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Edited Transcript of TATAELXSI.NSE earnings conference call or presentation 18-Jul-19 9:30am GMT

Q1 2020 Tata Elxsi Ltd Earnings Call

Jul 23, 2019 (Thomson StreetEvents) -- Edited Transcript of Tata Elxsi Ltd earnings conference call or presentation Thursday, July 18, 2019 at 9:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* G. Vaidyanathan

Tata Elxsi Limited - General Counsel, Company Secretary & Compliance Officer

* Madhukar Rajendra Dev

Tata Elxsi Limited - MD, CEO & Executive Director

* Manoj Raghavan

Tata Elxsi Limited - Executive VP & Head of The Embedded Product Design

* Pai Nitin

Tata Elxsi Limited - Head of Marketing and SVP

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Conference Call Participants

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* Apurva Prasad

HDFC Securities Limited, Research Division - Research Analyst

* Mayank Babla

Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Research Analyst

* Nirmal Bari

Sameeksha Capital Private Limited - Equity Research Analyst

* Ritesh Rathod

Alchemy Investment Managers Private Limited - Research Analyst

* Rohan Pramod Advant

Multi-Act Equity Consultancy Ltd. - Portfolio Manager

* Sanjeev Panda

Tamohara Investment Managers Pvt Ltd - Portfolio Manager

* Soumitra Chatterjee

Spark Capital Advisors (India) Private Limited, Research Division - VP of Research

* Srinath Krishnan;Acacia Partners;Analyst

* Tushar Bohra;MK Ventures;Analyst

* Vimal Gohil

Union Asset Management Company Private Limited - Research Analyst

* Vivek Ganguly

Nine Rivers Capital Holdings Pvt. Ltd. - Executive Director & Portfolio Manager

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Presentation

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Operator [1]

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Good day, ladies and gentlemen. And a very warm welcome to the Tata Elxsi Q1 FY '20 Earnings Conference Call. (Operator Instructions) Please note that this conference is being recorded. I now hand the conference over to Mr. Vaidyanathan. Thank you, and over to you, sir.

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G. Vaidyanathan, Tata Elxsi Limited - General Counsel, Company Secretary & Compliance Officer [2]

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Thank you. Hi, all. This is Vaidyanathan welcoming you all to the Q1 Results Investors Conference Call. We have with us Mr. Madhukar Dev, Managing Director and CEO; Mr. Manoj Raghavan, EVP, EPD; and Mr. Nitin Pai, SVP Marketing.

Please restrict to one question in order to give opportunities to other. I'll now hand over to Mr. Madhukar Dev, who'll take it over.

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [3]

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Thanks very much, and welcome to this call. First of all, I'll take a couple of minutes introducing Manoj Raghavan, who all of you have known to be the Head of our EPD Division. Manoj is going to take over from me in early October as the CEO and MD of Tata Elxsi. He's been with us for 20-plus years and has held a number of different roles. He -- his first assignment was to build our business in Japan. And under his watch, Japanese business grew to be in excess of 35% of our overall revenues. He then came back and handled all of East Asia, that's when we started doing business in Asia, outside of Japan.

The U.S. market had been a challenge for us for a long time. And Manoj moved to the U.S. and spent about 3 years and grew the business there very significantly. And now is all set to take over the company. And he's very familiar with our strengths, our challenges, the markets and our people. So I'd just like Manoj to say hello to all of you, and then I'll come back.

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Manoj Raghavan, Tata Elxsi Limited - Executive VP & Head of The Embedded Product Design [4]

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Hello, everybody. This is Manoj here. Thanks, Madhukar, for the warm words.

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [5]

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Thank you. Now let's move to the quarter that ended on June 30. It was, indeed, a tough quarter, but at the same time, the numbers would probably exaggerate the negatives a bit. There were a number of positives in the quarter, a number of things went according to plan. Of course, quite a few didn't. And I'll first mention some of the significant positives for us in the quarter.

In terms of new order bookings, Q1 number was significantly higher than the previous quarter. And that really points in a positive direction for the time to come. Two of our business units, that's the broadcast and communications as well as the medical business unit, both clocked a very high growth as compared to the previous quarter, higher than they have ever grown in 2 consecutive quarters. And so these -- there are certainly some of the key positives for us.

Yes, there was a lot of -- there were a lot of challenges in trying to compensate for the loss of business, which was somewhat abrupt from Jaguar Land Rover, though we did know that there would be a ramp downs, but the extent of ramp down was a bit surprising and the pace at which it happened was such that there wasn't too much that one could do, and this -- as an organization, they themselves went through a period of great uncertainty, and therefore, one just has to hang in there and see how best to make our presence continue there. And happily having got on to the preferred supplier list of Jaguar Land Rover, the think that as soon as they start giving out work in a significant way, we should be able to make up for the setback that we've suffered.

If you look at even the numbers that we have reported, there was a substantial amount of IP and one-off revenues in the previous quarter, which we were not able to repeat in the current quarter. And part of the reason why we were not able to repeat is the general slowdown and the decision of pace of -- and the pace of decision making. And while we have a number of active cases, both for the IPs and other new engagements, we -- which we were hoping to actually close and revenue in the quarter, some of them are still pending. We did have a number of significant new wins, including getting into a new country in Europe. And the funnel that we have overall looks quite healthy. The alarming thing has been the pace at which the funnel is converting to revenue. And we hope that this trend will change, and we'll soon be back to our normal business growth.

With this, I would open it to questions, which between Manoj, Nitin and I, we'll attempt to answer.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Vimal Gohil from Union Mutual Fund.

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Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [2]

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Yes. Sir, my first question would be if you could just give me what was the proportion of revenues that came from JLR, total automotive business and from comps this particular quarter? And what was the supposed last quarter and the previous -- and the quarter last year?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [3]

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Okay. I'll give you the figures that I have. The JLR business was about 22% last quarter, which is now down to about 14.5%, 15%. The total transport business was about 60%, it's now down to 50%, 51%. And what was the third thing you asked?

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Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [4]

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Comps, communications vertical.

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [5]

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Communication and broadcast, we have merged a few quarters ago. And...

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Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [6]

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So total how much would that be?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [7]

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That -- I'll come back and give you that number a little later. I don't have it readily with me.

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Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [8]

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Sir, if I'm not wrong, JLR had -- was that about 18% in Q4, if you could just reconfirm that number?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [9]

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No, JLR total for the company, for the EPD it may have been 18%, but totally for the company was 21% to 22%.

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Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [10]

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Okay, okay. All right. And sir, what was the -- how much was the one-off revenue in last quarter that you spoke about?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [11]

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It would be close to about INR 25 crores to INR 30 crores.

