About the Company

Tata Elxsi provides product design and engineering services to the consumer electronics, communications & transportation industries and systems integration and support services for enterprise customers. It also provides digital content creation for the media and entertainment industry.

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Q4 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q4FY20 Q4FY19 YoY % Q3FY20 QoQ % FY20 FY19 YoY%
Sales 452 420 7.62% 444 1.80% 1668 1640 1.71%
PBT 110 107 2.80% 102 7.84% 352 433 -18.71%
PAT 82 71 15.49% 75 9.33% 256 290 -11.72%

Detailed Results

      1. The company saw revenues rise 7.6% YoY in Q4.
      2. The PAT for the company rose 15.5% YoY in Q4 and declined 11.7% YoY in FY20.
      3. Revenue from operations grew 3.6% QoQ & 8.3% YoY.
      4. EPD division grew 4.1% QoQ & 10.6% YoY while IDV grew by 7.6% QoQ & 5.4% YoY.
      5. Media & Communications vertical grew 8.6% QoQ & 25.5% YoY.
      6. Revenue distribution by geography is as follows:
        • EU: 39.9%
        • USA: 35.5%
        • India: 11.4%
        • Rest of the World: 13.2%
      1. The top 10 customers now account for 50.6% of total sales.
      2. The management commented that Q4 saw key wins for the company in the OTT space, broadband technology, and digital transformation in media & communications space.
      3. The company also added new customers in rail and off-road segments thus adding to diversification into adjacent segments.

Investor Conference Call Highlights

  1. The shipping of hardware was impacted due to the recent lockdown which has had an impact on revenue recognition.
  2. The medical business grew 60% YoY and was flat QoQ.
  3. The company is expecting softness and deferment of deals from auto clients mainly due to the softness in the industry being extended due to the COVID-19 phenomenon.
  4. The company saw a good turnaround in H2Fy20 after a muted performance in Q1 & Q2 with the emergence of new verticals like medical business and entry into new adjacent verticals like rail.
  5. The management has refrained from giving any definite estimation for the auto industry recovery as major auto markets in the world have all been hit by the COVID-19 and it is difficult to gauge how long it will stay in these places.
  6. The company is not withdrawing any offers for employment made so far and will only make hiring slow in the future to cope with the impact and wait for the broader market to recover to resume normal hiring again.
  7. The company expects less impact from COVID-19 in the media & comms business and the medical business. These are the verticals that are pushing the company up and compensating for the drop in business from the auto segment.
  8. The company has gotten inquiries for designing ventilators for Indian companies but it has not expected to have a significant impact on the company’s business.
  9. The management is seeing a relaxed stance from western countries on regulation and compliance on medical devices mainly due to the COVID-19 impact but this is not expected to last for long.
  10. The company is seeing major auto customers renegotiating contracts with them and it is not opposed to this given that the industry is going through troubled times. The management has stated that the company is ready to take a minor setback in order to maintain its current business relations and provide some leeway to its customers.
  11. The focus for the company is to maintain incremental growth and highlight YoY growth given the current market scenario.
  12. The management does not want to provide hard guidance for EBITDA margins given that it will work to preserve the workforce but it is still confident of delivering margins of 20-24%.
  13. The company is working to maintain the highest levels of IT security given the recent attack of Cognizant and the change in working culture to working from home.
  14. The company is working to show that its onsite employees have been able to provide similar levels of performance working from home and thus it can provide similar work within a budget without the constraints of sending and keeping people onsite.
  15. The company saw broad-based growth in the USA and the media & communications business grew a lot in India especially in the OTT space.
  16. The company has not seen any cancellations yet and it does not expect any cancellations. At most, there would be renegotiations and deferments.
  17. The management has stated that its target is to reach at least last year’s figures for each quarter.
  18. The company is working on many aspects in the rail segment like propulsion systems, entertainment systems, AC regulating systems, etc.
  19. The off-road customers for the company are OEMs from abroad.
  20. The first roll off of extra capability in the auto segment will be easily redeployed into adjacent systems. Similarly, the infotainment systems in the rail segment can be done by the media & comms employees.
  21. The utilization rate for the company is 74% which is around the highest levels seen by the company.
  22. Other expenses for Q4 were less than usual mainly due to a reduction in travel expenses.
  23. The management expects the media & communications business to grow at a steady pace in Fy21 going forward.
  24. In the 5G space, the company is actively involved in industry gatherings and it will continue to invest in capabilities into this space. The management has accepted that the rollout may be slow in some countries but it will come out sooner or later.

