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Edited Transcript of TATAELXSI.NSE earnings conference call or presentation 22-Oct-19 9:30am GMT

Q2 2020 Tata Elxsi Ltd Earnings Call

Oct 29, 2019 (Thomson StreetEvents) -- Edited Transcript of Tata Elxsi Ltd earnings conference call or presentation Tuesday, October 22, 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

* Manoj Raghavan

Tata Elxsi Limited - MD, CEO & Director

* Nitin Pai

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

* Dipan Anil Mehta

Elixir Capital Limited - Chairman of the Board

* Dipan Jandata

- Private Investor

* Henrietta Seligman

Somerset Capital - Analyst

* Krishnachintan Chintan Parikh

Alcazar Associates - Analyst

* Manish Bhandari

Vallum Capital Advisors - Founder, CEO & Principal Portfolio Manager

* Mayank Babla

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

* Mayuri Yadav

Equentis - Analyst

* Navin Batra

- Private Investor

* Nirmal Bari

Sameeksha Capital Private Limited - Equity Research Analyst

* Piyush K

PM Financial - Analyst

* Ravi Naredi

Naredi Investments - Analyst

* Rohan Pramod Advant

Multi-Act Equity Consultancy Ltd. - Portfolio Manager

* Rohit Bhat

Airavat Capital - Analyst

* Sanjeev Panda

Tamohara Investment Managers Pvt Ltd - Portfolio Manager

* Vijay Kumar

- Private Investor

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the Tata Elxsi Limited Q2 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. Good afternoon, welcoming you all to the Tata Elxsi Q2 F '20 Results Investors Con Call. We have with us in Bangalore Mr. Manoj Raghavan, the new CEO and MD of the company and Mr. Nitin Pai, Senior Vice President Marketing. The agenda goes like this: Manoj will give a brief overview of the performance of the company for Q2; Nitin will talk about the market. And request is that, please restrict to one question per participant, if time permits you can come again in the queue. Over to Mr. Manoj.

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

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Good afternoon, this is Manoj here. I am happy to report that we're back to our growth trajectory. If you remember last quarter when we started -- as I stated that our Board definitely wanted us to recover the situation quickly. So we're happy to announce that. We've managed to recover from the significant decline that we had with our top customer, which really impacted our results in the first quarter of this financial year.

Our quarter-on-quarter growth for the current quarter is 6.7%, and I'm pleased to note that this is primarily volume growth with almost negligible ForEx gain.

Year-on-year, if you have noticed, that is a decline because last Q2 we had a pretty good Q2 and there was lot of ForEx gains and so on. So if you really look at it, the volume dropped from Q2 last year to Q2 this year --- a little bit of -- only 1%. So we've almost made up whatever volumes we had dropped in Q4 in this quarter -- sorry, Q1 in this quarter.

So -- and if you look at our overall revenues from the top customers, it's about 15.3% in Q2. So our top customer is more or less -- volume wise it's more or less constant. However, we have grown significantly across regions, across the market verticals.

If you look at divisions, the EPD business, which is the largest business for Tata Elxsi, we grew about 5.3% quarter-on-quarter. Our Design business also grew about 12.9% quarter-on-quarter. And our System Integration business also grew by 27% although from a small base.

So if you look at within our EPD business, our Transportation vertical, which is the largest business vertical for us, it grew at 9% quarter-on-quarter. If you remember last quarter's business was impacted because of the decline in one of the top customers in the Transportation vertical. But -- however, in this quarter we have managed to really grow significantly with some good design wins. I'm happy to announce that that is a pretty satisfying performance from the Transportation vertical.

Media and Communication is other significant piece of our business and again we had a steady growth of 5%. Our medical business was growing pretty nicely, that is a small blip but that is due to mainly paperwork completion. We had won deals. We could not convert it into revenues because of some delays in paperwork, otherwise we're showing pretty much a flat growth for the medical business. However, we have enough traction and in Q3 we will definitely see growth in that business.

As far as geographies are concerned, regions are concerned, our U.S. market grew nicely by about 9%, that's pretty significant growth for us, India grew about 18% and the rest of the world grew about 15%, again, owing to new customer additions and those in existing accounts.

Europe has remained flat predominantly with -- due to ForEx -- small bit of ForEx losses in GBP and Euro. However, in constant currency terms within Europe has grown by about 1%, while U.S. grew by about 7.5%.

There's been a constant demand from investors that we upload fact sheets and give more information to the investors. If you have noticed, we have improved on that count, we have key -- we have uploaded a fact sheet with key matrixes for the past 6 quarters on our website. If you have not seen it, I request you to please go through it and get back.

From a business perspective, if you look at our automotive business, we won a couple of deals in the Electric Vehicle space. One is a pretty large Tier 1 supplier in Europe, another is a startup company that's really building an ecosystem around the Electric Vehicles. We've, again, won another large deal with a Tier 1, again, in Europe in Electric Cars space. And we believe that this particular deal has the potential to grow significantly over the next couple of quarters.

On the media and entertainment space, we have won a pretty significant deal on the OTT side, again, against some very large competition of us. It gives us confidence that our investments in the OTT space and the various relations that we are building, we will leverage that to really win more deals in this space.

As we speak in Q3, we have a number of large pursuits that we're going after, both in Automotive and in the Media space. It gives me good confidence that we are on a good wicket to show growth moving forward.

I would request now Nitin to really discuss about our Design business as well as talk to all the events that we have participated. But before doing that, one important thing is, if you had noticed, our margins PBT percentage is 17.7% that -- they have declined. But if you have noticed, that is a one-time provision that we have provided for the retirement benefits for ex-MD. If you remove that one-time provision, our margin is about 23.1%.

So as discussed in last quarter and multiple quarters before, we constantly aim to be in that 22% to [25]%, sort of, PBT margin. I'm happy to say that operationally if you look at it, this quarter we have achieved 23.1% as compared to 18% or so last quarter. So I think on a margin basis it is been pretty good improvement and a pretty good performance. And we would aim to see how we can continue with this growth.

I hand it out now to Nitin to take you through the rest of the discussions.

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

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Thanks, Manoj. Good afternoon, everybody. This is Nitin here. A quick update and round up on the market side. We continue to invest in improving our brand and our -- the market recall. So to that extent, we did participate in key trade events and trade shows across the world, IBC being one of the major events that we do annually.

So at the International Broadcasting Conference in Amsterdam, we had a very significant presence this time, with speaker slots, with very large stalls, with multiple customers walking in, so it was really a fantastic show. We followed that path with the RDK European conference.

