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Edited Transcript of TATAELXSI.NSE earnings conference call or presentation 14-Jan-20 9:30am GMT

Q3 2020 Tata Elxsi Ltd Earnings Call

Jan 24, 2020 (Thomson StreetEvents) -- Edited Transcript of Tata Elxsi Ltd earnings conference call or presentation Tuesday, January 14, 2020 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

* Manoj Raghavan

Tata Elxsi Limited - MD, CEO & Director

* Pai Nitin

Tata Elxsi Limited - Head of Marketing and SVP

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Conference Call Participants

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* Ankit Shah

White Equity Investment Advisors - Investment Advisor

* Bharat Sheth

Quest Investment Advisors Pvt Ltd. - Head of Equities

* Madhu Babu

Centrum Broking Limited, Research Division - Research Analyst

* Manik Taneja

Emkay Global Financial Services Ltd., Research Division - Research Analyst

* Manish Bhandari

Vallum Capital Advisors - Founder, CEO & Principal Portfolio Manager

* Mayuri Yadav;Equentis Wealth Advisory Services

* Ritesh Bhagwati

Rockstud Capital LLP - Assistant VP

* Ritesh Rathod

Alchemy Investment Managers Private Limited - Research Analyst

* Rohan Pramod Advant

Multi-Act Equity Consultancy Ltd. - Portfolio Manager

* Sumit Pokharna

Kotak Securities Limited - VP

* Ujwal Shah

Quest Investment Advisors Pvt Ltd. - Equity Analyst

* Vimal Gohil

Union Asset Management Company Private Limited - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the Q2 FY '20 -- or Q3 FY '20 Earnings Conference Call of Tata Elxsi Limited. (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, Stanford. Good afternoon. I welcome you all to the Tata Elxsi Q3 FY '20 Results Investors Conference Call. Thank you for joining us today, and happy New Year. The financial statements, quarterly fact sheet and the press release are available on our website. We have with us today, Mr. Manoj Raghavan, CEO and MD; and Mr. Nitin Pai, Chief Marketing Officer and Chief Strategy Officer. Mr. Manoj Raghavan will give a brief overview of the company's performance, followed by Mr. Nitin Pai, who will give an overview of our company's performance by divisions. We will follow that up with the Q&A session.

And you are aware, we do not provide specific revenue or earnings guidance, and anything said on this call which reflects our outlook for the future or which could be construed as a forward-looking statement must be reviewed in conjunction with the risks that the company faces. I also request you to please restrict to one question at a time to provide opportunity to everyone on the call today. If time permits, you can always come back in the queue, if you have any unanswered questions. With that, I would like to hand over to Mr. Manoj.

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [3]

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Good afternoon, everybody here, this is Manoj here. A very happy New Year to all our investors. I'm pleased to report that we have delivered another strong quarter, both in terms of top line and bottom line. And as you would have seen in terms of top line, this is the highest ever revenue in the company's history. So I would consider that given the issues that we have seen in the past couple of quarters, I would say that we have truly -- well and truly recovered.

Revenues grew almost close to 10% quarter-on-quarter and about 4% year-on-year. A significant portion of this growth came from volume growth, right? So if you look at it, our constant currency growth was -- in the last quarter was 6.8%. The bottom line performance has also been quite satisfactory. PBT grew by close to 45% quarter-on-quarter. And the PBT margin for the quarter was close to 23%. The revenue growth in this quarter was, again, broad-based across divisions. We've seen good growth across divisions and across geographies.

So if you look at -- EPD grew -- EPD and the industrial design business grew almost close to 10%, right? 9.8% and 9.9%, respectively. SI also grew by about 7% quarter-on-quarter. And even EPD, if you look at it, the 2 large verticals grew pretty well. The transportation vertical grew upward of 10% and the media and communication vertical delivered another quarter of steady growth, about 5.3% of growth. And as you would know, medical is the fastest-growing piece of our business, built from a small base. They've been able to grow by 30 -- upwards of 40% quarter-on-quarter.

Of course, the performance was led by strong execution and ramp up in the large deals that we have won in the previous quarters. That also reflects in our utilization rate, which has increased to about 75% in the last quarter. So I think that has been very satisfactory, and it shows in the -- it shows in our -- uptick in our margins, right? The quarter also saw addition of leading customers and wins across verticals in multiple segments, right?

So I would now hand it over to Nitin, to really give out a little more details about each of our businesses.

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Pai Nitin, Tata Elxsi Limited - Head of Marketing and SVP [4]

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Good afternoon, and very happy New Year to all of you. I'm just expanding upon what Manoj shared. I think it has really been an all-round performance. I think the metrics will tell you that. But if you look at it as markets, geographies or even business divisions, I think we have really seen everything come together. And in many ways, I think this performance was supported by very strong execution and ramp-ups across all customer cases, and we are not talking of just the top 5 or the top 10 here. We have really seen far better mining, far better execution and consistent ramp-ups across customers, going well beyond the top 10.

On the other hand, from a strategic perspective, we have been working for some time now on creating very strong synergies for customers in being able to bring design and technology together, especially to drive innovation in new products and services. I think we are really starting to see more and more of this in action. And I think a very good example of this is the new user interface for Dish TV and d2h called Orbit. This was officially launched in December by Dish, and this brings together a very seamless TV and online OTT experience together in one elegant and easy to use experience.

And if you then stand back and look at what this requires, it requires a deep understanding of consumers and interactions, it requires the blending of design and user experience, along with the underlying technology, right? And for us, a large part of this is digital simply because you are using AI, you are using machine learning to personalize the experience, and deliver that personalized experience by the consumer.

Even on a stand-alone basis, of course, our design capability continues to be recognized globally. And the latest wins in 2 categories, right? Both packaging and product design at the India's Best Design Studio Awards 2019, which was again in the last quarter, I think, is really a reflection of that globalscape community. We continue to strongly participate in market building activities, so we continue to participate in leading regions across the world, including LA, LA stands for electronics and vehicles. There was a leading event in Germany, this time it was hosted in Bonn in mid-October where we showcased solutions for electric, connecting and autonomous technologies.

We also equally continue to invest in building and strengthening our strategic alliances in all 3 verticals. So we featured a speaker, showcased our offering for connected TV and OTT at the Android TV Summit, right? Which was hosted in Bangkok, and this is an event that's held by Google. So in that sense, we were invited, and we were representing Google and the entire TV Android ecosystem. In general, I think summarizing back again, strong performance across divisions and markets, synergies that are starting to play out very well between parts of the businesses, including what we do in digital technologies and development and technology as well as design. And I think we continue on our ability to market ourselves better. That's a quick summary for you. We are open to questions beyond this. I'm just going to hand over back to G.V.

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G. Vaidyanathan, Tata Elxsi Limited - General Counsel, Company Secretary & Compliance Officer [5]

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Yes. Stanford?

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Questions and Answers

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Operator [1]

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Sure, sir. (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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And congratulations on a turnaround quarter. Sir, I just wanted to understand what are the kind of salary hikes that were offered this quarter on-site and offshore?

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G. Vaidyanathan, Tata Elxsi Limited - General Counsel, Company Secretary & Compliance Officer [3]

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Offshore, on an average, is 8%. And on-site between 1% and 2% depending on the geographies.

