Thank you very much. Good evening 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 this 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.

Nalin Rana, Chief Financial Officer; and Ms. Sneha V, 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 in 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.

With that, I would like to hand over the call to Mr. Manoj Raghavan.

Over to you, Manoj.

Thank you, Shashank. A very good evening to everybody who's joined us today for the Q1 FY27 investor call.

I hope all of you are fine and doing well. I'm pleased to announce that Tata Elxsi has passed a key milestone of crossing more than 1,000 crore of quarterly reporting operating revenues by delivering 1,021.1 crore in the first quarter of FY27.

In constant currency terms, our revenue grew by 6.5% year-on-year and 1.3% quarter-on-quarter. The growth was led by our major verticals, transportation and media and communication, which grew 6.7% and 11.5% respectively year-on-year in constant currency.

We see this performance as a reflection of the strength and relevance of our unique design-led and AI-enabled engineering capabilities supported by large strategic engagements in our chosen industries. We posted an EBITDA of 216 crore, which grew at 15.7% year-on-year, and an EBITDA margin of 21.2%.

The media and communication business delivered robust growth of 4.7% quarter-on-quarter in actual currencies and 2.9% quarter-on-quarter in constant currencies, which translate to a year-on-year growth of 22.2% in actual currencies and 11.5% in constant currencies. The strong performance was enabled by the ramp-up of key engagements which we announced in the previous quarters in large programs with global operators and broadcasters.

Our transportation business, which contributes more than 55% of the SDSE segment revenue, reported a resilient performance in an otherwise challenged macro environment with a growth of 6.7% year-on-year in constant currency and 13.3% year-on-year in actual currency. This was led by large automotive OEM engagements and strategic off-road and aerospace deal wins.

We continue to strengthen our pivots towards OEM, and today 78% of our automotive revenues is from our OEM customers. The healthcare business exited near flat with a -0.3% quarter-on-quarter in constant currency, reflecting the muted global healthcare business environment.

The anticipated momentum was staggered by the delayed deal awards from some of our key customers. We however remain excited about the long-term prospects of this segment.

We continue to invest through scaling our newly launched platforms such as Vital, Anatol, reimagining our offerings with AI, GenAI, and taking center stage in medtech and healthcare events, setting ourselves to capture emerging opportunities. In the quarter gone by, we have accelerated our efforts to expand platform-led offerings.

Our Neuron platform portfolio has enabled Sky in Europe to transition towards zero-touch network operations with enhanced cyber security, delivering up to 30 to 70% efficiencies in various parameters. Our AI-led material intelligence platform, Vital, also inked a strategic deal with a global medtech company.

We are executing upon our future-focused strategy and will continue to intensify our investments in specialized talent, rigorous upskilling, AI-powered platforms, tools, and infrastructure that strengthens our human plus AI plus domain proposition. These forward-looking investments will enable us to stay at leading edge of technology advancements while accelerating value creation for our customers.

The US region performed well for us across verticals led by new deal wins and deal ramp-ups. Some of these strategic programs demand quick ramp-up at onshore for transition support and initial stabilization.

We have incurred additional cost of deploying forward teams as well as specialist third-party contractors to help accelerate transitions and mitigate visa delays for our engineers. This is partly reflected in our onsite-offshore ratio and bottom-line performance and should ease over the next two to three quarters.

We are firmly focused on sustainable growth, deepening our engagements with key customers, and positioning ourselves to shape and win strategic long-term deals and add marquee customers. We look forward to carrying the growth momentum to subsequent quarters while remaining steadfast on our operational rigor and business discipline.

Thank you, and over to Shashank for the Q&A session.

Hi. Thank you.

A couple of questions. Firstly, wondering if you can give some outlook on your three verticals given the bit of a strong tech still remains in place.

How are the discussions with clients evolving on spending intentions for the next few quarters? If you can segregate across the three verticals, how they're different.

Secondly is on margins. You did talk about some onshore investments and subcontractors as well.

How should we think about the margin trajectory going forward? Is this one-time thing which is in the base now and it will just continue for the next few quarters or any color on the margin outlook as well for the year?

Sure. I think upfront let me tell you, I think it was a reasonable quarter for us because two of our larger businesses, which is transportation and the media and communication vertical, had a pretty decent performance, I think.

Media and communication vertical has been sort of underperforming for quite some time, and I think some of the deals that we've closed in the previous quarters, we've finally able to ramp up and achieve the full ramp-up situation. I think, as we speak, there are deals that we are chasing.

There are some pretty large consolidation deals in the media and telecom space. Some of these, we are very, very confident that we should be able to swing in our favor.