Now as you are aware, we have been talking of this in the Media and Broadcast Communications segment context, there we said, look, the world is going open source as far as middleware goes for TVs and for entertainment. And there are a 2 big camps like you have in mobile space, you have the android and the android TV part and you have the RDK, which is led by Comcast.

So in this particular case, it will be RDK Euro Conference where we were the speakers as well as key presenters in that session. So we continue to establish our market presence across key conferences and trade shows and so on, that is one way to bring in customers.

I'm also very happy to announce that the -- on the solutions side, the product that we have developed on the V2X side we have announced it for Augmented Reality and we call it now AR-V2X. Now this represents a significant step change in the way companies conduct V2X services.

Now India will not see V2X services for a long, long time, I'm sure. But globally this is picking up, and we believe this is the next big thing that's coming that will support autonomous cars and safer driving. So the AR-V2X product we developed, won the Silver at the AutoSens Awards in Bonn on the -- in the last week of September.

This is a big achievement for us simply because if you think about who were on the stage with us and who were some of the other award winners, you had Mercedes-Benz with their new user experience, you had General Motors with their technology and so on. So we're really, really proud of what we have achieved with being recognized on that stage, right?

Coming to Design, I think you have seen the volume growth. We grew about, I believe, 13%-plus over the last quarter. I think Design is starting to pay dividends for us, partly in terms of how it complements the deals that we have on the EPD side, whether it's automotive or whether it's broadcast, whether it's OTT, how design comes in to augment and complement and allow us to differentiate ourselves against competition in this space.

And we're also happy to report that the Visualization business has won some nice long-term deals on the content development side. And very importantly these are not for the pure entertainment market, these are more for corporate content development and that brings in both a certain level of steadiness and predictability to revenues, it also brings in some amount of margin improvement, right?

On the SI side, of course, revenues are small, but we have shown a very good growth of about 23%, 24%. A large part of this is reengineering what we are doing for system integration in terms of being able to focus on software, value added services and experience centers and so on.

So I believe that though it's in a small base but we're starting to reengineer that business in stages. So that's a quick update for you across the various businesses and markets. I will now hand over the conference back for Q&A.

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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 Ravi Naredi from Naredi Investments.

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Ravi Naredi, Naredi Investments - Analyst [2]

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Sir, whatever you have mentioned in your investor highlight, whatever deals we have won, what will be the value of the deals?

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

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The value of the deals in the current quarter would not make too much of a material difference made of 2% of -- it could be from new customers but 98% and 98.5% is still from existing customers.

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Ravi Naredi, Naredi Investments - Analyst [4]

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Okay, okay, so it is -- in value wise, it is very less, right?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [5]

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For the quarter, but moving forward definitely there will be a long tail there.

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Ravi Naredi, Naredi Investments - Analyst [6]

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And how much we can expect in the quarter third and quarter 4?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [7]

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We definitely expect to continue this growth path, right? I can tell you that. We have visibility. I won't be able to give you a number in terms of how much would new deals contribute in Q3 and Q4 but I can clearly see a path to growth.

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Ravi Naredi, Naredi Investments - Analyst [8]

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Can you tell this in new deal value?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [9]

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We don't disclose the new deal values, sir.

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Ravi Naredi, Naredi Investments - Analyst [10]

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Okay, okay, okay. And sir, how much margin expansion possible in H2 second half?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [11]

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Margin expansion is a question of top line, how much we are able to grow top line and also how much we are able to improve our utilization. At the same time, we are also adding employees in the freshers and so on. So our endeavor is to keep the margins between 22% and 24%.

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Operator [12]

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The next question is from the line of Dipan Mehta from Elixir Equities.

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Dipan Anil Mehta, Elixir Capital Limited - Chairman of the Board [13]

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Yes, sir. Congratulations on good numbers, sir. I want to understand that in the finance -- in the employee cost you have put a note INR 521.60 crores as settlement paid to ex-MD. So does this not get accrued on an ongoing basis, sir? Why has it suddenly come as a line item at this point of time? Normally gratuities and all you would do on a going concern, on a continuous basis depending upon the years of employment.

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [14]

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As I understand, we are not able to (inaudible) for the MD's pension and so on. We are not able to provide for it because the Board approval for the pension happened only in the last quarter. And our auditors also requested us that we have to take the hit in 1 quarter. So it is not as such this amount -- entire amount paid to the MD, this is only an amount that is being provisioned but the pension will be paid on a monthly basis. But, however, as per our auditors, we have to take the hit in one quarter. We can't postpone it.

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Dipan Anil Mehta, Elixir Capital Limited - Chairman of the Board [15]

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Is it that whenever an MD or a senior personnel retires then the Board decides what is the gratuity to be paid to that person? I mean that (multiple speakers) the offer open in a liability to the company, no?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [16]

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Yes, so if you remember, this is something which business is a mandate from the Tata Group especially for long-serving CEOs in the Tata Group and they have a policy for the CEO extension.

However, it is left up to individual companies to take a decision on how -- and if an individual company is -- the Boards of the companies will decide the pension and how it is to be taken forward. So our Board took a decision in the last Board meeting that Mr. Madhukar Dev is entitled for the Tata Group's scheme for the CEOs, mainly because he has served more than 30 years in the organization.

Plus if you remember he was 18 plus years as a CEO of the company, plus Tata Elxsi did not have any stock options or any other schemes of really supporting the senior management. So taking into consideration all of that, the Board decided that he was eligible for a special retirement scheme.

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Dipan Anil Mehta, Elixir Capital Limited - Chairman of the Board [17]

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The second question is relating to the tax rate. I mean, have you decided on which particular taxation will be applying going forward...

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [18]

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We are still discussing that. We are still debating about it. We have time till I think that we file our return probably in November of next year. So we have time to take the decision, it is still under consideration, I would say.

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Dipan Anil Mehta, Elixir Capital Limited - Chairman of the Board [19]

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And one last question sir, I mean you had mentioned in the con call that this quarter would turn out to be good and in fact it has turned out to be better. So are there any specific events or trends which have taken place by which you feel the -- your company and the sector as a whole has started to grow at a slightly higher pace than what we have seen in the earlier 3 or 4 quarters, any specific events or challenges which you overcome which you would like to discuss, sir?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [20]

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Yes, so what has happened in the last quarter also that we were -- we had a number of large deals that we are working on. However, many of these deals slipped over the quarter. So what has happened that in this quarter, we were able to really close some of the long outstanding deals and we were able to really grow and show some good run rate growth.