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Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [12]

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Okay, okay. Which wasn't there at all in this quarter?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [13]

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It came down to hardly INR 2 crores.

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Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [14]

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Right. And sir, did you -- have we gone ahead with our usual salary hike cycles in this quarter?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [15]

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It will happen now in the current quarter.

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Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [16]

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This is not reflected as yet?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [17]

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No.

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Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [18]

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Okay. So what -- and then what would you -- what would you then attribute the margin -- a steep decline in margins to? Apart from the revenue decline?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [19]

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It's just the revenue decline. If you see our expenses, none of them is out of control. They're all the way we expected them to be. The revenue that dropped and that's straight gone from the bottom line.

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Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [20]

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All right. So salary hike is expected in the next quarter?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [21]

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In the current quarter, yes.

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Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [22]

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Okay. My -- that means Q2 rather.

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [23]

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Yes.

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Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [24]

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Okay. Okay. And sir, what is -- okay, so I -- there is a severe slowdown in the non-JLR business in the -- on the automotive side. When do you expect this to turn around, because when we had last spoken in the call, we had alluded a significant optimism on the non-JLR business on the automotive piece? So what went wrong here in this particular quarter, sir?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [25]

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It's not as if business has been lost or programs have been called off. It's just the speed at which they were deciding earlier, it was very, very different from the speed at which these cases are processing now. And it's understandable when their own sales are affected, the pressure on spending money and doing something new becomes much less. As soon as their business picks up, I expect the pressure on picking up, engineering will pick up, too.

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Operator [26]

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The next question is from the line of Rohan Advant from Multi-Act.

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Rohan Pramod Advant, Multi-Act Equity Consultancy Ltd. - Portfolio Manager [27]

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Sir, just a clarification on the JLR numbers, you said Q4 FY '19, they were 21% and Q1 FY '20, which is this quarter, it is 14% or 14.5%. Is that right?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [28]

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Yes.

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Rohan Pramod Advant, Multi-Act Equity Consultancy Ltd. - Portfolio Manager [29]

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Okay. Sir, and can you tell me what they were in June '18 quarter, Q1 of FY '19, JLR contribution?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [30]

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I don't have the number readily, but from my memory, I would say it was about 24%, 25%, somewhere there.

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Rohan Pramod Advant, Multi-Act Equity Consultancy Ltd. - Portfolio Manager [31]

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Okay. And sir, all these numbers are as a percentage of total revenues?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [32]

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That's right.

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Rohan Pramod Advant, Multi-Act Equity Consultancy Ltd. - Portfolio Manager [33]

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Okay. Sir, and in one of your earlier calls, you had mentioned that JLR is also offshoring or like shifting its work from onshore to offshore, which has a negative impact on revenues, of course, because billing rates are lower. So is that what happened and is continuing to happen? Or is it more that the business has more stock than just being offshore?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [34]

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There are more stocks than a conversion from on-site to offshore.

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Rohan Pramod Advant, Multi-Act Equity Consultancy Ltd. - Portfolio Manager [35]

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Okay, okay. And sir, just on the global auto landscape, everyone is facing a slowdown and R&D budgets are being curtailed. One of the implications of this could also be that they would offshore more or outsource more -- sorry, not offshore, outsource more and companies like us could benefit from that trend. Is that also what you are seeing, or is a possibility? Or it's just that the business pie is getting smaller and smaller?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [36]

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No. You're right. Logically, it makes sense to outsource more and save money. But what is affecting us adversely right now is the speed at which decisions are being taken. So it's not as if the budgets are being cut very drastically outside of Jaguar Land Rover, it is more the speed at which -- just to give you an example, there was an engagement that we were hoping to start in April, we were selected in March. We were told you will start within 30 days, with a fairly significant growth trajectory to follow. We're sitting in the middle of July, we have been selected. The paperwork's been placed. We are yet to start work. So it is these things that are affecting our revenue more than cuts and budgets or anything, which would be much more bothersome and worrisome for the long-term future. These, I think, are temporary blips and will get set right.

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Rohan Pramod Advant, Multi-Act Equity Consultancy Ltd. - Portfolio Manager [37]

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Okay. Sir, but the larger story of the R&D spends, though the entire number is being reduced, the kind of things that are being spent on and Elxsi being a beneficiary of those spends, is that continuing or you are seeing even those spends which benefit us are reducing, too?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [38]

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No. We are not seeing those spends getting cut, no.

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Rohan Pramod Advant, Multi-Act Equity Consultancy Ltd. - Portfolio Manager [39]

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Okay, okay, okay. Sir, and on broadcast communication, you said that the growth rates have been very high. Can you give us a number on -- of the growth rate?

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Manoj Raghavan, Tata Elxsi Limited - Executive VP & Head of The Embedded Product Design [40]

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It was about 10% on our sequential quarter.

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Rohan Pramod Advant, Multi-Act Equity Consultancy Ltd. - Portfolio Manager [41]

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Okay, okay. Sir, and lastly on the hiring side, we had about 6,000 employees end of March '19. So what are your hiring plans for the year?

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Manoj Raghavan, Tata Elxsi Limited - Executive VP & Head of The Embedded Product Design [42]

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At the moment, we have a plan to bring in fresh graduates over the next 6 months. And they have been selected, they are being put through some pre-joining orientation and training. And they'll be coming in, in phases. I'm talking about 500 of them.

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Rohan Pramod Advant, Multi-Act Equity Consultancy Ltd. - Portfolio Manager [43]

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Okay. Okay, sir, and just lastly on constant currency revenue growth rate, if you could help me?

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Manoj Raghavan, Tata Elxsi Limited - Executive VP & Head of The Embedded Product Design [44]

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Constant currency, the number I have is excluding the one-offs, which is almost flat between Q4 and the current one.

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Rohan Pramod Advant, Multi-Act Equity Consultancy Ltd. - Portfolio Manager [45]

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Okay. Sir, this one-off, are you referring to the IP revenue of Q4?

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Manoj Raghavan, Tata Elxsi Limited - Executive VP & Head of The Embedded Product Design [46]

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Yes.

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Rohan Pramod Advant, Multi-Act Equity Consultancy Ltd. - Portfolio Manager [47]

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Sir, I'm not understood because it's a 10% sequential drop, right, INR terms?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [48]

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Yes. If you see this, we were doing IP revenues of between 3.5% to 5.5% every quarter last year. In the current quarter, it is just 1%. So that is IP. And associated with engagement, there's some one-offs bits of revenue, which you have -- which are not spread over the period of the engagement, which every time we get a new engagement, you have those one-off revenues. If there were not too many new starts, that revenue doesn't get through in that quarter. And this is one peculiar quarter where we didn't have too many new starts in the auto business.

