Tata Elxsi Limited (500408) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '22 Investor Conference Call for Tata Elxsi Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Lokesh Pareek from Christensen Advisory. Thank you, and over to you, sir.

Thank you, Aisha. Good afternoon to all the participants on this call. Before we proceed to the call, let me remind you that the discussion may contain forward-looking statements that may involve known or unknown risks, uncertainties and other factors. It must be viewed in conjunction with our business risk that could cause future result performance or achievement to differ significantly from what is expressed or implied by such forward-looking statements. To take us through the results and answer your questions today, we have the senior management of Tata Elxsi, represented by Mr. Manoj Raghavan, MD and CEO; Mr. Nitin Pai, Chief Marketing and Chief Strategy Officer; Mr. Muralidharan H. V., Chief Financial Officer; Mr. Gaurav Bajaj, CFO Designate; and Mr. G. Vaidyanathan, Chief Investor Relations Officer. We will start the call with a brief overview of the past quarter by Mr. Raghavan, followed by a Q&A session. [Operator Instructions] I now hand over the call to Mr. Manoj Raghavan. Over to you, sir.

Thank you, Lokesh. Good afternoon, everybody. I hope my audio is clear.

Yes, sir.

Okay. Thank you for joining us today, and hope you and your families are safe. I'm happy to report that we have delivered another quarter of strong all-round performance. We have actually carried our momentum from the last fiscal year to the current one, and we continue to execute strongly on both top line and bottom line. Our revenue from operations for the quarter gone by is INR 558 crores, translating to a growth of 7.7% quarter-on-quarter and 39.4% year-on-year. The growth was predominantly volume-led, with a constant currency growth of 6.4% quarter-on-quarter and 37.4% year-on-year. The PBT for the quarter was INR 153.9 crores, registering a growth of 63.9% year-on-year. And net profit for the quarter stood at INR 113.4 crores, reporting a growth of 64.6% year-on-year. Please note that I think we have even disclosed in our fact sheet that the bottom line factors and additional INR 33 crores of employee expenses on account of the special onetime bonus for all our employees, as conveyed in the previous investor call. Growth was driven primarily by strong performance in both our key divisions, EPD and IDV. The Embedded Product Design, EPD, our largest division, grew by 7.5% quarter-on-quarter and 31.4% year-on-year. And the Industrial Design & Visualization business, IDV, posted a smart growth of 13.9% quarter-on-quarter and 132.1% year-on-year. So geography-wise, our growth was led by the Americas with 17.5% quarter-on-quarter and 69.3% year-on-year growth. Europe grew by 5.4% quarter-on-quarter and 30.1% year-on-year. India grew by 2.8% quarter-on-quarter and 47.6% year-on-year. And again, within EPD, the growth was broad-based across industry verticals. Healthcare continues to grow faster than other industry verticals with growth of 19.3% quarter-on-quarter and 80.2% year-on-year. Media and Communications delivered another steady quarter with 8% quarter-on-quarter and 31.6% year-on-year growth. Transportation business continues to show revival with a 3.4% quarter-on-quarter and a 20% year-on-year growth. So if you look at it, the growth was in our business, right, is primarily driven by deep mining in our existing customers, especially in the top 5 customers. Even as COVID had started to affect our customers around the world, we pivoted quickly and supported by a mature offshore delivery capabilities. And for the past few quarters, we have been focusing -- as a business focusing on creating sustainable and long-term engagements that allow higher degrees of predictability and order book as we progress from one quarter to another. We have been constantly improving on this front with all our customers, and it actually builds confidence as we move forward. Equally, we have been focused on high-quality customer additions, especially led by solutions and design-led digital engagements. I'm pleased to see that starting to work well and sets up our platform for larger growth and mining. So all in all, it has been a pretty satisfying quarter, with growth across both our key divisions, all our geographies and all industry verticals. We are entering the second quarter with a strong order book and a healthy deal pipeline across key markets and industries. With that, I hand it over for the Q&A session, and we look forward to interacting with you, investors.

[Operator Instructions] The first question is from the line of Vimal Gohil from Union Asset Management.