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

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And sir, this is completely absorbed in this particular quarter, right?

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G. Vaidyanathan, Tata Elxsi Limited - General Counsel, Company Secretary & Compliance Officer [5]

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Yes.

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

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Okay, okay. Sir, if you could comment on your performance in your top customer? That continues to be slightly on the decline. And plus, also comment on the overall auto vertical, how is it looking now? Because you had a rough few quarters previously. So if you could just comment on the outlook on the sale? And I think -- and also let us know what is the kind of order book that you're seeing in health care because health care, although on a lower base, is showing some very strong growth. So what's the outlook in -- on those 2 verticals? Auto and...

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G. Vaidyanathan, Tata Elxsi Limited - General Counsel, Company Secretary & Compliance Officer [7]

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Sure. So JLR definitely has bottomed out, in fact in this quarter, we've seen a small growth. So to what extent, I would say -- it's wrong to say that JLR has declined, but the relative revenue side because others -- other accounts have grown faster, you might see it as it has degrown. But in reality, it has grown slightly, but slower than the other customers. So definitely, JLR has bottomed out, and hopefully, in the subsequent quarters, we will -- based on their business outlook and performance, we hope to recover our position in that. Automotive industry, in general, as you know, from -- we have been talking about it since, I think, January, in Q4 onwards of the previous financial year. Definitely, that is a slowdown, and we've seen this all the way till the June quarter.

Essentially, what has happened is a lot of the deals that we are bidding for have been pushed back and postponed. And -- but what has happened in the last quarter is we've won -- won quite a few of these deals and also started servicing these deals, ramp-up of headcount and so on, on these deals. That has really resulted in this growth that we are showing about 10% -- slightly more than 10%, right, 10.4% of the growth in the automotive industry.

So I believe it is very early to say whether we can sustain this sort of a growth moving forward. But what I can tell you is whatever deals that we've won, we are aggressively servicing them, deploying resources and so on and so forth. So I'm pretty confident that at least in subsequent few quarters, we should be able to continue this growth path. Whether we have totally recovered from the automotive industry, it again depends on the various trends that are being played out, whether it is on the electric car, and connected car space and -- autonomous driving and so on.

As and when our customers really start looking at outsourcing some of those large pieces that is where we really see further growth. So I would be cautiously optimistic at this point in time.

Regarding medical business, I've always been very bullish on this particular business. I have stated earlier also that we will continue to grow very aggressively in this particular business. I think the outlook continues. We see good traction across the globe. We see some large opportunities coming our way, and we should continue this growth all the way into the next financial year also. So that's in brief about both automotive and the medical piece.

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

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Sir, last question would be on margins. Given the fact that your utilization has fallen to almost 75% versus about 80% on an average. And because your growth outlook is -- seems to be very strong, do you expect the ensuing growth in utilization to also impact your margins positively going ahead? And how much can this utilization go up to?

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G. Vaidyanathan, Tata Elxsi Limited - General Counsel, Company Secretary & Compliance Officer [9]

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I doubt if we were ever at 80% average, we were at 70% percent average. So in fact, the utilization went up from 70% to 75%. So I'm not sure the source of your data. We are not a typical IT company. We definitely would need in India multiple businesses. So we need a strong bench to be able to not only meet the growth expectations of our customers, but also new customer additions and so on. So I would say, 75%, 76% is a good place to be in. Of course, depending on the business growth, this number could go up slightly, but we would, at the same time, keep hiring and adding resources from the market and from the colleges. So I am pretty satisfied with the current situation, it could go up a few percentage points.

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

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So margins will remain in their bands, right?

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G. Vaidyanathan, Tata Elxsi Limited - General Counsel, Company Secretary & Compliance Officer [11]

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Margins will remain in the 22% to 24% band, and that's what we are aiming.

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Operator [12]

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The next question is from the line of Ritesh Bhagwati from Rockstud Capital.

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Ritesh Bhagwati, Rockstud Capital LLP - Assistant VP [13]

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Congratulations on a good set of numbers, sir. Sir, my question is like, how is the decision-making on spending some clients seen in this quarter like versus previous couple of quarters that you might have seen? Can you give us some sense of that? And has there been a pickup in big deal wins that we have witnessed? So that was...

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G. Vaidyanathan, Tata Elxsi Limited - General Counsel, Company Secretary & Compliance Officer [14]

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Sure. So if you look at it, the 3 main verticals that we have is again automotive, media broadcast and the medical space, right? So in media broadcast and in the medical space, we really don't see -- we see business as usual, and we see growth happening and in line with whatever we have been projecting. And definitely, I think our account mining and our new business development activities are growing, and so we're seeing that. So we don't see any hesitation from our customers in terms of holding back and so on. So that -- these 2 segments will continue to grow. Automotive, this quarter was good. And again, I would like to say that we have won some good deals, we won a couple of Tier 1 customers in the U.S., we have won a couple of OEMs in the APAC region.

So automotive deals are happening, but at the same time, the industry is still not out of the woods, so digital making is getting delayed. So I'll not be able to really comment too much on the automotive scenario as the medical and the media and communication space. This quarter was good, hopefully, next quarter will also be good.

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Ritesh Bhagwati, Rockstud Capital LLP - Assistant VP [15]

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Okay. Just one small question, like also, what are the total number of customers we have as on Q3 FY '20, if you could let me know?

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G. Vaidyanathan, Tata Elxsi Limited - General Counsel, Company Secretary & Compliance Officer [16]

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Yes, total number of customers are over 160.

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Ritesh Bhagwati, Rockstud Capital LLP - Assistant VP [17]

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Around 160?

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G. Vaidyanathan, Tata Elxsi Limited - General Counsel, Company Secretary & Compliance Officer [18]

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Yes, that's right.

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Ritesh Bhagwati, Rockstud Capital LLP - Assistant VP [19]

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Have you won any new customers in this quarter or lost any customer?

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G. Vaidyanathan, Tata Elxsi Limited - General Counsel, Company Secretary & Compliance Officer [20]

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There have been a few customer additions, definitely. I don't think we have lost any customer, even if we have lost it, it would be insignificant tail accounts because I strongly believe that there's no point in holding a number of these tail accounts. So we are also looking at how to rationalize this big list, essentially what matters are the top 40, 50 customers above.

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Operator [21]

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The next question is from the line of Mayuri Yadav from Equentis.

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Mayuri Yadav;Equentis Wealth Advisory Services, [22]

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Sir, we have almost like the 10% Q-on-Q growth, which we have been targeting. We have mentioned that in the previous few -- many quarters that we are aiming towards that quarter-on-quarter growth. You have mentioned that while in the automotive, the things are not that clear, but in medical and the broadcasting space, you are fairly confident of the current growth to be sustained going forward? Sir, my question is, assuming that the automotive with the current deal wins that you have had in this quarter, the growth rate is around this region. Then would it be right to say that the growth can be even higher given that the medical devices segment is now doing fairly well for us?

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G. Vaidyanathan, Tata Elxsi Limited - General Counsel, Company Secretary & Compliance Officer [23]

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Yes, in an ideal situation, if everybody -- everything go -- we fire on all cylinders and so on, right, and there are no untoward incidents, we, of course, [stay straight], but we know in reality it doesn't happen. So I would say, yes, even if you look at it, 5%, 6% growth quarter-on-quarter is pretty reasonable, if you look at it. Yes, medical business will grow much faster, but they are also at a much lower base.