Analyst’s View

The company had a good quarter with good sequential growth and expansion in all operating sectors. The growth momentum in H2FY20 has helped cover for the decline in the H1 and maintain flat revenue growth for FY20. The company has seen good growth in the emerging medical space and the media & communications space. It has also expanded into adjacent segments of rail and off-road. The auto segment continues to be subdued due to the COVID-19 situation. It remains to be seen how the company’s major clients cope with the disruption caused by the pandemic and what impact it shall have on the company’s performance going forward. Nonetheless, given the company’s strong technological capabilities and its resilient performance in the last year, Tata Elxsi remains a good technology stock to watch out for, particularly given the rising demand for its services in the broadband and media & communications spaces.


 

 

Q3 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q3FY20 Q3FY19 YoY % Q2FY20 QoQ % 9MFY20 9MFY19 YoY%
Sales 443.96 404.32 9.80% 398.21 11.49% 1215.99 1220.3 -0.35%
PBT 102.05 94.41 8.09% 70.43 44.90% 242.68 326.63 -25.70%
PAT 75.42 65.99 14.29% 49.8 51.45% 174.02 218.67 -20.42%

Detailed Results

    1. The company saw revenues rise 9.8% YoY and 11.5% QoQ.
    2. The PAT for the company rose 14.3% YoY and 51.45% QoQ respectively.
    3. 9M revenues saw a minor decline of 0.35% while 9M PAT declined 20% YoY mainly due to a decline in performance in the past 2 quarters.
    4. Revenue from operations was at its highest level ever at Rs 423.4 Cr.
    5. EPD division grew 9.8% QoQ while IDV grew by 9.9% QoQ.
    6. Transportation vertical grew 10.4% QoQ while Healthcare vertical grew 40.6% QoQ.
    7. The management mentioned that this growth in QoQ performance is mainly due to ramp up in large deals won earlier this year and the addition of new customers in electric vehicles, medical devices, and OTT segments.

Investor Conference Call Highlights

  1. Offshore salary hikes offered in the quarter were around 8% with onsite hikes ranging from 1%-2%.
  2. The company has seen revenues from JLR bottom out and show modest growth in the quarter as compared to the previous 2 quarters.
  3. The company has also started servicing many deals that it has won in the last quarter which has resulted in the >10% QoQ growth in transportation division revenues.
  4. The management maintains that the company will continue to look to expand its healthcare division aggressively and it sees some large opportunities in this space coming its way in the near future.
  5. The current utilization rate is estimated to be close to 70% and the management has mentioned that close to 75% is the sweet spot for the company in terms of utilization rate.
  6. Margins are largely expected to stay within the band of 22-24%.
  7. The big deal wins for the company so far have been 2 tier-1 customers from the USA and 2 OEMs in the APAC region.
  8. The management expects deal volumes to rise as the global auto industry recovers in the near future.
  9. The company now has a total of more than 160 active customers.
  10. The management has guided that it expects the QoQ growth rate for the auto division to stay at 5-6% while it expects the growth rate of healthcare division to be much higher owing to the small base and aggressive expansion it sees in this segment.
  11. The management has further declared that it expects the healthcare division to rise and form around 20-25% of revenues in the next 3 years from the current contribution level of 8%.
  12. The management has also mentioned that the margins earned in the healthcare business are higher than other businesses.
  13. The top customers for the company account for 15.7% while the top 5 accounts for 37.8% and the top 10 account for 50.8% of total revenues.
  14. The management has explained that since the company specializes in product engineering rather than standard IT projects, the team requirements are much smaller and the command pyramid structure is much steeper with greater emphasis on product development and R&D. This helps differentiate the company from standard IT companies out there.
  15. The company currently has a 40% onsite and 60% offshore mix.
  16. The management has mentioned that despite gaining growth momentum now, it largely expects the total performance for FY20 to be flat overall.
  17. Broadly, the work done by the company for the auto industry is in infotainment, autonomous driving and driver assistance.
  18. The company is yet to decide on whether to switch to the new tax regime and the management has said that it will wait for the upcoming budget to decide on this.
  19. The management has mentioned that there is only one healthcare client within the top 10 customers of the company.
  20. The cash and cash equivalents for the company at the end of Q3 stood at Rs 600 Cr.
  21. The company is looking for verticals adjacent to its three main ones of auto, media, and healthcare for expansion. For example, the company is looking for opportunities in the rail and off-road transport segments as these segments may have opportunities similar to the auto segment for the company.
  22. The company is currently investing heavily in developing sales verticals in the medical space in the USA and EU and it will only add to other divisional sales teams on a need basis whenever required.
  23. The management believes that the growth in the auto division for the company can rise again to double digits given the potential of autonomous car technology and the increasing use of electronics and software in cars everywhere.
  24. The management has mentioned that forex gain has contributed to around 2% of revenue growth in the current quarter.
  25. The company has also been heavily involved in the Nexon EV project for Tata Motors in recent times.
  26. The company has plans to add 700 to 800 engineers in the next year, net of attrition.