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Rohan Pramod Advant, Multi-Act Equity Consultancy Ltd. - Portfolio Manager [49]

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Okay. Sir, so there has been a significant currency impact also this quarter. Is that right?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [50]

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Yes. It's about 2% overall.

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Operator [51]

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The next question is from the line of Soumitra Chatterjee from Spark Capital.

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Soumitra Chatterjee, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [52]

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My first question is, is the entire drop in JLR completely volume-led? Or the incremental work that we are doing has come at a lower pricing?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [53]

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No, there's no change in pricing.

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Soumitra Chatterjee, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [54]

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It's completely volume led.

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [55]

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Yes.

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Soumitra Chatterjee, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [56]

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And you -- and it is predominantly led by cut by JLR, you have not lost wallet share within that account? I mean has the work shifted from Tata Elxsi to any other vendors, maybe a HARMAN or a KPIT, for that matter.

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [57]

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No. None of our work has shifted anywhere. Not in -- not to a supplier, nor to a competitor, no.

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Soumitra Chatterjee, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [58]

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Okay. My second question is, sir, what happens to your guidance? You were earlier expecting about 15% kind of growth in INR terms...

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [59]

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I would like to correct you there. It's not a guidance. We have always maintained that's our internal aspiration. At the moment, we'd like to stick to that aspiration.

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Soumitra Chatterjee, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [60]

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Okay. So your aspiration is still of 22% to 25% kind of margin. You are still sticking with that for this particular fiscal?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [61]

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Yes.

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Soumitra Chatterjee, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [62]

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Okay. And -- sir, one thing that you've mentioned about INR 30 crores kind of a one-off revenue. So your last quarter revenues was about INR 405 crores. Now if I were to calculate 21% of that, it becomes roughly JLR is contributing to INR 85 crores. And if I were to look at your this quarter revenue, it's just INR 362 crores, and I do a 15% on that, it gives me about INR 55 crores, so which means the entire one-off or SI work that was there last quarter, it was the JLR only to indicate a INR 30 crores kind of a Q-o-Q drop from JLR?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [63]

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No. It was not entirely from JLR. And it's -- there was a lot of other declines that have happened, not the one-off declines, which has got compensated by new engagements from other customers. They are 2 different things, the one-off revenues and decline in JLR partly compensated by others. So you don't see that entire decline in the overall number.

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Soumitra Chatterjee, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [64]

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Okay. And -- I mean, I agree that the ramp down has been steeper than you would have expected, but we have already come down to about INR 50 crores a quarter revenues from JLR. From a next 12 months perspective, in your conversation with JLR, can it fall down further to beyond this INR 50 crores? Can it go down -- go below INR 50 crores of quarterly revenue run rate from JLR?

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Manoj Raghavan, Tata Elxsi Limited - Executive VP & Head of The Embedded Product Design [65]

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In my conversations with JLR, I did not think it would come down to this current level either. And the conversations continue to be very encouraging and positive. There's -- you just have to see how it plays out. I personally don't expect it to drop any more.

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Operator [66]

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Okay. The next question is from the line of Ritesh Rathod from Alchemy Capital.

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Ritesh Rathod, Alchemy Investment Managers Private Limited - Research Analyst [67]

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Sir, what's your view on the margins, is it -- you said the JLR cut was more on volumes, and since you have not cut the employee cost and you have new employees. So going forward, how should we see the margin trajecting?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [68]

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It will follow the revenue trajectory, it's as simple as that. If we have -- growing revenue at 10% quarter-on-quarter, we'll see margins also going up proportionately.

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Manoj Raghavan, Tata Elxsi Limited - Executive VP & Head of The Embedded Product Design [69]

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The margins have declined not because of anything else, it's just that the cost base has remained the same and the revenue has come down. So we'll fix the revenue and it will back where we were.

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Ritesh Rathod, Alchemy Investment Managers Private Limited - Research Analyst [70]

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So we'll have a wage hike, we'll have fresher additions in coming quarters. So the cost base would be keep moving upwards. So as a percentage to revenue, margins will stay at 19% EBITDA margin or it will improve on that percentage?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [71]

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The aspiration is to work towards improving it.

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Ritesh Rathod, Alchemy Investment Managers Private Limited - Research Analyst [72]

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And what would be that number for aspiration, 23%? 25%?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [73]

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Upwards of 20%.

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Ritesh Rathod, Alchemy Investment Managers Private Limited - Research Analyst [74]

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Upwards of 20%. And sir, would it be -- ever get back to 26% kind of margins, because the business is getting -- business mix has changed, within JLR the kind of work would get changed since things have got a new, a new business would come in, so would it be possible to get back to 26% margin in 2-, 3-year scenario?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [75]

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Yes. I had mentioned this earlier in previous calls that 26% and 28% were really aberrations. And we'd be very happy if we maintained between 22% and 24%. And I think that's the realistic number to expect. You may have an odd quarter where we'll exceed 26%, but steady state, it has to be between 22% and 24%

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Ritesh Rathod, Alchemy Investment Managers Private Limited - Research Analyst [76]

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And sir, just on this IP and hardware, which were one-offs, which we're seeing in last quarter -- from last quarter base to this quarter, would we see IP and hardware revenue coming back in coming quarters? Or this is a highly...

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [77]

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These things -- certainly, we are quite confident that we'll be able to bring it back to at least 2%, 3% of our revenue every quarter. And the other one-offs all depend on the number of new starts that we do in the quarter. So as soon as that picks up, we should be back to the same number.

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Ritesh Rathod, Alchemy Investment Managers Private Limited - Research Analyst [78]

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So 2%, 3% is the IP remaining, right, sir, you are saying?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [79]

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Yes.

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Ritesh Rathod, Alchemy Investment Managers Private Limited - Research Analyst [80]

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And other one-offs are the hardware revenue, which you are thinking to...

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [81]

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It is a starting cost, various elements, yes.

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Ritesh Rathod, Alchemy Investment Managers Private Limited - Research Analyst [82]

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Okay. And sir, within automotive, the non-JLR portion, which is 35% of revenue, that client base, how -- indirectly they're dependent on JLR R&D spend?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [83]

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No. They have virtually no connection with the JLR R&D spend. These are either independent car makers or system and component suppliers to the car companies.