I think over the next two to three quarters, we strongly believe that we will be able to continue our growth in the media and communication vertical. From the transportation vertical, yes, I think the Europe situation, we have to wait and watch given the challenges in the German market and so on.

We have not been affected as much, and the deals that we have closed, we continue to execute. There is some slowdown in the new deals, but having said that, I think for us, the US market, we were able to really significantly grow not just the automotive revenues, but also the adjacency revenues, including the off-road and farm and equipment, as well as the aerospace and defense segment.

Overall, when we look at it from a transportation business, we are hopeful that, yes, there is softness in Germany in particular, but we strongly believe that all the other adjacencies and the efforts that we are putting in other markets, including Asia, including India, I think we have seen some very good deals that we have closed over the last couple of quarters. These ramp-ups are happening as we speak.

I strongly believe that look, for both our media communication and transportation, we should see growth over the next two to three quarters, right? That visibility is coming in as we speak.

Healthcare, again, it's like a moving target. It's a smaller business for us, less than 10% of our revenues come from healthcare, but it's a very, very important business for us because we strongly believe we have built fantastic capabilities, including a lot of AI, GenAI-related tools that we have built for this particular market.

When we talk to customers and, as you know in this particular industry, the deal closures would take some time. There are some very good conversations happening.

I wish we had a better story to say, and we were really hopeful that look, Q1 would be a growth story. Unfortunately, some of the deals that we have been discussing, we've still not been able to close it and complete the paperwork and so on.

Having said that, we're still in the mid-term to long-term, this is an area that we are investing in. We have built fantastic capabilities, and we strongly believe that this will eventually, in this financial year, we will see growth in the healthcare and life sciences space.

This is somewhere we are definitely continuing our investments and so on. On the margin side, maybe I will request Nalin to give you an overview.

I think we have some sort of one-timers that have hit us in the quarter, but definitely we have a plan to grow back and if you look at it over the four quarters, really look at how we can get back to our margin profile. I will hand it over to Nalin to answer that question.

Thanks, Manoj. If you look at our EBIT margin, our EBIT margin has decreased 330 bps on a sequential basis and 80 bps on a Y-o- increased 80 bps on Y-o-Y basis.

Looking at the change in margin in three buckets, right, to give you some color. The first bucket is cross-currency gains that we have got in the quarter.

That's about 40 to 50 bps. Then we have in this quarter around 150 bps of one-off costs or short-term costs.

There's a third bucket of 220 bps, which is towards investments in people, go-to-market, and capabilities. Now taking the second and third buckets one by one, right.

So 150 bps. So 150 bps this quarter, we had to incur some transition costs for some of our large consolidation deals that are taking place.

Second one is there were some one-time costs that we also took towards retention of select employees who we believe are sort of critical for the business. Third one here, there were costs in relation to a particular customer that we had to incur in this quarter, which we do not anticipate going forward.

The fourth is up-fronting of certain annual costs. These are absolutely standard costs, pretty much fixed on an annual basis, but we had to, for various reasons, upfront some of these costs in this quarter.

This bucket, the way we should think about it is most of these would go away in the next quarter. Some of these will transition over the next couple of quarters.

Then there's this third bucket of about 220 to 230 bps. Now this is on account of few factors.

One is investment in onsite sales and delivery. In this quarter, we saw significant ramp-up in some of our US-based deals, we had to ramp up our delivery there.

A lot of this ramp-up we had to do through subcontractors because of, a, the short timelines, b, also visa restrictions that are existing in the industry. In addition to this, we've applied for visas of our own people who will sort of supplement these contractors or replace them over a period of time, right.

Then there were costs, again, for these deals, there were costs related to ramp-up of these deals. Then we have, as mentioned by Manoj earlier, ramping up our investments in specialized talent, AI tools, and infrastructure.

Lastly, we had very recently a Chapter 11 in one of our customers, which sort of led to higher provisions for the quarter, which you'll be able to see sort of in the financials. Then the second bucket, the way I would think about it is these are little more stickier, but also should go away over a period of time, right.

Subcontractors, we'll look to optimize those by moving some work streams offshore or our own employees replacing the subcontractors over a period of time and finally leave only the critical sort of resources that are there. Similarly, customer-related ramp-up costs, as sort of our deals get ramped up and stabilized, I think these should also stabilize over a period of time.

These just to recap, around 150 bps, they should go away more quickly. Second bucket should sort of improve over a period of time.

Got it. That's helpful.

Thank you.

