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Ladies and gentlemen, good day, and welcome to the Tata Elxsi Limited Q4 FY '22 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Shashank Ganesh from EY. Thank you, and over to you, sir.
Thank you very much, Faizan. Good afternoon 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 the business risks that could cause further results performance or achievements 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, Managing Director and CEO; Mr. Nitin Pai, Chief Marketing and Chief Strategy Officer; Mr. Gaurav Bajaj, Chief Financial Officer; and Ms. Cauveri Sriram, 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 restricting yourself to 2 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. Having said that, I'd like to hand over the call to Mr. Manoj Raghavan. Over to you, Manoj.
Thanks, Shashank. Good afternoon, everybody, and thank you for joining us today for the Q4 earnings call. I hope all of you are safe and healthy. On the financial performance part, I'm very happy to report that we delivered once again segment-leading results in the last financial year 2022. Our revenue from operations during the year grew by 35.3% year-on-year to INR2,470 crores. For the year, we reported profit before tax of INR745 crores and profit after tax of close to INR550 crores, which is a 49.3% growth over the previous year. Our Q4 revenue from operations stood at INR681.7 crores, growing sequentially by 7.3% year-on-year (sic) [ quarter-on-quarter ] -- sorry, year-on-year revenue growth during the quarter was 31.5%. Our profit after tax during the quarter was INR160 crores, growing 38.9% year-on-year. EPD, our largest division, continues to show strong growth. EPD grew 7.6% sequentially in constant currency terms. Our Industrial Design division too witnessed strong sequential growth of 8.7% in constant currency terms. Increasingly, we are seeing good traction for our Design Digital offerings. That's a key reason for our Industrial Design division growing well along with EPD in this quarter. Our Transportation business units grew 8.3% sequentially in constant currency terms during the quarter, which was aided by large deal wins across autonomous electric vehicles and digital. We won new customers, as well as multi-year deals across geographies led by Europe. We were selected by a leading German Tier 1 supplier for establishing an offshore development center for autonomous driving and ADAS technologies. We won multi-year multi-million dollar deal for EV system development from a global automotive leader. Our Media and Communication business unit continues to demonstrate consistent growth, growing 7.2% sequentially in constant currency terms in the last quarter. This growth again is powered by large deals and market share we're gaining from competition and transformation, as well as platform-led deals. As an example, we won a 5-year deal with a Middle East broadcasting leader for an end-to-end streaming video implementation and multi-year operational support. This is a truly Design Digital deal, which includes end-to-end streaming video solution and the IP that we have, TEPlay, Tata Elxsi's white label streaming video and OTT solution, the research, experience design, UX and UI from our design team. The Healthcare business too witnessed strong growth. We grew upwards of 70% year-on-year and 6.8% sequentially in constant currency. This was supported by demand for our regulatory service offerings and digital and connected health-related engagements. As an example of the kind of deals we're winning here, a North American healthcare provider selected Tata Elxsi for providing cloud engineering services. Overall, for the company, we continue to win large deals across our key business units and keep the deals pipeline healthy. We've also been able to maintain a favorable onsite -- onshore/offsite revenue mix, which help us maintain our margin [ at a hit rate ]. As a part of our innovation effort in the last quarter, we unveiled TEngage, which is a digital health platform for omnichannel care and patient engagement. This was launched at the HIMSS Global Health Conference & Exhibition in March 2022. We are also taking a strong position on the ESG front. Tata Elxsi has committed itself to ambitious goals of achieving 100% carbon neutrality by 2030 and by 2025 we aim to half our carbon footprint. We've outlined multiple streams of actions along the key areas of materiality for the company. On the talent front, we are all aware of the current supply side challenges that the industry is facing and we continue to invest in accelerated hiring of both freshers and lateral talent, as well as training and leadership development for our future. During the financial year 2022 and the last quarter, we continued with adding to our resource base in line with the growth of our business. We added more than 2,000 employees on a net basis in Q4. We've also been proactively engaging with our employees and have deployed a number of measures to engage better, engage more. As a result, our attrition numbers this quarter were better than the overall industry. That said, it is still at an elevated number and we need to constantly keep watch on our attrition numbers. But in overall level, the quarter was very rewarding one for us with a good top line and bottom line growth. Our strategy of growth is playing out well and we are able to maintain our margins as well. We're also witnessing good success in winning deals in adjacencies and that has also helped us in maintaining our growth momentum. And as we enter the new financial year, our order books look strong. We continue to see traction in the large deal discussions and our deal pipeline is also very healthy. With that, I would like to hand it over for a Q&A session. Thank you.