Congratulations to the team on a very good set of numbers. Sir, my first question was on your automotive vertical. So if I were to look at the numbers, your top customer has grown at about 12% on a quarter-on-quarter basis. But if I were to exclude that from the automotive business, the non-top automotive business has actually shown a decline. So if you could just give me some reason as to why that has happened. And secondly -- and the second question that I have -- and if you could just provide the overall outlook on your automotive business going forward. The second question I have is on margins. The company continues to be surprised on the upside. So if I were to look at your adjusted margins, they are still 30% plus. And I think they are about the band that you have sort of provided of 25% to 27% EBITDA margin band. Is there a need to sort of relook at that band and probably revise it upwards given the fact that you've been very consistent in reporting these numbers? This is notwithstanding the eventual salary hikes or wage hikes that we see next quarter. And lastly, if you could just give us the wage hike number that you are planning to do in Q2 of FY '22.

Sure. I'll take the easy question first. So the -- from a wage hike perspective, I think it to be in line with what we have done the last year about 7% to 8%. That will be the wage hike, and the wage hike will be effective from July 1, right? From a margin perspective, yes, if you look at adjusted margins, yes, I think we are in line with what we delivered in the last quarter. However, again, I would come to the situation that, look these are extraordinary times. There will be expenses which will come up once travels and everything starts. So I think we're pretty comfortable with what we reported in this quarter, and that is something that we would focus on. Regarding the top customers, I think the automotive industry in general has had picked up for us, so which is good. And we have been continuing our growth from the previous 2 quarters. If you look at it, when COVID hit, most of our competition both in India as well as abroad, had a revenue dip of anywhere between minus 10% to minus 6% and so, but we managed to be almost flat, right? So from that, we have grown -- I think we have grown almost 3%, right? So that is that is a very creditable growth. Again, you have inferred -- you had inferred the top customer at 12%. I think that is -- I would like to say that, that is a wrong inference that you have taken. The customer that you have indicated is not the top customers. So from that effect, all your assumptions have gone wrong, so you need to really look at it.

Okay. So I mean if you talk about the top customer, basically -- okay. Fair enough. I'll probably get back to the queue. I'll probably take the next question off-line then.

[Operator Instructions] The next question is from the line of Bharat Sheth from Quest Investment.

Mr. Raghavan and Nitin team, congratulations on good set of numbers.

Thank you, sir.

Mr. Raghavan, see, you -- in this last 2 quarters, we have added more than 1,000 employees, which is roughly around 15% of the total employees as of June 30. So how do that inferred or, I mean, from the growth perspective, since we are on very good strong order book, so if one has to really look at, I mean, medium term our growth number, this quarter, we have grown 7%. And if we continue to do, so our growth number would be anywhere should be around what we were aspiring, about 30% plus. So do you think it is -- this number indicate those kind of things?

Yes. So the fact that we have been adding significant headcounts would give you an indication of how we see our business and how confident we are on our business. So what we are doing is we are building capacity to address the pipeline that we see and address the deals that we have already won. And that shows the confidence that we are moving in the right direction. Whether we will achieve the numbers that we have talked about, that is secondary, right? But we are doing what -- right now, what we see, we see the pipeline, we see the strong order book that we have, and we are building capacity to address what we have.

Okay. And second question, in this quarter, we have done -- won a new deal of -- including EV space also. So how do we -- one has to really -- which earlier was not very -- I mean, we were talking much on the EV side also. So with the EV side at play, how do we really look at our company?

No, if you look at automotive industry, automotive industry is moving the electric vehicles there. Most companies, more OEMs, more suppliers are investing in that. So I think there was a little bit of a slowness because of COVID and because of all the structural issues in the industry. We see all of that slowly -- situation improving, and we see a lot of deals coming our way. So -- and we have been preparing for this and we have been -- and I don't think this is the first deal that we were awarded. We have won earlier deals also in the space. But we are calling it out now as because these are significant deals for us, and we hope that will help us as the automotive industry recovers and investments begin to flow in. And we are ready to catch on the opportunities that come our way and deliver value to our customers. So that's the way I see it.

And last question for me. When we say large deal, can it be an offer of INR 25 million? Or when we -- what is our definition for the large deal, if you can give some color?

So large deal when we say -- see, many of the deals when we start off, unlike IT deals, I mean I don't know that even a few of our competition talks about large deals. But those are typically projected deals, right, meaning that the deal will go on for 3 years or 5 years. But typically, in our space, in engineering space, customers would start off with about 12 months of an opportunity. And then as the engagement, as we grow that particular engagement, it converts into a multiyear opportunity and so on. So in my view, if the deal is around INR 5 million, especially a new customer, I would consider it as a large deal.