Analyst’s View

The company had a good quarter with good sequential growth and expansion in all operating sectors. The management expects the current growth momentum to persist and cover for the decline in the past 2 quarters and maintain flat growth for FY20. The company has seen good growth in the emerging medical space and is seeing good signs of growth revival from the auto sector. It remains to be seen whether this expected auto sector revival remains sustained and whether the company will be able to grow its medical space business at the pace that it is expecting. But given the company’s expertise in disruptive technologies like autonomous cars and product engineering in diverse sectors like OTT and medical devices, Tata Elxsi remains a potentially good stock to watch out for.


Q2 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q2FY20 Q2FY19 YoY % Q1FY20 QoQ % H1FY20 H1FY19 YoY%
Sales 398.21 426.1 -6.55% 373.81 6.53% 772.03 815.98 -5.39%
PBT 70.43 123.95 -43.18% 70.18 0.36% 140.62 232.21 -39.44%
PAT 49.8 82.18 -39.40% 48.79 2.07% 98.59 152.65 -35.41%

Detailed Results

    1. The company saw revenues drop 6.55% YoY and grew 6.5% QoQ.
    2. The PBT and PAT for the company fell by larger quantum with falls of 43% and 39% YoY respectively.
    3. The QoQ performance was encouraging with EPD business growing 5.3% QoQ, Design business growing 12.9% QoQ and System Integration Business growing 27% QoQ.
    4. In the EPD segment, transportation vertical has grown 9% QoQ. Media and Communications also grew 5% QoQ.
    5. The medical business is expected to grow as the company has won deals in this business and its revenues will be added in the next quarter.
    6. In terms of geographies, the US market grew 9%, India grew 18% and the rest of the world grew 15% for the company.
    7. Europe was flat with negligible forex gains.
    8. The company has won a couple of deals in the Electric Vehicle space in Europe, one of which is with a tier 1 OEM.
    9. The company has also won one large deal in the OTT space.