What is happening overall in the industry I would say is the smaller deals -- there are a number of smaller deals that we're picking up. But the large deals are taking 2 to 3 quarters to close. So that's the trend that we're seeing and that's actually deals that we were supposed to close in Q2 has been pushed -- sorry deals that were to close in Q1 has been pushed to Q2 and even now there are some deals that are pushed to Q3. So the pipeline is, I would say, is pretty strong and we're pretty confident that we will be able to continue on this growth path.

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Operator [21]

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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 [22]

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Yes, sir, I had questions firstly on the specific line items, first is the salaries. In the last quarter we were told that the salary hikes will be due in the September quarter. But if we look at the employee cost, excluding the one-off of INR 21.63 crores, the cost actually looked lower sequentially in September '19 over June '19. So if you could throw some light on that?

And my second question is again on other expenses, they were down to INR 55 crores in September quarter from INR 55 crores in -- from INR 59 crores in September '18 and June '18. So what is the reason for this reduction?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [23]

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Yes, so on the first questions -- on the first question, yes, we took a decision during the last quarter to postpone the salary hike. So that will happen in Q3. So that's why you're not seeing any hike in the salary expenses.

With respect to other expenses, in general because of the Q1 performance, we have been very, very -- we had very, very strict cost controls, including the number of travels that we make, the number of events that we participate and so on and so forth. So we really ensured that we tighten up all of that, and I think we are able to reduce those expenses.

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Rohan Pramod Advant, Multi-Act Equity Consultancy Ltd. - Portfolio Manager [24]

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Sir, on the salary hikes, what could be the sequential impact in basis points owing to the salary hikes?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [25]

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Just a minute, let me get back to you on that. I would say approximately from a cost perspective, it will be about 7% to 8% would be the salary hike.

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Rohan Pramod Advant, Multi-Act Equity Consultancy Ltd. - Portfolio Manager [26]

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Okay, okay. And sir so in spite of that you think the growth rates will be able to help us to maintain margins sequentially?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [27]

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Yes, so that is where I'm putting my teams, right? That is a challenge and that is also an opportunity for us to continue on our growth path, so yes. That is a challenge that we have in front of us.

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Rohan Pramod Advant, Multi-Act Equity Consultancy Ltd. - Portfolio Manager [28]

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Sir, on the tax rate, it is still at 29.29%. So you said you are yet to make a decision. So how does this work? Until you make a decision you don't move to the marginal tax rate of 25.17%. When do we... hello?

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Operator [29]

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Participant, this is the conference operator, the line for the management has dropped. Please stay connected while we reconnect the management. (technical difficulty) Ladies and gentlemen, thank you for patiently waiting. The line for the management is reconnected. Sir, you may go ahead.

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Rohan Pramod Advant, Multi-Act Equity Consultancy Ltd. - Portfolio Manager [30]

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Sir, I was asking how does it work?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [31]

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In terms of the tax rate, right? So we are still at the original tax rate. I think it's about 31%, 32% is the tax rate that we are at right now.

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Rohan Pramod Advant, Multi-Act Equity Consultancy Ltd. - Portfolio Manager [32]

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Sir, so from Q3 will it move to 25.17%? Or when we -- when do we make that shift?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [33]

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We can -- we definitely have time till end of the year to take that decision, right? So we are evaluating whether should we go to that tax rate or should we explore the alternate tax rate by may be investing more in SEZs and so on and can we better the tax rate. So that's the discussion we're having right now.

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Rohan Pramod Advant, Multi-Act Equity Consultancy Ltd. - Portfolio Manager [34]

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Okay. Sir, and lastly, in terms of the large new contracts that you alluded to in the commentary, sir, how is the scale up of these contracts likely to be? And when shall we see meaningful impact of these contracts in revenue numbers?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [35]

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I would say in, at least a couple of these contracts definitely in the half year H2, we should see significant growth opportunities. We've already ramped up a little bit in Q2, and we should see significant growth in Q3 and Q4.

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Operator [36]

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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 [37]

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Thank you for actually putting up that fact sheet, it was much needed. But just a few more questions. So what is the effort mix in terms of percentage of employees on-site and offshore?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [38]

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The revenue mix is -- on-site is 42.6% and offshore is 57.4% I think that is there in the fact sheet.

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Mayank Babla, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Research Analyst [39]

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In terms of employees...

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Nitin Pai, Tata Elxsi Limited - Head of Marketing and SVP [40]

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(inaudible) control the efforts at this time, right? We believe it does not provide any further insight. So at this point we are restricting it to the revenue mix.

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Mayank Babla, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Research Analyst [41]

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Okay. And sir number of employees as of last quarter?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [42]

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Number of employees is 5,947, just shy of 6,000.

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Mayank Babla, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Research Analyst [43]

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Okay. And sir, what is the utilization rate if you could give us that?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [44]

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Utilization rate is about 71%.

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Mayank Babla, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Research Analyst [45]

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Okay, and sir just if I could ask you was, so what was the reason to push the wage hike to Q3?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [46]

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Sorry, we couldn't get that question.

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Mayank Babla, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Research Analyst [47]

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Sir, what was the reason to push the wage hike to the third quarter?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [48]

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What is the?

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Nitin Pai, Tata Elxsi Limited - Head of Marketing and SVP [49]

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Reason for wage hike.

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [50]

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Reason, yes. So see as you all would have seen our quarter 1 results were pretty -- from a profitability perspective, we had come down. So we really wanted to ensure that we show a positive intent to the market that we are growing both top line and bottom line and there's a specific mandate from our Board to control all expenses so that we show a pretty good result.

What we've done is we have really gone through each cost items line wise and we've really taken active measures to really see how we can control them so that -- and, of course, we have also boosted the utilization, I think the last time we were at about 65%, we took it to 71%, we controlled our hiring. So a lot of these measures really helped us to show this profitability.

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Operator [51]

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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 [52]

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Sir, can you share some key deals that you would have won over last say 2, 3 quarters and have started work on or they've started contributing to the revenues?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [53]

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Sorry what was the question?

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Nitin Pai, Tata Elxsi Limited - Head of Marketing and SVP [54]

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Can I just restate the question, just sort to make sure we understood it? You're asking for can you talk of some of the key deals that you have won over the last 3 quarters and the kind of impact that they have had now, is it?

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Ankit Shah, White Equity Investment Advisors - Investment Advisor [55]

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Yes. Yes. They have started contributing to revenue, so they are not stuck?

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Nitin Pai, Tata Elxsi Limited - Head of Marketing and SVP [56]

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Yes, so maybe I will take this and I'll have Manoj add to it as required. So if you look at it in that sense, given the fact that we are in the engineering business and the fact that these are never multiyear contracts like you do in IT, we are project based. So to that extent, depending on the sectors that we work in, it is always ranging from anywhere between 6 months to 1 year, 1.5 years, 2 years of programs that we work on.