[Operator Instructions] The next question is from the line of Hiren Ved from Alchemy Capital.

Manoj, Nitin and rest of the team, congratulations on yet another great quarter.

Thank you, Hiren.

I had one question on your Q-on-Q run rate. You mentioned Americas was 17.5%. I mean that's quite staggering, right, because -- and Europe was just 5.4%. So was there something in the base in Americas that we've had a strong quarter? Or it's just organically a strong quarter? And do we continue to see a strong run rate in the U.S.? And why is Europe still lagging compared to Americas? So just wanted to understand this geographical run rate is quite differential, 17.5% and 5.4% for Europe, considering both of these are significant geographies for you.

Yes. So if you look at it, number one, we have been investing in the U.S. geography for quite some time, including building up sales capacity, consultants and so on and so forth, right? Europe is also important for us, no doubt about it. But if you look at our revenue distribution, our automotive business tends to be a lot more Europe-centric. And our Media and Communication and Healthcare business tends to be a lot more U.S.-centric. So if you look at it, if you see the growth that we've had, we have the growth in both in Media and Communication and Healthcare, again, significant growth. And automotive also grew but at a slower rate. So that naturally reflects in the regions also, U.S. versus Europe.

And therefore, you believe you'll continue to see strong growth in the Americas going forward?

Yes. We are pretty confident the way business is going. We're pretty confident that we've done all the right things as far as U.S. is concerned. And we hope that whether we will have such a strong growth, it's a very difficult question to answer. But we believe we have some sustainability there on the customer pursuits and so on, right? So all the investments that we have done, we believe, will continue to help us grow the business in the U.S. We also expect Europe will recover, and that's something that we will -- we are definitely working towards. And we hope it will be driven by the new spending in the automotive customers there.

The next question is from the line of Naveen Bothra, an individual investor.

Yes, congratulations for a strong set of operating performance continuing from the last financial year. When we see the results and adjusted profit margins such good, my first question is regarding the INR 40 crores incremental revenue. And against that, adjusted salary increase is INR 5 crores. So would you like to describe this sales due to utilization improving or offshoring increasing? Or the major incremental revenues are coming from platform and licensing revenues? So basically my question is regarding platform and licensing revenues, how much this is contributing to offshore in this quarter as compared to last quarter. That is my first question. And second is regarding our Tata Elxsi vision 2026. When we see on the public platforms, our website, social media, we are giving data from 2021. We have various research reports which says that this sector is going to grow 42% in 2021 to '26 and all these things. So we would like to know -- we would request you to throw more light on our vision 2026. It will help investors very well, sir.

Yes, so regarding the platform and licensing, our licensing revenues are still below 5%. But that is not really the metric that we track there because we really look at how these enable us to really win new customers or within existing customers, how -- with the platform and intellectual property that we have, how are we able to differentiate ourselves with respect to competition and ensure that our business continuity is assured with some of these customers, right? Because of the investments that we've made, because of the strong intellectual property that we have that is embedded in the solution that we provide for customers, it is very difficult for some of our customers to really move. I mean, of course, then if we're not delivering value, the customer will definitely move out. But that is definitely a barrier for them. It's not an easy decision. So to that extent, yes, we continue to look at the products and intellectual properties that we have and use that to really getting to new customers and also strengthen our relationship with the existing customers. Regarding vision 2026, that is an internal thought process inside Tata Elxsi. It's nothing that we -- at this point in time, that we would like to talk to investors about. It's something that we are planning on a very ambitious goal. This is in very early stages though. We are refining it and so on. So maybe at an appropriate time, we will let you know, but there's nothing at this point in time to disclose.

Appreciate, sir. Just coming back to the platform and licensing revenue. My question was basically the incremental revenue in this quarter, out of INR 40 crores, how much we would attribute to platform and licensing revenue? Because the sales increase is excluding the bonus is INR 33 crores, excluding INR 33 crores, just INR 5 crores. So is it due to better utilization?

Yes, has improved onsite, offshore ratio. The offshore, onsite ratio has improved. We've also had other income. There is a foreign exchange gains for that. If you look at it, all of that has helped us really bridge that gap.