Thank you so much. Sir, just one follow-up on a margin question in the other expenses line item, which is about 135-odd crore.

Are there any forex losses also that are built in this particular quarter?

This is what actually I referred to. There's other expenses largely increased because of two, I would attribute it to two items.

One is a Chapter 11 at one of our customers where we had to provide for the receivables on a conservative basis. The second one related to up-fronting of a certain sort of annual costs.

Not, I would say, not a big forex item, but these are the sort of the two main drivers.

Okay. Fair enough, sir.

Sir, I missed out on the auto OEM contribution in this quarter. How much was that?

78%.

78. All right.

Sir, lastly, we've been talking about revenues from adjacencies. When can we possibly see some sort of quantification of disclosure as to how much are we getting from these adjacencies?

I think in this financial year, at some point in time, we will definitely be able to disclose. Hopefully, by end of the financial year, we should be in a position to tell you exactly.

All right, awaiting that, sir. Thank you so much and all the best.

Thank you.

thanks for the opportunity, and congrats on a really good performance in the media and communication segment. I just wanted to check, what's pipeline like in transportation, and are you seeing automakers, especially look at new hybrid platforms, what sort of role can you play in that?

In the media and communication segment, one of your top customers, it's undergoing a corporate restructuring. Any changes to your engagement that might come either positively or negatively from that?

I think coming to the MCV, yeah, I think we are discussing with our customers. At this point in time, there's no clarity in terms of is it going to affect our business or not.

If you ask me, I would say that it will only help us. It could be positive because we have not deeply penetrated the NBCU piece, so that is an opportunity for us to really go there.

At this point in time, there's nothing to inform in terms of is it going to affect us or not. We are keenly watching that space.

From an automotive customer's perspective, we've already discussed. I think globally, yes, both in the US and in APAC, Japan, and India, I think we've seen traction is definitely there.

There are large deals that we are bidding for. Continental Europe is a little bit of a wait and watch as we speak.

Though there are opportunities that we have bid, there are large deals that we have placed, but given the uncertainty in the market, we're not sure on the pace at which some of these decisions will happen. I think there's a little bit of a wait and watch there.

Otherwise, overall automotive industry, I think we should see some good growth coming in minus Europe.

Thanks. That was it.

Saw that the overall headcount is down a little bit. What's the sort of hiring plan, especially for fresh college graduates this year, and how does that compare to the last year's fresh college graduate hiring?

I think we are on a wait and watch, right. I think our utilization is just about 75% or so right now.

We still have some leeway to go. We have been hiring freshers as we speak, but the numbers have been pretty small.

I think hiring fresh grads, we will only look at it as our, what do you say, the growth momentum picks up, right? It'll be very, very moderated the way we go ahead and hire, especially with now AI and GenAI also coming in.

That is, we wouldn't want and go and hire a huge bunch of freshers. It's a, as I said, it's a wait and watch.

We are hiring freshers, but it's a very moderated level. I think last quarter, we would have added about 100, 150 engineers from the colleges.

It's a small number that we add. Hi,

thank you, sir. Given the current market, you think it's actually preferable to hire laterals because it's still fairly easy?

Laterals only very, very specific where there is a need, right. Most of our focus is utilizing our bench and utilizing our existing team members and, of course, focusing on retaining our key talent, right?

That's what we are focused on.

Could you talk a bit about the sales investment that you made?

I think both in US as well as in Europe, we have added sales headcount. We've also added advisors to support us in some of the large-deal pursuits.

Apart from that, we've also spent in terms of events that we participated in to build our brand and also to gain visibility in the larger market space. These are specialized events.

We're not going after those large events and so on. For each of our industry verticals, there are those specialized events which are there, and that's something that we have focused on and we're spending money.

Thank you so much, sir. Best of

luck. Thank you.

Hi. Good evening and thank you for taking my question.

My first question was on your overall growth expectations for FY27. I think you had said last quarter that you probably would be aspiring for a high single-digit sort of a number.

Is that something which is still the aspiration given issues that you've outlined in transportation? Or do you think it would be more closer to the mid-single-digit number for the year?

No, our aspiration continues to be the same. We just need our healthcare business also to fire up right, and then I'm sure that we will be able to get to that sort of a growth rate that we are aspiring.

I think we're not changing our aspirations.

Okay. Understood.

Then secondly, I think in a previous question you briefly touched upon AI and that is impacting some of your hiring. How have your conversations with clients been on the AI implementation?

What are your clients saying? Is that impacting, say, your volume growth or your T&M projects going forward?

Maybe I'll take that question, Mohish. This is Nitin here.

