Tata Elxsi Limited (TATAELXSI) Q4 2026 Earnings Call Transcript

Ladies and gentlemen, good day

and welcome to the Q4FY2526 earnings conference call of Tata LXE Ltd. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star and then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Shashank Ranesh from ENY. Thank you and over to you, sir.

Thank you very much. Good evening to all the participants on the call. Good morning if you're logging in from the Western side. 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. Therefore, it must be viewed in conjunction with business risk that could cause further result performance or achievements that differ from what is expressed or implied by such statements. So take us through the results. To answer your questions today, we have the Senior Management of Tata RxE, represented by Mr. Manoj Raghavan, Managing Director and CEO, Mr. Nitin Pai, Chief Marketing and Chief Society Officer, Mr. Gaurav Bajaj, Chief Financial Officer, and Ms. Neha V, Company Secretary. We will start the call with a brief overview of the past quarter by Mr. Raghavan, followed by a Q&A session. We would appreciate your cooperation in receiving your first two questions to allow participants an opportunity to interact. If you have any further questions, you may join the queue, and we will be happy to respond to them if time permits. With that, I would like to hand over the call to Mr. Manoj Raghur. Over to you, Manoj.

Thank you, Shashank. Very good evening to everybody who has joined us today. Welcome to the Q426 investor call. I hope that you and everybody in your family is safe and healthy. I am pleased to announce that we have delivered a healthy revenue of 993.8 crores for the quarter, growing 0.9% quarter-on-quarter in constant currency terms. In our transportation business, our revenues in Q426 grew by 0.2% quarter-on-quarter in constant policy terms. We are delighted with two strategic wins, one in the APAC region from a new-age OEM, and another from a next-generation mobility services company in the U.S., paving the path for business growth in coming quarters. Our investment and efforts to pivot towards OEM Your own business is delivering continued success. Our healthcare and life sciences vertical de-grew by 13.1% quarter-on-quarter in constant currency terms, impacted by delays in deal awards that we were expecting and prepared for in the quarter. However, during the quarter, we opened an offshore development center for the Japanese medtech leader Terumo Corporation. This center brings together the power of design, engineering, and digital to innovate their cardiac and vascular solutions. I'm happy to report that our media and communication business posted a 5.6% quarter-on-quarter revenue growth in constant currency terms. This growth was led by continued deal ramp-ups, a strategic deal for AdTech and Tier 1 U.S. telco. In the quarter, we also won a multi-year large deal from a world-leading device OEM for its portfolio of video and broadband products. For the quarter, our EBITDA margin stood at 24.6%, improving by 130 basis points sequentially. This reflects a constant or continued focus on operational excellence and margin improvement. In FI 26, we significantly advanced our adoption of Gen AI. This was supported by partnerships with AI companies, launch of our own automotive SDLC platform, DevStudio.ai, earlier in this quarter, curated tool stacks and agent inventory, investments in infrastructure, sandbox environments with IP protection and data privacy, and rigorous upskilling. With these coordinated efforts, we are progressing steadily towards being an AI-native engineering organization, strengthening our differentiation and innovation quotient. I am pleased with our sustained and strong operational performance through segment-leading offshore delivery, a continued transition to fixed-bid project ownerships, and the systematic and enterprise-wide adoption of AI-enabled efficiencies. These levers strengthened execution, discipline, and productivity, driving consistent margin improvements throughout the year. As we enter the next financial year, we remain focused on scaling our differentiated design-led and AI-enabled offerings. Thank you. And over to Shashank for the Q&A session.

Thank you very much.

We will now begin with the question and answer session.

Anyone who wishes to ask a question may press star and then 1 on their touchstone phone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. To register for a question, please press star and then one. Our first question comes from the line of Sajal Kapoor from Antifragile Thinking. Please go ahead.

Yeah, hi. Thanks for taking my questions. Sir, of the deals you have won recently, how much of the value is coming from existing customers expanding their engagements or wallet share versus entirely new logos, and how has this mix evolved over the last two or three years? That's my first question. Thank you.

Yeah, I think, you know, if you look at it in any quarter, the new customers would contribute maybe two, two and a half percent of the revenue. So a large portion of the revenues come from existing customers and the deals that we've been with them. But however, we also see, you know, good new set of customers that are coming in. For example, this quarter we have announced, you know, a deal with Thermo, for example. That's a new customer that set up an ODC with us in the healthcare and life sciences space. Similarly, the deal that we announced in the automotive segment with the APAC customer, that is also a new customer for us, and that's a deal that we have announced. The deal that we've announced in the media and communication space with the multi-year deal, that's an existing customer of ours. So it's always a mix of existing as well as new customers.