[Operator Instructions] The first question is from the line of Mayank Babla from Dalal & Broacha.
Congratulations on a great set of numbers. Sir, my first question is regarding talent. Sir, as you said that while you're accelerating hiring of freshers and also laterals, as far as freshers are concerned, sir, how much time does it take to train the freshers and make them billable? Because ER&D services are relatively -- is a relatively more specialized field compared to IT services. So I was just wondering how much time does it take to make them billable? And second, when do you see the beneficial impact on margins because of this?
From a freshers perspective, I think anywhere between 6 to 9 months is typically what we take to really make them billable. As you rightly said, the ER&D takes, we need to train the engineers in a both classroom training, as well as on the job training. Even after 6 months, they usually easily get in as a bench resource or buffers within existing projects and so on, and it's usually after about 9 months or so we actually convert them into billing. Sorry, I didn't get the second question.
Sir, I was asking that, when can we -- so 6 to 9 months is the gestation period, so probably by FY '24 we can expect some positive impact on margins because of this, because of the substitution -- pyramid substitution?
No. We -- I think, we don't hire freshers for anything to do with margins, right? So that's a wrong -- we are not an IT company that really flattens the pyramid by hiring freshers. That doesn't work in our business. So we don't -- we consider freshers as people who will contribute moving forward and typically when you look at hiring, last year, we added about 1,000, 1,100 freshers. This year, we might -- we are looking at an increased number 2,500 or 3,000. And so, that's the plan. But the plan is not to really hire them so that I can improve my margins.
Okay. Sir, and just one data question, what would be the onsite/offshore effort mix for the quarter?
It is about 90:10.
Okay, 90:10. And, sir, last question if I can squeeze in, please. Sir, this April we can expect a wage hike, a normal wage hike cycle? I'm sorry if I missed that in your commentary.
Yes. So we have given a wage hike in January itself for all the junior people. I would say almost 65% or close to 70% of the workforce has already been given a wage hike. The senior people will have the wage hike from April onwards.
The next question is from the line of Bhavik Mehta from JPMorgan.
And congratulations on a good set of results. So on the wage hike, can you please quantify the impact of wage hike this quarter? Because if I look at your employee cost, it has gone up by just 4.5% sequentially and -- but revenues are up 7%. And even as a percent of sales, the employee costs are like the lowest in the past 8 quarters. So can you please help me understand this?
Sure. This is Gaurav. So let me take that question. As Manoj said on the earlier question that we have done the wage hike for almost 65% to 70% of our workforce. On a quarterly basis, the impact of the wage hike is about 150 basis points. However, that has been partially offset by the other operating levers that are present in the organization in terms of the utilizations or the pyramid rationalizations and also it has been helped by the better realization from our fixed price projects and some of the rate hikes. So, net-net, the impact what you see is already partially offset during the quarter and what we believe that with our volumes and further leverage on the operating efficiencies, we would be able to kind of neutralize that over the next 1 or 2 quarters.
Okay. And just looking at FY '23, what are the headwinds and tailwinds you're looking on the margin side? Because the supply issues remain elevated and there could be some potential return of travel and facility cost also coming back next year. So how should we look at margins from FY '23?
Yes. So let me take that again. Of course, there are certain inflations and cost inflations in the industry and there are supply chain constraint and that is not hidden from anyone. And I think we have been taking the right steps, whether in terms of the wage hikes, retention or the employee engagement, of course, with all those supply chain constraints and the wage hike that we have done, but we think that is important from the employee perspective, because that will help us in terms of retaining the key talent to deliver on our critical projects and all the deals and the new programs that we are winning. But I think there are enough levers available to utilize, as I said on the earlier question as well, whether that is our offshore-centric model on that delivery or the superior management execution on the projects. We said that our FP is already -- my fixed price project is already 54% of the total delivery, but what we see that that is helping us in terms of the bottom line because we are able to execute perfectly deliver those projects on time and that is helping us in terms of realizing the better rates. We're able to source better rate hikes on the T&M engagements also from the customers. Thirdly, I think the ForEx currency is also supportive. That will also help to in terms of setting up some of these cost inflation impacts, whether in terms of the wage hikes or the attritions. And, thirdly and lastly, I would say that, I think, we're expanding with our volumes and the scales, I think that some of the other cost line items would be non-linear, which will help us in terms of maintaining or, I would say, sub-setting the margins inflations or inflation on the margins, and we are also expanding into the -- we are expanding into the SEZ, which will also help in terms of bringing down our effective tax rate. So, net-net, I think we see there are enough levers available for us to manage our margin well and in the range that we are operating today.