So to that extent, there are always projects that are rolling off and there are new projects that are always starting. So to that extent, the composition of revenues always has something with you're adding new deals and they're ramping up over a period of time and they correct at a certain point and they start to slowly ramp down a little bit as you get to close those projects.

So, therefore, it is very difficult to say that you can call out a few deals and then say this is the impact of a few deals. And this is also difficult to say which of them are new, which of them are existing customers because as you understand, a large part of what we do and what we execute and what we build is from the existing customers. So therefore I don't think there is much impact that you'll would get from providing a number like that.

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Ankit Shah, White Equity Investment Advisors - Investment Advisor [57]

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Okay, okay. So...

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Nitin Pai, Tata Elxsi Limited - Head of Marketing and SVP [58]

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(inaudible) is definitely driven by all these new -- just remember that -- even when we look at revenue in year -- month -- quarter-on-quarter but the volume growth has to be driven by new deals and how they ramp up.

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

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Right, right. Sir, the question was not on the quantitative side, it was more on the qualitative side. In terms -- if you can talk about some of those deals more so from the longer duration contracts which we could have won over last 2, 3, 4 quarters?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [60]

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Yes, so if I could answer that a little bit. If you really look at it from customer mix that we have, top customer top 5 and top 10, you know that we have a dip in our top customer. But however, if we look at the top 5 and top 10, we have maintained the numbers of the previous quarters.

So essentially what it tells us, a dip in one of the customers have actually been made up by other customers in the top 5 and the top 10, which shows that the other customers have been growing. And that is also because of the deals that we would have won in Q4 last year, Q1 this year and so on and those ramp up that are happening.

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

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Right, right. And last question is around -- if you can share the IP revenue contribution for this quarter in percentage terms?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [62]

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Your voice is breaking and we can hardly hear you.

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

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Can you share the IP revenue contribution for the quarter?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [64]

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IP revenues was, I would say, muted. It was less than 5% maybe I think around 3% or so. So it was not a -- this quarter we've not had any large IP wins. However, we need to tell you that IPs have actually contributed in winning new customers though the IP values since have been small but we were able to build significant services revenue on top of it, and I would say from an overall perspective, IP story hasn't been discussed (inaudible) even in this quarter.

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Operator [65]

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The next question is from the line of [Piyush K] from [PM Financial].

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Piyush K, PM Financial - Analyst [66]

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Sir, last quarter we had Q1 JLR incomes revenues come in at 15% of the total incomes that is revenues. How much that could be for this quarter?

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Nitin Pai, Tata Elxsi Limited - Head of Marketing and SVP [67]

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So if you look at the fact sheet, I think you will get precise revenues of the top customers.

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Piyush K, PM Financial - Analyst [68]

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Yes, I am able to see that sir. So the top customer here it is the -- concentration comes to 16.3%, so is that completely JLR?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [69]

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That's correct.

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Piyush K, PM Financial - Analyst [70]

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Okay, so last time -- so from last time we have improved on JLR. Sir, another thing I would like to ask that...

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Nitin Pai, Tata Elxsi Limited - Head of Marketing and SVP [71]

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Reason it is improved -- JLR is marginally improved because if you look at volume growth by composition you will find with actual revenues JLR would have grown just a little.

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [72]

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Yes, you can say it's flat or very little growth, yes.

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Piyush K, PM Financial - Analyst [73]

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Okay, and what about the diversification, sir? You were talking about diversifying in the auto or some JLR, so is there any deal...

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [74]

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So if you look at it, JLR has remained flat. And we have also announced that overall Transportation business has grown 9%. So obviously, there has been diversification and growth in other accounts.

On top of it, I think, last quarter also we said that we are moving into adjacent fields, which is aero, rail and off-road vehicles and so on. So I'm happy to let you know that we have -- almost 4% of the revenues from the Transportation business now comes from these new adjacencies. So it's pretty -- I mean, we've -- we started it just a few quarters ago, and we've won some good deals. So hopefully we will be able to grow that moving forward.

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Piyush K, PM Financial - Analyst [75]

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Okay, sir. Sir, another thing was that -- that I was seeing the contract type of fixed price and time and material, I see that fixed price is still near around 45%, 46% levels and time and material was about 53%, 54% levels. So what could be the difference here with the margin percentage when it comes to the fixed price and time and material for us?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [76]

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We really don't disclose that information. But just to let you know that time material is a steady margin as you guys know. Fixed, that depends on each individual engagement and amount of risk that is taken and deliveries that we have to make and so on.

So it's very difficult to give you one number because that keeps really changing quarter-on-quarter depending on the basket of fixed-based projects that we have and the risk profile of those treatment projects. So at this point of time, we don't have that information to give you.

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Piyush K, PM Financial - Analyst [77]

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Okay. So -- sir, and one more last thing that how many customers or the big deals which we must have, kind of, taken into Q2, sir?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [78]

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You are asking about the total number of customers?

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Piyush K, PM Financial - Analyst [79]

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Yes.

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [80]

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In our fact sheet it is about 161 customers is the number of active customers that we have.

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Operator [81]

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(Operator Instructions) The next question is from the line of [Dipan Jandata], an investor.

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Dipan Jandata, - Private Investor [82]

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I would like to ask this question that at the beginning of this financial year, you have forecasted a 15% growth, but in -- after Q1, it was said that you will try to achieve that target. So do you think we are -- this company is on the right path to achieve that target in the H2?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [83]

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Yes, so you'll know that there's been an extraordinary situation with the top customers in Q1 and that continues in Q2. And if you look at it, the revenue hits us to the tune of about INR 30 crores a quarter, so we have a significant dip in that. And in spite of that, we are in a position of recovering that situation, right?

So yes, it all depends on H2 and how the various deals that we've won, how we are able to ramp up and also depending on the new customers that we go after. Yes, I'm not sure whether 15% is still the -- something that we will able to do, but definitely we are looking at being in the double digits.

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Dipan Jandata, - Private Investor [84]

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So if it is not 15% what do you think you may, kind of safe scale, you'll say, that what kind of percentage you will be able to go after?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [85]

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As I said, we would look at to see how we can grow into double digits, right? So I don't want to get into the specifics here because there are so many variables that are not at all in our control, right? So maybe in Q3 and so on, maybe if we have a better indication of that, we'll -- at that time we'll disclose.

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Operator [86]

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The next question is from the line of Rohit Bhat from Airavat Capital.