Sure, and just to follow up, I mean, is there a pattern where the new logos typically take X number of years to scale up, or is there no such pattern? I mean, it depends on customer to customer.

It depends on business to business, I would say. Usually, yeah, even if you win a deal, for it to make a significant, you know, impact, it takes anywhere between, you know, nine months, 12 months, right, for ramp-ups, actually ramp-ups to happen and start delivering.

Sure, that's helpful. And my second and last question is, you have highlighted AI-led productivity and a shift towards fixed bid and platform-based delivery. Are these changes starting to alter pricing power and contract structures, or are they mainly improving internal efficiency so far?

It's both, right? Definitely, we are using a lot of that for internal efficiencies. However, there are customers that are demanding, you know, better, you know, efficiencies, productivity, and so on, which automatically leads to, you know, if you're able to deliver that performance and productivity, then a better pricing power, right? So, it's a combination of both.

Okay.

Thank you. I'll rejoin the queue.

Thank you. Thank you. Before we take the next question, a reminder to everyone, you may press star and then one to ask a question. Our next question comes from the line of Rishi Modi from RDM Advisory NLP. Please go ahead.

Yeah, hi. So my first question is pertaining to the quarterly result. So healthcare, we've declined 13% QOQ on constant currency. Oh, yeah, revenue. Last quarter, you called out that probably Q3 was the bottom. Just wanted to get your view that do we see Q4 as now the bottom, or is there something which has changed over the past three months for us there?

Yeah, I think we were very optimistic that, you know, the healthcare business has reached the bottom and we will turn around. And we were pretty confident because there were a few deals that we were bidding for, and we were pretty confident that we will be able to close those deals. Unfortunately for us, those deals have not closed, and that resulted in this, you know, situation that we've had. But however, you know, we still continue to carry, you know, those items in our high-probability funnel. And in fact, a few of them actually, you know, we have closed in a couple of weeks, you know, in the new quarter, right? So I think I'm pretty hopeful that last quarter, you know, Q4 was the bottom, and, you know, we will be able to recover this. And, you know, if we had closed these deals, you know, earlier in the quarter, then, you know, we would have had a fantastic, you know, exit to Q4, all the three, you know, businesses really firing and so on. And that is what we were all aiming for.

So say Q1 plus Q4 combined should have positive growth over Q2, Q3. Second, on the USA business, the media and communications industry, the consolidation seems to have happened. Are we now going to go back on the higher growth trajectory, or is there something which needs to be recalibrated in the USA? And I'm the media and communication board, sorry.

No, so the media and communication business has, you know, smartly grown for us in the U.S., right? But overall, the U.S. business has, you know, declined a little bit. That is primarily because of the health care piece, because health care for us is largely U.S. focused.

Okay, got it. Finally, more on a structural question, right? You mentioned in the past that now, incrementally, you're doing... Fixed contracts, which may or may not be a trend that we are following, but also we are doing longer tenure contracts, which are not as profitable in year one as, say, the earlier shorter term contracts that we were doing. But if you were to take, say, a two-year, three-year profitability combined, do we even out on our margins? We'll take the hit on the margins, but we'll get higher absolute amounts. Is that the approach, or we have levers to get margins ramped up in year two, year three?

Yeah, so obviously, when we look at a three-year or a five-year deal, right, the initial, you know, one year would have a lot of, you know, costs involved, right? You know, there could be sometimes rebatching costs, there could be acquisition costs and, you know, and all of that, right? So, but however, you know, when you look at a three-year or five-year, we definitely would be looking at seeing how we can improve our margins, you know, sequentially, quarter-on-quarter, and year-on-year, right? So that is the focus for us. So definitely we would want to bring back, and especially now with, you know, using AI, Gen AI, and so on, we have many, many ways of really, you know, bringing out, you know, the margins in a positive way. So I think that's what we're focusing on.

All right. Finally, just a bookkeeping one, if I could get the utilization rate for the quarter.

That is about 73%.

73%. Got it. Thank you. That's it from my end.

Thank you.

Thank you. The next question comes from the line of Moesh Chindani from Ambit Capital. Please go ahead.

Hi, good evening, and thank you for taking my question. My first question was on the broader transportation segment. So, you know, the last year has been turbulent for the entire segment, but looking at Q4, I think things were flattish. What's your outlook for the transportation segment going into FY27? And for the overall businesses, the expectation is still double-digit growth for Thank you.