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Mayuri Yadav;Equentis Wealth Advisory Services, [24]

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Absolutely. So are we in a way, therefore, talking about an overall revenue mix change in coming quarter because already medical devices is starting around 8% of our revenue. So are we talking of significant mix change from hereon?

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G. Vaidyanathan, Tata Elxsi Limited - General Counsel, Company Secretary & Compliance Officer [25]

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Sure, sure. I mean, not immediately, but in a 3-year time frame, and I've already communicated on that earlier also, that in a 3-year time frame, we will definitely see medical business being a large part of our overall portfolio.

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Mayuri Yadav;Equentis Wealth Advisory Services, [26]

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Sir, any quantification, even a broad range would really help, if you say it will be a large contributor then can you put some range around it?

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G. Vaidyanathan, Tata Elxsi Limited - General Counsel, Company Secretary & Compliance Officer [27]

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The idea is the 3 businesses are almost like 3 pillars -- or 3 legs of a stool, right? So that's the way I see it, so that we have no dependence on any one segment. Having said that, I'd be happy if the medical business is anywhere between 20%, 25% at the end of 3 years.

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Mayuri Yadav;Equentis Wealth Advisory Services, [28]

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Okay, sir. That helps, sir. And sir, just if you can give us some more understanding as to this particular quarter in the health care and medical devices segment? This kind of growth, which geography, what kind of work that you have done and is it a short-term project? Or is it 1 year beyond kind of product that you are executing in that space. So some understanding there will help, sir.

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G. Vaidyanathan, Tata Elxsi Limited - General Counsel, Company Secretary & Compliance Officer [29]

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Yes. The good thing about the medical business is most of the business is long term. And when I say long term, it's beyond a year, 1 year. Many times, it's a 3-year sort of a thing. So when you look at our TCV perspective, the medical business is carrying a healthy TCV, right? So yes, a lot of the business right now is based primarily in Europe and in the U.S. where the big medical companies are there because we do new product development. We do a lot of IoT connectivity sort of work in the medical space. We also do a lot of regulatory activity in the medical space. So it's a combination of all these 3 that is really pushing the medical business.

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Mayuri Yadav;Equentis Wealth Advisory Services, [30]

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Sir, what will be the average deal size in the medical devices segment that we would have done till now?

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G. Vaidyanathan, Tata Elxsi Limited - General Counsel, Company Secretary & Compliance Officer [31]

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I'll not be able to give you that data right now. But I would say it's a pretty satisfactory sort of deal size.

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Mayuri Yadav;Equentis Wealth Advisory Services, [32]

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Okay. And in terms of margins for the medical devices, be a better margin segment for you, given all the entry barriers and the processes that you have to go through, just for the registration and to build a client base?

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G. Vaidyanathan, Tata Elxsi Limited - General Counsel, Company Secretary & Compliance Officer [33]

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Yes, the margins are superior as compared to other businesses.

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Mayuri Yadav;Equentis Wealth Advisory Services, [34]

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Right, sir. Sir, last question, what was the IP revenue contribution in this quarter for you?

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G. Vaidyanathan, Tata Elxsi Limited - General Counsel, Company Secretary & Compliance Officer [35]

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IP was pretty insignificant. It was -- I mean, it was pretty insignificant in this quarter.

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Operator [36]

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(Operator Instructions)

The next question is from the line of [Amar Mourya] from ALFAccurate Advisors.

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Unidentified Analyst, [37]

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My first question is, sir, if you can give us what would be the top client and top 5 and top 10 clients' contribution in this particular quarter?

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G. Vaidyanathan, Tata Elxsi Limited - General Counsel, Company Secretary & Compliance Officer [38]

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Yes. Just a minute. I think it's there in our facts (inaudible)

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Unidentified Analyst, [39]

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I think factsheet, we have not published this time, right?

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G. Vaidyanathan, Tata Elxsi Limited - General Counsel, Company Secretary & Compliance Officer [40]

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It is published. It is there on our website. The top customer is 15.7%, the top 5 is 37.8%, and the top 10 is 50.8%.

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Pai Nitin, Tata Elxsi Limited - Head of Marketing and SVP [41]

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The factsheet is available in the Investors section.

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Unidentified Analyst, [42]

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Yes, yes. Then I'll take it from there.

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Pai Nitin, Tata Elxsi Limited - Head of Marketing and SVP [43]

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Factsheet, yes.

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Unidentified Analyst, [44]

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Yes, yes. Sure. Sir, secondly, like, now given that the run rate of around INR 400-plus crore, and we are confident that from this level also, we'll be able to maintain at least 3.5% to 4% kind of a top line growth. So basic driver for the growth would be in that case then would be the broadcast and the health care?

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G. Vaidyanathan, Tata Elxsi Limited - General Counsel, Company Secretary & Compliance Officer [45]

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First, if you look at this quarter, automotive still grew upwards of 10%.

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Unidentified Analyst, [46]

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Correct. But that is like we are hoping that it will grow next quarter at the same pace.

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G. Vaidyanathan, Tata Elxsi Limited - General Counsel, Company Secretary & Compliance Officer [47]

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Yes, we have pretty large -- we have good deals that we have won, and that growth momentum will definitely continue. We're not -- ever here saying that transportation will grow slower than others and so on. What we're saying is, the outlook is a little bit confused because we've had Q1, which is not great, and then Q2, we recovered a little, Q3 we definitely did well. What will happen going forward, we are not confidently being able to say that, yes, we are on the recovery there and so on, right? So maybe a couple of quarters of steady performance will give us the confidence.

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Unidentified Analyst, [48]

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Okay. Because if I'm not wrong, stripping JLR in this quarter, you would have grown by around 15% in the transportation segment?

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G. Vaidyanathan, Tata Elxsi Limited - General Counsel, Company Secretary & Compliance Officer [49]

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I'm not sure whether it is that high, but it definitely grew faster than the 10% that we published.

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Operator [50]

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The next question is from the line of Ujwal Shah from Quest Investments.

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Ujwal Shah, Quest Investment Advisors Pvt Ltd. - Equity Analyst [51]

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Sir, just wanted to understand each vertical's potential in terms of outsourcing as well as our capability, considering that we are seeing a lot of competition from large Indian players as well. So what capabilities Tata Elxsi has developed which gives it an edge over these players?

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G. Vaidyanathan, Tata Elxsi Limited - General Counsel, Company Secretary & Compliance Officer [52]

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I'll ask Nitin to respond to that.

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Pai Nitin, Tata Elxsi Limited - Head of Marketing and SVP [53]

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I think if you fundamentally look at it, right? You have to remember that we come from 2 different directions. IT companies come from the fact that they have been after the CIO for a long time and -- in all these years. And they're now talking to the R&Ds and the CTOs. While we traditionally have always been talking to the CTOs. And that's, I think, the fundamental difference between the 2 types of companies. Pure-play product engineering vis-à-vis IT companies who are broad basing their offerings.