Okay. Okay. And then my last question is regarding, sir, recently, we have signed a MoU Kinfra, Kerala government institution regarding our 3 [indiscernible] put on the expansion, where we are talking about, in 3 to 5 years, scaling up from 2,500 employees to around 7,000 employees. If you can throw more light on this MoU which we have recently signed. So in a single city, in the next 4 to 5 years, we are going to expand the -- our current strength from, say, 2,500 to 7,000. So if you can throw more light on this.

Yes, I wouldn't request you to go by that. I think that release is given by the government of Kerala. Yes, we have signed an MoU with them. We are entering into a new [indiscernible] there. It's an extension of our current[indiscernible]. So the phase 1 would be about 1,500, 1,600 seats, right? So at this point of time, we are only focused on that. And maybe 2, 3 years down the line, if things go well and as per our growth plans and so on, we have an option to take another similar facility, again, at the same -- another 1,500, 1,600 seating capacity. At this point of time, the commitment is primarily 1,500 seating that we are looking at. And that should come maybe by end of this calendar year, December, January time frame is what we expect.

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

Hello? Am I audible?

Yes.

Yes. Sir, who would be your direct peers in the global space, if you could give us a name -- give us some names? And second question would be in terms of headcount, what would be the percentage of people onsite and offshore? And related to that, what was the utilization level during the quarter, if you could give me that.

So this is Nitin here. So maybe I'll take the first part of the question, and then, of course, I can comment while I'll let Manoj and Gaurav take the other 2. So on the competition side, you really have to remember that we compete with the spectrum of players, right? So at one hand, we do compete with everybody who is a scaled IT player, so whether it's an Accenture, Capgemini, TCS, Wipro, HCL and so on. They've always been there. They've always had some amount of engineering work, and we continue to compete with them. We compete with different organizations, among this set in specific industries. So for example, in Media & Communications, we only see Accenture as a primary competition. Similarly, for other industries, it's somebody else. So that's layer one. There's another layer which is specialized players, right? And the specialized players include some which already been acquired like Altran and so on and some which are still there, ALTEN or Bertrandt in Germany. All these represent multi-industry as well as very auto or transportation-focused players. Then as you come to India, of course, you have companies like KPIT and LTTS and so on, right? So in that sense, if you look at the global landscape, we compete with 2, 3 different sets of customers -- sorry, competitors. In the headquartered -- headquarter outside of India for pure-play ER&D and then the large IT players have always been around. So that's a big note on the first point. On utilization, I think we have moved up 2% from 77% to 79%, right? So to the other question from Mr. Bothra, yes, this is also one part of the reason why our margins have improved or contributed to margin improvements. The last question was on...

Onsite, offshore headcount perspective. I think about 10% of our employees are on site. I mean approximately 90% is offshore.

The next session is from the line of Sanjay S. from Ampersand.

Yes, sir, congratulations on a very strong growth. I just noticed that your accretion level has gone up quite a lot despite you announcing such a massive bonus. Is it because employees have become quite restive about opportunities outside?

Yes. So the market, as you know, is very hot right now, right? If you look at it, most companies, competition and everybody has shown attrition like 15%, 16% and so on. So yes, there are a lot more opportunities for employees given the fact that everybody is working from home and so on. And earlier, if you're based in Bangalore, typically, you would look for work only in Bangalore. But right now, situation, as I said, you can look for work in maybe next 12 months to 18 months, most companies would allow people to work from home. So there are a lot more options for employees. So definitely, attrition is picking up. And that's a industry issue, it's not a Tata Elxsi issue alone.

But are you comfortable with that you are planning which is similar to last year despite this change in attrition level?

No, the wage hike, as I said, is an average wage hike, right? So we know who are the key people, and we will do -- we will ensure that our key people continue with us.

And sir, just 2 more questions. I noticed that your revenue from India geographies has fallen sequentially from -- to this quarter. Is it -- has it got something to do with COVID? Like otherwise, your numbers should have been better.

Yes. It is not just in India, but -- yes, India also, right, yes. So yes, COVID is definitely one of the issues that resulted in numbers showing that.

So is it a loss of revenue or will -- you will be able to kind of bring it -- get that back in quarter 2?

We hope that we'll be able to bring that back. Again, it depends on there's going to be a recovery or not and so on and so forth.