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Rohit Bhat, Airavat Capital - Analyst [87]

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I just wanted to check on your -- in August you announced the diversification to other businesses. More importantly you announced that you are decreasing your work on AUTONOMAI. So given that you've won -- I mean, you talked about your EV deals as your biggest deals this quarter, how -- can you give a broader context on what your strategy is going to be going forward?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [88]

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Yes. So as you know, we've invested a lot in AUTONOMAI. And when we say we -- it's not as if we are defocusing from autonomous car, right? We're going slow because in the market that we see instead of customers going after level 4, level 5 AUTONOMAI, people are then looking at level 2, level 3.

And -- so we continue to pitch for various subcomponents within AUTONOMAI and various algorithms for -- various components of the autonomous car. So we will not look -- we may not have one large AUTONOMAI IP licensing. But we have various subcomponents that even now as we speak, we are talking to customers, and there is a lot of interest in taking on those IPs.

The good thing about that is it also comes along with services. And what we now tell our customers is that we have a good team that is trained on advanced autonomous driving capability. We are marrying that with our capabilities in artificial intelligence. We are building tools to validate the -- create various data points for autonomous driving scenarios and so on and so forth. So that is where the push is.

We are really not pushing AUTONOMAI as a platform, but we are pushing the capabilities that we've built, the various subcomponents and IPs that we have and the tools that we have for verification and validation of autonomous framework. So that is what we are pushing. And we see a good interest from customers whether it is OEMs and Tier 1s because right now, there is no such tool available in the industry and also they are showing some of those in trade shows and events, and we are seeing good traction and opportunities around that.

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Rohit Bhat, Airavat Capital - Analyst [89]

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Got it. And within your top customer itself, has this been -- have you lost wallet share to others? Or have they dropped their budgets?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [90]

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We have not lost wallet share. In fact, we are focused on how we can increase our wallet share. They have really -- they have been having budget constraints, and that is the reason why there is this cut in the overall budget. So, however, we hope that this quarter or next quarter, the situation would improve and we will get back to our growth rate.

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Rohit Bhat, Airavat Capital - Analyst [91]

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But just on wallet share itself, you have not dropped wallet share?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [92]

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No, no, no.

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Operator [93]

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

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

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Congratulations on a good set of numbers, and welcome, Mr. Raghavan, as the CEO of the company.

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [95]

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Thank you, sir.

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

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Sir, just can you say some qualitative thing on -- as Nitin said that in this engineering business, the project we won project by project and the project period is around 6 months to 2 years. But if we can get some color, how this deal size is increasing or not for each of the projects that we are running? What was that 2 years back and now?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [97]

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Absolutely, absolutely. So I would say 2, 3 years back, our deal sizes would be in the $100,000 to $500,000 sort of a range, right? And for us, $1 million would be a pretty good opportunity and good deal for us. Right now, we are looking at opportunities in $10 million, $20 million sort of pipeline. In a few cases, $50 million also, right?

It is -- yes, this business is slightly different because the budgets -- most of our customers have yearly budgets. It's very difficult to have a multiyear contract. Of course, in some cases, in our large customers, we've had those multiyear contracts.

But again, even though there is a multiyear contract signed because it is engineering budget, if there is any -- anything that has happened at the customer's business, for example, our top clients, what happened to them. Even though we have signed up a multiyear contract but then the business situation worsened, they did not cut the IP budgets because they had to keep the company running, but they cut the R&D budgets, right?

So even if I say I won a $50 million deal, that doesn't mean much, except for the yearly period that we have. Of course, there is an intent from our customers to continue over the next 1 year or 2 years or 3 years, but there will be many reasons why some of these could be cut short mainly because of different reasons from our own customers.

So these are some large deals, which I was talking about. But most of the other deals are in the $500,000 to -- or maybe a couple of million dollars. And these deals are typically in 6 months to 18 months sort of time lines. But as compared to 2, 3 years, definitely, from deal size of $100,000 to $500,000 they have moved to an average deal size of maybe a couple of million dollars.

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

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Okay. Sir, on like (inaudible), I mean, in auto, we work largely with either OE or the Tier 1 supplier, correct? Is that a ...

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [99]

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Be aware that -- of course, our large customer is an OE, but most of our business actually used to come from those Tier 1s, that is suppliers.

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

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Is it same thing we are and how it's for this media and communication and medical devices the same. I mean so how there I mean it operates? Can you give some more color on media and communication, and how do we see the business opportunity for this both the business?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [101]

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Yes. So you guys -- most of you have been so obsessed with our automotive or transportation business that you have forgotten that we have pretty big business in media, communication and the medical business, which has been growing significantly quarter-on-quarter and adding new revenues and adding healthy margins to the organization. I am thankful for you to point out this particular situation.

Yes, our media and communication business has been growing, marching along very nicely. We have some large customers. Some of the world's leading customers in this space are our customers. Whether you look at the #1 media operators, #2 media operators, #3 media operators in the world are all our customers. The #1 media operator in India, the #2 media operator, the #1 OTT operator in India, all of them are our customers.

So we, over a period of time, have really morphed this business, that is all the customers are undergoing significant digital transformation. Their exiting definitions are getting turned, and that provides a good opportunity for a company like us because we bring in both the engineering capabilities, we exactly understand the media and communication space.

At the same time, we are also able to bring in the impact of the digital domains as cloud, IoT, OTT, a number of things that are coming in, we're really leading there. And of course, there's a lot of usage of open source as Nitin said there is Android in the case of -- Android TV, in the case of operators or RDK. These are significant areas of opportunity. And if you ask me both in Android TV and in RDK, we are #1 engineering partners in the world -- worldwide. The number of engineers are there. The number of the revenues that we get, the -- by far, we are #1 in the world.

So yes, I have a pretty good -- a good feeling about the media & communication space, and we'll continue to dominate the space. We, of course, will continue to dominate -- I won't say dominate, but we'll continue to grow well in the medical space. As you know, it's a new business that we have incubated. We are about 7% of the overall business with the medical business right now.

But -- and we have aggressive plans in the next 3 years for this particular business of investing in sales bandwidth both in the U.S. and European markets. We have good opportunity on the regulatory space. We are also looking at the pharma space to get in. There are a number of things that we're taking.

The idea is in a clear time frame to see how medical business can be as big as the media and communication or automotive business. So that's the push that I am giving internally to the teams, and I think we have a good, good delivery capability and good leadership team that is pretty confident that we'll be able to move in that direction.

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

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Sir, when do we expect -- I mean that -- I mean automobile business can I mean -- which is contributing almost 50%, 60% can come down to 40%, despite growing and other pieces growing much faster?