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Ritesh Rathod, Alchemy Investment Managers Private Limited - Research Analyst [84]

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Okay. And sir, your take on the overall global R&D spends on -- in the automotive -- auto vertical since they are getting deferred, where do you think -- see things getting stabilized and recovering on the overall spend, which will be...

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [85]

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My own view and I welcome views from Manoj and Nitin also is that what we're seeing is a temporary blip and have always believed that if you look at the car industry over the last 75 years, there has never been a 15-year period without some slowdowns, some setback. But overall, the industry has grown continuously. So it's a temporary blip as far as I'm concerned.

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Manoj Raghavan, Tata Elxsi Limited - Executive VP & Head of The Embedded Product Design [86]

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Yes. And as far as we are concerned, we are also looking at it as a temporary blip. And our Board and our Chairman has clearly indicated that we need to recover within the same quarter. So we are putting in all our efforts to really grow back in Q2 itself.

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Operator [87]

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The next question is from the line of [Harish Kawalkar] who is an individual investor.

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Unidentified Participant, [88]

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I am a long-term, early investor, and first of all, on a lighter note, congratulations for your -- this kind of result because this result give me the opportunity to buy more shares.

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [89]

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I wish you had bought in better times.

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Unidentified Participant, [90]

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Yes, sir. Yes, sir. Yes, sir. I'm buying it from around 2009, I think.

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [91]

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Oh. So then you've seen a great upside.

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Unidentified Participant, [92]

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And I have 2 questions. First of all, you are working with the driverless cars in automobile but you have any plan for 2-wheeler, which are coming in electric 2-wheelers right now?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [93]

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No. Right now we don't have any plans to get into the 2-wheeler market.

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Unidentified Participant, [94]

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Electrical, right. And I have -- my second question is, have you faced any competition from any competitor? If yes, in which business segment?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [95]

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We obviously have competitors in every segment that we operate in. We win business because of the value that we deliver to our customers. And very often customers who've tried us before, trust us more than they trust anybody else. So in excess of 92%, 93% of our revenues in every -- any time period come from our existing customers. So we compete, we win and we retain our customers.

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Unidentified Participant, [96]

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I just asked this question because a lot of people talk about the business moat and competitor advantage. I just want your take on that competitive advantage and moat?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [97]

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Yes, our competitive advantage is twofold. One is the brand that we carry, the Tata brand today all over the world stands for a number of values that most customers cover, not the least of them being the -- that we're trustworthy and we will not do anything that we shouldn't be doing. The second key strength comes from our technical competence. We believe we have some of the best technical manpower in the world working with us in the areas that we operate. So given these two, we end up winning business in a competitive situation.

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Operator [98]

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The next question is from the line of Nirmal Bari from Sameeksha Capital.

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Nirmal Bari, Sameeksha Capital Private Limited - Equity Research Analyst [99]

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My first question is on this communication and the medical devices that we had been looking at. You said at the beginning of your commentary that those 2 segments have seen good growth. So if you can put a growth number to it? And secondly, in light of 60% of our business, which is automobile slowing down, are these 2 segments having sufficient pipeline? Or can they drag us and drag the automobile segment enough to have a 15% kind of growth this year? Or they are too small at present?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [100]

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I'll answer the second part first. And you're right, they are relatively small. And if the auto business does not pick up, it would be very hard for these 2 businesses to compensate for the lack of growth in auto. So we -- while overall we've seen a slowdown in the auto business, it's still very significant. And we are fairly confident that we'll be able to clock in reasonable growth there. In terms of growth in these individual businesses, the broadcast and communications combined had about 10% growth quarter-on-quarter and the medical business about 35%, 40% growth.

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Manoj Raghavan, Tata Elxsi Limited - Executive VP & Head of The Embedded Product Design [101]

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But from a smaller base.

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [102]

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Yes.

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Nirmal Bari, Sameeksha Capital Private Limited - Equity Research Analyst [103]

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And what would be medical business as a percentage of revenue at present?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [104]

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Under 10%.

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Nirmal Bari, Sameeksha Capital Private Limited - Equity Research Analyst [105]

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Okay. Under 10%. And my second question is on the automobile excluding JLR. What kind of conversations are we having over there? You mentioned that the decision-making process is slow but...

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [106]

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Yes. We are having very good, encouraging conversations. There's nobody saying that we are in trouble, we're not going to do anything for a while. There are no negatives that we are seeing. It's just that the conversations are not translating into revenues as quickly as they were.

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Nirmal Bari, Sameeksha Capital Private Limited - Equity Research Analyst [107]

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And then are we looking at a bigger pipeline?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [108]

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Yes. Exactly. You're absolutely right. We are looking at having a much bigger pipeline, given the fact that the conversion is a bit slow.

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Nirmal Bari, Sameeksha Capital Private Limited - Equity Research Analyst [109]

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Okay. And finally, sir, it's been about 2.5 to 3 years, if I'm not wrong, since you got into the medical devices segment. And now it has started showing growth. So are we looking at some other verticals that we would like to enter to further reduce our dependence on automobiles?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [110]

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Yes. Nitin Pai has been constantly evaluating other verticals to get into. And some of them we do on a trial basis to see the characteristics of that market. And we will certainly be entering into other verticals, too, in the next 3, 4 quarters. It's a bit premature to talk of them. Once we have a little more clarity, we'll certainly be happy to share with you.

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Operator [111]

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(Operator Instructions) The next question is from the line of Vivek Ganguly from Nine Rivers Capital.

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Vivek Ganguly, Nine Rivers Capital Holdings Pvt. Ltd. - Executive Director & Portfolio Manager [112]

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Sir, there are 2 trends, broad trends that we are noticing. One is, obviously, the general slowdown in the auto industry, and the second is consolidation of platforms or collaborate -- different companies starting to collaborate on different platforms and a consolidation happening there. Like in the case, we have heard of JLR, BMW merging their EV platforms. So the slowdown in the budgetary support or the decision-making process, is it coming because of the slowdown in the industry generally or because of these consolidations that are happening, the development consolidation and then they need to figure out who leads the process? That's my question, sir.

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [113]

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Nitin, you'd like to address this?

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Pai Nitin, Tata Elxsi Limited - Head of Marketing and SVP [114]

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Sure. So it is a fact that, yes, OEMs are looking at how they can not necessarily burn cash all by themselves and lead to suboptimal results, but rather join up hands with appropriate partners across the industry, and therefore full R&D resources and talent as well as budgets, right? So that's a fact. But you have to look at it in the context of a car production and what goes in the electronics. A large part of that is still supplied to them by suppliers, right? So the whole platform game is being driven towards what the future would be, which is as we go electric, what components do OEMs need to own, vis-à-vis what will come from suppliers, and to that extent, what part of that development should be done all on one serve versus being done jointly with other partners to increase chances of success.