Okay. And sir, last question is that your offshore mix has improved quite substantially, but you are thinking that once travel opens, something will change. But do you think that it will be, again, the offshore mix will go down to previous levels or it will stay at around this level despite travel opening up?

Once the travel lifts, then we will definitely see an increase in our onsite because even though a lot of our customers have got comfortable with Tata Elxsi delivering value from offshore, but still there are a few customers who would prefer engineers being closer to them and so on. So yes, travel restriction removed, there will be some increase in our onsite numbers. But it may not be -- it will not go back to the pre COVID. So it will settle somewhere in between also.

If I can just ask last question that you just said that you have prepared or were about to prepare vision statement for 2026. Why you don't have to really give us numbers, can we just get some thoughts like what really is going to set that vision statement?

Yes. The vision statement, definitely, we have our own employees as senior management, we have our own aspirations for this company, right? Of course, we have -- that is the Tata Group from our Board of Directors and so on. Also, there are aspirations in terms of where this company can go. Then there is a whole market, the whole -- the business out there that we can tap into. So it's a combination of all of this, and we believe that there is significant growth potential and significant opportunity for us to tap into, so we are working on those lines.

The next question is from the line of Anish Moonka from JST Investments.

So my first question is, so we have observed that most of the global auto companies are facing huge supply chain pressures due to the semiconductor issues and much of their cash flows have evaporated. So this situation looks to be over in the next -- will be over the next 18 months and not before that until the new foundry capacity will come online. So what makes the OEMs continue to spend hefty amounts to be future ready when they will continue to face VUCA type situations on a consistent basis? And what would you attribute to us gaining market share in a degrowing auto ER&D market?

So maybe I can take that first. On one hand, you have to note that certain short-term pains cannot be -- cannot have magical answers with -- in the short term either, right? So for example, if you're looking at the kind of electronic software and hardware that goes into cars, and that is where the chip shortage comes from, the ability to substitute one component for the other or one product for the other is not very easy. And not is it going to deliver in the short term either, right? So to some extent, there are some measures going on. There is some participation from [indiscernible] some of these switchover program. But we also know that there are no short term or magic tools exist, right? So that is part one. Part two, if you look at customers and R&D spend, yes, of course. R&D spend is always discretionary. I can choose not to continue to do any R&D, but that is not true. All companies have to do R&D because you will be that much more of a dinosaur 2 years later if you decided that you want to stop everything from now, right? Equally, what I will decide on even as I reduce R&D spend is where do I want to spend it on. And I think that alignment is important. If we are aligned and we deliver services in the areas that they would want to invest and where we see the future, then you're in a good place. If you're in a place where it is that particular R&D spend bring -- does not bring as much bang for the buck in the future, yes, you would find yourself cut out. So I believe based on this, we are in a reasonably good place especially [indiscernible].

So my next question will be what are the initiatives other than the INR 33 crore onetime bonus that the company has undertaken to showcase the best attrition rates in the industry and that too quite consistently. So do you see it as a big risk going forward that there is a supply-demand mismatch for good engineers, which will lead to higher-than-expected inflation in the upcoming years? So what's your plan for the company to increase its employees from the current 8,000-odd to 50,000 or the 20,000 or 50,000?

What is it, 20,000 or 50,000?

To increase the base.

To increase the employee number from the current 8,000 and also deliver consistent numbers regarding the attrition.

Sure, sure. So attrition is a function of many, many parameters, right, including the market situation, including the competition play, including the investments by multinational companies and so on and so forth, right? But we have been through these cycles multiple times. This is not the first time that we're seeing attrition go up. Even in Tata Elxsi, we have seen earlier attritions up to 15% and so on, and we have been able to manage the attrition. So we'll continue to do it. Why do employees continue to work with us is primarily because of the quality of work, the sort of employee-friendly policies that we have, the sort of open communications that we have with our employees. And in fact, we're like a big family wherein each one of us support each other to ensure that, ultimately, the company moves forward in the right way. So I'm extremely proud of the culture that we have built in this organization. And a lot of that will help us as we move forward. Of course, we are investing in our employees. We've done -- as I said, we've done a bonus for our employees to ensure that during the tough times, especially when COVID was hitting, we took care of our employees. We've had a lot of support for employees from -- either from a medical, whatever services that we have provided, the vaccination plans that we have run, the sort of mental health campaigns that we have provided for our employees. There are a number of things that we do to take care of employees. So it is not just money at the end of the day. It is what do they feel about working for us. And I'm proud that, look, we did a employee satisfaction survey in the midst of COVID. When COVID is happening, we did that survey. And as compared to the previous survey, we increased our employee satisfaction points by almost 22%. So that is a pretty significant thing that shows that employees are committed and value working with us, right? So yes, there will be certain issues, certain pains, slightly higher attrition. But I think in the long term, I think we have a great culture that we're building here. And definitely, the quality of work will motivate good engineers to really come and work with us, right? So yes, and moving forward, we will definitely take this as and when we see attrition speaking, we will take care of it. We are -- we have hand and feet, eyes and ears on the ground, so we will take appropriate action.