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

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So is it was never 60%. It was about maybe 52%, 53%. It's come down to about 48%. I think that isn't -- I think it's not that automotive business has dropped. As I said, they have also grown nicely. But the media business is also growing nicely, so -- media broadcast business.

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Bharat Sheth, Quest Investment Advisors Pvt Ltd. - Head of Equities [104]

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Okay. Sir, in media, we largely work in U.S. and India or Europe also too?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [105]

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Yes, we work across whether it is U.S., Europe, India, Middle East, Africa, Japan. We have wide presence in Malaysia, Singapore. There are areas that we are now looking into.

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Bharat Sheth, Quest Investment Advisors Pvt Ltd. - Head of Equities [106]

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Sir, we were expecting some kind of IP revenue to start flowing from Q3 for media business? So how is -- is it on that track?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [107]

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We've had some IP revenues in, I think, Q4 and Q1. In Q2, we had several bids that they have placed. There are several large bids that have not closed yet. Maybe we'll be able to declare some of that in Q3.

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Operator [108]

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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 [109]

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My first question is on the automobile side of business...

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

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Only one question, please. Yes, and could you speak a little loudly? We are hardly able to hear you.

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Nirmal Bari, Sameeksha Capital Private Limited - Equity Research Analyst [111]

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So on the transportation side of the business, we have been saying that the pipeline had been good enough. But if you look at the industry scenario, especially in China and now in Europe and U.S., it's -- the industry itself has been slowing down.

So when we look at that and when we look at our pipeline, is it that the pipeline is there, but it is moving at a more sluggish pace? And so going forward, our growth in that particular segment for the next few quarters, it might be impacted?

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

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No, as I discussed last time also, there are large opportunities in this space. And yes, the decision-making times are getting larger. It is from maybe 2 to 3 quarters before there were closures on some of these deals. So yes, while the deal pipeline is pretty good and healthy, but closures would take time. And we have a number of deals that we are projecting to close in Q3.

So yes, there is some sluggishness but however, these are deals that we gave a bid for in Q4 and Q1, and some of them are still continuing their evaluation and so on. Hopefully, we should see the light at the end of tunnel in this quarter.

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Nirmal Bari, Sameeksha Capital Private Limited - Equity Research Analyst [113]

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Okay. So the deal closure has been the -- has been kind of getting delayed for all the players? Or is it for...

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

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No, no, it's all the players. There's nothing special about Tata Elxsi here, right?

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Nirmal Bari, Sameeksha Capital Private Limited - Equity Research Analyst [115]

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No. As in -- all the players as in all the OEMs and Tier 1s? Or is it only for JLR?

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

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No, no, no. It is true for most of our Tier 1s and OEMs. It's not specific to a JLR issue. So if you look at it, even in Q1, we had a number of deals under discussion, but they all got pushed due to which our Q1 revenues, we are not able to show that revenues. Some of those deals closed in Q2, and that is why we are able to now show a significant growth in that business. And some of them have pushed to Q3, and hopefully, we'll be able to close some of them.

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Operator [117]

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The next question is from the line of Krishna Parikh from Alcazar Associates.

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Krishnachintan Chintan Parikh, Alcazar Associates - Analyst [118]

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My question is, what is impact of Brexit, and are we prepared? Will that have any material impact on our contracts?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [119]

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We are in the R&D business, right? So I think on our contracts, I don't think there's any impact, but it will definitely impact our customers' business. And due to that, if you look at it, I would primarily look at maybe our top customer, right? We do have a number of GDP businesses. There could be some foreign exchange risk associated with it. We don't know which way the currency will move.

But most of our other GDP projects are all in the media and entertainment space, which is all confined within the U.K., and it is not -- there's no impact of Brexit on some of those businesses. Thus in automotive space, there could be fast impact. We are still not sure which way it will go. And also, we are not sure about the foreign exchange implications of that.

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Operator [120]

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

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Mayuri Yadav, Equentis - Analyst [121]

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Yes. Sir, my question is -- sir, last quarter, it was mentioned that the revenue was impacted partly because of JLR and also some large orders where the work couldn't start. So this 6% to 7% Q-on-Q growth that you've seen in this quarter, is it because of the work has started on the projects, which we mentioned in last quarter the work couldn't start? Or is it because of the new deals instead that is contributing to this growth?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [122]

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It's a combination of both. It's a combination of both. We had -- definitely had new deals wins, and we also had some of the projects that we were expecting to start in Q1, they actually started in Q2.

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Mayuri Yadav, Equentis - Analyst [123]

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Okay. So these new deal wins. Can you share as to largely which geographies have contributed? Is it from the U.S. or the Europe? These new deal wins if you can just give us some understanding on that? Where has it come from?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [124]

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It has been -- it has been a good performance across geographies. Yes, of course, we have won some good deals in Europe. But more importantly, from the U.S. from Middle East and from India and Japan. In all geographies, we had deal wins.

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Mayuri Yadav, Equentis - Analyst [125]

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Okay. But in terms of overall contribution, any specific geographies, which would have contributed more in this quarter?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [126]

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Definitely, U.S. has contributed a significant portion. And if we look at our -- the U.S. has been growing steadily for us and that is a good sign, I would say, for U.S. market. And the aim is, of course, that U.S. business will continue to grow.

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Mayuri Yadav, Equentis - Analyst [127]

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Right. And sir, which segment -- if I have to ask like the new deal wins are largely in the automotive? Or again, is that...

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

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Both in the automotive and media and communications space.

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Mayuri Yadav, Equentis - Analyst [129]

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Okay. Okay. So the mix which you have mentioned on Slide 5 more or less that is the kind of mix you would have seen in the new deal wins as well or...

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [130]

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Yes.

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Mayuri Yadav, Equentis - Analyst [131]

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And sir, but now that you have -- you've seen the revenue growth traction building again, how soon are we targeting to lead the 10% Q-o-Q growth that we have been talking about for quite some time now?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [132]

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I don't have an answer. We'll take it a quarter at a time. Maybe after a couple of quarters, we can get -- look at it and see how...

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Mayuri Yadav, Equentis - Analyst [133]

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As I -- sir, but at this stage, are you confident of this 6%, 7% maintaining for the next 2 quarters? Are you expecting this also to improve quarter-on-quarter a little bit?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [134]

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I would urge you to wait for a couple of quarters. You'll see how we are performing. We have a good decent pipeline. I don't think that is an issue for us. However, the deal closures as we discussed in the previous question also, we can't predict some of those, right?

We expect some of the large deals to close in the quarter. However, that gets pushed and so on. So there will be some ups and downs. But overall, we are on a growth path. I have no doubt about it. Unfortunately, because we are on this quarter-on-quarter sort of a situation, it becomes very difficult to predict sometimes.

