TCS, Tata Technologies has also expressed their interest in venturing into mobility. I just wanted to understand essentially at a group level, what is the broad strategy?
No. See, whether it's Tata Technologies or whether it's TCS, they are different companies. We are a different company, right? We really cannot tell what that company should do or that company shouldn't do. We have to focus on our business, and that's what we have been doing.
Okay. Got it, sir. Thanks so much.
Thank you. The next question is from the line of Arjun Balakrishnan, an individual investor. Please go ahead.
Yeah. Thanks a lot for the opportunity, and congratulations on a great set of numbers. I have two questions. Congrats on the three product award on the NASSCOM. On these products, are we trying to pivot from being an ER&D service company to eventually being a product and a licensing company with services being a portion of the revenue, thereby we can expand margins?
No, we're not trying to be a product company in the sense that significant part of our revenue is coming in from products. No. Products for us are enablers to really build services around that and help our customers, time to market and so on. We don't want to compete with our customers. If you start launching your own products, sometimes in this industry, customers will start worrying whether, "Is this the company that we need to work with?" They'll get worried about helping a competitor, right, build up capability. We would never be a full-fledged product company. However, we'll continue to build products and intellectual properties that will help us make a meaningful impact from a value delivery perspective to our customers. That's the intention.
Right. All of these platforms and these things that we develop is more for our delivery, rather than giving it to the customer and getting revenue as licensing.
No.
Helping us deliver better. Is it?
Yeah. We definitely license these intellectual properties or platforms to customers, but it is not a product by itself. Around it, we need to build the product. These are.
Right
Like building blocks or stepping stones.
Right. Okay. Finally, one question is, because we're working with our existing customers and deeper, as you said, just to understand from the customer's perspective, how expensive would it be to switch from, say, a partner like Tata Elxsi to another partner? How would the switching costs work for them? I'm trying to understand what is the competitive advantage. Can you throw some light on how strategic we are for the customer and how difficult it is for them to switch from, say, Elxsi to somebody else who probably offer a lower price or something like that? I'm trying to understand that too, that's it.
Yeah. We are in the ER&D space, right? It is very different from the IT space. In IT space, it's typically the platform is already built. You need to maintain or take a bank or any of the applications, right? All it needs is some domain knowledge and skills around programming languages or databases and so on and so forth. Switching costs is not very different and one competitor can easily replace the other by providing value, which could be price or anything else, or some IPs that they have and so on. In the case of R&D services, it is also to do with the relationship that you build with the customer over a long time. See, R&D is like, and globally also it is known, right, not all R&D succeeds.
If you have a partner with whom you have built a relationship and we have been delivering value and success to that customer, it is a lot of risk for him to move away from us and go into another relationship, especially because the nature of work, the processes, the type of people that we have. There is a confidence that's already built in with the customer. That is something, unless the product development is not a very complex product, unless it is, say, a maintenance or a support sort of activities where domain knowledge is really not very critical and so on. It's relatively not easy to make that switch. However, there are some of these large organizations that go ahead and do a vendor consolidation or do some such activity, right? Primarily driven by the IT thought process.
Every such case we have seen, whether it is a large deals that you have read in papers over the last five, six quarters, especially in the engineering space, they've not really been successful. Though it is all pushed by the procurement or the finance guys, the engineering guys feel that this is not the right way to move forward.
That's very competing to get. Yeah.
Yeah. Even though there have been competition that comes and says that, "Look, we have won over a deal over Tata Elxsi," for example, I can confidently say that we continue to exist in all those engagements and we continue to deliver value.
Thanks a lot for those answers. Thank you.
Thank you. The next question is from the line of Bhavesh from Karakyn Industries. Please go ahead. Bhavesh, the line is in talk mode. You can go ahead, please. Due to no response, we will move to the next question, which is from the line of Vimal Gohil from Union Asset Management. Please go ahead.
Great, sir. Thank you so much for the opportunity once again. Sir, over the past few quarters, you've been alluding to some opportunities in some newer areas in automotive. If you could just highlight, has there been any progress there? I know it may be too early to ask, but at one point of time, even medical devices was strong, and today it is one of your key revenue drivers. Maybe if we are at that stage in those segments as well in automotive, if you could highlight that. Secondly, I just wanted 1 data point. You said that your effort mix currently is at 10% on-site, 90% offshore. What was this mix pre-COVID? If you could just give me that data. Thank you.
Sure.
Maybe I can take both. I can start with the second one first. In some sense, it will be directly proportional to the revenue, right? Because what we declare on the website is revenue.
About 25%.
Yeah, correct. Approximately. In some sense, you will find that there's some correspondence directly of revenue to people. You can use the same percentage.
Pre-COVID, I think on-site would have been anywhere between 25%-30% or so.
Correct.
You don't see this going back any time now? This is a structural change that will happen. Maybe some 2%, 5% here and there, but it's definitely not going to 25%-30%.
Yeah. That's what we feel.
Got it. Perfect.
Yeah. On the first part, I presume you're calling out the adjacencies in transportation, which is rail and off-road.
Right. I think, like we said, we want that to accelerate faster than the core vertical, automotive. Not because we want to grow automotive slower, but we believe that growth is faster and possible in these two other segments that we have called. The other reason why we celebrated those were also because skill sets are complementary. We can carry over skills and capabilities that we've built in automotive into these sectors. We are measuring only two metrics. One is total revenue composition. How much of revenue does it contribute, and is that changing? Is that accelerating? Two, are we acquiring the right logos? Because those industries are obviously much smaller, so we therefore need to acquire those, if I may call it premium logos in those segments. I think we are doing very well on both counts.
Would you want to quantify it right now? How much does it contribute, or is it too early or it's not meaningful right now?
It is not meaningful right now in the sense that we have set very definite parameters. We expect that there'll be a time where we can start to call that out separately like we call medical now. Until that point, I think it does not provide any great insight to call out numbers on that front.
Perfect. Thank you so much once again. All the best.
Thank you.
Thank you.
Thank you. That was the last question. I would now like to hand the conference over to Mr. Manoj Raghavan for closing comments.
Thank you all for your patience. I hope we were able to answer the questions and answer all your queries. We would look forward to meeting you again in the next quarter. Take care till then. Bye-bye.
Thank you. On behalf of Tata Elxsi, let's conclude this conference. Thank you everyone for joining us, and you may now disconnect your lines.