The next question is from the line of Vimal Gohil from Union Mutual Fund.
Sir, firstly, the question is related to the previous one. On the fixed price projects, sir, I think that has been one of the big levers for margin -- for your margins, you got better realizations there, and over a period of time we've seen the fixed price projects increased in terms of mix. Now, could you just give us some sense based on your assessment of your own contract or your own deal pipeline as to how sustainable are these fixed price project mix going forward? That's question number two -- question number one. The second one is, on the impact -- how do we see this impact of the -- your OTT apps seeing some sort of a slowdown. We've seen the recent results of Netflix. They had a severe impact of losing subscribers. So how should we read the impact on that? And, lastly, if you could just highlight, you've seen some -- a bit of hiring slowed down. I mean, in Q2, we saw 705 people getting employed, we've seen half of that in this particular quarter versus what we've observed generally in the industry sector. The industry is sitting at lifetime high hiring. So how should we read that data point?
Okay. Let me take the first one. I think your first question was on the sustainability of the fixed price project, I think for the last few years if you see that we have been operating in the range of 50:50 plus/minus and I feel that in the next 1 or 2 years that ratio and proportion is not going to change much. It could move 2%, 3% here or there, but it's going to be in this range about. Yes.
On the second question, Vimal, OTT and the OTT slow down. This is Nitin here. Let me take that. I think what you're seeing from Netflix is really the intensity of competition in the market and not so much [ running ] away or a slowdown in demand for OTT. So I think there is a fundamental difference there. One is, if there is an overall demand -- decrease in demand for OTT itself. And the second is, there is an increased competition which is then taking away customer wallet and customer money away from Netflix. I think, it's really the latter. So to that extent, more power to us, because we are all for more competition because that powers more deals for us, that powers what we're in business for.
Absolutely. As Nitin said, I don't think there is a slowdown in the OTT market. I'm not sure why you read it. If you're assume -- making that assumption from the Netflix news, then I think that's a wrong assumption. Hiring slow down in Q4, typically -- our freshers typically come in in Q2 and Q3, and that is why you will see a slightly higher numbers that we've added in Q2 and Q3. So that has -- it has nothing to do with slowing down and so on. We continue to add people. So I think over the last 3 quarters, we have added upwards of 1,000 hires each quarter. So I think we are pretty good there.
Sir, fresher addition for '23, is it quantifiable? How many freshers are you expected to add?
We are expecting to add between 2,500 to 3,000 freshers.
And in '22, how much was it? How much, do you have any idea?
We've added about 1,100 or so.
1,100 and that is going to go 2,500 to 3,000, almost triple.
Yes.
The next question is from the line of Ankur Jain from [ Research India Private Limited ].
I had couple of questions. So my first question was with respect to the recently launched platform, TEngage, that we have launched. So I just wanted to understand like what kind of response we have got? I mean, did we got any major deals on this? And my second question is about the Renesas and Tata Elxsi EV Innovation Center that we have established, so what potential benefits do we see from this partnership?
Sure. So, Ankur, maybe I'll take that. This is Nitin here. TEngage, as you note, we actually did a global launch for it just towards the end of March, right? So we are really just about 3 weeks, 4 weeks into the time from where we first launched it and announced it to the world. Having said that, we've had a brilliant response in U.S. because we were very clear that our first target market should be U.S., our first deal should have result from there.
And I think we are already having multiple customer conversations, enormous interest and what the platform represents and the direction that we're taking in terms of leading with patient experience, right, typically because most of the e-platforms that have been developed have been developed more to serve the operational needs of hospitals, we are taking a different view, that it comes from an experience perspective rather than operational perspective.