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Mayuri Yadav, Equentis - Analyst [135]

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Absolutely. Sir, in terms of now that we are looking at this kind of growth to continue, so what is the employee addition plan that we have? And the consequent impact it can have on the margins, if any? So would it be through utilization ramp-up? Or you are looking at increasing the headcount also?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [136]

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Yes. So definitely, our utilization is about 71%, and we would definitely push the utilization to go up to around 75%. I think that a company of our size and the various areas that we work in, 75% is an optimal point to reach. Beyond that, I think we'll struggle when we get a new customer and so on.

So definitely, we'll improve the utilization. We will also do some new hiring, again, depending on requirements and some of the large wins that we have. We will -- it's a combination of both.

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Mayuri Yadav, Equentis - Analyst [137]

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Right. So overall, therefore, we are, again, confident despite the wage hike that we have been -- we will take in Q3, we will be in that 22% to 24% EBITDA margin range.

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

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See, that is the real aspiration that we want to do. But, however, let me also caution you that in the first quarter, we have holidays coming in. We have a number of -- maybe a number of our customers will suddenly announce furloughs. Some of these are beyond our control at this point in time.

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Mayuri Yadav, Equentis - Analyst [139]

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Correct, sir. And...

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [140]

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So I wouldn't want to commit anything and then end up foolish next quarter...

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Mayuri Yadav, Equentis - Analyst [141]

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Of course, sir. Sir, my last question is, and I'm referring to the Slide 5, again, of the EPD operating increases that has been provided. Here the segment level -- sorry, the industry vertical by user breakup has been provided and we mentioned that automotive has grown 9% Q-o-Q. So it is with respect to the EPD -- that element that has grown 9% Q3. Is it?

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Nitin Pai, Tata Elxsi Limited - Head of Marketing and SVP [142]

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That's correct.

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [143]

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That's correct, yes.

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Mayuri Yadav, Equentis - Analyst [144]

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And medical has been flat. I couldn't get broadcasting and the communication business. That would have grown at Q-on-Q...

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

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5%.

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Mayuri Yadav, Equentis - Analyst [146]

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5%. And what was this others? Is this a design? Or what...

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [147]

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No, no. The others is we have consumer electronics. We have smaller businesses. We have the home appliances, consumer electronics, systems and so on and so forth.

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Mayuri Yadav, Equentis - Analyst [148]

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Right, sir. Great.

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Operator [149]

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The next question is from the line of [Navin Batra], an individual investor.

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Navin Batra, - Private Investor [150]

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Congratulations to you for the CEO and (inaudible). My question is regarding the -- this half year, we have invested approx INR 70 crores in fixed assets. So if you can throw some light on it? And the next question is related to this one. Are you planning to enter any new segments like gaming and all business?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [151]

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I think that is because of the change in the accounting policies where all the leased rentals have really bought and -- that is a fixed cost sort of an increase that you have seen. Gaming and others, we have been in gaming for quite some time. We still have a small percent there.

We figured out that that's really not a scalable business for us. We win one-off projects and so on. But however, from the design business and the animation business, we see a good opportunity there. In fact, we have won some good opportunity within educational service provider that's also in the educational games and so on.

So that is something that is a good win for us from a -- for design business. So that is something that we will continue focus and grow that piece. However, we'll not get into the engineering game development and so on. I think that is something that we're not really focusing on.

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Operator [152]

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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 [153]

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Thank you for the improved disclosure and I'm sure you will improve it far more going period. I have 2 questions. One regarding the use of cash that you have on the book. So as a shareholder, I would be glad to know that if you have any plans to acquire -- and it's been lined for quite some time and the pile is growing. So you have lot of opportunities to build or maybe buy out expertise in the new verticals or as well as to strengthen and fortifying your existing verticals. So what is the Board and the general management thought process and now there's a change of baton here at least in our company. So if you could -- between you and Nitin, how it has been decided?

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

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No. So yes, the Board's mandate is also very clear. But yes, we have a lot of cash that we have and we need to really be careful in deploying this cash to see how this could really help our company's growth. Acquisitions, M&A is definitely one way. We're not ruling out. As you guys would have -- you know us over a period of years. We have pretty shy of some of this. But however, the mandate is very clear moving forward. We will definitely look at acquisition, but we'll not acquire a company just for the sake of acquiring company. Even as we speak, there are opportunities that we are evaluating. However, in all -- I would say, we -- it would be hardly appropriate for me to comment whether we will do something this quarter or next quarter, but we are actively looking at these opportunities. I think M&As will definitely be one of the key strategies for us from a next financial year perspective. So I just want to give a clear indication that you may not expect anything in this H2. If something comes our way is really attractive and so on, we'll definitely look at it. But I think we need to push some of that into the next financial year.

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Manish Bhandari, Vallum Capital Advisors - Founder, CEO & Principal Portfolio Manager [155]

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Sure. My second question is regarding the investment you need to do in the sales engine in each vertical. So are you using any of these levers to add up significant sales on the sales investment and sales engine? And if you could throw some light what has been achieved in this quarter maybe going forward?

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

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Yes. So sales, definitely, if you look at it across all geographies, we have been investing in sales resources. We have verticalized sales team in U.S., in Europe and in Japan. We have partners in Korea and China apart from our own investments. We have added sales bandwidth especially in the new areas that we're going to focus on, especially on the medical side of the business as well as in the transportation business, which is when we look at the rail and aerospace and so on. So we've actually started adding bandwidth there to really focus on some of the new opportunity areas for us.

So yes, I would say a lot of investments or most of the investments are focused on some of the new growth engines in growth areas that we are focusing on.

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Manish Bhandari, Vallum Capital Advisors - Founder, CEO & Principal Portfolio Manager [157]

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Manoj, one clarification, if you could throw is, is the JLR has set up its own design center in the process in the only -- the design center in India in the last few, I mean to say, months or maybe last few quarters? And would that change any in terms of our association with JLR?

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

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No, I don't think there is any -- it's a small development center, mainly focused on very advanced engineering and those areas. It, I think, currently has a body member team. It's part of -- and then there are fresh engineers and they're all learning the ropes and so on. So I don't think that this will cause any concern for us. In fact, we will actually complement that particular center and we are in touch with the key management there and -- definitely, we'll be able to work along with them. I don't see any threat from that particular center.