Our capabilities are built on the basis that unlike IT, where you can build tremendous fungibility of skills and capabilities so you can have 1,000 Java developers working for a project, and as long as you bring a domain layer on top, you don't really necessarily need any great domain capability or skills in the bottom layers, right? And unfortunately, that is not true at all in the product engineering space. First of all, you don't have projects that are 1,000 people. So they're much smaller teams. And on the other hand, your team is required to be equally competent all though the pyramid.

And therefore, the pyramids are steeper, pyramids are far more deeper and more capable, right? So to that extent, I would say, on one hand, that is a fundamental differentiation. 20 years of being able to work with companies in product development and R&D. I think by itself, in many ways, I would call it a work secret or a capability by the company as well. I think what we've added to it is 2 parts, right? One is the design capability, which, again, has been organically built, and not bolted on like we would buy a design update from outside and try to figure out how to make value out of that. I think that coupling and that synergy, which I also referred to right at the beginning, I think is another strong differentiator for us, especially when you start to appeal to strategic levers inside the customer organization.

And lastly of course, digital for us has always been a play because if you fundamentally look at what we do, we have been working on devices and devices are becoming smart. Therefore, what you call as autonomous cars or connected cars or smart set-top boxes or OTT, for us, all of that is digital. So I think in many ways, I think we are at the right cusp of what the world requires now, which is design plus tech and which is driven by smart and connected. So I think we are in a happy place.

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Ujwal Shah, Quest Investment Advisors Pvt Ltd. - Equity Analyst [54]

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Great, sir. Secondly, sir, on the health care space, the traction that we are seeing currently and what we are expecting ahead is very, very strong. So some ideas, specifically for health care space, have we got into some new areas, developed some new domains? Or what is driving this kind of a growth that we are seeing in health care space? And your confidence on its sustenance.

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G. Vaidyanathan, Tata Elxsi Limited - General Counsel, Company Secretary & Compliance Officer [55]

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Right. So I think if you remember, we have tried providing (inaudible) entry in the health care space for some quarters now. So obviously, it's not a flash in the pan. It's not something that has started to play out over 4 quarters. If you really look at it, the journey has been over 12, 13 quarters, at the least, right? And I think for the beginning, I think the fundamentals of the industry start to play, right? It's a conservative industry. There is a strong incumbency factor, there is resistance to signing on new vendors and so on. And once we break those walls, I think you'll see that movement is far, far easier, both within the customer, the Tier 1 as well as by reputation into other customers in the same segment or the same domain.

And I think that is really working out for us. That is part 1. Part 2, I think we've also been careful to make sure that we don't stay with only the product R&D part, but we also look at downstream work, including regulatory and so on. So in that sense, like Manoj said, we see longer contracts, we see longer engagements, we see larger TCVs. I think there are 2 factors playing out, therefore, customer additions, better penetration to customers simply because you're breaking down typical incumbency and conservative walls, and the fact that we're also building service lines that are gaining TCVs.

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Ujwal Shah, Quest Investment Advisors Pvt Ltd. - Equity Analyst [56]

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Wow. And lastly, sir, the offshore on-site mix that we have achieved this quarter, do you think this is more of a quarterly syndrome? Or do you think this is the level that we would like to stabilize and grow further upon?

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G. Vaidyanathan, Tata Elxsi Limited - General Counsel, Company Secretary & Compliance Officer [57]

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Yes. I think, definitely, we would like to be around the same 40% to 60%, right? 40% on-site and 60% offshore. So we'll be -- I mean, they have been hovering around that for a number of quarters, if we really -- if you have the data, you can see that we have been around that on this, maybe a 0.5%, 1% here and there, but we've been around that.

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Operator [58]

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The next question is from the line of Ankit Shah from White Equity.

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Ankit Shah, White Equity Investment Advisors - Investment Advisor [59]

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In the last quarter you had alluded to tight cost control to -- for -- to follow the target margin range, you shared that you restricted participation in certain events and restricted (inaudible), et cetera. Sir, what's the update? Is there any revision on this side?

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G. Vaidyanathan, Tata Elxsi Limited - General Counsel, Company Secretary & Compliance Officer [60]

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Yes. So I think last quarter, there are a number of things that we had to do because we had salary hikes, we had freshers coming in and so on. So we were a little cautious. But I think now that the business has grown and we have the confidence we are -- we're really not really tightly -- of course, we'll still be conservative as far as the expenses are concerned, but we'll go back to our usual style.

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Ankit Shah, White Equity Investment Advisors - Investment Advisor [61]

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Okay, okay. Sir, in the beginning, you clarified that the salary hikes are fully absorbed, so the hike was taken on let's say 1st of October, something?

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G. Vaidyanathan, Tata Elxsi Limited - General Counsel, Company Secretary & Compliance Officer [62]

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Yes.

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Ankit Shah, White Equity Investment Advisors - Investment Advisor [63]

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Okay. And sir, lastly, sir, any update on utilization of cash, if there is any inorganic opportunity or consideration of higher [decision] of the buyback?

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G. Vaidyanathan, Tata Elxsi Limited - General Counsel, Company Secretary & Compliance Officer [64]

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No, we are exploring, we're talking with our Board and so on. So at this point in time, I don't have any specific -- anything specific to really report to you.

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Operator [65]

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The next question is from the line of Manik Taneja from Emkay Global.

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Manik Taneja, Emkay Global Financial Services Ltd., Research Division - Research Analyst [66]

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Just wanted to clarify at the start of the year, you guys had suggested that we were looking at about 15% growth for the year, and then we had a weak start in Q1. So given the bounce back that you all have seen in the last couple of quarters, are you hopeful of sustaining that kind of growth momentum going forward?

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G. Vaidyanathan, Tata Elxsi Limited - General Counsel, Company Secretary & Compliance Officer [67]

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Yes, we hope to sustain that growth momentum. Of course, for this financial year, we would be pretty flat. I don't think we will -- but moving forward in the next [opportunity] definitely, if we maintain the growth momentum, we'll definitely be able to not just recover but also compensate for whatever setbacks we have had.

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Manik Taneja, Emkay Global Financial Services Ltd., Research Division - Research Analyst [68]

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So if I heard you correctly, you mentioned about 5% to 6% sequential growth -- is within possible range of possibility.

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G. Vaidyanathan, Tata Elxsi Limited - General Counsel, Company Secretary & Compliance Officer [69]

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It's a good target for us to go after. Of course, it's pretty early. We are cautiously optimistic that this can be done. We just -- we want -- we just want you to really bear with us for a quarter or 2 more so that we can confirm that, but yes, this growth momentum is good for us.

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Operator [70]

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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 [71]

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Yes. Sir, my first question is regarding our GDP revenue. If you can share, what percent of our total revenues are in GDP and what percent of our costs are in GDP?

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G. Vaidyanathan, Tata Elxsi Limited - General Counsel, Company Secretary & Compliance Officer [72]

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What percentage of -- approximately -- approximately, I would say, 25% of our revenues would be in GDP, and the hedging costs also would be on the same -- I'm not sure about the cost, I just need to -- I need to check with our finance force, but at least, the top line is about 25%.

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Pai Nitin, Tata Elxsi Limited - Head of Marketing and SVP [73]

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I think, this is Nitin here, just to comment on that is that while the revenue coming in GDP, you understand that there is an on-site/offshore mix even within projects that we execute. If there were (inaudible) the company's 40-60 mix, I think that would be a good reference.