Yeah, I think, you know, the good part for us is while, as you rightly said, the overall market outlook was sort of mixed, right, throughout the last financial year, but we were still able to win some, you know, large deals and so on. In fact, even in Q4, we won some fantastic, you know, good opportunities for us multimillion-dollar deals. So what we are confident is that, look, some of the new deals that we have won, we will be able to scale in the next 6 to 12 months time period, right? So that is what will, you know, help us, you know, really deliver growth in the automotive space. Of course, on top of it, as we have been updating all the investors, that, you know, we have been gradually moving to more and more of our business from the OEM side, right? I think today we are looking at about 77% of our revenues, 77% of the automotive, you know, revenues coming from OEM. So I think that is also, you know, that pitch is also shift to OEM business is also helping us. So I would say, you know, I'm still... You know, automotive market, but however, given the current, you know, geopolitical and all the war and all that, right, so while we have the deals in hand and we will definitely look at ramping up and so on, that could be some amount of uncertainty. We are still, you know, talking to customers on that. Having said that, I think, you know, we would, maybe we would look at, you know, a high single digit, you know, exit, right, may not get into a double digit for automotive.

I'm disturbed. And the second question is on margins. You know, again, margins saw a very sharp improvement this quarter. What seems to be driving that, especially I think since utilization is still at about 70%, 73%, like you said. And then in terms of sustainability for this margin improvement going forward, what would your comments be?

Hi, this is Gaurav. Let me answer that question. I think we have been talking about the margin for the past few quarters, and I think we have been mentioning that I think we are making constant effort to go back to our original margin band, which is about 27% to 28%. So, I think the work has been happening towards that in terms of the operating model, you know, operating efficiencies and the leverage. It's not only about the utilization. Of course, utilization was, you know, below 70% at one point of time. Now, we are almost inching towards mid-70. So, every, you know, 1% increase in utilization also helps, you know, at least 25 to 30 basis points on the margins. So, that is helping, one. Second, I think the sum of the fixed price contracts that increase that has happened, that is also, you know, You know, come sometimes with the better margins because you're able to, you know, have a better optimized and rationalized pyramid on those, you know, deals if you're able to deliver and execute on those contracts, you know, the way you have contracted for. I think third is that pyramid, you know, in terms of, you know, managing the pyramid and the further hiring. So, that is well calibrated in terms of the future requirements, supply-demand stage. So, that is giving me almost 65 basis point kind of, you know, improvement on a quarter-to-quarter basis. And yes, I think there has been some currency tailwind, which is also helping, you know, margins, you know, for the current quarter. So if I have to put in terms of the margin, probably 150-155 basis point is coming from the currency movements, you know, against, you know, most of the cross-currencies has improved, you know, compared to the INA. 65 basis point would have come from the operating efficiencies, you know, across different levels that is into play. Okay. And also, we have done, you know, the salary increase for the rest of the staff for the, you know, in the organization, you know, effective 1st Jan. So, that would be 90 basis point kind of, you know, impact on the quarter. So, that, you know, sums up to almost 130 basis point improvement in the operating margin on a quarter to quarter basis.

Understood. And just one last question, if I can squeeze in. So, you know, media, you know, one of the concerns that were there last year is in terms of consolidation. And again, you know, that a lot of deals were getting cut. So do you think that phase is behind us now? Or do you think, you know, looking at the very strong growth we've had in media? Or do you think that the segment is still talent from a growth perspective for the next few quarters?

I think that, you know, in general, I would say, you know, we are still challenged. The entire media and telecom industry is challenged. But how are, you know, what has happened for us over the last quarter and the financial year is we had won some large deals that, especially from some of the large customers. Thank you. I think that deals are still, you know, consolidation deals and, you know, cost-take-out deals that are there on the table, and we are still, you know, participating in those deals, you know, selectively. So overall, yes, I think we are still not out of the woods in this particular industry segment. However, because we have won a few, you know, good deals for us, we are able to show this growth.

Okay. Thank you so much for taking my question.

Thank you. Your next question comes from the line of Bhavik Mehta from J.P. Morgan. Please go ahead.

Hi, thank you. So, just wanted to understand on Generative AI, how are the client conversations evolving? Are you seeing clients asking for productivity pass-throughs or pricing discounts if they want you to implement more of Gen.AI into the projects, or is it still at a very nascent level that's not? What is the conversation in a big way so far, and different, you know, across the three different industries you cater to?