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Operator [159]

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

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Sanjeev Panda, Tamohara Investment Managers Pvt Ltd - Portfolio Manager [160]

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Sir, as you said, you want to grow the non-auto business, which is broadcasting, especially, and the health care, which is growing at a pretty decent rate, and its contribution could be higher than the auto very soon. So the margin profile in these 2 categories apart from auto, would it be like -- and just to ballpark or any guidance directionally. Will they be higher, lower? How is it?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [161]

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It is (inaudible). But let me tell you, in the end, the automotive customers are the -- our automotive customers are the most demanding customers. I have indirectly answered the question.

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Sanjeev Panda, Tamohara Investment Managers Pvt Ltd - Portfolio Manager [162]

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Yes. I got it. One more thing that as you said the Q3 is going to be, obviously, seasonally weakest quarter because of the holidays and all. And at the same time, we are talking about hikes that we have pushed from Q2 to Q3. And also we talked about the cost cutting that -- which is reflecting in our other expenses, which is going down. So is there any other also room left out for cost cutting? Or this is something that you have done and it's going to be the case for the next couple of quarters.

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

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No. We'll continue that in terms of really looking at our overall expense profile, right? Where all this spend money and so on. And wherever there is no immediate linkages to revenue or your customers (inaudible) and so on. They're really postponing some of those revenues that will continue in the next quarter. We really need to -- we know that there are headwinds like the holiday seasons and so on coming up, and we really need to take care about our bottom line. So we'll continue those pushes.

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Sanjeev Panda, Tamohara Investment Managers Pvt Ltd - Portfolio Manager [164]

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Sir, the last, if I can squeeze. In the last time conference call you said that the non-JLR, the non top guy, the other auto companies, we have seen slow in terms of decision from their side, delay in terms of decision. But at the same time, the global scenario of auto is not really changed. So have you seen any change or the same environment is continuing from your client perspective?

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

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I think the environment has been beefed up. And as I said there were several deals that have got pushed from one quarter to the next quarter and so on. So that continues. And you would have seen the overall results of multiple companies, right? So it shows the trend that, yes, there is some softening in the market. [Behind] to that, it's not as such that there are no deals available. There are a number of deals that they are bidding for. What we're not able to judge is whether it will close in this quarter or the next quarter or the quarter beyond, right? So that is something -- that is really difficult to predict at this point in time.

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Operator [166]

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The next question is from the line of [Vijay Kumar], an investor.

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Vijay Kumar, - Private Investor [167]

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Congratulations Mr. Manoj on your -- and all the very best. Yes. Many of the questions have been actually asked. But I thought I'll just broach upon a topic. Something like what's out 3 months back was JLR and BMW. I think they've got to there on the R&D side for further newer options. Do -- did we ever start any discussions in the new platform?

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Nitin Pai, Tata Elxsi Limited - Head of Marketing and SVP [168]

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Yes. If I understand correctly the question was BMW and JLR have announced a collaboration -- I think this is in the case of the electronic drive units for these. And question is, whether we have had any discussions with that entity? Maybe I'll answer that. So while the collaboration has been actually in play for some time now, it is just that the announcement was made now. It is not that something was brought up only in March, April, and it was suddenly announced. Really speaking, that collaboration has been on for some time. That is our understanding. And we've been working with JLR on certain elements already. So there's nothing new in that sense.

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Vijay Kumar, - Private Investor [169]

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Okay, okay. I'm only looking at what kind of opportunity offers ourselves the new entity. Because BMW would be having other vendors like Elxsi. So do you stand a chance to play a role there?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [170]

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I'm sorry, I didn't get that question.

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Vijay Kumar, - Private Investor [171]

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What would be the opportunity for Elxsi with the new entity in the sense that BMW would have similar vendor or similar software providers like Elxsi for BMW just like JLR has Elxsi. So would we have stand a chance of winning any orders with the new entity?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [172]

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Yes. On one hand, they are independent customers for us, right? So we work with both. And whatever we do is completely independent for both these customers. In this particular case, there's a certain amount of collaboration that has been declared to share R&D investments, right? And certain transfer of technology. And like I said, we have been working with JLR on certain parts of those for some time now. So beyond this, we don't see any larger opportunity. Whatever we do will continue to be independent for those customers. So as such, there is no separate JV setup just to clarify. So there is no third company to work with.

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Vijay Kumar, - Private Investor [173]

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Right. One more question on the opportunity that India would have from something like Apple and others moving into India to manufacture or assemble. Will we stand a chance to bring any design or work with such large corporations in the future?

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [174]

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Nothing to do with, for example, India manufacturing Apple and so on. I don't think Tata Elxsi has a play. However, Tata Elxsi has a play for example -- and it's Walmart, right? Walmart is investing in India, right? They're building their own India-specific brands. So we are actually working with Walmart to design some of those packaging -- from an industrial design perspective, we have a number of projects that we're doing. And moving forward, as the number of India-specific brands and product categories increase, there'll be an opportunity for us to really work on them.

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Operator [175]

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Ladies and gentlemen, we'll take the last question from the line of Henrietta Seligman from Somerset Capital.

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Henrietta Seligman, Somerset Capital - Analyst [176]

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Well done on the results this year. Great improvement quarter-on-quarter. My question is, how much competition are you seeing from other players now when you tender for new projects? And how does that compare to the last few years? And then just a very quick question. I didn't quite hear the answer to what the utilization rate is of the workforce at the moment?

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

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The utilization rate is 71%. The competition, yes, competition is there in a number of deals that we bid, especially in the automotive sector. Competition is less in the media & communication and health care segments. In many cases, in the -- both in media & communication and in the medical business, we are part of their general vendors and situations. So it's very difficult to give you one specific answer about competition. But however, I think we really focus on capabilities and core competence that we have, bringing our design elements to really differentiate our capability with reference to competition. And our end-to-end product delivery capabilities. So I think the mix is as I explained.

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Henrietta Seligman, Somerset Capital - Analyst [178]

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Okay. And I mean given the slowdown that you've seen in auto, are you seeing more people entering the tenders and going after that business at the moment?

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

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More people entering...

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Henrietta Seligman, Somerset Capital - Analyst [180]

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Are you seeing more competitors in each tender for auto now? Because that's less workaround?

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

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No, I don't see that there are new deals coming in or -- typically, in the automotive scenario you have 2 or 3 companies bidding for some of these opportunities.

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Operator [182]

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Thank you. 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 [183]

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Thank you all the participants for participating in the Q2 results investor conference call. And we hope to -- hope your participation for Q3 as well. I'd also like to thank Manoj and Nitin for answering all your queries. Thank you all. Thank you.

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Manoj Raghavan, Tata Elxsi Limited - MD, CEO & Director [184]

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Thank you.

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Nitin Pai, Tata Elxsi Limited - Head of Marketing and SVP [185]

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Thank you.

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Operator [186]

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