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Rohan Pramod Advant, Multi-Act Equity Consultancy Ltd. - Portfolio Manager [74]

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Okay. Sir, and ex of JLR, what segment would our GDP revenue lie?

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G. Vaidyanathan, Tata Elxsi Limited - General Counsel, Company Secretary & Compliance Officer [75]

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So we have large customers in the media and communication space? So primarily automotive and media and communication. These are 2 large segments there. Medical, we're still not really broken into any large opportunity in the U.K., but subsequent quarters, hopefully, we will be able to report that.

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Rohan Pramod Advant, Multi-Act Equity Consultancy Ltd. - Portfolio Manager [76]

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Okay. Sir, and lastly, on the medical health care segment. The kind of traction that we've seen in the -- in this quarter and the outlook that you are sharing, sir, what is driving this? Is there any regulatory change that has triggered this? Or is there any macro calls for this kind of traction?

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G. Vaidyanathan, Tata Elxsi Limited - General Counsel, Company Secretary & Compliance Officer [77]

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I think in the previous question, Nitin has very, very clearly articulated what is driving our medical business. So I don't want to repeat the same. But yes, definitely there is a Euro regulatory NDR that is playing out, right? All companies that have to sell in the Europe markets have to be NDR certified. So that definitely is helping us to bring in opportunities for us.

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Operator [78]

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The next question is from the line of Madhu Babu from Centrum Broking.

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Madhu Babu, Centrum Broking Limited, Research Division - Research Analyst [79]

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Yes. Sir, in automotive, can you do the breakup of the service length within like powertrain or electric vehicles? So the nature of engagement, infotainment instead. So which are the 3 big areas within automotive we are working on the services?

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Pai Nitin, Tata Elxsi Limited - Head of Marketing and SVP [80]

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This is Nitin here, I'll take that. If you look at it broadly, our work within the automotive space is led by infotainment and connected cars because that's the one that consumes more standards applicable to almost everybody. That is followed closely by what we do in both autonomous driving, which is the higher end as well as driver assistance technologies, right, which is ADAS. So AD and ADAS are a close second in terms of the volume of work and the nature of work, and then that is followed then by powertrain. And obviously, we have seen a reversal of work player, where commercial powertrain declines and work that we're doing in electric, electric vehicle and electric vehicle architectures is increasing. So it's really in that order.

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Madhu Babu, Centrum Broking Limited, Research Division - Research Analyst [81]

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Yes. So I guess do we have seen something written on RoboTaxi here on our website, I mean, with the -- that also -- could you tell how that is monetized, the technology we develop there?

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Pai Nitin, Tata Elxsi Limited - Head of Marketing and SVP [82]

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Right. So if you look at it, the RoboTaxi demonstrative was really work that we're doing jointly with another partner, called AEye, and now they are developing a very unique kind of LiDAR leader that technically is capable of being almost a kilometer ahead. So they have fantastic range that they provide. And our job was to make sure that we can build up a demonstrator of that technology, integrating those sensors in a very record time of a few months, right? So really, the exercise has been to work with them, to integrate their sensors into our autotomized stack, which is our own autonomous vehicle stack that we have developed and licensed to a few customers. And the idea was to show that integration and implementation of completely new sensor technologies and use cases is very, very easy.

What we've done on top of that is layered a whole consumer interface which allows, let's say, typical taxi hailers. So that is consumers like you and me, and it really builds on the use case of what happens when there's a fully autonomous car, there's no driver there, and it's really being used as a taxi. So what would the experience be? How do you hail such a taxi? How would such a taxi deals with on-boarding and off-boarding passengers? And so on and so forth. So it's really a combination of user experience when it comes to taxi kind of the scenario coupled with autonomy as our stack implemented in an actual vehicle.

So the monetization is really about one, AEye is a customer for us in any case. So that engagement itself is a fair engagement. On other hand, what we see as opportunities is the 2 of us going to market together.

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Madhu Babu, Centrum Broking Limited, Research Division - Research Analyst [83]

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Okay. So just -- is it similar like Mobileye, which is Intel funded and Intel doing that vision, which is I know -- is on the higher end, if I'm right?

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Pai Nitin, Tata Elxsi Limited - Head of Marketing and SVP [84]

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Perfect. So if you look at Mobileye, Mobileye is a stand-alone company, of course. They build very specific technologies coupled with their own hardware. So they have their own cameras and their own hardware, which works with their software. Here, it is 2 different companies because AEye brings a sensor, Tata Elxsi brings only the software. So in many ways, we're trying to put software and hardware together.

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Madhu Babu, Centrum Broking Limited, Research Division - Research Analyst [85]

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Okay. And one just -- one more question. We talked of venturing into other areas within automotive, like rail and other segments. So just a view on that?

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Pai Nitin, Tata Elxsi Limited - Head of Marketing and SVP [86]

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Yes. So we do continue to focus on that. But obviously, is both the derisking as well as an expansion strategy for us, and that continues to grow at the same rate. It's just that we've had extraordinary growth in automotive in this quarter. But otherwise, I think that nonautomotive piece, which includes the rail, off-road and commercial vehicles, continues to grow very well, too.

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Operator [87]

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The next question is from the line of the from Bharat Sheth from Quest Investments.

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Bharat Sheth, Quest Investment Advisors Pvt Ltd. - Head of Equities [88]

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Congratulation, Manoj and Nitin, on good set of number and really focusing excellent performance in primetime. Manoj, now if you have every year -- I mean to ask -- articulated -- I mean that in 2-, 3-year time in medical would be around 25-odd percent plus. But how do we see remaining 2 part of the automobile -- I mean, transportation and media and vis-à-vis? What is we are currently?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [89]

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Well, we continue to grow in a way that -- as far as Tata Elxsi is concerned, these are mature markets. We'll continue to grow at the same rate or even faster rate. In no way are we going to say that we are going to refocus from within automotive or media and commmunications. They are very, very important for us, and they will continue to be. Only thing we're saying is, we have spotted a good opportunity in the medical space, and we have built good capabilities over the last 4 to 5 years. And we are now liberating on all the open opportunities that come our way. We have built certain frameworks that really help us to scale rapidly that helps us to really win customers faster. So we have sort of nicely managed this particular piece that is really helping us, right? So medical will definitely continue to grow faster, but that doesn't mean the other 2 segments will not grow.

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Bharat Sheth, Quest Investment Advisors Pvt Ltd. - Head of Equities [90]

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Manoj, my -- I mean, question is, I mean, say, if we really look at -- I mean, the -- from medium product term perspective, see the outsourcing process potential in auto vis-à-vis medical and the media, so how do we see which is the biggest pie? So when we are talking of growing this business, so auto has, I believe, a higher potential of outsourcing being a very large industry, correct?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [91]

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Yes. But each of these are -- so hundreds of billions of dollars large outsourcing, right? So we are a small pie there. So it doesn't matter for us.

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Bharat Sheth, Quest Investment Advisors Pvt Ltd. - Head of Equities [92]

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So I mean from medium perspective, again, I mean, auto will bounce back, correct?

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Pai Nitin, Tata Elxsi Limited - Head of Marketing and SVP [93]

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Right. No, so I think -- this is Nitin here. If I may answer it slightly differently.