Investor Conference Call Highlights

  1. 98% of revenues are expected to be driven by deals with existing customers for the company.
  2. The management has guided that they will keep margins between 22% and 24% for H2FY20.
  3. The salary hike that the company was going to take in Q2 has been postponed to Q3 and will reflect in the salary expenses next quarter.
  4. From a cost perspective, a 7-8% impact is expected from the upcoming salary hike.
  5. The company is still operating at the original tax rate of 32% and is yet to decide on the alternate tax route that they will be taking.
  6. The management expects significant growth in Q3 and Q4 as they expect some big contracts to get finalized in the coming quarters.
  7. The revenue mix from on-site and offshore is 42.6:57.4 currently.
  8. The utilization rate for the quarter was 71%.
  9. The revenue contribution from JLR is around 16.3% in the quarter. The revenues from JLR were largely flat while the transport segment revenue grew 9% highlighting the company’s efforts in diversifying and reducing dependence on JLR.
  10. The total number of active customers that the company has currently is 161.
  11. The management maintains that they have not defocussed from AUTONOMAI but are looking into adding additional capabilities and subcomponents as the inquiries are coming in for specific parts rather than for the whole package.
  12. The management has confirmed that they have not lost wallet share and are working towards increasing it.
  13. The company has made good progress in the engineering division where they are now looking to score deals worth more than $10 million as compared to 2 years ago where they were scoring deals of $ 100,000.
  14. The management claim that there are significant opportunities in media and telecommunications as a lot of media channels are looking to integrate into Android TV and RDK with Tata Elxsi being the best engineering partners for these platforms.
  15. The company is also planning to expand its medical business aggressively in the US and EU in the next 2-3 years and bring this segment as the third great pillar for the company alongside transportation and telecommunications.
  16. The company is not directly vulnerable to Brexit but has a lot of customers in the UK like JLR, various media houses, etc which are vulnerable and thus the company can have some indirect impact on business from the event.
  17. The company plans to push utilization levels up to 75% and keep it near that figure for optimal performance.
  18. The management has guided that they are on the lookout for possible M&A opportunities but there probably won’t be any in the rest of FY20.
  19. The area where the company faces competition the most is the automotive sector. The media and medical sectors are not as competitive as the automotive sector for the company.

Analyst’s View

Tata Elxsi has been one of the few Indian companies that have focused exclusively on advanced technologies and integrated product design. The company had a modest quarter with signs of revival and good growth in its other sectors. The company saw almost flat growth in its automotive business but was able to grow other businesses well sequentially (like system integration). The company still faces an uphill task of maintaining its revenue growth despite challenges in its dominant automotive sector and the challenge of bringing up and developing nascent sectors like medical space. Nonetheless, given their technological reputation and focus on growing other key verticals like telecommunications and medical, Tata Elxsi remains a good investment prospect in the information technology and industrial design segment.


Q1 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q1FY20 Q1FY19 YoY % Q4FY19 QoQ %
Sales 373.81 389.88 -4.12% 420.1 -11.02%
PBT 70.19 108.26 -35.17% 106.76 -34.25%
PAT 48.79 70.49 -30.78% 71.29 -31.56%

Detailed Results

    1. The company saw revenues drop 4% YoY and 11% QoQ.
    2. The PBT and PAT for the company fell by larger quantum with falls of 35% and 31% YoY respectively.
    3. The depreciation expenses for the company has shot up from Rs 6.1 Cr to Rs 10.44 Cr due to the re-categorisation of leases expenses from other expenses to depreciation.

Investor Conference Call Highlights

  1. The new order bookings for current quarter were higher than Q4FY19.
  2. The broadcast and communications unit and medical services unit have grown faster than the last 2 quarters.
  3. The company has been reeling from the sudden pace of revenues loss from Jaguar Land Rover.
  4. The company is expecting this development to reverse once Jaguar Land Rover recovers and normalises.
  5. The proportion of revenues from JLR went down to 15% from 22%, and the total revenues from auto majors went down from 60% to 50%.
  6. The company is also to undergo the salary hikes for the employees in Q2.
  7. The company would like to maintain their margin target of 22%-25%.
  8. The management do not expect the revenues from JLR to fall further from current levels.
  9. The broadcast and communications segment grew 10% QoQ and the medical services unit grew 40% QoQ. These segments are expected to continue on their growth path.
  10. The company is constantly evaluating new verticals to enter into.
  11. The company is expecting the R&D budgets for auto majors should rise in the future rather than shrink in case of platform consolidations.
  12. The 2nd largest client for the company is Comcast from USA.
  13. The company is expecting the trend reversal for the falling revenues from auto clients.
  14. The company has seen their average team size and project duration rise which has also slowed down decision making. But this can be seen as leading to longer and deeper engagements with clients.

