TATAELXSI - Tata Elxsi Ltd Share Price

For the first quarter of FY 2025-26, Tata Elxsi reported an operating revenue of INR 892.1 crores, with an EBITDA margin of 20.9% and a profit before tax (PBT) margin of 21.1%. The management highlighted a challenging environment, primarily due to geopolitical uncertainties and client-specific issues affecting R&D spending and deal closures.

Looking ahead, management is optimistic about their transportation segment, which represents over 50% of revenues. They have secured large deals in software-defined vehicle (SDV) engineering for Mercedes-Benz and Suzuki, which are expected to ramp up significantly. The CEO, Manoj Raghavan, indicated that discussions for strategic deals with OEMs across multiple geographies, including the U.S., Japan, and Europe, are ongoing, with strong growth anticipated from newly signed clients and large deals.

In the Media and Communication segment, a QoQ decline of 5.5% in constant currency was noted, attributed to transition investments and consolidation deals. However, this vertical is expected to rebound as ongoing projects ramp up. The Healthcare & Life Sciences segment faced a 6.7% decline, primarily due to tariff impacts on U.S. medical device customers, but recovery is expected in H2 FY 2026.

Management plans to increase their talent pool by onboarding 400 engineers in the current quarter, with expectations of steady margin improvement as key segments regain growth in Q2 FY 2026 and utilization rates climb. Future operational improvements and strategic investments in adjacent markets, particularly aerospace and defense, are expected to drive profitability.

In summary, management aims to gradually recover margins, targeting a return to historical levels in the medium term, specifically aiming for 29-30% EBITDA margins as business conditions stabilize post-ramp-ups and deal growth.

Here are the major questions from the Q&A section of the Tata Elxsi earnings conference call, along with detailed responses:

1. Question: "On the auto vertical, can you comment in terms of how the demand pattern has changed over the last three months, both in terms of deal closures as well as deal ramp-ups?"

   Answer: "We see deals coming through in Europe and APAC, with ramp-ups from previous deals accelerating. The US market remains slow, but visibility for closures is improving in other regions. Overall, we expect this positive trend to continue in upcoming quarters."

2. Question: "Can you give more color on the two client-specific issues in healthcare? Is this cancellation of projects or ramped-down?"

   Answer: "The issues pertain to two large US customers where new projects were paused due to uncertainties in their operations. We expect these projects to resume soon, alongside new logos we've opened in healthcare, indicating potential growth."

3. Question: "Can you clarify on the business outlook within the top single customer, and do you expect further growth in this account?"

   Answer: "The situation with our largest customer, JLR, remains fluid. However, we anticipate maintaining current revenue levels with some incremental growth rather than aggressive expansion. We are cautiously optimistic here."

4. Question: "Regarding the way margins have shaped up, do you think margins can claw back to what we used to report in FY '23 or '24?"

   Answer: "We believe we can gradually restore our margins over the next three quarters as revenue increases. However, it may not reach FY '23 or '24 levels immediately, but we're focused on margin improvement."

5. Question: "What about wage hikes? When can we expect these?"

   Answer: "Wage hikes are planned for October, aligning with our typical cycle, and yes, we are committed to implementing these adjustments."

6. Question: "Can you provide insights regarding the government PLI scheme and the semiconductor factory in Gujarat?"

   Answer: "The semiconductor factory in Dholera relates to Tata Electronics, which is a customer of ours. Tata Elxsi is not directly involved with that factory but continues to support related projects."

7. Question: "How has AI and GenAI impacted your operations and headcount?"

   Answer: "The impact of AI is nuanced; while it could optimize certain tasks, it isn't a panacea for all operations. We anticipate gradual efficiency gains, but headcount adjustments will depend on specific project demands."

8. Question: "What is the outlook for the media segment?"

   Answer: "The media sector has been globally subdued with declining subscribers and ARPUs affecting operators. Although we expect improvements from Q2 onwards, significant challenges persist, focusing on efficiency rather than growth."

9. Question: "Can you provide any guidance on FY '26 revenue and profit expectations?"

   Answer: "We don't provide specific revenue or profitability guidance, but we expect growth from transportation and some recovery in media and healthcare by H2 FY '26."

10. Question: "What is your strategy for entering new geographies and verticals?"

Answer: "We aim to solidify our presence in established markets like the US and Europe while exploring newer regions like the Middle East and Africa. We also see opportunities in the aerospace sector but will approach expansions cautiously."

These responses should provide a comprehensive overview of the major discussions held during the Q&A session of the conference call.