On the India semiconductor capex and Tata Electronics - any opportunity for Tata Elxsi in chip design / VLSI?
We are in discussion with the companies that are planning to set up fabs. Right now, they are in the factory setup stage. There are discussions ongoing with these customers from a viewpoint of our design offerings. Also, our manufacturing and Industry 4.0 offerings. It's pretty early from a chip design side because the focus right now is not really building new chips. We would definitely be interested to see how we can support the India semiconductor ecosystem.
Can you quantify the opportunity size in the semiconductor space?
It's very, very early to give a business value. However, we are in close discussions with a few of these customers to see how we can be relevant to their plans. I think it will take at least another couple of quarters before we can formally get back. On the chip design side, we are on a wait and watch.
On margin - is this the bottom and will we bounce back? Should we model lower margins for next 2-3 years?
We are very confident that in our operating model and all the operating KPIs that is there in the organization that we will bounce back on the margin. It is only the equation of the revenue and the growth coming back. We don't see any significant change in the signature of how we have been doing our business. Utilization today is slightly lower to 70%. So we have a good way forward to improve our utilization. SG&A is also quite controlled. While I cannot comment in the short to midterm, whether we will get back to our normal margins, definitely, there is a path and there is a very focused approach to get back to our normal levels of margins where we used to operate about 1.5 to 2 years back.
Normal margin - is that EBIT 20% to 30%?
Since you brought the point of margins 2 years back, so I'm just circling it back to the margins level that we used to see about 1.5 to 2 years back.
On the 20% Healthcare revenue ambition - when?
That will be a good time frame because please note, we want the Media and Communication, Automotive businesses to grow too.
On deal duration trends and on payouts given large cash balance?
Our nature of deals, of course, moved to larger multiyear sort of deals especially with some of the deal announcements that we've made. Definitely, we'll take your point on payouts. If you have noticed, we have increased the dividend payout from 700% to 750%. So yes, we will take that note.
What percentage of annual CC growth came from price increase or exchange?
In terms of the price increases, consolidation - it's a mix back over the year. There are cases where we have received the price increases also. But at the same time, there are new projects, large consolidation deals where we also need to pitch the competitive rate. To put up a number as a sub-segment of our constant currency growth over the year would be a difficult thing but there are good rate increases that we have received in some of the customers during the year.
On the large consolidation deals announced - what's the net new component in the media vertical?
It's a multiyear deal. It's a 3-year deal. So the net new component would be approximately 25% to 30%.
On the auto vertical given tariffs and top client strategic changes - what bearing does that have on the business with them?
It's not just us, but many other companies are facing the same challenges with our OEM customers, especially in automotive industry due to all these geopolitical issues and the tariff issues. So actually, in this quarter, we have seen a number of projects that we are working on - especially with our top customer - witnessing pauses. We are hoping that over the next couple of quarters, we will have a lot more clarity on this. With the new large deal wins that we have announced today, we're really hopeful that those projects will ramp up and some of these weaknesses will get covered up.
On visibility for the current quarter - can we improve from Q4 and get into a growth trajectory?
The entire focus of the management team is to ensure that we grow back from Q4. I would say we have decent visibility and a lot of encouraging discussions with some of our key customers. We strongly believe that we will be able to grow back in Q1.
On margins - other expenses fell sharply Q-on-Q. What led to that and what's a sustainable number?
This is a soft quarter and difficult times with uncertainty. So we have been very disciplined in terms of some of the discretionary spend. Most of that saving is coming from some of the third-party contractors, consultants, the travels and the visas and the office consolidation. We put those measures into consideration and executions even before this quarter. So those started to give us some better results in the quarter, and we continue to measure those as we move forward.
With the deal wins, do we begin to reverse declines in the other 2 industry segments? And on margins - should we expect improvement with growth?
Yes, definitely, margins would improve with the growth in business. One of the key reasons for the margin decline has been the revenue degrowth. Our healthcare business continues to grow. In the case of Automotive and Media and Communication, the good part is because of the large deal wins, we will have stability in our long-term businesses. FY '26 will all be about growing back, getting that momentum back and really focusing on these key deal wins that we have.
On seasonality - do you start slow and accelerate sequentially or is it difficult to build that trajectory?
For us, these large deal wins would mean that we really need to start expanding the relationship right from Q1. Of course, Q1 and Q2 would be a bit slow because these are consolidation deals, we would need to take over from existing suppliers, and there will be some amount of investments. But from Q2 onwards and subsequently, we expect the full value of the deal to come in play. We would really expect that we will see an accelerated growth as we move into the financial year.
