Tata Elxsi : Financial Reporting Document

"Tata Elxsi Limited Q4 FY2023 & FY23

Earnings Conference Call"

May 18, 2023

MANAGEMENT: MR. MANOJ RAGHAVAN - CEO & MANAGING

DIRECTOR - TATA ELXSI LIMITED

MR. NITIN PAI - CMO & CHIEF STRATEGY OFFICER -

TATA ELXSI LIMITED

MR. GAURAV BAJAJ - CFO - TATA ELXSI LIMITED

MS. CAUVERI SRIRAM - COMPANY SECRETARY - TATA ELXSI LIMITED

ANALYST: MR. DIWAKAR PINGLE - ERNST & YOUNG LLP

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Tata Elxsi Limited

May 18, 2023

Moderator:Ladies and gentlemen good day and welcome to the Tata Elxsi Limited Q4 FY2023 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference, please signal an operator by pressing "*" then "0" on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Diwakar Pingle from EY. Thank you and over to you, Sir.

Diwakar Pingle: Thank you very much Darwin. Good evening to all participants on the call. Good morning if you joining from western side. Before we proceed with the call, let me remind you the discussion may contain forward-looking statements that may involve known or unknown risks, uncertainties and other factors. Therefore, it must be viewed in conjunction with the businesses that would cause further results and its 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 & CEO; Mr. Nitin Pai - Chief Marketing & Chief Strategy Officer; Mr. Gaurav Bajaj - Chief Financial Officer; and Ms. Cauveri Sriram - Company Secretary.

We will start the call with a brief overview of the past quarter and the year by Mr. Raghavan, followed by a Q&A session. Having said that, I would like to hand over the call to Manoj - Over to you Manoj.

Manoj Raghavan: Thank you, Diwakar. Good evening, everybody.

Thank you all for joining us today for the Q4 earnings call. By now you would have received a copy of the Q4 earnings release and fact sheet, both of which are available on our website.

As we are meeting at this fourth quarter earnings call, I am happy to report that for the full financial year 2023, we have delivered a strong performance with revenue growing by 27.3% and profit after tax growing by 37.4%. During the financial year, we crossed the 3000 Crores revenue milestone.

For the fourth quarter of the financial year 2023, our revenue from operations was Rs. 837.9 Crores which translates to quarter-on-quarter growth of 2.5% and year on year growth of 22.9%. In US dollar terms, the quarter-on-quarter growth was 2.9%.

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Tata Elxsi Limited

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Our EBITDA for the quarter was at 249.5 Crores, which translates to an EBITA margin of 29.8%. Our PAT for the quarter was at 201.5 Crores. In a year which had macroeconomic uncertainties and several challenges for the industry in general, we have been able to grow our revenues and protect our margins.

I am happy to report that the board of directors have recommended a final dividend of 606% for the financial year ending 31st March 2023. This represents a 42.6% increase over the previous year and corresponds to a payout ratio of 50% of our PAT.

Talking of our divisional performance for the quarter in constant currency terms our Embedded Product Design or EPD division grew 1.6% quarter on quarter and 13% year on year. The other two divisions IDV and SI had a remarkable growth during the financial year. IDV grew 52.8% year on year and our System Integration grew 77.6% year on year.

Talking of the verticals, we had a steady quarter of performance for all our three verticals but more importantly, our Healthcare and Media & Communication business both have returned to growth from last quarter, even if moderately. We are building a strong deal pipeline and hope to see large deal conversions picking up over this quarter and beyond.

Across the three verticals, our growth has been primarily volume led and we have witnessed strong growth with our large accounts. Across the key accounts, we have increased the wallet share against competition, underscoring our differentiated value proposition and offshore delivery capabilities.

I am personally excited with the opportunity ahead in the automotive and transportation business. The scale and rate of transformation that automotive industry needs to undertake changes driven by the regulatory, sustainability, and evolving customer, consumer preferences, and business models present extraordinary opportunity for Tata Elxsi. This transformation will demand deep domain knowledge, scale in software development, application of digital technologies like AI and IoT and more importantly design will take a center stage in creating consumer delight. I believe we are at the right place and bring the right capabilities and are engaging in the right conversations with global automotive leaders in their transformation journey.

Our strategic long-term deal with Alps Alpine in Japan to establish a global engineering center for developing next-gen mobility solutions in India and a multiyear SDV deal with a European OEM reflect this opportunity.