The next question is from the line of [ Pranav Thakur ], an individual investor.

Yes, congratulations for a great set of numbers. I would -- if you can throw some light on the opportunities that lies within India, especially investor EV initiative and how we ingrained Tata Elxsi with Tata Motors. And also if there are some more opportunities like with the Indian Railways.

Sure. Both -- I mean we are -- Tata Motors is an existing customer of ours. And we look at that opportunity, especially as Tata Motors move, providing to EV space, there will definitely be a significant role for us. So that's something that we are discussing with Tata Motors. Of course, not just with Tata Motors, but there are a number of other customers also in India. So I think we're pretty confident that there will be a recovery in this space, especially in India. And a company like us would stand to benefit because of the deep domain knowledge and capability that we have been building and our experience with global customers, which will definitely help us deliver value to our Indian customers, right? Railways -- Indian Railways is something that we have been working with for quite some time. We have been working on -- especially from improving the station infrastructure. And we have done a number of projects for railways, and also for companies that supply into railways, right? So they have been already working. And I think as modernization happens and as government spends a lot more money on there, we have a very good opportunity to really get a pie of that.

Right. And a follow-up question to this that how many automotive players, like exactly, if you can give a number of accounts Tata Elxsi is working with.

Specifically a number of accounts, I don't think I'll be able -- in a position to tell you that. But I can say, 5 of the top 10 OEMs are our customers, and...

About 8 of the top 20.

8 of the top 20 suppliers are our customers.

The next question is from the line of Ashish Aggarwal from Principal India.

Sir, just one clarification. Most of my questions have been answered. So one of your group figures you mentioned and indicated that the top client is not from the auto vertical. Just wanted to get some clarification to that would be, given the fact that we are expecting more than $30 million of revenue from JLR Group in FY '22, so will that mean the top 2 customers will be now around 25% of our revenue?

Sorry, the question was not clear at all.

Sir, actually -- see in one of the earlier questions, you mentioned that the top client is not from the auto vertical, right? So if you are expecting more than $30 million of revenue from JLR in FY '22. So that would mean the top 2 customers will be closer to 25% of revenue. Am I right in assuming that?

If JLR gives $30 million, is that what you're saying?

Yes. So JLR is not a top customer, and it's some other client.

I can't do the math immediately, but yes, between 20%, 25%, you can say.

Your top 2 customers will be that like in the numbers.

Yes.

Okay. Got it. Which vertical will be the top client now?

It's in the Media and Communications vertical.

Media and Commutations. Okay. Got it.

The next question is from the line of Apurva Prasad from HDFC Securities.

I hope I'm audible.

Yes, Apurva. Go ahead.

Great. So congratulations on the number. Manoj, just 2, 3 questions from my side. So I mean I noticed the strong sort of number of strategic partnerships in the release. So in terms of nature of deals, it does appear that deal sizes are increasing, becoming more strategic. So based on the overall demand environment and the kind of wins and the overall pipeline, do you think it's fair to assume the similar sort of sequential run rate can be maintained in near term?

That is the intent. But there are no assurances in this business, right? So we are doing everything we can to really keep up that growth momentum.

But any color in terms of deals and how that is progressing to give confidence in terms of...

Pretty -- I mean as of today we really have a very, very strong order book, and there is the confidence that we can continue to grow at it in the short term, right? And you would have seen the performance in the last 4 quarters.