On on-site/offshore mix and hiring outlook?
From an on-site offshore mix, I don't think we will see too much of a change because some of these large consolidation deals have also been focused on servicing them from the best cost countries. The signature of the deals that we see going forward are a lot more on to best-cost countries rather than high-cost countries. There could be some temporary blip as we take over and transition work, but in the midterm to long term, we will be at the sort of on-site offshore ratios that we see today.
On headcount - any change as you focus on improving utilization?
When I say cut headcount, we have natural attrition that we have not replaced because we have a very good quality bench that is available. We have been very careful to add laterals. We will have a few freshers coming in this quarter and next quarter. But from a lateral perspective, we will definitely be a lot more cautious, and it will all be based on the business growth that we see.
On FY '26 growth - would it be fair to assume you grow better than FY '25?
That is the clear focus of the management team, and we are a little more confident because of some of the deal wins that we have had in the last quarter, and we have entire 4 quarters now really to scale up some of these deal wins. So we're really hoping that we will be able to deliver better performance than FY '25.
On the large deal wins - any delay in ramp-up?
We have been in discussions over the last 4 quarters and finally the announcements are happening. We don't see too much of delays moving forward because the customers also have the need and the necessity to ramp up and move quickly. So this financial year, definitely, we will see a lot of revenue uptick coming in from these deals.
On risk mitigation strategies and revenue mix - reducing US exposure, increasing rest-of-world?
With the geopolitical situation, Europe and U.S. two large geographies are showing a slowdown across both automotive and media and communication. So consciously, we have been really expanding beyond the 2 main markets. We're really looking at emerging markets, including India, Japan, the Middle East, Africa, LatAm and Southeast Asia. Japan business grew pretty well for us in the financial year. Similarly, our India business really accelerated. GCCs are a strategic play for us and we've also seen an increase in the GCC business.
Is it easy to change the revenue mix so quickly?
These emerging markets - it is not a 1-quarter play. We have been investing and actually building relationships, building local partnerships, building sales channels, over more than 4 to 6 quarters. That is the derisking strategy that we planned even the previous financial year has actually helped us now. Our strategy of expanding the universe of markets that we go after has actually helped us in this particular situation. So it's not a knee jerk reaction only for the last one quarter.
On the large Media deal - tenure, margins, any rebadging?
This is an existing customer. It's a 3-year deal. Since it's a consolidation deal, it is a deal that has been won over all the major global competition. Since it's a consolidation deal, we had to be competitive from a pricing perspective. So it definitely comes at a competitive rate. But a good part for us is it gives us that stability over 3 years. There is no rebadging in this particular deal.
On the Auto OEM 50 million deal - committed despite tariff scenario?
These are not new deals that come up just in the last quarter. Both these deals have been worked on over multiple quarters. Whether the current geopolitical issues and tariffs had influenced this decision, I wouldn't say that. The customers had to do a lot of internal negotiations to work around, there were worker council related issues. There are a lot of regulations they have to be careful before they take these decisions because these decisions also involves moving a lot of work from high-cost locations to best-cost locations like India.
Anything changed in the last 2 weeks on deal-to-revenue conversion?
No, I would say everything is on track. We've not seen any undue or any negative things over the last 2 weeks to make us cautious.
On OEM situation - is it now more tariff related and structural OEM issues behind us?
The points that we made earlier stay because there's nothing that has changed in terms of China still being a very, very credible threat to business. China as a market is coming under pressure for a large part of the OEMs. What tariffs have provided is an additional layer of complexity and uncertainty. We have seen even further delays in terms of either decision-making or pauses in terms of ramp-ups in deals that we already won. The deal wins are made in good cognizance of all the uncertainties and the tariffs. Tariffs bring another layer of complexity. It's not that the previous issues go away, they stay.
Will FY '26 be better than FY '25 from deal wins / pipeline visibility?
We have a fantastic customer base. We have been in this business for a long time. Over the last 2 years, we are very strongly and smartly pivoted to OEMs, and they are now 70-plus percent of our revenues. That gives you one level of stability and foundation for growth. Two, we locked into LTV programs with a large number of these customers. Third, the large deals provide additional layer of confidence.
On Healthcare growth - can the pickup be maintained?