I think AI in general, on one hand, in product engineering, given the fact that the industries that we operate in are largely mission critical, especially automotive, healthcare, has been very careful and measured, right, in the first place, especially when it comes to implementing it into the SDLC process into products that will deploy in the future. There is a certain amount of care and caution that is being exercised.

Having said that, I think we are driving a very strong path of providing a path of transformation aided by two parts. One is the platform-led offerings that we're building.

What we're saying is it's not so much about AI for itself. Each of these industries require solutions that are tailor-made to their context that provide for coverage of certain aspects of cyber security, of FMEA, and so on that are very specific to those industries.

To that extent, I think what we're doing is we're taking a very domain plus AI, if I may, view of each of these industries, and we're saying, "Look, you don't have to transform all at once, but we will provide a platform-led approach that allows you to take your SDLC part by part and still connect it up at the end." What we're actually seeing is that kind of a measured, calculated adoption, and I think we're doing very well there.

To that extent, I don't see deflation, I don't see shrinkage, I don't see any of that. We rather see opportunities.

Having said that, I think the overriding point is, the spend that is being earmarked for AI unfortunately is also kind of curtailing R&D spend, if I may. I think that's the larger perspective rather than anything else.

Got it. Thank you.

That was all my questions.

Thanks, Mohish.

Thanks for the opportunity. Sir, my question is on the increased investments that we have been doing.

If you can elaborate more on what are the investments on? These are mostly platform investments or you're spending more on R&D?

Or is it more related to client-specific engagements that we have? As you said, we are investing more in subcontracting, investing more in onsite, and is it fair to say that the new deals that we are taking, they are initially lower margin deals?

These investments definitely are around building specialized talent pool, right? That is definitely there.

We talked about the AI infrastructure that is needed that we are building. Also all the tools and the cloud investments that are needed to deliver value to our customers, right.

It's a combination of all of that which are the investments. Of course, in some of the large deals that we have taken, there is also the transition cost, right?

There is some bubbling of cost that happens because these are typically three- or five-year deals wherein in the first quarter of commencement of the deal, there is some amount of bubble costs that comes in. These are all the investments that we are doing, and that is sort of affected our margins in this quarter.

Okay. In the transportation vertical, obviously OEM is now 78% of the automotive revenue.

Within the OEM bucket, how are we seeing the top client and the non-top client moving? Also, if you're seeing some softness in some of the OEM accounts, especially what is happening in the European region, if you can provide the commentary on what is happening with the OEMs

and The top customer has been pretty steady for us, so that's definitely a positive. I've already indicated the softness in the OEMs in Germany.

There are large deals that we've already closed. Those ramp-ups are going a little slow there.

As a result of which, what we would have expected that we will achieve in Q1, we have not reached that. I'm hopeful that over the coming quarters, we will be able to ramp up to the expectations, right?

The good part is we've had a good recovery in the US as well as in the APAC region, and all that has actually contributed to the growth in the automotive segment for us.

Okay. Sir, lastly, on the subcontracting part, if you can quantify the subcontracting cost and what it is as a percentage of revenue in this quarter versus last quarter?

I'm not sure whether we can give specific details of the subcontracting costs.

Amit, maybe, this is Nitin here, I can just provide one slice, which is if you look at our onsite-offshore ratio, you will see that the ratio has shifted by about a percent, about 90 basis points, right, 0.9%. This has all happened within one quarter.

You can look at that part and assume that a fair part of that is what we contracted out, and that has an associated impact on margins.

Okay. Sir.

Thank you and all the best.

Thank you.

Yeah. Can you hear me?

Yes, sir, we can. Yeah.

All right. Thank you.

Thanks for the opportunity. A couple of questions, maybe you addressed the first one a bit earlier.

First is there is this growing concern, right, of the deflator impact on software coding, maybe especially on engineering R&D. Maybe it might hit much harder than traditional IT, right?

Is there a pressure, and how are you ensuring that the Tata Elxsi's margins are protected, right? The second question is related to your slide on transitioning to platform-led engineering, right, in terms of these proprietary platforms, Neuron, Autonomics, and Tether, right?

I want to know how aggressively you're sort of deploying this to address this pricing pressure. Anything on what are the clients looking for?

Is there more demand using more with less pricing, something like that? Any color on that?

Okay. Thank you.

I was talking about this whole deflator impact of using AI autonomous tools on the software coding, and the fact that it might hit the engineering R&D higher than traditional IT serving, right. I wanted to understand how Tata Elxsi is protecting their margins if it's such impact like this.