It is not the intent to grow auto any slower, it is just a derisking strategy. So if we think about it, do we believe that auto can be a very big business? Of course, it is. Is it already a huge industry? Of course, it is. But are there issues that we see that will affect the structural nature of the industry? Will affect R&D? We don't know.

Just to -- it's -- think about it as we are building a very active derisking strategy. The derisking strategy has to taken before the risk occurs, right? And therefore, that is what we're doing. And the intent is not to slow down auto in any case.

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Bharat Sheth, Quest Investment Advisors Pvt Ltd. - Head of Equities [94]

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Great. So Nitin, I mean, on this now electric and hybridization, there is -- lot of joint development is happening globally and now Chinese people or European player as well as American player is tied up with the Chinese player also. So how do we see this opportunity will play out for us as well as Chinese player also coming in very big way on the development side, so outsourcing? Will it have any impact on us?

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Pai Nitin, Tata Elxsi Limited - Head of Marketing and SVP [95]

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Yes. So I'm breaking up the question into 2 parts. Threats and opportunities? So threat sort of (inaudible) in nature. And there is -- what happens when companies cut down R&D spend or rather share R&D spends with the investors.

So that's one type of risk. The second risk is what happens when everybody sees that this is a huge industry, it's growing, a lot of money in it, and therefore, we have more competition, right? And we see both. On the other hand, if you look at opportunities, and I have talked of only threats. When you look at opportunities, the fundamental point is that all these are disruptions led by technology. So the software content in an electric car is going to be even far, far higher than what you would see in the commercial car. By the way, the commercial car was still predominantly mechanical with a layer of electronic control on top, while electric car is fundamentally digital in that sense.

So for us, the way we see it is that opportunities, surely because of where the technology curves are going only indicates that R&D spend in our area of business and our capability space will increase. On other hand, there will be certain attractiveness to the industry simply because of the sheer size and sheer volume of work, which will increase the number of competition. And that's why I think somebody who talked of IT companies entering this, so of course, we will see an emphasis there. Of course, we will see a gap generally there, too.

And it's our job to make sure that we always differentiate ourselves against anybody who comes in. So just the last point I would make is please note that we have announced wins even in China.

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Bharat Sheth, Quest Investment Advisors Pvt Ltd. - Head of Equities [96]

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Okay. Great. Well, Nitin, now you talked in beginning on the synergy of designing and technology, so how we are going to play this designing for auto side?

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Pai Nitin, Tata Elxsi Limited - Head of Marketing and SVP [97]

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That has already been played really. If you look at design, it plays at 2 levels, one is in the physical level, which is what do you see and what you touch and feel in the car, which is predominantly [exceeded] than interiors, that we've been doing for a long time. I think the real new space for the car companies and us over the last 7, 8 years, has been the user interfaces of infotainment systems and digital clusters and so on. And equally, the fact that most of these cars now come with an app outside, whether we use for fleet management or connected car service. I think those become digital interfaces, and that is all of UX and UI.

So with the work that we do for a refi or a Dish TV and so on is as applicable to a star company today.

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Bharat Sheth, Quest Investment Advisors Pvt Ltd. - Head of Equities [98]

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And how that will play out for media and broadcasting? If you can touch up on a little, I mean, potential?

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Pai Nitin, Tata Elxsi Limited - Head of Marketing and SVP [99]

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I think it's exactly the same. That's why I quoted the example of Dish TV, the fact that we see a very strong play between design and tech base.

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Bharat Sheth, Quest Investment Advisors Pvt Ltd. - Head of Equities [100]

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Okay, good. And any, I mean, opportunity on IP side, I mean, that scaling up?

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Pai Nitin, Tata Elxsi Limited - Head of Marketing and SVP [101]

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We continue to examine that. As far as products are considered, you have to understand that we are right now dealing with a limited portfolio of products on IP. And they have their own cycles of -- unlike services, where we can lock in [PCGs], and you can engage for a period of time, and therefore, there's predictability, unfortunately, IP has a little bit of an up and down in terms of predicting revenues and wins. So until we evolve to a model where maybe there's a lot more royalty component, and therefore, an annuity part of what we sell, at this time, our IP is really onetime sales, and therefore, very difficult to predict in terms of how much they will contribute in any given quarter.

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Bharat Sheth, Quest Investment Advisors Pvt Ltd. - Head of Equities [102]

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Okay. Manoj, the last question on bookkeeping side, I mean, when we expect to move to this new tax regime?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [103]

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New tax is we're still evaluating and waiting for the budget. And so we will take additions from that in March.

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Operator [104]

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Our next question is from the line of [Navin Gotra], an Investor.

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Unidentified Participant, [105]

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Congratulations to the management team for excellent set of numbers and for achieving highest ever top line, sir. My question is regarding the top 5 and top 10. Is there any customer from the health care and medical industry segment in the top 10?

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Pai Nitin, Tata Elxsi Limited - Head of Marketing and SVP [106]

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There is one customer in the top 10.

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Unidentified Participant, [107]

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Okay. That's great.

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Pai Nitin, Tata Elxsi Limited - Head of Marketing and SVP [108]

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Yes.

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Unidentified Participant, [109]

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And the second question is regarding the fixed price contracts. If you see Y-o-Y, there is growth of around 8% in the fixed-price component, whereas final, it will -- even if you compare Y-o-Y or Q-on-Q, maybe same around INR 278 crore. So going back, what normally is percentage of all mix fixed price and time and material around 51%, 52%?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [110]

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Right. It's around the same -- we don't really plan for some of this, right? It also depends on the type of deal that they're bidding for and type of opportunities that have come our way and so on. So because it would be around this range.

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Unidentified Participant, [111]

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Because if you see in the quarter-on-quarter, fixed price contract around 20% more. Fixed price contract [percentage], that's right?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [112]

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That's right. But Mr. [Gotra], point is that some of this, you will see a variations of 2%, 3%, 4% quarter-on-quarter, but really, the nature, I think we will see as more of a 50-50 consistent. We don't want to go too much in any one direction either. So I think this represents a nice balance of fully committed versus what we see as sound material.

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Unidentified Participant, [113]

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They're around these levels, relatively?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [114]

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That's correct.

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Unidentified Participant, [115]

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And the last question is regarding the impact of salary in place. You have added around 400-plus employees, 7% and 8%. Salary [increase] (inaudible). If you can that -- look at that -- between the salary increase and the addition of the employees?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [116]

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I really don't have the split with me immediately, but we'll see how we can get that to you.

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Unidentified Participant, [117]

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Okay. And the last question is regarding the -- about the accounts. How much is the cash and cash equivalent, sir, at the end of the quarter?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [118]

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About INR 600 crores.

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Operator [119]

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The next question is from the line of Sumit Pokharna from Kotak Securities.

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Sumit Pokharna, Kotak Securities Limited - VP [120]

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Sir, just wanted to understand, are you planning to add more verticals which can help in getting a more addressable market?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [121]

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Right now, we are still evaluating, but as Nitin said, what -- we're primarily -- we are focused on these 3 verticals. And we're looking at adjacencies in these 3 verticals. For example, from an automotive perspective, we're looking at rail and off-road and so on, which will be adjacencies.