Yeah, so I think from a generative AR perspective, I think we are seeing a lot of conversations happening in the media and telecom space. Not so much in automotive and healthcare. Yes, there are conversations happening and so on. Those are more in terms of, you know, for example, in automotive space, there's a lot of interest from OEMs and customers in terms of how do you manage, you know, for example, cybersecurity and, you know, confidentiality requirements and so on and so forth, right? So that's why we have built our own devstudio.ai toolchain to address some of the concerns that customers keep asking us, right? So I think both in automotive and healthcare, there are those initial conversations happening. There is an interest. To see how we can use some of these technologies for better efficiencies and, you know, and so on. Not so much conversations around cost and, you know, cost takeout and so on at this point in time. But media and telecom, we see a lot more, you know, customers, you know, asking if, you know, can we use Gen AI to overall, you know, what do you say, help in efficiencies. At the same time, also manage with their budget situation.

Okay, got it.

Any stance on what could drive this different customer behavior between the media? Is it because media is under more pressure right now and hence the client is more desperate for, you know, cost efficiency versus the other two sectors?

Yeah, I think automotive is still, you know, very, in some sense, it's still very regulated, and, you know, automotive software development follows certain processes, and, you know, using a generic, you know, AI tool will not, you know, it will be very difficult for automotive companies to pass various, you know, regulatory requirements and so on, right, and that is why, you know, you need to build custom tools for automotive. Health care is also the same, right? It's more, you know, a very regulated industry. Whereas media and telecom, You know, that sort of very, very strong, you know, regulatory requirement is not there in terms of, you know, that if you do something, it's not going to, you know, cause an accident or, you know, kill somebody and so on.

And maybe I can just add to that. I think in general, the telecom industry, especially telcos, are actually at the forefront of deploying data centers, building infrastructure, and the connectivity that you need to deliver. So to that extent, in many ways, I would say they are ahead of the curve, at least between industries, in terms of being ready, in terms of being comfortable, and already having sorted out some of the key questions around how do you deliver.

Got it. And just lastly, how should we think about the trajectory of margin because it's been increasing since the last three quarters, which is good to see. Should we continue to expect similar kind of expansion even next year? Or do you think it could slow down a bit given that most of the was been utilized in F26?

Yeah. So, Bhavik, I think we will have a sustained effort in terms of, you know, improvising our margins from here. Probably, it will not have a huge uptick on a quarter-to-quarter basis. Probably, it would be more gradual, you know, increase or the improvement that will happen on a quarter-to-quarter basis. And also, it needs to be tightly aligned with the top-line growth. So, focus would be on the top-line as well as the bottom line. But, you know, some of the margin will come back as we see some of the growth coming back, you know, and most of our verticals start to, you know, deliver on the top line. Having said that, of course, there could be quarter where the margin can have a left or right shift depending upon some of the one-timers and other events. For example, whenever in the quarter we have to do a salary hike, there could be an impact in those quarters for the margins. But overall, if we have to see, you know, mid to long term, probably I think the idea is that if we can exit the next financial year, you know, You know, somewhere near to 27% kind of a margin, not for the full year, but maybe for the exit of the next, you know, this financial year, quarter four.

Is there a clarification? Is 25% at the EBITDA level or the PBT level?

I mean at the PBT level. Okay, got it.

Thank you.

Thank you. The next question comes from the line of Abhishek Shindadkar from InCrit Equities. Please go ahead.

Hi, sir. Thanks for the opportunity and congrats on a good quarter. Sorry, this could be a repeat. I joined a little late, but just wanted to understand, you know, the healthcare life sciences traction. The anticipation was that the deals won earlier could help traction in terms of growth for the current quarter. Did healthcare perform as anticipated at the start of the quarter, or was there any mid-quarter or late-quarter challenges in terms of daily decision-making, so on and so forth?

Yeah, I think I discussed that earlier in the question that came up earlier. Yeah, we were hoping on a couple of deals because we are very close to signing those deals, and those are large deals that could have really, you know, helped. Unfortunately, both those deals did not come through in the quarter, and they have been pushed to Q1. So I think it is more a shift of, you know, some deals. At the same time, there have been, you know, a few projects that have also, you know, closed, right? So a combination of that has created this situation for us. But I think I'm very confident or hopeful that we will be able to recover in Q1.

Understood. Sir, just a clarification. So, this planned out or this happened more in March or was it a phenomenon starting January? Just trying to understand the behavior of the clients in this context.

In fact, these deals started in October. We were hoping that it will definitely close, but it took six months, and that was a delay. We were not expecting that it would take so much time to close these deals. Understood, sir. That's very helpful.