The second question is on the slide on transitioning to platform-led engineering, right? Wanted to understand how aggressively you're deploying these platforms like Neuron, Autonomics, right, in terms of addressing this pricing pressure.

Anything more on how the clients are using these proprietary platforms? That would be helpful.

Karthik, this is Nitin here again. Maybe I'll take those two questions.

On the first part, as far as the impact of AI on the SDLC, I think the point that I was trying to make is working with B2B customers in the chosen industries that we operate in, which is healthcare, media, telecom, as well as automotive and transportation, you tend to have, one, very large code bases. Two, these have been built over many, many, many years, this is not fresh code.

Three, these are fairly complex and built by multiple teams, right? First, you have to understand the scale, size, and complexity of the problem.

Like they say, a car has 100 times more code than a Boeing 777 747 does, right? That's the complexity you're talking of.

Part two, while we tend to think of software coding as the biggest part of what work is done, reality is that product planning, feature planning, architecture,

and

requirements capture, requirements mapping, regulatory alignment to the multiple countries that these products will be deployed in actually is a bigger part of the problem than actual coding. Coding is just one part of the whole cycle.

That is where we believe that while AI can come in and you can say that, "Look, software code, I can write C++ code, I don't know, 20% faster, 30% faster," and so on, but the net impact of that part of saving in the entire life cycle is not too high. That is part one.

Part two is customers are not as much focused on cost savings as they are on whether it delivers productivity or quality. Because in the ranking of CTQ, cost, time, and quality, right, I think the industries that we operate in inverted.

It's quality, time, and then cost comes last. To that extent, I think the proposition stays strong, which is Tata Elxsi, leading-edge technology capabilities, deep domain expertise, now backed by AI.

I think that is the proposition that we're offering, all of course delivered from India at scale. I think this is the real, if I may, tag line that we are delivering on, right, and I believe that is still very, very relevant now and going forward.

Your second question was to do with our own platforms. If you think about it, there are two types of investments that we are making.

One is in platforms like Tether and Neuron and so on, which go into the customer products and services, because it's transforming their products and services. I think Neuron, that's why we took a lot of time to craft the value that our customer is driving.

The press release that we made with Sky, I think, absolutely clearly calls out multiple dimensions on which we are delivering value, whether it's efficiencies, whether it is autonomous operations, whether it is customer experience, and so on. The same is with our connectivity platforms, right, because these are customer-facing.

Investments that we are making in platforms like Vital or Anatol or DevStudio are more to do with how do you accelerate the software development life cycle of a customer. This is something that end consumers will not see.

This is something that provides efficiencies, but more focused on quality and time savings rather than on cost, right? That is the view we're taking.

Traction is fantastic. Reception is fantastic.

Adoption, we believe will be thoughtful and calibrated simply because customers are not going to jump at the first platforms they see. I think they're taking a very careful, long-term view of what are we doing, who are we working with, how do you make sure that what we're taking on and adopting is supported for the long term.

I think these are decisions that customers take very thoughtfully and carefully, and hopefully the proposition that Tata Elxsi provides, both as a brand and as a capability, stands us well.

If I have to summarize, you're saying the first one is not much of a deflating impact as such, because the cost of the R&D stuff is much, much lesser than the whole pipeline. For the second one, you're saying it's a long-term view.

It's doesn't have anything to do with the billing rates right now. They're really a long-term.

Right.

It definitely is making a positive impact on our win ratios and winnability, which is definitely having a definite halo effect even as we speak on what we offer to customers and what customers believe we are capable of for their long-term transformation.

Okay. Yeah.

Thank you, Nitin. Yeah.

Thank you so much, Karthik.

Hi. Am I audible?

Yes, you are. Yeah.

Thank you for taking my question. I had two questions, both on the investments that we made in the quarter.

One is on the onsite investments and delivery that you spoke about. Historically, we've excelled at an offshore-centric delivery model.

Should we see that this investment on the onsite front as a change in the nature of demand versus what we used to do earlier, and this is more structural, or you would say that this is more tactical and specific to a few projects?

I think, as we said, right, some of the large consolidation deals that we have won needed onsite resources to be available, but over the long term, the business model is to move a lot of that work offshore. We're not moving away from a business model perspective.

We would be in a 75-25, 75 being offshore and 25 being onsite. Today, I think it is 74-26 or so.

It's just a 1% that we have moved, but over the subsequent few quarters, as Nalin explained, we will be able to move a lot of this work back offshore, and we're not changing our business model, if that is the question.

Okay. Understood, sir.