Equally, it allows you to share IPR, patents and so on and so forth. So in my view, at this time, yes. If you look at a little more longer-term future, one trend is OEMs will do more. They will take more control of software. So that should be -- that should not affect us either way because you'll either get business is strong, business from Tier 1's or you'll get business from OEMs. The consolidation of programs directly does not impact you because this is for future of the future. So obviously there would be a part of it which also has to be outsourced ultimately, right?

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Vivek Ganguly, Nine Rivers Capital Holdings Pvt. Ltd. - Executive Director & Portfolio Manager [115]

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Yes. But when we are talking of consolidation of programs, let's say, JLR was having one EV program for EV line and then BMW has another. So each of them have 1 or 2 of these products. Now if they decide that they merge and instead of 6 programs cumulatively they have 3 programs, which they have to decide, which are the ones they want to pick and which will become the base on which both of them will manufacture their -- or design their futuristic cars.

So then it can either shift -- now the decision might shift that it has to be taken by BMW instead of JLR or one program you all might have been working on is no longer relevant going forward. So is the fact that we are seeing coming from there? Of course, there is a budget-free constraint right now, but is that also because we are seeing this consolidation between many different companies. So did that kind of -- what it means is going forward there is a -- the pie itself will shrink, the budget or the R&D pie.

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Pai Nitin, Tata Elxsi Limited - Head of Marketing and SVP [116]

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I think very simply -- did any of our revenues that did not come through this quarter happen because of such a consolidation and the impact of that consolidation? No. Right? Having said that, you have to remember in the context of -- these collaborations are for very advanced R&D. They are not for a production programs going on today. It is for production programs that will come up 3 years, 5 years, 10 years, hence. So the understanding is that the collaboration that they are doing now may not be very large, but it should lead to much larger budgets and much larger work to be done.

So I actually -- I mean, I'm sorry, I'm not able to illustrate it well enough, but the way I see it, it's actually an opportunity that is yet to unfold and on time develop. It is not really a negative impact because we are all for advanced R&D programs. So if you look at BMW and Mercedes collaborating for shared mobility, that is for the future. It's not for today. If you look at JLR and BMW, it is for developing a joint EDU or a Electronic Drive Unit. And that is, again, for the future because they are not meant for cars that are going in right now.

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Vivek Ganguly, Nine Rivers Capital Holdings Pvt. Ltd. - Executive Director & Portfolio Manager [117]

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So your budget would largely be from the cars which are already under production, and those being remodified, developed and so on? These are sort of very little of the work that you will be doing would be from very futuristic programs?

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Pai Nitin, Tata Elxsi Limited - Head of Marketing and SVP [118]

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That's correct. So work that we do in design and so on, is very futuristic. Just, for example, we would explore what would be the human machine interface or UI or the UX 10 years down. There would be a certain portion of work that we do even today in terms of pure R&D from the electronic space, which is also for 5, 10 years. For example, everything that we do in autonomous is really 5 plus years, isn't it? It's really not going to be anything before 2023, 2025, that you see advance -- driverless cars. So some part of what we do is very, very forward looking, but a large part of what we do is typically towards productizing into programs today.

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Vivek Ganguly, Nine Rivers Capital Holdings Pvt. Ltd. - Executive Director & Portfolio Manager [119]

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Okay. So the budgetary constraint that you'll have seen in the case of JLR would largely be for projects which are already online, and what is -- further incremental improvement or incremental feature additions that is happening on a existing product lines?

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Pai Nitin, Tata Elxsi Limited - Head of Marketing and SVP [120]

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That's correct.

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Operator [121]

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Next question is from the line of Shrikant (sic) [Srinath] Krishnan from Acacia Partners.

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Srinath Krishnan;Acacia Partners;Analyst, [122]

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You shared an anecdote to where you mentioned that one of your programs got extended. So are these discretionary programs, what quality of work is this -- sure we don't want to know the OEM, but when you throw some light on the quality of work that we are supposed to do? And secondly, generally in auto industry, we are seeing that there is a 2- to 3-year visibility for the suppliers, when they are going to get into newer models. Likewise, would you also have similar visibility, do you have similar order book with you?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [123]

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The thing that happened was a delay. It was not an extension of an existing project. It was a delay in commencement. And the nature of work is obviously contemporary technology. And there's not a discretionary R&D which can be put off indefinitely. Thus, we are prepared for delays in, but whatever is part of contemporary programs, we expect normally that to move at a faster pace. And it starts moving earlier. And in terms of visibility of 2 years, it's a bit hard to say. I hope what is visible today is not for 2 years, but just for 3 months. And has different changes in 3 months from now.

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Srinath Krishnan;Acacia Partners;Analyst, [124]

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Okay. Sir, apart from JLR who is your next biggest client? And secondly, my limited understanding was in the segment that you were participating, you are still a small fish, and the opportunity is pretty large for you. So in such a case, would it be fair to blame the industry because you have the capabilities and also the market is growing fast in terms of ADAS or the end-market spend in those months, the market is growing. So would it be fair to blame the in-market growth or the total auto industry decline that is happening at this point in time?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [125]

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One is not trying to blame the external environment. It's a reality -- with the external environment prevailed 2, 3 quarters ago, it was very different from what prevails today. And it is for us to adapt to the change and make the most of it. And that's purely an internal thing. And which is what we are all working to do. And that's what gives us the confidence that we can bounce back to our old growth rates pretty quick.

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Srinath Krishnan;Acacia Partners;Analyst, [126]

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Okay. And the next biggest client is apart from JLR?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [127]

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Yes. And Comcast is our...

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Srinath Krishnan;Acacia Partners;Analyst, [128]

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In the automotive segment, in the automotive segment.

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [129]

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In the automotive segment would be a supplier, yes.

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Manoj Raghavan, Tata Elxsi Limited - Executive VP & Head of The Embedded Product Design [130]

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Yes. A genuine supplier from the U.S.

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Operator [131]

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The question is from the line of [Adit] Shah from Reliance Securities.

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Unidentified Analyst, [132]

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I just wanted to understand -- I think what -- there was a question earlier regarding you're entering some new verticals. So I think in the last quarter, it was also alluded to something from -- going on like I think, in markets, which are adjacent to that of automotive, so like railway or aerospace, commercial vehicles, off-road vehicles. So were these verticals you were referring to at that -- earlier in this call?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [133]

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No. We were talking about completely new markets. The adjacencies are something that we've started work on already. We have some engagements and they need to be nurtured and grown. When we -- I was mentioning new verticals in -- earlier in the call was completely new areas which we are evaluating.