Right. And secondly, this is more from a group entity's perspective. So we've heard TCS, the group entity focusing a lot more on areas which are core competency areas of Tata Elxsi. So I'm referring to connected EV, ADAS segment or it is the OTT based on some of the deals that has been out. So a 2-part question to that. Is there a joint go-to-market with TCS in automotive and the OTT side? Or if the related entity is competition, is there any demarcation really to avoid overlaps?

So there is no demarcation or there is no collaboration per se, right? It's again deal to deal, we collaborate, we coexist, we compete, it's all -- everything together, right? But however, it is not necessarily about TCS, right? You look at the global industry, I mean the last 3, 4 years, ER&D segment has always been touted as the fastest-growing segment. And you know that companies like Accenture or Capgemini, they have made a number of acquisitions to really strengthen the ER&D space. So it's not just about TCS. We see this focus on ER&D from all the big IT players. And not just that, we've always had strong companies like Wipro, HCL, TECHM and so on also getting a good percentage of their revenues from the ER&D space. This is not something new. The large IT players have always been in competition, and we continue to see the competition. And we have to really deliver value and what -- based on our value proposition and based on our core competencies, customers desire to work with us and not with the large IT companies, right? So this has always been there. It is not new for us.

Got it. Got it. And just your comments on strong growth in top 5, so you did talk about the top account, but broadly on top 5 showed very strong growth. So has there been a churn within that? Or are there any driving factors which you can talk about?

No. So when COVID hit us, right? We really took extra care to ensure that the relationships with the top 5 and the top 10 customers, we've ensure that we do everything possible to address their customer -- address their requirements, right? So as I said, I think in Q1 of last year and so on, right, we even had discounts and rate cuts and so on so that we take care of those customers. So what has happened is that because of all that we have done to really be with the customers during their tough times, each of these customers, now we have a far deeper engagement with them. We have a -- if you look at it, we have done extremely well in mining these customer relationships and strengthening these customer relationships. And that really has helped us deliver the growth that you are seeing. So I think it is -- and we are now strategic to each of these customers. So I think that is something that we are very proud of and we would want to continue.

Got it. And just finally on margins, just wanted to get your comments correct. You said that you are comfortable with margins where they are currently, notwithstanding the wage impact and some of the discretionary spend increasing.

Sure. I think -- I mean unless suddenly everything opens up our SG&A goes up, travel budget goes up and so on, we should be pretty confident or comfortable, what I would say.

The next question is from the line of Hansal Thacker from Lalkar Securities.

Congratulations to the management. So I'll just take Mr. Apurva's question a little further. Apart from TCS, Tata Technologies has also expressed the interest in venturing into mobility. So I just wanted to understand essentially at a group level, I mean, what is the broad strategy?

No, see, whether it's Tata Technologies or whether it's TCS, they are different companies. We are a different company, right? So we really cannot tell what that company should do or that company shouldn't do. So we have to focus on our business, and that's what we have been doing.

The next question is from the line of [ Arjun Balakrishnan ], an individual investor.

Congratulations on a great set of numbers. I have 2 questions. One is on -- and congrats on the 3 product award on the NASSCOM. So on these products, are we trying to prevent from being an ER&D service company to eventually being a product and licensing company with services being a portion of the revenue, thereby, we can expand margins?

No, we are not getting into the -- we're not trying to be a product company in the sense that a significant part of our revenue is coming in from products, right. No, products for us are enablers to really build services around that and help our customers' time to market and so on, right? So we don't want to compete with our customers. If you become -- if you start launching your own products, sometimes in this industry, your customers will start worrying whether is this a company that we need to work with, get worried about helping a competitor, right, build up capability. So we would never be a full flex product company. However, we'll continue to build products and increase properties. That will help us make a meaningful impact from a value delivery perspective to our customers. And that's the intention.

So all of these platforms and these things that we develop is more for our delivery rather than giving it to the customer and getting revenue as licensing? So it's more of a [indiscernible] better, is it?

Yes, we definitely license these intellectual properties or platforms to customers, but it is not a product by itself. Around it, we need to build the product. So these are, you can say, like building blocks or setting stones.

Right. Okay. Finally, one question is -- because we have -- we're working with our existing customers and deeper, as you said. Just to understand from the customers' perspective, how expensive would it to be switched from, say, a partner like Tata Elxsi to another partner? How would the switching costs work for them? I'm trying to understand what is the competitive advantage. So can you throw some light on how strategic we are for the customer and how difficult it is for them to switch from, say, Elxsi to somebody else who probably offers a lower price or something like that? And I'm trying to understand.