And the second question, again, you know, maybe a repetition. I just wanted to get clarification. So, when there was a question about margins, Our answer suggested that we are okay to let go margins in the interim to win larger deals. Is the understanding right? Because what I'm trying to understand is we are also talking of a 27% PBT number for next year. And at the same time, we also made a comment about, you know, leaving margins at the table for growth. So I'm just trying to, you know, put a context to both these commentaries.

No, the 27% we talked about was the exit margin in Q4 this financial year. It is not the margin for the year, okay? So that is very clearly, and that is what we were aiming for, right? I think today, I mean, upwards of 25.6 in Q4, you know, last financial year, we want to take it to 27 in Q4, FI 27, right? So that's the… That's the indication that Gaurav talked about. I don't think we made a statement that we are leaving money on the table. It's not a generic strategy that, look, from now on we will drop rates and go out. Yeah, there could be certain specific deals which are from existing customers, which are large deals, and we feel that we would not want to let competition in or we want to vacate that space. Sure, for those cases, we'll definitely look at seeing how we can be competitive. But as a generic strategy, we still definitely want to improve our margins, and we have not given any guideline to our sales team or to our finance team that we can drop our margins.

Super helpful, sir.

Note that even in those deals, there's a path to improving margins. It's not that. You'll win it and it will stay where it is. Understanding this? Some of those deals may need that investment period ranging from a quarter to more, but the expectation is over the longer term, especially because you're going for longer term foundational revenue baselines, you would start to recover some of that margin back, and hopefully you would improve well beyond two.

Perfectly understood, Nitin, sir. Thank you for taking my question, and best wishes for the next year. Thank you so much, Avish.

Thank you. Your next question comes from the line of Prateek, an individual investor. Please go ahead. I am audible. Yes, sir, you are audible.

Yeah, can you please share the margin breakdown for this quarter once again in terms of what led to the 130 bits QOQ increase?

Sure, Pratik, I think I mentioned earlier also, but quickly just to summarize, what we are saying that 155 basis point from the currency, 65 basis point from the operating leverage, and then we have a 90 basis point impact due to the salary hikes that has been done during the quarter, so that adds up to 130 basis point.

Understood. That's it from my side. Thank you.

Thank you. Your next follow-up question comes from the line of Rishi Modi from REM Advisory LB. Please go ahead. Rishi, sir, your line is unmuted. Please proceed with your question.

Hi, can you hear me?

Yes, sir, we can hear you now.

Yeah, hi. So, Manoj, one fundamental question on how the market is behaving. How is competition behaving in terms of pricing aggressiveness, especially with... AI benefits being priced into, say, contracts. Are you seeing rationality or irrationality in the market currently, and how are we tackling this?

No, I don't think we have seen irrationality in general, right? Because, see, ER&D is still a very, very specialized. It is not that, you know, we can use AI or Gen AI across the board, right? So, having said that, yes, we have seen a few contracts where there have been competition that has, you know, priced very, very aggressively, and we are also a little bit surprised. We don't know whether it is because that they have used Gen AI and, you know, or they have assumed that, you know, Gen AI will lead to certain productivity. See, Gen AI, I don't think you can use Gen AI as, you know, you can cut and paste in all situations, right? That is a very wrong way of looking at, you know, Jiniya. And there are, I know that there is, there are a few competition. Who are pretty aggressive in using some of this. But even customers are very, very careful before they accept, you know, a complete, you know, Gen Air-based, you know, solution and so on, right. So largely, I would say we're not seeing irrationality that. This is here and there, but we are not sure whether it is.

Got it. And are we being conservative, moderate, or aggressive in pricing inefficiencies from AI in our bids?

No, so we are definitely looking at, you know, AI, and we have in all the projects that we are bidding for, that is a component of it which we, you know, attribute to AI, and we track it, and we want to see how we can use that to really improve our, you know, efficiency, you know, productivity, and ultimately, you know, margins, right? So those are things that we are definitely tracking internally. So I wouldn't say that we are aggressively going overboard. At the same time, we are not conservative at all.

Got it. Got it. Yeah, sorry, go ahead.

So I think much more than cost, I think we are double-clicking on value. I think what Gen AI does, coupled with domain expertise, is that I think it allows you to move up the time to market and quality factors as much as cost. And I think in the ER&E space, that is invaluable. At times, it's much more valuable than simply cost. Because engineering cost is a fraction of your overall product and product development cost. So I think the opportunity is actually in enhancing value rather than reducing cost.

