The company has started growing aggressively in the medical segment, with long-term projects and large total contract value.
Technology and design company Tata Elxsi reported a 51.1 percent sequential growth in Q3FY20 profit at Rs 75 crore on the back of higher other income.
Revenue from operations grew by 9.8 percent QoQ to Rs 423 crore, mainly led by double-digit growth in transportation and healthcare verticals.
The company saw a good quarter across divisions and across geographies, with EPD and industrial design growing almost close to 10 percent each. SI also grew by 7 percent QoQ.
Medical business remained the fastest-growing segment for the company (though from a small base) and grew upward of 40 percent QoQ.
The performance was led by strong execution and a ramp-up in large deals won in previous quarters.
Here are key highlights of Tata Elxsi's conference call by Narnolia Financial Advisors:
A strong quarter with 9.8 percent QoQ growth on topline and bottomline improvement. In topline, it is the highest ever revenue for the company. Revenue grew almost 10 percent QoQ, significantly coming from volume growth.
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The PBT margin almost reached 24 percent. The uptick in margins was owing to improvement in utilisation rate, which improved 400bps to 75 percent, while the salary hike was completely absorbed in the quarter. Onsite wage hike was almost 1 percent to 2 percent, while offshore 8 percent was given during the quarter. As many as 440 employees added during the quarter.
Top customer performance
JLR has bottomed out for the company. In fact, during the quarter, the company saw a small growth but slower than other customers. The company is expecting some recovery in subsequent quarters based on its outlook and performance.
In media & broadcast and medical space, the company really doesn’t see any issue in decision making. The company sees growth happening in these segments in line with the company’s expectations.
For automotive, this quarter was pretty solid, deal wins showed up in this quarter (won deal with Tier 1 in the US, some OEM wins in APAC). Though automotive deal wins are happening, the industry is not out of the woods.
The automotive industry, in general, has been facing challenges since January 2019, which was reflected in a slowdown in decision-making in the last few quarters, resulting in push back of deal wins and ramp-up. However, a turnaround was seen in Q3FY20 owing to some deals wins and servicing of these deals. Management feels it’s still early to comment on the sustainability of such growth and remains cautiously optimistic.
The management will continue to aggressively service the deals won in this segment. Thus, expect to continue to grow in the subsequent quarters.
The company has always remained bullish on this segment. It has started to grow very aggressively in this segment with long-term projects and large total contract value (TCV).
The outlook remains healthy, good traction across geographies (primarily in Europe and the US, where big clients are) and large opportunities coming its way. MDR is supporting growth and the company expects it to continue in FY21. In three years, the company expects the medical business to contribute 20 to 25 percent to the overall portfolio. Margins are higher for this segment.
The company says 5 percent to 6 percent QoQ growth can be sustainable. The medical business will grow much faster in this period, however with a lower base. The management expects flat growth in FY20, however, expects a 15 percent growth momentum in FY21E.
Margins outlookThe company expects to remain in the 22-24 percent band. Utilisation to remain in 75-76 percent range (1 to 2 percent up or down). Onsite offshore is likely to stay in the 40:60 range. Cost control, which was tightened last quarter, is expected to get back to the usual level. The company expects to hire 700 to 800 staff for FY21.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.