Yes. So we are in the ER&D space, right? So it is very different from the IT space. In IT space, it's typically the platform is already built, you just need to maintain or take a bank or any of the applications, right? So all it needs is some domain knowledge and skills around programming languages or databases and so on and so forth. So -- and switching cost is not very different. And many of the -- you can replace -- one competitor can easily replace other by providing value, which could be price or anything else or some IP that they have and so on. But in the case of R&D services, it is also to do with the relationship that you build with the customer over a long time. See R&D is like -- and globally also is known, right, not all R&D succeeds. So if you have a partner with whom we have built a relationship and we have been delivering value and success to that customer, it is a lot of risk for him to go away from us and going to another relationship especially because the nature of work, the processes, the type of people that we have, there is the confidence that's already built in with the customer. So that is something -- unless the product development is not a very complex product, unless it is, say, a maintenance or support product activities where domain knowledge is really not very, very critical and so on, it is relatively not easy to make that switch. But however, there are some of these large organizations that go ahead and do a vendor consolidation or do some -- such activity, right, primarily driven by the IT thought process. But in every such case, we have seen whether it is a large deals that you have read in papers over the last 5, 6 quarters, especially in engineering space, have not really been successful. Because though it is all pushed by the procurement of the finance guys, the engineering guys feel that it is right to move forward because [indiscernible]. Yes, so even though there have been competition that comes and says that, look, we have won over a deal over Tata Elxsi, for example, I can confidently say that we continue to exist in all those engagements and we'll continue to deliver value.

The next question is from the line of [ Bhavesh ] from [ Kranti Industries ]. We move to the next question, which is from the line of Vimal Gohil from Union Asset Management.

Sir, over the past few quarters, you've been alluding to some opportunities in some newer areas in automotive. So if you can just highlight what -- has there been any progress there. I know it may be too early to ask, but at one point of time, even medical devices were strong. Today, it is one of your key revenue drivers. So maybe if we are at that stage in those segments as well in automotive, if you could highlight that. And secondly, I just wanted one data point. You said that your effort mix currently is at 10% onsite, 90% offshore. What was this mix pre COVID, if you could just give me that data?

Sure.

Maybe I can take both. And then we can start with the second one first. In some sense, it will be directly proportional to the revenue, right, because what we declare on the website is revenue.

About 25% mix.

Yes, correct. So in some sense, you will find that there is some correspondence directly of revenue to people. So you can use the same percentage.

Pre COVID, I think onset would have been anywhere between 25% to 30% or so.

Correct.

And you don't see this going back anytime now? I mean this is a structural change that has happened. Maybe some -- maybe 2%, 5% here and there, but it's definitely not going to 25% to 30%?

Yes, yes. That's what we see.

Got it. Got it. Perfect.

And on the first part of the question, we're following out the adjacencies and transportation, which was rail and off-road. And I think, like you said, we want that to be -- to accelerate faster than the core vertical automotive not because we want to grow automotive slower, but we believe that growth is faster and possible in these 2 other segments that you've called. And the other reason why we celebrate growth were also because skill sets are complementary. We can carry over skills and capabilities to rebuild an automotive into these sectors. And we are measuring only 2 metrics, right? One is total revenue composition, how much of core revenue does it contribute and is that changing, is that accelerating. And two, are we acquiring the right logos. Because those industries are obviously much smaller. So we definitely need to acquire those, if I may call it, premium logos in those segments. And I think we are doing very well on both counts.

So would you want to quantify it right now, how much does it contribute? Or is it too early to -- or it's not meaningful right now?

It is not meaningful right now in the sense that we have set very, very definite parameters, and we expect that there will be a time where we can start to call it out separately like we call medical now. Until that point, I think it does not provide any great insight to call out numbers.

Thank you. That was the last question. I would now like to hand the conference over to Mr. Manoj Raghavan for closing comments.

Thank you all for your patience, and I hope we were able to answer the questions and answer all your queries. We look forward to meeting you again in the next quarter. Take care till then. Bye-bye.

Thank you. On behalf of Tata Elxsi, that concludes this conference. Thank you, everyone, for joining us, and you may now disconnect your lines.