Understood. So bigger contracts should, or at least execution speed for existing contracts is more likely to be the outcome for us rather than, say, cost efficiencies, which might be for other IT, traditional IT services. Is that understanding correct?

Yes, although I don't want to generalize that again, but all I'm saying is that the simple factor of only cost is not the only concentration.

Okay, got it. Thank you. Thank you. This is helpful. That's it. From my end, we can move on to the next one.

Thanks, Rishi.

Thank you. Participants, you may press star and then one to ask a question. Our next question comes from the line of Amit Chandra from HDFC Securities. Please go ahead.

Yes, sir. Thanks for the opportunity. My question is on the transportation vertical. Obviously, we have seen a good recovery there, and now it's stabilized also, and you mentioned in the PPD that 77% is from the OEMs. So if you can share some more light in terms of how the Lectio 1 portfolio has been doing, and most of the recovery is from the OEM portfolio, and the Lectio 1 portfolio has stabilized. And also, in terms of the overall spending or the recovery that we have seen from transportation, it is only from the top client recovery and the ramp up of deals that we have won, or is it higher spending across the OEMs, both in the U.S. and the European geography? So how is the mix, and what is the confidence that we move to a double-digit growth there in the transportation vertical?

Yes, so definitely recovery is broad-based, I would say. It's not just, and as you said, OEMs contribute more than 77% today, and these OEMs are primarily, of course, spread across, right? It's not just U.S. and Europe that we're talking about. We're also talking about India. We're talking about Japan, and we've also, you know, we're also talking to some Chinese, you know, OEMs and so on. It's still early days, but I think those are the – so essentially for us, it's a global market, and we're not really constrained to only one geography. Tier 1 portfolio, I would say, continues to shrink. Tier 1s, I mean, if you look at it, are having a tough time, given that OEMs are taking more and more responsibilities and so on. So, yeah, however, we are deeply entrenched with a few tier ones, and that business definitely continues. Yeah, so deal sizes also with tier ones are smaller. We will continue to come from the OEMs.

Okay. And so you mentioned from the AI side that the adoption of AI in terms of especially in transportation, OEMs is less versus the other verticals. But are we also, in terms of the impact of renewables when the contracts come for renewables, are we also seeing AI-led deflationary impact or higher discount that the OEM clients are asking in terms of the AI benefits? Or, obviously, in terms of the higher spend related to AI, it's not seen, but are we seeing the impact on the cost side or in terms of higher discounts, in terms of renewables?

I think it's very early days, right? So it's not as if that we have contract renewals coming every now and then and so on. So at least those contracts that have come up for renewals, we have not seen the impact of AI. But having said that, it's very difficult to predict six months to 12 months down the line what will be the change in the buying behavior of OEMs. Today, I think, you know, AI or Gen AI is not the most important thing that OEMs focus on. It's more on value and, you know, how are we able to support them with, you know, the various projects that they have, and it's about the people that you have. How are you able to deliver value to them, right? So that's the more focus, not so much on AI engineering at this point. But as I said, six months, nine months, 12 months later, it's very difficult to predict what sort of demands will come in.

And so on the margins part, obviously, we have not been adding headcount and we have enough capacity. So till what growth rate or till what kind of growth you think that the existing capacity is sufficient or we need to add capacity maybe in the next one or two quarters?

Yeah, we are at 73%, you know, utilization. So I think we can go all the way up to 80 or slightly more than 80%, right? It's not that we're not adding people. We're adding people wherever we need them, but we're not aggressively adding, you know, headcount, right? We are really metering the headcount additions and so on. Only when there is a real requirement do we go out and hire, right? So, yeah, I think we can, once the utilization touches 80 or 82 percent, that is then I think we will be looking at adding more, you know, in larger numbers, right?

Okay, sir. Thank you and all the best.

Thank you. The next question comes from the line of Ankur Pant from IIFL. Please go ahead.

Hi, thank you for taking my questions. My question is around the fact that last quarter, for FI27, we were aspiring for a double-digit growth for the business overall for FI27 and led by transportation and healthcare verticals. Now, this quarter, healthcare has been a bit of a disappointment, and last quarter, if I remember correctly, we were expecting growth in transportation in 4Q. We've come out at flat-ish. So, just comparing your expectations for FY27, how was it last quarter, and what would be the aspiration as we start FY27?