So that's a quick view on TEngage. I think, we just have to wait, because we also know that platform deals always take time. One is to establish interest, the second is to actually get people to adapt, because this is a major decision for them. It's just not a one-time consumption. So we expect that will take some time, but I think there are good times ahead. On the NEVIC, which is our acceleration EV Innovation Center, I think it's really about the fundamental point that the world is divided into 2 parts, right: traditional OEMs, who know how to build vehicles but are now trying to make them electric and build in digital layers on top in terms of connectivity, IoT, data management, and so on; and there are the other world which is digital to start with and they are now trying to build vehicles, right? And this is really the kind of companies that you see in the world. Our job is to act as a bridge in between, right, because what we are bringing together with Renesas is really the point that both parties, whether you are born digital or you are born traditional, fundamentally have a gap when it comes to electronics and software, first of all. And that is also the moot point for what makes up for electric powertrain and electric vehicles and what differentiates. So our job is to make that journey faster and easier for both sets. And then for the traditional OEMs, we have other offerings, including TETHER, which is our Connected Vehicle Platform and so on, which we believe will be an added value offering on top. So to that extent, it is a core offering of electronics and software that is needed to accelerate electric powertrain development and a layer of software that comes above which powers the digital part for customers who [ are new to ] that. Yes. We're really targeting India to start with India and APAC and then we want to go global, right, because we're very sharp in our focus. Our general EV capabilities apply to everybody, but they are predominantly passenger car. So what we're doing now is, we're targeting the 2-wheeler, 3-wheeler light vehicle segments and for those markets we believe the far more sensitive to cost and time pressures and that is where ready-made offerings help, they are not going to go down on the path of full development.
And just to add to this, are we planning to launch our own operating system for automobile division?
No.
The next question is from the line of Karan Uppal from PhillipCapital.
There are 2 questions from my side. One on the onsite/offshore effort mix, you spoke about 10:90. So is it a historical low for you or what is the normal onsite/offshore effort mix? And do you expect this to reverse in FY '23, which can be a margin headwind? That is question number one. The second question is on transport vertical. It would be very helpful if you can give some color in terms of the demand in the sub-verticals of transport, electric, ADAS, EV and connected vehicles? How are you seeing the demand? And if it is possible to quantify the contribution of these sub-verticals, that would be really helpful?
Sure. So our onsite/offshore, I think it has been in this 10:90 for, I think, a couple of quarters at least or in and around this. Pre-COVID, I think, it was more like 30:70 or something around that, right? So whether it will go back to those levels, I don't think it will go back to those levels. It could -- it would settle somewhere in between. But, for now, I think we are okay with this number. And as long as our customers don't insist on everybody coming onsite and so on, our delivery process are structured very well in such a way that we can deliver offshore remotely. And I think we would want to leverage that so that we can deliver both cost benefits to our customers, as well as from a margin perspective also retain the sort of margins that we have at this point in time. And regarding the Transportation business that you asked about, if you had noticed, over the last 3 quarters, the Transportation business has been accelerating and has been really leading the growth for Tata Elxsi. So this Q4 also, I think, Transportation showed a smart growth led by multi-year deals, large deals, both on the electric vehicle side, EV side, AD, ADAS and connected infotainment side. And so, we definitely are seeing good traction in all the 3 areas of automotive. For once, I think, it's a good position to be in. I will not be able to share breakup or details because we basically don't share those details. But having said that, the fact that we have been growing aggressively over the last few quarters would give you a good indication, good idea about our Automotive business is performing.
And last question is on the conflict in Europe, any impact on your business as such and specifically from the top OEMs and Tier 1 side?
Sorry. You're talking about the Russia, Ukraine piece. Are you talking about the conflict? Sorry, we missed the question.
Yes. I'm talking about that.
The war? Okay. I don't think there is any -- we are not seeing any effect of that. We don't have any customers or any development centers in that geography, in that part of the world. And so far as most of our customers are in the Western Europe region and we have not seen any slowdown or any effect of this on any of our projects so far.
The next question is from the line of [ Naveen Bothra, ] individual investor.