I do recognize that an offshore centric and ownership driven delivery model is not only harder to execute but also requires almost three times the number of resources to deploy as

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Tata Elxsi Limited

May 18, 2023

compared to onsite deployment for the same impact on top line. However, we strongly believe that this is the only way to create long-term and sustainable value and we are best positioned to deliver on this.

Equally, there is an emerging opportunity for applications around 5G that allows enterprises to harness the speed and reliability of this technology. We are seeing deals with operators and with enterprises to make this a reality.

Two of the large deals that we announced this quarter precisely address this opportunity. We have been selected by a leading Middle East telecom operator as a design led consultancy and development partner for next gen applications around 5G including healthcare, IOT, and connected digital services.

We also won a strategic deal with the world's leading telecommunications product company for 5G broadband software and solution deployment that will power the next gen consumer devices.

Our Healthcare and Life Sciences business was impacted by the extension of regulatory deadlines, which cut into our existing work and revenues but I am happy to see the business recovering from the setback within a quarter and building a strong pipeline of deals and penetration into new marquee customers.

So, we are seeing the success of our key strategies deployed over the last two years with strong synergies between the EPD, IDV and SI divisions playing out well, allowing us to address upstream and downstream product lifecycle requirements where we are seeing increase in duration and size of our deals leading from this up selling and cross selling. This is reflected in the strong performance of our IDV and the system integration business in FY2023.

On the attrition front our analyzed attrition for the fourth quarter stood at 17.3%, which is again one of the lowest among our peers in IT industry at large.

We enter the new financial year with the confidence of working with a marquee set of global customers, scaled delivery capability from talent investments that we have made over the year and a unique propulsion of Design Digital that is more relevant today than ever. So I strongly believe we are in good shape to move forward and I now hand over the floor to E&Y for the Q&A session. Over to you Diwakar!

Moderator:Thank you very much. We will now begin the question-and-answer session. The first question is from the line of Bhavik Mehta from JP Morgan. Please go ahead.

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Tata Elxsi Limited

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Bhavik Mehta: Thank you. A couple of questions firstly on the transportation vertical, we saw a very sharp deceleration in growth on a sequential basis. Was it due to any project deferrals or ramp- downs which we saw during the quarter and what is the outlook going into 1Q as well in this vertical? The second question again is on the other two vertical which is Media and Healthcare, we saw some growth coming back in 4Q, but what is the outlook going forward. Do you expect growth to start accelerating from here on or do you expect it to remain maybe weak for a couple of more quarters before we start seeing green shoots over here? And lastly year just a bookkeeping question on the ESOP. The shareholders approved the ESOP scheme till March, so what is the outlay going to be and any impact on margins because of that?

Manoj Raghavan: On the transportation business, we have won significant deals in the quarter. We have announced that. We strongly believe that moving forward we have a good deal pipeline and we are seeing customer confidence in the value proportion that Tata Elxsi has, so from transportation business I strongly believe that growth that we have shown over the year, we will be able to replicate that in the coming financial year. On the Media and Healthcare business, yes, we have seen some amount of green shoots and some amount of growth come back, it is still early days I would say, but from a midterm to long-term perspective I see no challenges for us and this business will definitely recover and more important as we see a lot more of these 5G opportunities and deals that are coming back, I strongly believe that towards the later half of Q1 and Q2, we will see the growth coming back into Tata Elxsi. On that front, we are pretty confident. Regarding ESOPs on a quarterly basis, we are looking at about 4.5 Crores or so of expenses that we would incur on the ESOP front.

Bhavik Mehta: Okay that is helpful, but just on the transport, what was the reason for the weakness in 4Q because 3Q was a very strong growth of 7%. Now we saw only 1.5%, any colour on that will be helpful.

Manoj Raghavan: It is very difficult for you to look at. It is a large business that we have, so you do not really look at it from a quarter-to-quarter basis in that sense. You look at it from a midterm to a long-term perspective. The fact that we have continued to grow and grow significantly over the year is what we need to look at, so I am not really that much bothered about this one quarter issue because we definitely see strong deal pipelines and so on. There have been some amounts of deferments in some of our customer places but that is fine and we strongly believe that growth will come back in Q1 and Q2.

Bhavik Mehta: Okay thank you that is it from my side.

Moderator:The next question is from the line of Vimal Gohil from Alchemy Capital Management. Please go ahead.

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