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Sumit Pokharna, Kotak Securities Limited - VP [122]

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Okay. Secondly, all the employee power we have, how many of them are fungible and how many are not fungible?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [123]

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It has no straightforward answer here in terms of a person who's really working on EV, right? Electric vehicles or -- you don't want to put that person into a media communication OTT space, right? So all the training, all investments that they have made. So that is the difference between IT companies and companies like us. Very difficult -- at a very, very low level engineering talent, maybe there could be some amount of fungibility, but as they specialize and as they grow into becoming more seniors, the fungibility comes down.

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Sumit Pokharna, Kotak Securities Limited - VP [124]

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Okay. Last 2 questions from my side. If you can share me vertical price, what's your plan for investment in sales engine?

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G. Vaidyanathan, Tata Elxsi Limited - General Counsel, Company Secretary & Compliance Officer [125]

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So we've already -- if you look at it based on the growth rate, we have been investing heavily in the medical space. We have onboarded new sales verticals, both in the U.S. and Europe. So a lot of the investments that we have been making -- has been, of course, on the medical space. As soon as we have -- and on a need basis in both the transportation and on the media and communication side, we have augmented the sales team.

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Operator [126]

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The next question is from the line of (inaudible) Vakharia from FSS.

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Unidentified Analyst, [127]

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I wanted to ask question about the is about the merger of (inaudible).

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [128]

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Sorry, we couldn't hear the question.

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Unidentified Analyst, [129]

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Merger between TCS and Tata Elxsi, which was told a few years back?

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G. Vaidyanathan, Tata Elxsi Limited - General Counsel, Company Secretary & Compliance Officer [130]

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I'm sorry, I already hear off this?

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Operator [131]

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Mr. Vakharia, may we request you to please put the microphone a bit away from you?

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Unidentified Analyst, [132]

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(inaudible).

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Unidentified Company Representative, [133]

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Please, go ahead.

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Unidentified Analyst, [134]

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Merger with...

(technical difficulty)

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Unidentified Company Representative, [135]

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Got it?

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Unidentified Analyst, [136]

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Can you process the -- scenario and status, that's all.

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Pai Nitin, Tata Elxsi Limited - Head of Marketing and SVP [137]

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No, we're joking simply because we've dealt with this question for the last 20 years, I think. So we'll continue to deal with it. Yes.

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [138]

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I think no comments from our side, right? Because really, this is -- if you think about it, the vision that has taken at the start of funds level. It has nothing to do with TCS or Tata Elxsi. So we wouldn't know anything about this, we have no comments.

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Operator [139]

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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 [140]

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Hello? Can you hear me?

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G. Vaidyanathan, Tata Elxsi Limited - General Counsel, Company Secretary & Compliance Officer [141]

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Yes, please.

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Ritesh Rathod, Alchemy Investment Managers Private Limited - Research Analyst [142]

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Yes, sir. If I see your fixed price, your on-site option with you and your other...

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Operator [143]

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Excuse me, I'm sorry, this is the operator. I'm sorry, Mr. Rathod, May we request to come a bit closer to the phone please?

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Ritesh Rathod, Alchemy Investment Managers Private Limited - Research Analyst [144]

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Yes. So as I see Q-on-Q moment in your fixed price, on site, offshore revenue and the other expenditure, it seems there's a dramatic shift within the quarter. So anything here which you can highlight? Like what has led to this kind of shifting all these ratios? And is there a connecting thing within all these 3 things, the offshore, fixed price and the other expenditure?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [145]

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All I could say is if we are still hearing something like this, so maybe we'll talk to the finance team and see how are you making the connections, right? There is nothing intentional or nothing that we have done that can -- you see, I can't give you any answer that could lead you to any influence.

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Pai Nitin, Tata Elxsi Limited - Head of Marketing and SVP [146]

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Okay. And I'll just say that if you think about it, they're all range bound, right? In the sense that they're not beyond the typical range. So (inaudible) revenue offshore, on-site and also always been around the 40-60 mark.

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Ritesh Rathod, Alchemy Investment Managers Private Limited - Research Analyst [147]

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The contract?

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Pai Nitin, Tata Elxsi Limited - Head of Marketing and SVP [148]

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Right. It's around 50-50.

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Ritesh Rathod, Alchemy Investment Managers Private Limited - Research Analyst [149]

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Yes. Yes, I agree to that, but if we see from -- in last 3 quarters, post the [realized] drop, we had a new reset in the on-site, offshore ratio in these industry verticals because of the (inaudible) drop in (inaudible) loss from 21% to 17%, actually now, (inaudible) from that new deal, if you see last 2 quarters, (inaudible) shifted it, which is why I'm asking that is that focus on medical devices is creating this offshore and fixed price? And if where you're seeing higher (inaudible) or something else, the business is (inaudible) final situation...

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [150]

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I'll let you -- exactly -- immediately. All we can derive is the more fixed-price contracts that we report, right? The -- it will be more offshore revenues would be included there. Typically, fixed price is executed offshore with a smaller component of on site.

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Ritesh Rathod, Alchemy Investment Managers Private Limited - Research Analyst [151]

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And sir, in automotive, you mentioned the growth momentum can continue because of pretty large deals, so they have partly got build in and partly will get build in coming quarters, is what you are hinting at?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [152]

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Yes. Yes, definitely. The way it has a long time, so we will continue to make some of those deals that they've won.

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Ritesh Rathod, Alchemy Investment Managers Private Limited - Research Analyst [153]

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Okay. And sir, what's your view, like for automotive, not just for the quarter, but maybe for full year, the way you're confident on the medical side that it will grow 20%, 25% of (inaudible) and for that number, it will grow very strongly. Would automotive be a single-digit growth vertical? Or it can go back to double-digit and -- annualized number I am talking. Like what's your thoughts given the trends which you mentioned on infotainment, connected car, autonomous and powertrain? Is it possible for us to do a double-digit kind of growth number in coming 3 years kind of in automotive?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [154]

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Definitely. I think there is that positive feeling that we are -- where as even Nitin said, right? Any disruption that happens in any of the industry verticals that we are in is really possible for Tata Elxsi, and especially the disruption that is happening here is all around electronics and software, whether it is on the EV space, whether it's in the connected car space, whether it's on autonomous. A lot of it is software and electronics that go in, and that plays to our strength.

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Ritesh Rathod, Alchemy Investment Managers Private Limited - Research Analyst [155]

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Okay. Maybe just last question. On the depreciation number, what's the guideline? And as you've given the tax rate number, what's your current guidance if you want to give anything going forward?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [156]

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I just need to check with my finance team on depreciation. I don't have that detail immediately with me.

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Ritesh Rathod, Alchemy Investment Managers Private Limited - Research Analyst [157]

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Okay. And tax rate?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [158]

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The tax rate -- I mean, barring any surprises that come out in the budget, the current thought process is that we will go with whatever the government has -- they've brought down the tax rate to 25%, right? So we will be opting for it.

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Ritesh Rathod, Alchemy Investment Managers Private Limited - Research Analyst [159]

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Okay. Sir, our tax rate in FY '22, '23 would be a similar number? Or it could be plus minus 2% here and there. That's one thing...

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [160]

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Yes. It could be similar number.

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Operator [161]

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The question is from the line of [Nihar Tujia] from SMC Global.