Yes. Congratulations, sir, for excellent set of numbers. My question is partly -- you have answered partly regarding the hiring outlook. If you can guide us about the net hiring targets from this year in view of the accelerated fresher hiring you told us about 2,500 to 3,000 trend? So if you can enlighten on this one? In view of the high attrition rate of 20% and high demand outlook, how do you see the net hiring outlook for the current year, sir? Because we added around 27% of our employees in the last concluded financial year. So in this view, if you can enlighten us on the hiring -- net hiring targets for this year?
You are talking of net hiring target? So we don't have net hiring target. We really don't -- I mean, we can't work like that because it is such a dynamic world that we are in, right? So we only have gross hiring targets. And, of course, every quarter we need to see -- we need to really see how we can control attrition and then so on, right? So the numbers that I talked to you are all gross numbers, right? And if you look at it, the last year we've -- we added upwards of 2,000 people net.
Yes.
So I would -- I mean, if you ask me a number, I would say net hiring will be somewhere in between 3,000 to 3,500, but we have not really planned it in that way.
Okay. Because in this financial year, we added around 27%, that you said 2,014 employees, net employees, and our revenue has gone up by 35%, some currency impact is also there. So...
Currency impact is there, utilization was also there, then of course, lot of, what you say, fixed price project impact is there and there is, of course, IPs and platforms and all of that, so all of that put together.
Okay. So this trend you see continuing for the -- this financial year as well, because we are signing many multi-year deals now, so you would be having some outlook on this one?
Yes, definitely. I think we have -- as compared to, I would say, the starting of the last financial year, I'm starting with a much healthier order book this financial year.
Okay. And sir, last question is regarding the -- number one customer is from the automotive or from the media side, if you can enlighten? Because in the -- if you can broad base our database, because this year we see sometimes commonly media vertical number one in there, sometimes automotive is number one, because in the postal ballot, you -- related party transaction limits were increased for JLR and this year also it has been increased by 50% for JLR related party transactions. So in the dataset, if you can provide us the more granular data about this is from automotive or this is from media side? Because the earlier -- all the periods it was JLR. So to met the data...
I am not sure why we are so bothered about that. And if you look at our competition and so on, nobody discloses this, right? They only talk about Top 5 or Top 10. They would have been kind enough to tell you Top 1, Top 5 and so on. So...
The next question is from the line of Priya Rohira from Emkay Global.
My first question relates to the observation that you are entering the year with a very strong deal pipeline and maybe the highest-ever customer additions. If you can give some qualitative or quantitative color on the customers which have been added and maybe if you can quantify the deal pipeline, which gives a much higher confidence as reflected in your voice as well?
Usually we don't give the details -- quantitative details about the deal pipeline and so on. But having said that, I think in each of the quarters we have been talking off a number of addition of new customers, whereas in the automotive area, the OEM customers, as well as suppliers' companies. So some of the leading automotive companies, both OEMs, as well as suppliers are our customers right now. And a few of them have been added in the last financial year with a multi-year multi-million dollar sort of deal pipelines and so on, right? So I think -- if you look at as an automotive industry, both with OEMs, including new age OEMs, as well as the suppliers, we won some very good deals in the last financial year and that has actually helped accelerate the automotive growth over the last 3 quarters if you have seen. On the Media and Communications, again, we continue to talk about the new deals that we have been winning. Like last quarter, we talked about the operator customer that we have won in the Middle East. So the good part about the Media and Communication business is, traditionally, we have been focused on the U.S., as well as Europe, but in this last financial year, we've expanded geographically also. We now have customers in Latin America. We have customers in Middle East and Africa and, of course, we have a lot of customers in India as well. So from that point of view, definitely from a Media and Communications perspective, we've shown steady growth, steady customer, steady revenue growth and that has come with new customer additions in all these new geographies. At the same time, we've also been able to win platform deals in our own intellectual properties and products. So that's also another key area for us where we are investing in. On the medical side, again, we've -- in each quarters, we've talked about the large deals that we have won and as compared to the previous financial year, we have grown close to about 68% -- 66% to 69%, that would indicate the sort of growth that we have seen in that particular business. So, I would say, overall, compared to the previous financial year, we've had good deal wins, we've got -- we've opened up new geographies, we have larger multi-year deals that gives us the confidence that the deal pipeline and the order book is pretty strong as we get into this new financial year.