Secondly, a large part of the cost that you mentioned, they were either transition-related or ramp-up-related. One is is this specific to a particular vertical or is this broad-based?

The benefit of this investment on revenue, have we already seen that in this quarter, or should we see that in the coming quarter?

Partially we have seen the uptick in revenue both in our media and communication vertical as well as in the transportation vertical, primarily if you look at it from a US geography perspective. I think our US geography has grown pretty well, and I think that is one of the reasons over the subsequent quarters, you will see us moving back to offshore-based execution.

Understood. Understood.

Thanks. Thanks for taking my question.

Thank you.

Hi. Thanks for the opportunity.

Just a question on the transportation vertical. Last quarter, US OEMs have commented pretty strongly in terms of early investments either on SDVs or investments in hybrid platforms.

Are you seeing any traction on these areas from the US OEMs? Secondly, do you expect the transport vertical to start growing from Q2 onwards sustainably?

I think definitely on the SDV, a lot of the deals that we are discussing and a lot of the deal pipeline is based on SDV, so that's continues. As I've explained earlier, both US and APAC regions, we are seeing good deal pipeline and good conversions as we speak.

Europe is a little moderated right now. We would wait and watch in terms of, especially continental Europe, going with all the troubles that the OEMs there are facing.

Having said that, I think overall, both automotive and adjacencies, we see growth happening in subsequent quarters.

Okay. Got it.

Manoj, can you just help us with the broad split of the transport vertical within US, Europe, and APAC, if that is something which you can share?

I think for us, still it is Europe-heavy. If I'm not mistaken, close to slightly more than 40% of our revenues would come from Europe, and roughly about 25, 30% coming from US and remaining from APAC.

Europe is still the number one geography for us from an automotive perspective.

Got it. Despite pressures in Europe, you are still expecting the US and APAC to fairly offset and help.

Yeah. Yeah.

Thanks.

Thanks. Just on margins, shall we expect 19% EBIT margins as the floor, and from here on, we should expect improvement in margins?

How should we think about it from next few quarters'

perspective? Karan, as mentioned, there is one bucket of costs which should go away in the next one or two quarters around 150 bps or so.

Although this will be offset by wage hikes that we have planned. We had done a cycle of wage hikes last year in October for juniors and in Jan for seniors.

We are implementing a company-wide revision in Q2 to remain competitive in retaining our talent, right, that we are investing in and that we want to retain, who have done projects, valuable projects, etc. For the next quarter, I would say the margins will be sort of a combination of two things, impact of wage hikes coming in, but also impact of some of these one-offs going away.

It will be sort of a balance of these two things. Post that, once the wage hikes are fully sort of baked in, we should sort of see a ramp-up in margins as we go through the rest of the year as sort of our revenues pick up and wage hike is sort of already built in.

There should be a sequential ramp-up as we move towards Q4.

Got it. Thanks.

Thanks a lot and all the best.

Thank you.

Hi, thanks for the opportunity. My first question is regarding this one-time cost that we had to bear for customer.

Probably I missed the customer vertical, but I presume it is US and transportation. What I wanted to understand, is this a generic trend that customers are asking the vendors to onboard subcontractors?

Because we heard a similar trend in one of the other IT companies as well. Just wanted to understand what could be our reaction in case there are other customers who come back with some similar demands.

That's the first question. The second question is on the wage hikes from 2Q.

Can you just quantify given that we are doing it for a company-wide versus staggered last year? The third one is for Nitin.

Nitin, you mentioned that the AI spend is curtailing ER&D. That was a comment you made.

Can you just elaborate in terms of what are the clients thinking given that the perception was that ER&D is something that would, given its revenue generating, may not be paused immediately. Thank you for taking my question.

I think I'll answer the first question in terms of contractors and so on, right. Now, let me, I think, correct or make it clear, right.

Customers are not asking us to take on contractors, right. I don't think that is right.

What is happening is in the US, as with H-1B visas hard to come and so on, when we win a large deal, for transition and so on, we need to have our own people out there, maybe for one quarter or a couple of quarters, and then move work offshore and so on. At any current point of time, we have a limited set of visas that are available.

To augment the team, on a short-term basis, we need to augment the team with contractors so that we do the due diligence and we really do the transition within the timelines and so on. That is what this increase in one-time costs are, right.

We have not seen customers asking us specifically to onboard specific consultants or contractors, right. That's not something that we have seen.

Second question was on margins, right?

On the wage hikes.

On the wage hike, yeah.

Wage hikes, I would say that at this stage, we are still sort of working through it, right. There are a couple of elements there.