If you look at what hurt us for the last 5, 6 quarters in our healthcare business, there are 2 fundamental causes. One was something called medical device regulations. That suddenly disappeared because the implementation timelines were relaxed by another 3, 4 years. Part 2 was a very specific client issue. We have climbed over 2 big holes that we have fallen into. The positive signs there are the fantastic addition of customers. Our portfolio has shifted significantly in the year to core product engineering, innovation and AI. The healthcare business is in good health.
On Automotive vertical large deal pipeline - cost cutting opportunities for next year?
Definitely, yes. You cannot relax on innovation and innovation fundamentally depends on software and digital and AI. For these skills, there is no better place to come to than India. If you're already under pressure on your revenues and your bottom line and yet you have to execute on your strategic R&D agenda and innovation agenda, we believe India is well placed and Tata Elxsi is best placed. Of course, we will see issues at times. But in the medium and long term, we are very, very bullish on how we see automotive and our competitive advantage.
Earlier 20-25% CAGR in Automotive hasn't happened - what factors would contribute? Listed competitors have delivered higher growth.
There would not be a black and white answer to that. A large part of competition growth would also have inorganic components. We are very, very organic in the way we do business. Their margin profiles are substantially different. The quality of the business and the nature of the business is different. We are very clear that while we want growth, we also want margins. We are not constraining ourselves, but we are ensuring that what we do is at a certain level of quality and a certain signature of business.
How has the annuity mix changed across verticals and what is being done to increase it?
From the top 10 customers, a lot of them - we have moved from project-based engagements to an annuity-based engagement. While in ER&D, some of these net-based projects definitely will span multiple years, 18 months, 24 months. The current situation in the market - sometimes customers also take decisions of cutting off some of the long-term deals. In general, the annuity profile has increased, but there's always a risk that we carry.
Where would the annuity number be?
We should be around, I would say, around 45% to 50%, Apurva.
On GCC support - current mix and margin implication if more such deals happen?
We are very, very careful and strategic about the type of deals that we do even with GCCs. Given the fact that we have a large bench, at times, we do take those strategic calls, especially if you have a junior resource pool, we are not so focused on the margin profile in some of those deals. But we also limit the number of such deals that we go after. If you look at our India business, it's not only GCCs - we also work with some of the OEMs and other product companies based out of India. The margin profiles are pretty good.
Medium-term sustainable growth levels?
From a medium term, we are in a very, very good position. The short term, yes, we will continue to see some of these challenges. But from a medium-term perspective, in all the 3 verticals I believe we represent the best offshoring or best cost destination for a lot of our customers. The processes that we have put in place, the ability to take outcome-based deals, the internal processes that we have to deliver on the margins are all fantastic capabilities. From the midterm to long term, we are very confident of our business model.
On pricing dynamics in this uncertain environment - is pricing weaker?
For the next gen sort of capabilities that we have, the digital skills, the GenAI skills, we still are able to work on a pretty good pricing and really maintain our margins. However, in case of some large consolidation deals, where there's immense competition - 12, 15 companies bidding for a deal - yes, there will be some amount of margin pressures. Overall, especially for the areas that we are focused on and the capabilities that we have built, we still are able to extract a good pricing for us.
Which verticals will drive growth in FY26 - based on visibility and pipeline?
Growth definitely will come in both from our Transportation and the Healthcare & Life Sciences business. Media and Communication business, of course, also would grow. But the confidence level is higher for me from the Transportation and Healthcare & Life Sciences business.
On the new aerospace/defense vertical - where are we in the investment cycle and when does it become reportable?
We have been building the aero and defense vertical over the last couple of years now. We've built a very good technical team, capable team, so we would definitely hope that in this financial year, we will really be able to report revenues. The good part is we have had some empanelment already among some major customers, and we really hope to convert some of that into revenues and win some large deals and make those announcements in this financial year.
Is China a competitor in our international offerings?
The Chinese companies are pretty strong in the domestic market. But given the current situation between China and U.S. and China and Europe, at least in the major markets, we don't see them as competition. There used to be some amount of competition in the Japan market. But again, because of geopolitical issues between them, we see a lot of Japanese companies also planning a move from China to India. So I don't see them too much as a challenge in the international market. But definitely, in the local Chinese market, they are very, very competitive.
Will China start looking at overseas projects more because of tariffs?
Services are never subject to tariffs. Irrespective of that, they could have always competed with us in U.S. and Europe and in other countries. We really don't see too much of them in the market that we serve.