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Unidentified Analyst, [162]

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Congratulations sir, for the great number. And I was going through the financials, and I found that the ForEx has been positive for this quarter, unlike the previous ones. So has the ForEx impacted this quarter's profitability a lot? And though almost mostly questions have been covered, but just wanted to know whether Brexit will have a major impact on the financials for the coming quarters or not?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [163]

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No. So yes, we've definitely had volume growth, right? Almost 6.8% or 7% is the volume growth. And the remaining 2-point-odd precent is the exchange rate. And I think those details are there in the fact sheet also. So yes, so the exchange rate has been positive for us. But then we should realize that -- the volume growth has been much higher than the exchange rate. Regarding Brexit, I think it is wait and watch. We -- I don't foresee any real issue. Because of Brexit, something is going to happen to us and all our customers, right? Of course, JLR, we have some effects for Brexit. And really trying to understand what does it mean to us? At this point of time, we are neutral. I don't see any issue.

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Unidentified Analyst, [164]

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Okay. Sir, the thing is, I just forgot whether you mentioned these numbers regarding the salary hike for the offshore and onshore. So just could you please repeat what was the (inaudible) regarding the offshore and onshore?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [165]

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Offshore was about 8%, and on-site between 1% and 2%. So depending on...

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Unidentified Analyst, [166]

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Right. Okay. Sir, the cash that is lying in the books, are you looking for any major acquisition or M&A in the coming quarters?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [167]

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We are discussing this with our Board. At this point in time, we have nothing significant to report to you guys.

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Operator [168]

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The next 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 [169]

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This was -- I was wondering where in some previous meetings, we have been highlighting to expand into aerospace and such allied verticals in the auto sector. Just wanted an update on the same whether we are still pursuing it? And whether at all have the plans changed?

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Pai Nitin, Tata Elxsi Limited - Head of Marketing and SVP [170]

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This is Nitin here. I think I referred to that in a previous question. We continue to build out adjacencies in each verticals. And therefore, in the case of automotive, it has been the rail, the off-road and the commercial vehicle space, simply because skill set -- very adjacent skills can be transferred very easily. And we've already won customers there, right? So to that extent, I think, 4%, 5% of the revenues already in the -- in what we call the automotive segment are already nonautomotive or from these adjacencies. And they have been growing at a healthy rate, too. The aim, of course, is to see if we can accelerate that further.

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Operator [171]

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The next question is from the line of (inaudible) from Naredi Investment.

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Unidentified Analyst, [172]

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My first question is, your imperfect benefit expansion, INR 242.56 crores in this quarter, and in September quarter, last year, it was INR 215.36 crores. Any specific reason on this?

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Unidentified Company Representative, [173]

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(inaudible). Yes. Sorry, can you please repeat that?

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Unidentified Analyst, [174]

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Yes. I repeat my question. Like, your employment benefit expense is INR 242.56 crores in this quarter, and in September quarter, it was to INR 215.36 crores. So is there any special reason on this?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [175]

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In terms of salaries? Are we talking about the salaries, that -- because of the salary increase that we have given?

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Unidentified Analyst, [176]

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Yes. Right. Okay. So there's a salary increase in this?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [177]

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That's correct.

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Unidentified Analyst, [178]

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Yes. Okay. And my second question is, last year, in December 2018 quarter, the company's exchange loss was INR 11.75 crores, and in this quarter, there is an exchange gain of INR 11.26 crores. So can you please explain with the hedging policy of the company?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [179]

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Yes. So we have a conservative hedging policy. We take both collars and options. Typically, along with -- typically, what we do is about 50% of the ForEx are expenses that really we have to incur in the same currency. So whatever is the outstanding amount, typically, we hedge about 50%, and that could be in the mixture of options and collars. So depending on currency, we will take those decisions.

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Unidentified Analyst, [180]

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Okay. And my one last question is, is there any contribution of the company upcoming models of Tata Motors and JLR or in recently lost -- launched models for the same?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [181]

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Yes. So Tata Elxsi has been involved specifically on the Nexon EV project of Tata Motors. We have a significant contribution there. And of course, all models of JLR, whatever is being launched, Tata Elxsi is involved in some way, right?

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Unidentified Analyst, [182]

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Right. So like is there any -- like in Harrier or Gravitas, I think there's upcoming model that is...

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [183]

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Absolutely.

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Unidentified Analyst, [184]

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So is there any contribution from the company?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [185]

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Yes, Tata Elxsi has contributions.

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Operator [186]

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The next question is from the line of Manish Bhandari from Vallum Capital.

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Manish Bhandari, Vallum Capital Advisors - Founder, CEO & Principal Portfolio Manager [187]

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I have 2 questions. One, can you tell me about the total number of employee addition you wanted to do in next one year? [Then] some 5% rolling basis one year?

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Pai Nitin, Tata Elxsi Limited - Head of Marketing and SVP [188]

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Next one year, we would add anywhere between 700 to 800 engineers.

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Manish Bhandari, Vallum Capital Advisors - Founder, CEO & Principal Portfolio Manager [189]

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That is net of attrition?

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Pai Nitin, Tata Elxsi Limited - Head of Marketing and SVP [190]

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Net of attrition, yes.

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Manish Bhandari, Vallum Capital Advisors - Founder, CEO & Principal Portfolio Manager [191]

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And my second question is on various conference calls as well as when I met you, you have spoken about the change in the total contract value which you would like to bring to the overall pie of the business. So can you share that metric and how that is changing in terms of the engagement as well as total contract values?

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Pai Nitin, Tata Elxsi Limited - Head of Marketing and SVP [192]

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Yes, we are still working out on it. I don't have the data at present, but we definitely know that the total contract value has been growing significantly. What we have done is, over the last couple of quarters, we've sort of changed the way we measure and monitor our sales team. Their incentive is based on the TCV booking that is done. So we are actually pushing the sales engine to really go after large deals. And to that extent, I can definitely report that, yes, it has been successful. And in part, the growth that you are seeing is because of the bookings that we have done in the last 2 quarters.

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Manish Bhandari, Vallum Capital Advisors - Founder, CEO & Principal Portfolio Manager [193]

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So this is happening in all the 3 verticals?

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Pai Nitin, Tata Elxsi Limited - Head of Marketing and SVP [194]

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Absolutely, all the 3 verticals. Yes.

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Manish Bhandari, Vallum Capital Advisors - Founder, CEO & Principal Portfolio Manager [195]

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And Manoj, my last question is regarding the employee scheme ease off plan, so is there any consideration in the Board for implementing a ease off plan for the -- all the senior management and whomsoever you think [will work right] now.

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [196]

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Right now? No. Because we have looked into it at a few years ago, and we've gone to the Board. And typically, yes, Tata Group companies, they have a issue in issuing ease offs. So we have not attempted to go back. We have not attempted in the recent past. So the situation is the same. We're not talking of ease offs right now.

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Operator [197]

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Thank you very much. Ladies and gentlemen, that was the last question. 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 [198]

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Yes. Thank you all for joining the conference call today. I would like to thank Manoj and Nitin for answering all your queries. Thank you, and have a great day.

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Pai Nitin, Tata Elxsi Limited - Head of Marketing and SVP [199]

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Thank you.

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [200]

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Thank you.