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Unidentified Analyst, [134]

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Okay. So can you name any of those? Or...

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [135]

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Not yet. No.

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Unidentified Analyst, [136]

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Not yet. Okay. Fair enough. Just a couple of bookkeeping question. I don't know if I -- you've mentioned this earlier in the call, maybe if I missed that. So can you give out what was the utilization and the on-site/offshore breakup?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [137]

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Yes. The utilizations dropped to about 65%. And the on-site, offshore is about 56%, 44%.

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Unidentified Analyst, [138]

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On-site is 56%?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [139]

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No. Offshore is 56%

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Operator [140]

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Next question is from the line of [Amar Mourya] from Alfaccurate Advisors.

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Unidentified Analyst, [141]

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Sir, when you say that 15% growth is possible even after the first quarter of weaker performance, sir, what gives you the confidence? And if you can just bifurcate that into how do you see that, this kind of growth would be driven by? Because still, today, the 60% bulk of the business is the automotive business.

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [142]

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Yes. We (inaudible) just need to have a larger funnel in auto and a lot more ongoing cases to start -- to have new starts in every quarter. So it's not as if auto is likely to shut down or anything.

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Unidentified Analyst, [143]

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No. I'm not saying shutdown, but like the -- I think the weakness was...

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [144]

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The growth is to come from auto.

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Unidentified Analyst, [145]

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Okay. Okay. And sir, when you have this kind of visibility, normally, this kind of weakness was also expected by you? Like...

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [146]

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Weakness was certainly expected. In fact, in a number of our earlier interactions we did (inaudible) but the extent of weakness was not anticipated to be as much as we saw and as quickly as it happened.

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Unidentified Analyst, [147]

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Okay. Okay. And sir, what gives you the confidence that these things will reverse and we'll be able to reach to the number which we are talking about? I mean is that -- we already got some confidence from the client side. I mean what is that (inaudible)?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [148]

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I have mentioned earlier in the call that our funnel that we have is a fairly healthy funnel, it's significantly better than what we had a few quarters ago. We are working towards expanding that even further, given the fact that the decision making is slow. So that is what gives us the confidence that we'll be able to get back to the growth rates that we have.

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Unidentified Analyst, [149]

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And can you expect the turnaround to happen in the Q2 itself?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [150]

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See, it's a little difficult to say whether it will happen this month, next month or the next quarter. But this -- the trend is being reversed already.

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Operator [151]

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The next question is from the line of Mayank Babla from Dalal & Broacha.

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Mayank Babla, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Research Analyst [152]

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I just had one question. In the automotive space, how many customers -- number of customers do we have in the non-JLR space? And the -- this figure for the last 3 years, if you could give us, in the automotive space?

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Manoj Raghavan, Tata Elxsi Limited - Executive VP & Head of The Embedded Product Design [153]

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Yes. As to how many customers totally, it is roughly about close to 50 now.

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [154]

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5-0?

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Manoj Raghavan, Tata Elxsi Limited - Executive VP & Head of The Embedded Product Design [155]

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5-0.

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Mayank Babla, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Research Analyst [156]

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And over the last 3 years, what is the trend?

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Manoj Raghavan, Tata Elxsi Limited - Executive VP & Head of The Embedded Product Design [157]

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Right. So if I look at it, I think about 3 years back, we had about 60, right? And then we actually consciously trimmed the portfolio of customers that we had. The idea was to grow around the set of customers and improve wallet share rather than try and service too many customers. So we dropped that to about 45, 46, if I'm not missing. And then subsequently, we've added about 3 or 4 customers in this quarter.

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Operator [158]

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The question is from the line of Sanjeev from Tamohara Investments.

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Sanjeev Panda, Tamohara Investment Managers Pvt Ltd - Portfolio Manager [159]

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Sir, in the initial commentary, you said about the funnel and order book looks better than last quarter. So in that, could you please help us to understand how much would we like auto and how much would be on the nonauto side in the order book position that you said?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [160]

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It's -- the marked improvement is in the auto segment as compared to the last quarter. And the other 2 are steady as they were. There's nothing dramatically different.

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Sanjeev Panda, Tamohara Investment Managers Pvt Ltd - Portfolio Manager [161]

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And sir, we also saw the non-JLR part of the business also falling this time. So is there -- the trend is likely to be? Or how is that -- if I consider this order book improvement that you say in that consideration?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [162]

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Yes. I said a little while back that, I think it's a temporary setback that we are seeing. It's not likely to be a long-term trend.

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Sanjeev Panda, Tamohara Investment Managers Pvt Ltd - Portfolio Manager [163]

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Sir, one last thing, if I can. The JLR and the non-JLR if I look at in a ballpark basis, the JLR supposed to be a better margin business for us, am I right in...

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [164]

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No. They -- all our customers are more or less the same margin.

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Operator [165]

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Next question is from the line of the Tushar Bohra from MK Ventures.

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Tushar Bohra;MK Ventures;Analyst, [166]

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A few points, sir. You had, I think, about 3 or 4 quarters back, in one of the con calls, mentioned the ambition for the company. If I can just state that again, that you wanted to do a deeper engagement mode from a shorter-duration project mode, so the more longer-duration projects. You had mentioned you wanted to get more revenue from IP. So the -- I think the stated ambition was to get to a 10% revenue from IP. And the third was to get to a 10% Q-o-Q kind of a revenue growth for the company sustainably. For -- that was the -- I think about 3 or 4 quarters back, with what you had mentioned, I wanted to understand where we are vis-à-vis that ambition? And if this is a process, like, really, how long do you think we would take to sort of get there? Or what steps need to be done to get there qualitatively also?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [167]

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On the IP, I mentioned earlier that in the current quarter, IP revenue was just about 1%. So there's a lot of work that we have to do to get to the 10% mark that I had mentioned. If you look at sequential growth of 10%, we did drop over 5% sequentially for a number of quarters till the last one, which really think is an aberration. So once we get back to 5%, then it will be much easier to give you a time line, as in we'll be growing sequentially 10%.

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Tushar Bohra;MK Ventures;Analyst, [168]

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So from a project engagement perspective as in...

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [169]

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Longer and deeper engagements. Yes, we have -- certainly, our average deal size has improved considerably, so also the duration of an engagement. And that is also possibly one reason why we are seeing a slower pace in decision making. If you were taking too many small orders, you'll be able to do it quicker than we are doing. But it's a bit of a trade-off. And I think in the long term, it will be to our benefit. So we are pushing for larger, more sustainable engagements.