Yeah, I think, you know, It happened in the quarter, right? Geopolitical situation has changed. You know, customer spend, you know, when we started, you know, when we last quarter when we talked about it, we had high hopes that, you know, of course, transportation would continue the growth momentum as well as, you know, healthcare and licenses will be able to get back to growth. And I've explained the reasons why healthcare licenses. I think automotive, we have... Given the circumstances, given the challenges, and so on, I think we have done reasonably well to exit, you know, flat or, you know, small growth, right? So today, I mean, sitting today, looking at what is happening around the world and the conversations we are having with customers and so on, I think for us, overall, we might be looking at a single-digit, higher single-digit, you know, growth for the financial year. We may not look at a double-digit growth.

Sure. And the verticals that would lead us to the transportation now?

Transportation, yes. I mean, we ideally would want all the three businesses to grow, right? We've had a very difficult, I would say, 12 months where multiple businesses went into a, you know, downswing at different quarters and so on. But from now on, we are really hoping that all the three businesses will start showing growth.

And the other question is now, given the tough geopolitical issues that we have had in this quarter, did we see clients now pushing back on the signing of deals or decision-making titles getting slightly elongated, which may again mean that the recovery that we were expecting may also get pushed back by a quarter or two? Are you seeing signs of that as well this quarter?

We are seeing both sides, right? We have also, you know, announced deals that we have won in the quarter. We also know that there are cases where the deals have been pushed off. So, there is no one answer to your question, right? It is, both are happening.

Sure, but the expectation of recovery that you had, is that still, I mean, are you still hopeful of this thing tragically or does that get pushed off, seeing what is happening around you?

Which is where we, when we looked, when we started, when we came in the last quarter, we were hoping for a double-digit, you know, sort of, you know, growth aspirations in the quarter. But looking at the situation today, maybe, you know, I would be a little more conservative and say maybe a higher single-digit is what we should look at. This could change in the next three.

Thank you so much and all the best for the next day.

Thank you. Participants, you may press star and then one to ask a question. Our next question comes from the line of Mayur Matani from Mahesh Kumar & Company. Please go ahead.

Yeah, good evening, sir. Congratulations on a good set of numbers. My question is regarding pertaining to the fixed price contracts that we have. So, over a period of time, we have seen that our fixed price contracts have now increased quite a lot, and I believe that fixed price contracts have a better margin trajectory. So, with regards to signing more OEMDs, do you see that trajectory going forward on a sustainable basis? Is there a further scope to increase of express contracts?

No, so, you know, yes, some of the deals, large deals that we have closed are on fixed price, you know, contracts. The challenge is that, you know, if you don't execute on those fixed price contracts correctly and, you know, then it could also lead to revenue leakages and, you know, profitability dips, right? So it is, it's not that, it's not advisable that we continue to shift more and more of a business to fixed price. So I think that is a careful, you know, decision that we need to take because the entire processes in the organization, the SMEs that we have, the architects that we have, you know, any deal that we pick, we also need to be able to execute it. So it's in some sense a double-edged sword. So we'll be a little careful in terms of how this goes, right? It's not our objective suddenly to move to a 70% or an 80% fixed price, right? That will be putting too much of a risk on us.

All right. Thank you. And with regards to your transportation verticals, we have been talking that whenever there is a slowdown that structurally you see that some of the orders or some of the projects, new projects might get offshore. So are you seeing that traction or there is indecisiveness from the customer's side currently?

No, we are seeing a lot of that, right, especially when there's a need in the customer space, right, that they have to continue their engineering activities and as a slowdown, the only option for such customers is to say, hey, can they do more with less, right? With less of a budget, can they do more, right? And that is where best-cost countries like us and companies like us come into play. So, yes, I think we continue to see. So such customers who are looking at, you know, which is the right organization that can deliver outcomes without too much of oversight, because if you're doing offshore, it means, you know, a lot of the work the OEM has to hand over, right? And they should have the confidence that TataLix is a company that can take up this complex work and deliver outcome remotely. And that is the track record that we have. And that is why customers trust us with a lot more off-road delivery.

Right. We have been speaking about it quite a lot, but over the past one or two years, I think that has not reflected in the overall revenue. So when do you think that change might happen or is it due to that the profitability of the legacy players are impacted? That is why we are not getting that kind of business.

No, if you look at it, the industry went through massive, you know, what do you say, situation over the last, I would say, 12 to 18 months, right? So it is not as if that such deals have not happened. Such deals are happening. Some of them are ramping up, you know, as per plan. Some of those ramp-ups are still slow. So it's a work in progress. So we are seeing the trip happening.

Okay, and last question with regards to the, yeah, sorry, please hold me.

If I may just add, I'm just adding a little perspective.