A, while we are doing it, it's a company-wide hike for all eligible employees, right. Given we have a lot of employees who have sort of joined us at different points of time, there's a set of employees who are not eligible for a wage hike as of now.

Again, the hike is a combination of variable and fixed, etc. There is that element as well, but I think I think we'll get back at the end of Q2, right?

We don't want to give you a number at this point in time.

On the last question, Abhishek, on the point about whether AI has a impact on curtailing R&D spend, I meant it in the context of where your budgets get allocated. Ultimately, R&D, some of it is strategic, some of it is discretionary.

When you are spending money and you have to now decide where you want to spend money, I think you see certain companies prioritizing AI because obviously it seems like the flavor of the day, the need of the day, the priority of the day. To that extent, it does have a little bit of an impact on how much budget is being allocated to R&D, right?

That is the point that I was trying to make.

Helpful. Just to follow up on that, this is more about right-shifting of the budgets rather than deferment or let's say perpetual deferment, right?

That's correct.

Thank you for taking my question and best wishes for the year.

Thank you.

Thank you.

Hi. Thanks for the opportunity again.

My question was on the wage hikes. You also mentioned when you talked about the investments, you also mentioned that there were certain interventions that you had to do for retention of select employees during the quarter.

Now we are also talking about preponement of wage hikes. I'm just trying to understand the attrition in the industry right now doesn't appear to be high.

I'm just trying to understand what you're seeing differently, which is leading to some of these initiatives at your end.

Our attrition is around 16% today. As right, it's not about how much your attrition is.

It's also about are you able to ensure that all your key critical talent, right, are taken care of, right? I think with a number of GCCs coming into India and with a sort of aggressive hiring and so on, especially for AI-ready talent and talent that really understands domain and digital technologies, there is still a huge demand.

Though you might say at an overall level, in the industry, the demand is muted, but for very, very niche, specific talent that we carry, I think there is still a huge demand. We need to ensure that we take care of that talent and whatever we're doing is to ensure that while our revenue clock picks up and we're seeing traction in the market, we don't want to be in a situation where we are struggling to service them and we had to go out and hire, right.

We really want to retain the key talent that we have.

Understood, sir. Thank you.

Thank you for taking my question.

Hi, can you hear me, guys?

Rishi, we can hear you.

All right, great. A couple of quick questions.

On the media and communication space, in the previous quarter, you mentioned that the industry growth had not yet picked up. We've done well in this quarter.

Just wanted to know whether the broader industry has picked up or it's largely us outperforming. If it's not the industry pick up, when do you see the industry picking up and how much delta can we capture just from the industry growth?

I think the media and communication industry in general and the vertical for us, I think over the last a few quarters have been going through very very turbulent sort of ups and downs and so on, right? I think the last two quarters, what we have seen is some large consolidation deals from some of our customers.

This industry is also going through a lot of M&As, right, as we speak. A lot of strategic decisions that customers are taking and so on.

Now, what has helped us is in two such transactions where we were the incumbent and we were providing a significant engineering outsourcing. We were the prime vendors in couple of these customers.

There were significant M&As that have happened, and as a result of which, suddenly we had access to much larger pool of projects to focus on, right. When an M&A happens, of course, the customer is trying to see how to optimize and how to move work to vendors that are a lot more offshore-centric so that their overall costs can come down.

I think our value proposition in terms of domain, digital, as well as offshore-centric really clicked with some of these customers which have gone through these M&As and so on. I think that has helped us really win some deals.

Essentially, we have been able to eat into a competition pie of business by showing superior execution and superior offshoring and offshore capabilities. That has helped us win this business.

Right. Manoj, just to get my understanding right, we were already onboarded with the companies which acquired other companies and rather than got acquired by other companies.

Hence, the new target company, we were able to replicate the same thing.

Exactly.

On the larger front, would you say more of our customers have been acquirers in this consolidation phase or now do we see our companies getting acquired and hence we have to get re-evaluated by the acquirer?

It is both, right? In many cases, our customers were the acquirer, but there were one or two cases where our customers have also been acquired.

The acquiring company did not have a footprint in India. Okay.

That helped us because they looked at our operations, they looked at how we are delivering, and suddenly they realized that, yeah, Tata Elxsi is a valuable partner which they want to engage with.

We are not being re-evaluated in largely any of these acquisition-led re-evaluations that normally happen.

All that has happened, we were able to show a superior value, right, through our offshoring.

Got it. On all of these immigration changes that keep happening, right, visa fees keep getting altered, H-1B quotas keep getting altered, do we have provisions in our contracts with our customers that say if there's an unreasonable amount of change or who absorbs the hit on these externalities, just if you could give me an understanding how that shapes up.