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Tushar Bohra;MK Ventures;Analyst, [170]

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So should we read this as -- are we voluntarily letting go of some shorter-duration projects or smaller...

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [171]

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No. Not letting go. We are not changing those.

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Tushar Bohra;MK Ventures;Analyst, [172]

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You're not changing those. Okay. All right. Second, sir, in terms of the opportunity spaces, medical devices being one area for us, and automotive vehicle, self-driving cars and EV as a space. Apart from these, in terms of themes, when I say artificial intelligence or 3D printing and stuff like that, which are the other themes that you are seeing traction in that, and that you would want to focus on, let's say, from a 3- to 5-year perspective?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [173]

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We would flow...

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Pai Nitin, Tata Elxsi Limited - Head of Marketing and SVP [174]

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So yes, the broad teams are definitely around artificial intelligence, robotics, IoT is a big theme for us. We have software-defined networking as a key theme. So these are some of the few key themes that we are already working on, and hopefully, in the coming quarters, we will see returns coming from these areas.

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Tushar Bohra;MK Ventures;Analyst, [175]

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Right. And when we say IP, we want to get to, let's say, a 10%. How exactly are we booking IP revenue? Is there a sort of a nonlinearity in terms of, let's say, something goes into production, or any one of our platform products go into production, we are able to scale up exponentially? Is that how we read on the IP revenue front?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [176]

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See, we have a few engagements like that. And one of them is probably nearing the end of lives now. So we won't see too many upsides. We did not see many in the current quarter. And the -- another significant one, we should start seeing an upside in 2 quarters.

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Manoj Raghavan, Tata Elxsi Limited - Executive VP & Head of The Embedded Product Design [177]

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From 2 quarters.

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Tushar Bohra;MK Ventures;Analyst, [178]

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From 2 quarters. Okay.

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [179]

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Yes. There we'll have a share of the revenue that our customers bring in.

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Pai Nitin, Tata Elxsi Limited - Head of Marketing and SVP [180]

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Nitin here, just wanted to add, please note that in general the model is not prone towards long annuities or royalties over a period when it goes into production. That is a state we would like to get into.

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Tushar Bohra;MK Ventures;Analyst, [181]

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Yes. But we do have products, sir, we do have conversations happening that, that are along those lines already?

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Pai Nitin, Tata Elxsi Limited - Head of Marketing and SVP [182]

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Yes. In fact, there will be -- first proposal we make is always to do with annuity.

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Tushar Bohra;MK Ventures;Analyst, [183]

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Okay. Sir, you mentioned on JLR that we did 18% as part of the automotive and 21%, 22% of the overall last quarter. So that would mean -- is it fair to assume that there would be some element of IP revenue from JLR? And that your IP revenue gets tagged separately and not to a particular domain?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [184]

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No. What I said was the overall company wise, this includes industrial design and visualization.

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Tushar Bohra;MK Ventures;Analyst, [185]

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So JLR was 22% of the overall but 18% of automotive. So there would be a large component coming from...

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [186]

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18% of EPV revenues.

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Tushar Bohra;MK Ventures;Analyst, [187]

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Yes. Sir, so there would be some revenues that would be coming from non-automotive as in non-engineering stuff from JLR? Or am I getting this wrong?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [188]

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Yes. Non-engineering would be design and visualization. And there would be some work in the area of connectivity and communications.

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Tushar Bohra;MK Ventures;Analyst, [189]

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Okay. And your IP gets tagged to the domain revenues, sir, as in, sir, automotive IP would come into automotive share of revenue?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [190]

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Yes.

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Tushar Bohra;MK Ventures;Analyst, [191]

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Or IP gets reported separate?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [192]

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Internally, we track it separately, but we club it...

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Manoj Raghavan, Tata Elxsi Limited - Executive VP & Head of The Embedded Product Design [193]

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In the mainstream, yes.

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Tushar Bohra;MK Ventures;Analyst, [194]

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Okay. One last, sir, very quickly. The engagement that we mentioned was supposed to start in April for JLR?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [195]

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Not JLR. It was not JLR. It's a newer...

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Tushar Bohra;MK Ventures;Analyst, [196]

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Sorry, my apologies. But the engagement -- so we -- it was a significant engagement in terms of number of resources and billing?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [197]

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Yes.

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Tushar Bohra;MK Ventures;Analyst, [198]

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Fair to assume, sir?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [199]

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Yes.

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Tushar Bohra;MK Ventures;Analyst, [200]

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So we would have had to do fresh hiring for that project?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [201]

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A combination of some limited amount of fresh hiring. And by and large, re-skilling and deployment of existing manpower.

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Tushar Bohra;MK Ventures;Analyst, [202]

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Okay. But would there actually be an impact -- material impact on the margins that we've seen in Q1 because of this project not starting because the cost would have already been incurred, which would hurt your regular cost.

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [203]

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Yes. Not so much this one project, but there were about half a dozen net such engagements, which were to start during the quarter, which have not started till June 30. So combined effect would be significant.

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Tushar Bohra;MK Ventures;Analyst, [204]

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And if I may just squeeze one, sir. What would be our funnel right now in terms of actual -- either as a percentage to last year's revenue or as an absolute number?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [205]

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What we've checked is the funnel for the current quarter, and that number is significantly higher than what was a quarter ago.

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Operator [206]

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The next question is from the line of Rohan Advant from Multi-Act.

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Rohan Pramod Advant, Multi-Act Equity Consultancy Ltd. - Portfolio Manager [207]

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And sir, sorry to like pick hair on this, but on the constant currency base, you said it is flat sequentially, so 5% IP last quarter is now 1%. So there is a 4% drop there. 2% is currency. So that adds up to 6%. But if we see the INR drop that is around 11%. So what is the balance 5%, sir?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [208]

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I really don't know. I'll have to check it and revert to you.

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Rohan Pramod Advant, Multi-Act Equity Consultancy Ltd. - Portfolio Manager [209]

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Okay. Okay. Sir, and this 18% contribution from JLR last quarter, you said that is as a percentage of EPD, is that right?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [210]

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Last quarter means June 30?

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Rohan Pramod Advant, Multi-Act Equity Consultancy Ltd. - Portfolio Manager [211]

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No. Sir, you said 18% was contributed from JLR in Q4, right?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [212]

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21% I said in Q4 and that's come down to 14.5% in the current quarter.

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Operator [213]

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The next question is from the line of [Kunal Shah] from Carnelian Capital.