Yeah.

Revenues and growth or lack of it is organic. A lot of that we have seen across many of the years that we see in the industry has been actually coming from inorganic. Real organic growth has been lacking, if you ask. We have a shift to fixed price. Rightly, like Manoj said, the intent is not to simply improve margins. It is to make sure that we can continue to deliver greater and greater value. But the most important point I think everybody has to remember is the R&B is not very large deals locked in for five years and so on. It is a set of projects that continue to run off. So every quarter, you will lose 10-15% revenues. You have to make it up.

We like you.

A new content. That is the challenge. It is not the proposition or the value that we carry. It is the ability for you to continuously refill that funnel, right?

Right, right. Okay. Thanks a lot. Thanks a lot. And last question is with regards to the media vertical. So we have been telling that media is still not out of the woods. So do you think that in the media vertical, if we are able to... Manage the revenues over a three to five year horizon. Do you see that trajectory changing or what circumstances may bring the revenue in the media and telecom vertical back?

Yeah, so if I may, again, I think two, three things, right?

One is that we have seen a plus minus plus minus. So there are some quarters of growth and some quarters of degrowth. So the media and telecom vertical for us has been very volatile. And overall, it is not delivered growth. And that's fundamentally reflecting the state of industry, which is whether it's the telecom operators or whether it's the large media streaming companies and content studios. They've all been under tremendous pressure for top-line growth, and therefore, a lot of the focus has been bottom line. And bottom line means when it's more of an efficiency and cost-take-out game rather than an innovation game.

Right.

So to that extent, I think what we have really done very, very well, if you ask me, over the last six quarters, is the building of confidence both in ourselves as in customers that we can execute, we can win. Execute and execute very, very well on large consolidation. Remember that we have typically not played that game too much. We've always been about do the new and less about consolidate. We will take over what you're doing. We'll make sure that efficiencies are delivered. So it's been always less of that, more of do the new. I think that muscle that we've built, whether it's in automotive, whether it's in medium communications, I think is... The biggest single factor, that you're able to go there and win a $100 million deal, that you're able to go there and win $50 million deals. I think that creates that muscle and discipline to say, look, can we build a foundation of revenues that even if there is some volatility, you can stay protected. And hopefully there is growth in certain quarters, there is growth in certain areas. But the real big answer will be that innovation has to come back to the industry for two big upticks.

We got it.

And also, the industry is also going through a lot of mergers and acquisitions, M&A is happening. So that is also, you know, sort of what happens when two media companies come together is, you know, there is duplication of engineering and so there is a lot of resources available and there's no need to really depend on, you know.

Thank you. Thanks a lot. And one last question, if I may. We were looking at some new verticals, so if you can share something on it.

Yeah, so I think we were focusing on, for example, the aerospace and defense is one, you know, vertical that we are looking at, and we have some, you know, some very exciting things happening there, but it's very difficult to, I mean, unless these result in some, you know, large revenues and so on, it's very difficult to, you know, proactively tell you what is happening. I think we are doing some very, very good, you know, work with, you know, the defense organizations in India, with HAL, with... You know, the Aeronautical Development Agency, some large deals that we are bidding. And we're also working with some, you know, global players there, right? So I think till we reach the size, I think we will. Projects, and trial projects, and so on. We'll keep you... We have also started, you know, focusing on the battery energy storage, right? That is a big opportunity because of all the data centers that are being, you know, especially because of AI and Gen AI, a lot of, you know, power is needed, right? And for that, you know, battery energy storage is a huge demand in the market, and that is something that we have picked up, and that's something that we would – And of course. Even for EV, you know, powering up EV in remote locations and so on, you need that battery energy storage. So that is something. Incubated. And I think the coming financial year, we hope that that will be a reasonably sized, you know, vertical for us. So we will make those announcements at the appropriate time. We've also started, I mean, a little bit on the manufacturing side. We have built certain capabilities. We have won some initial customers. That is another area we continue to invest. Thank you. We continue to, you know, build that muscle, build that strength, do those initial projects, build those capabilities, and we are hoping that, look, next four to six quarters, at least one.

Sure. Thanks. Thanks a lot.

Thank you.

Thank you. As there are no further questions from the participants, I now hand the conference over to the management for closing comments.

Yeah, thank you. Thank you to all the investors, you know, for the call today. I think we are still optimistic that FY27 will be a growth year for us, and as I said, the growth has to be led uniformly across the three verticals, and that would be the focus for us as we enter into the new financial year. Thank you so much for your time today.

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