Analyst’s View

Tata Elxsi have been one of the few Indian companies that have focused exclusively on advanced technologies and integrated product design. The company has suffered from lower orders from their biggest client JLR and are busy developing other areas like broadcast & communications and medical services. The company management have also indicated that they are currently evaluating options for new verticals which is encouraging as it shows their efforts to reduce their dependence on key client risk especially JLR and the auto sector clients. But it remains to be seen how fast the company can bring these upcoming verticals up to match the missing revenues from the auto sector or how fast the current auto sector slowdown will end and bring a reversal in fortunes for them. Nonetheless, Tata Elxsi remains a company to lookout for given their pedigree in product design and their technological excellence and should be in the radar of any investor banking on the theme of such technologies.


Q4 2019 Updates

Financial Results & Highlights

                                                                Standalone Financials (In Crs)
Q4FY19 Q4FY18 YoY % Q3FY19 QoQ % FY19 FY18 %  Change
Sales 420 395 6.33% 404 3.96% 1640.4 1429.5 14.75%
PBT 107 109 -1.83% 94 13.83% 433.4 363.9 19.10%
PAT 71.3 70.3 1.42% 66 8.03% 290 240 20.83%

Detailed Results

    1. The company saw a muted quarter with only 6% YoY growth in revenues.
    2. The FY19 revenues were marginally better with 15% growth YoY while profits grew more than 20% in the same period.
    3. The software development division saw growth of 16% in FY19 revenues as compared to FY18.
    4. The system integration division saw a decline of 5% in FY19 revenues as compared to FY18.
    5. Embedded product design continued to be the dominant segment with more than 85% of revenues arising from this business area.

Investor Conference Call Highlights

  1. The company is looking for other markets similar to passenger automotive market where their embedded product design expertise can be harnessed. They have identified and ventured into the rail industry, commercial and off-road vehicles to acquire new customers and reduce dependence on the softening passenger auto market.
  2. The broadcast and communications EPD business area has seen good growth with the shift towards OTT (Set top boxes) and android on the part of telco majors.
  3. The medical and healthcare EPD business area has been the fastest growing area right now. Although this segment is very small compared to the automotive and broadcasting segments, the company is optimistic about this area.
  4. The company is now moving ahead beyond just new product development into downstream services like regulatory support.
  5. The last quarter was good for IP or integrated products for the company. The company has won IP deals in automotive and broadcasting sectors including Falcon Eye which is a leading product for players launching OTT platforms and services.
  6. The company also won an important OEM contract last quarter which showcased their skills to provide complete verticalized capability for customers in the auto sector which can be used to a variety of services ranging from gathering sensor data to advanced analytics on a cloud platform to value added services like fleet management, etc.
  7. In the broadcast and communications segment, the company has announced a deal with NOS which is a leading broadcasting operator in Portugal after they built a complete digital operation transformation framework. This shows that even after digital transformation, the company can attract deals with these clients.
  8. The company sees many opportunities coming up in the broadcast segment as more and more streaming services take off and the market for this segment expands.
  9. The management has provided future guidance of revenue growth of around 15% and EBITDA margins between 22% and 25% in FY20.
  10. The company is evaluating a few acquisition targets to enhance their capabilities. Thus, the company is maintaining a high cash balance.
  11. The automobile segment accounts for 60% of revenues while the broadcast segment accounts 30% to 34% of revenues.
  12. For FY19, JLR accounted for 21% of revenues while its revenue contribution in Q4 was at 18%.
  13. In the medical business area, the company is focusing its efforts into 2 different directions. One of them is hospital medical devices while the other is home care segment. Out of these, the bulk lies in hospital medical devices.
  14. The company has added over 50 new clients in FY19 across all business areas.
  15. The company has admitted that the automobile industry is in for a period of great changes as OEMs move away from the diesel engines. The management admits that this will prove turbulent for the company as well but hopefully once the industry and market assimilates the new technologies, things should go back to normal.
  16. The company states that the bulk of the R&D for the company is done in-house.
  17. The company expects the revenue contribution from automobiles segment to drop in the short term due to slowdown in the sector but it should revert back to normal in the second half of the new financial year.
  18. The revenues generated by new clients is just 6%-7% of total revenues. The rest is all from existing clients.
  19. The headcount at the company is at 6100 in Q4FY19 with utilization at 73%.
  20. The company is optimistic of the auto industry engagements mainly on the back of their AUTONOMAI and DTH simulation technology initiatives.
  21. The company also expects to start licensing the components of AUTONOMAI very soon.
  22. In consumer electronics, the engagement with Panasonic makes them strong contenders for opportunities in the smart electronics space.