No, the usual visa fees that go up and so on, right, not just in US, but in UK and Germany and many other places,

right,

that we have to absorb, right. When I say absorb, of course, there is a COLA increase that we negotiate year on year and so on.

In some way, in quite a few customers, we managed to get some amount of increase and so on. It is not as if that, "Oh, okay, your visa fees has gone up by $2,000, hey customer will pay exactly that $2,000 to us," right?

It's more bundled into our cost of operations and it's bundled into our rate, right, hourly rate, and that's how we manage it. However, when you talk about H-1B like $100,000 and so on, no customer is willing to pay that.

That is something we can't go back to customers.

Right. Then we will have to increase our onshore mix as we go ahead, right,

to

get higher growth out of the US market?

That is where if we don't have the visas, we depend on third-party contractors and so on. We have MOUs and partnerships with a set of companies.

We depend on them to really help us in the short term.

These US contracts that we currently have, I'm assuming the new contracts you would price in say a higher onshore mix, but the existing ones, I don't think you can alter. Would these be largely long-term contracts and hence our profitability on these existing contracts reduce versus our estimate when we bid in?

Just to clarify, existing contracts where you already have onsite people deployed, there's no change in cost. Right.

It is only where you are trying to win new contracts or you are winning new projects, which then demand new people to be sent for the transition phases, that is the only point where you would have all these questions raised. Rishi, therefore I'm not very clear what the question is about, right.

Basically, let's say I'll just explain it quickly. We assume let's say 80% of our offshore mix, 20% would be onshore for a contract, for example.

Because of say these visa issues, you are required to have more onshore employees, and the mix turns from 80-20 to 75-25. Does that happen?

No, no. Rishi, I think you're getting it wrong.

We operate 90-10. We are the best offshoring metrics anywhere.

Our intent is always to keep it there, because that is the proposition. For a given contract, ratios will not increase.

It's not that customers are starting to prefer more onsite, please understand. This is not a COVID reversal where I think customers are not starting to prefer more onsite, nobody is.

The need for onsite is demanded by the kind of deal that you're picking up, the complexity of what you're trying to take on, the transition time that it takes to capture knowledge whether from customer itself or from somebody else, and the ability to architect and bring it back, just to be clear.

Okay. All right.

Finally, just a quick one, utilization rate if you could just spell it out for this quarter?

It's around 75.4%. 75 point Sorry, 74.7%.

Just getting to 75.

Okay. All right.

Fine. That's it from my end.

Thank you.

Thank you, Rishi.

Hello.

Yes, sir.

Thanks for taking my question, sir. Almost saare question ka answer toh mil chuka hai.

Par main thoda sa summarize karna chahta hoon jo main samajh paaya hoon ki Q2 mein bhi wage hike ke kaaran margin pe impact aa sakta hai aur H2 ke kaaran se H2 se margin matlab ki acche se ramp-up hoga. Kya main sahi samajh paa raha hoon, sir?

Small very difference to what you're saying. Yes, Q2 we'll see a wage hike impact, but that will also be offset to a large extent because of some of the one-time or the higher costs that we saw in this quarter going away.

There is a offsetting element to a large part of that cost. Now how much gets offset, where exactly we land up is a function of what exactly the wage hike numbers ends up being, how much sort of costs go away, our own revenue growth.

It will be a combination of few things.

Thank you, sir.

Thank you.

Dear investors, thank you. Thank you for the time.

Interesting times, and I think at least from our major markets and major verticals that we have, I'm very happy that we've been able to show a decent growth, especially in the media and communication business. If you compare with competition and what we hear commentary from a lot of our competition, I think our automotive or transportation business has also done reasonably well.

Our focus is to really continue growth on both of these large verticals for us, at the same time focusing on our healthcare business to see how to get it back to a growth path, right? That's the focus for us.

Of course, margin improvement and seeing how we can digest the wage hike at the same time and also look at seeing how we can remove all the one-timers and still show a profitable quarter in Q2, right. That's going to be the focus for us in Q2 and subsequent quarters, Q3 and Q4.

I think Q1 has gone reasonably well for us, even if you look at comparatively Q1 of last financial year. I think we have done pretty well, and I hope that we'll be able to continue this growth path in the subsequent quarters.

Thank you, and look forward to talking to you again in Q2. Yeah.

Bye-bye.

Thank you. On behalf of Tata Elxsi Limited, that concludes this conference.

Thank you, everyone, for joining us, and you may now disconnect your lines. Thank you.