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Unidentified Analyst, [214]

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I just have got one question as regards the consolidation that we're seeing in the auto industry, would we see consolidation also in terms of companies that are servicing them for R&D? What I mean is like companies like us, so that was the first part of it. Second question is also, are we looking at kind of any acquisition or something to couple growth?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [215]

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Nitin Pai will answer for this.

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Pai Nitin, Tata Elxsi Limited - Head of Marketing and SVP [216]

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Yes. In terms of consolidation in the industry around engineering, yes. But it's not so much a consolidation, it's just the fact that with the larger IP stories is slowing down even further, a lot of companies are looking at opportunities in the engineering space. And therefore, you have, for example, a Capgemini acquiring Altran and who has acquired Aricent, who has acquired so on and so forth, right? So you have a chain of acquisitions but if you really look at it, it's to target alternatives to IT slowdowns rather than -- and the attractiveness of engineering in contrast. It's not so much a consolidation within that industry itself.

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Unidentified Analyst, [217]

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Okay. And the second part of the question, are we kind of looking at acquisitions?

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Pai Nitin, Tata Elxsi Limited - Head of Marketing and SVP [218]

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Yes. We are. So to that extent, yes. There is a reasonable cash balance, of course, not -- nowhere close to what some of our big IT companies would have. But we have a decent cash on hand. And the idea is, of course, to use it whether internally for growth-related aspects or to look at inorganic options. It's just that we are being a little careful about what we look at strategic acquisitions. So we're very clear that it's not the capacity, obviously, it has to be of a very differentiated capability both for customer and market access. So sometimes finding that right company and the right place at the right time is always a difficult thing.

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Manoj Raghavan, Tata Elxsi Limited - Executive VP & Head of The Embedded Product Design [219]

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The right value.

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Pai Nitin, Tata Elxsi Limited - Head of Marketing and SVP [220]

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And at the right value, of course.

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Unidentified Analyst, [221]

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Okay. So let me say that we're looking at new verticals to be added in the next 2, 3 quarters, I mean, we are building upon it right now? Or we are kind of looking at it through acquisition mode?

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Pai Nitin, Tata Elxsi Limited - Head of Marketing and SVP [222]

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No. So at that -- see, in general, we don't look at -- we first look at the logic of getting into a vertical based on internal capability, capacity and ability to scale, right? If the entry into the vertical is still -- has to happen clearly through acquisition, possibly there is no great upside in that sense. So capacity, first of all, driven by a certain amount of capability and capacity internally, and then complemented with market access or otherwise from outside.

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Operator [223]

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Due to time constraints, we will take the last question from the line of Apurva Prasad from HDFC Securities.

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Apurva Prasad, HDFC Securities Limited, Research Division - Research Analyst [224]

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I'm actually still a bit confused on the JLR...

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Operator [225]

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Apur, you're not audible.

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Apurva Prasad, HDFC Securities Limited, Research Division - Research Analyst [226]

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Can you hear me now?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [227]

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Yes.

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Apurva Prasad, HDFC Securities Limited, Research Division - Research Analyst [228]

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Sir, not still very clear on the JLR number? I believe last quarter, which is the March quarter, you spoke about 18% of the overall revenue. And you've given a number of 14.5% of the overall revenue for the June quarter. Would that be correct?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [229]

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I -- my impression is, it was 21% in the March quarter and it is 14.5% now.

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Apurva Prasad, HDFC Securities Limited, Research Division - Research Analyst [230]

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I think sir, you mentioned 21% for the whole year and 18% for the fourth quarter?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [231]

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Okay. I'll need to recheck that, yes. Now it's down to 14.5% for the whole company for the quarter.

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Apurva Prasad, HDFC Securities Limited, Research Division - Research Analyst [232]

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And how do you see that trending sir? I mean going forward, sir, you talked about...

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [233]

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I don't see it's coming down any further. I expect it to start moving upwards again.

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Apurva Prasad, HDFC Securities Limited, Research Division - Research Analyst [234]

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And also on the margins with the upcoming wage hikes, how comfortable are we from the current quarter margins? Do you think that can go up despite the wage headwinds that we see for the second quarter?

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [235]

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Yes. It's ought to go up from where we are, certainly. But how quickly we'll get back to 20% is a bit difficult to say. It depends on how much more business we are able to bring in, what revenue growth we are able to clock in the rest of the current quarter and the subsequent one. But should be possible at December and...

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Apurva Prasad, HDFC Securities Limited, Research Division - Research Analyst [236]

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Right. And I think Manoj earlier in the call mentioned about reverting back to the 4Q level revenue terms. So is it that we are seeing much stronger IP revenue coming through in the second quarter?.

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Manoj Raghavan, Tata Elxsi Limited - Executive VP & Head of The Embedded Product Design [237]

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I don't think you've gotten right.

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [238]

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No. Could you come again, Apurva?

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Apurva Prasad, HDFC Securities Limited, Research Division - Research Analyst [239]

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Sure. So I mean did you indicate that we can revert back to fourth quarter revenue level from next quarter? Or do you...

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Manoj Raghavan, Tata Elxsi Limited - Executive VP & Head of The Embedded Product Design [240]

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No. What I said just our Board and our Chairman is pushing us to show the recovery in this quarter itself. And that focus is to ensure that we come back to our growth level in this quarter and not wait for 3 or 4 quarters to catch up.

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Apurva Prasad, HDFC Securities Limited, Research Division - Research Analyst [241]

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Sure. And just lastly from my side, any initiatives that you can talk about in terms of building the funnel?

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Pai Nitin, Tata Elxsi Limited - Head of Marketing and SVP [242]

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Yes. Yes, of course, funnel building is an ongoing activity. And as Madhukar said, the quality -- both the actual size of the funnel and the quality of funnel is much better as compared to the last quarter. So there is -- and given the current situation that we're in, there is a lot of focus and it's been time and effort going on in tracking this funnel almost on a daily basis to ensure that we return back to our growth in this quarter.

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Operator [243]

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Thank you very much. I now hand the conference over to Mr. Vaidyanathan for closing comments.

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G. Vaidyanathan, Tata Elxsi Limited - General Counsel, Company Secretary & Compliance Officer [244]

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Thank you all for the participation. We hope to come back next quarter strongly.

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Madhukar Rajendra Dev, Tata Elxsi Limited - MD, CEO & Executive Director [245]

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Thank you all.

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Manoj Raghavan, Tata Elxsi Limited - Executive VP & Head of The Embedded Product Design [246]

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Thank you.

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Operator [247]

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Thank you. Ladies and gentlemen, on behalf of Tata Elxsi, that concludes this conference call for today. Thank you for joining us, and you may now disconnect your lines.