Analyst’s View

Tata Elxsi has been one of the few Indian companies that have focused exclusively on advanced technologies and integrated product design. They have reaped the reward for this in recent years. But their dependence on the automobile industry has slowed their growth in the last year. But the company is making reassuring statements that they will be trying to use their auto industry experience to pursue deals in various other industry segments like railroads and aviation. It remains to be seen what time it will take in this transition. Moreover, newer industries while creating newer opportunities will also bring newer challenges for Tata Elxsi.  Nonetheless, Tata Elxsi is still a good investment option for anyone to evaluate in the theme of advanced technologies like autonomous cars and IoT to name a few.


 

Q3 2019 Updates

Financial Results & Highlights

Standalone Financials (In Crs)

Q3FY19

Q3FY18 YoY % Q2FY19 QoQ % 9M FY19 9M FY18 9M% Change

Sales

404.32 352.35 14.75% 426.1 -5.11% 1220.3 1034.54 17.96%
PBT 94.41 94.02 0.41% 123.95 -23.83% 326.63 255.33

27.92%

PAT 65.99 62.77 5.13% 82.18 -19.70% 218.67 169.75

28.82%

Detailed Results

    1. Total sales declined 5% QoQ and were up almost 15% YoY.
    2. Revenues from operations were up 1% QoQ and 18% YoY.
    3. There was a loss figure in other income of Rs 2.69 Cr which was mainly due to foreign exchange loss.
    4. This was also the cause for drop in PBT which was down (24) % QoQ and was only 0.41% up YoY.
    5. The PAT reflected a similar drop of 19.7% QoQ and a gain of 5.13% YoY.
    6. The segment revenues were dominated by embedded product design at more than 86%.
    7. The industrial design and system integration lines accounted for 10% and 3% respectively.
    8. The 9M figures showed an average result of 18% growth in revenues YoY.
    9. The PBT and PAT for 9MFY19 were up 28% and 29% respectively.

Investor Conference Call Highlights

  1. The revenues originating from JLR for Tata Elxsi stands at 20% of total revenues.
  2. The company expects to see big opportunities for its AUTONOMAI suite which can be used to test autonomous vehicle functionalities without using it on roads. Most of these opportunities will be lying in the validation services according to the company.
  3. Right now this counts for less 5% of revenues but it can be scaled up fast in the near future.
  4. The geographical distribution of revenues is as follows:
    • Europe: 55%
    • USA: 30%-35%
    • India & Asia: 10%-15%
  5. The company is expecting a lot of traction in the near future from China.
  6. Half of the revenues from Europe originate from the UK.
  7. The company is gearing itself to deal with multiple scenarios due to uncertainty originating in the UK where roughly 25% of total revenues originate from.
  8. The company is committed to maintain an annual growth rate of 20%.
  9. The company is pushing towards longer term contracts so as to minimize inefficiencies arising from shorter term contracts that the company used to take in the past.
  10. They have also reduced attrition levels to below 12% from 17% previously.

Analyst’s View

Tata Elxsi has been one of the sleeper hits from the Tata conglomerate. It has been steadily growing for in the past and has maintained a healthy growth rate of more than 20% for a number of years. But right now they are facing headwinds originating from their biggest customer JLR who accounts for 20% of their total revenues. Tata Elxsi have been working hard to better their operations and to expand their penetration into newer markets. Their AUTONOMAI suite seems have significant revenue earning potential in the near future. However, it remains to be seen how Tata Elxsi maintain their committed annual growth rate while tackling the problems originating from decline of their biggest customer and uncertainty from Brexit.

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