Sure. So just as a fallout of that question, is it possible to see some directional color on whether both in, say, the Transportation and nearly Automotive and maybe in Media and Communications between the traditional guys and the next-gen born digital guys, like -- say like an OTT player or say a 5G implementation, some sort of mix between the 2, because that clearly indicates in terms of the growth pipeline which would mean there are more chances of next-gen becoming a higher share in our composition of revenues.
Yes. So maybe I'll take that...
I mean, in case you are tracking this internally, I'm sure, but just maybe a more qualitative color over the, say, past 1 year how this has shaped up?
Yes. So Priya, this is Nitin here. Maybe I'll take that. And I think we look at it more from a portfolio curation, right, because when you think about this, there are pluses and minuses for each part. The traditional players are pivoting and transforming, so to that extent, you're running along with their speed of transformation. With the new age, you know that there are whole set of things that they don't bring as capability. So you have the ability to craft larger deals. But they bring with themselves enormous risks. So we also seen enough of the new age OEMs go belly up with no funding or no money left and then either getting sold for a song or just stopping right in midway, right. This is true both in the Media and Communications space where we have as many new OTT players who are cropping up and then dying or running out of money as much as it is the traditional players who are now moving to direct-to-consumer, right, whether it is -- like we have seen, the Disney or Discovery or anybody else going digital directly. So I think for us it's a very careful portfolio management problem. And what also matters to us is the brands that we're going to be working with. So on one hand, there's the excitement of new age, because lot of the lessons and capabilities are built with them, but it's also a matter of risk. So that is all that I'll tell you. But I'd say, the heartening thing for us is, you can take any sector that we work in and you can take the Top 10 leaders in that and you can be sure that we work with half of them at least.
Sure. This is really helpful. And just more data keeping question. You mentioned about addition of 2,500 to 3,000 freshers and on -- which would be freshers and the total additions could be in the region of 3,000 or 3,500 basically?
That's correct. That's the range we're indicating.
The next question is from the line of Abhishek Bhandari from Nomura.
And congrats on very strong numbers. Sir, I had couple of questions. The first is, if you could give some sense on the mix of your business in terms of, broadly speaking, how much portfolio would be annuity and how much would be project-driven business for you? Second is, now we are touching close to $300 million plus kind of annual revenue, do you think time has come now for you to start investing very aggressively on sales to accelerate the growth further from here? Because now we also have the benefit of probably one of the highest margins we have ever seen in our history. So maybe could you elaborate on these 2? And if I have anymore, I'll come back.
Yes. So we have been investing aggressively on sales. Over the last 4 quarters, we have brought in a lot of good resources that can support us both in U.S., as well as Europe. So that is a given. I mean, that we continue to do and then not just investing in sales resources alone, but also investing in tools and training for them, right. So we have planned out -- planned something along those lines in the Q1 and Q2 of this year. So there are lot of action on the -- definitely a lot of action on the sales front. From an annuity versus fixed price, our project-based engagements, what I can tell you is that, over the last couple of years, we have moved the needle strongly towards annuity businesses. I'll not really give you a percentage of how much is annuity or how much is fixed bid and so on, but that's a journey that is taking place. And I think there's lot of consistency in revenue that you have seen quarter-on-quarter is largely because of this -- the moment from project-based engagements to annuity and long-term customer relationships. So I think it's a positive trend that we're seeing and we hope that would continue.
Sure, sir. One last follow-up. Sir, while I heard through the call that you don't quantify your pipeline, you only give qualitative color and possibly the only indicator for us to gauge the growth could be your headcount addition. Could you give us some other indicator, which could give us some sense of where your business is growing in terms of -- headcount addition is one, but do you think there are anything else what you report? Could you give us some indication there?
Yes. So I can't imagine what else we can give you, but Abhishek, the simplest one I would say is that, if you look at what we've called out strategic directions, we talked off, in the long-term, our mix of industry is going to a 40:40:20, right, between Automotive, Media and Communication and Healthcare and we have moved the needle, of course. We have gone from 2, 3 years back when it was 5% in Healthcare, about 50% plus in Automotive and the rest being Media. So we are almost there, 15% in Healthcare and about 42%, 43% each in the other 2. If you look at it, the trajectory will continue in that path, if you look at our strategic direction. So, if you take the bulk of the [ resources ] hiring and if we distribute them back in the 40:40:20 plus ratio, we'll actually get the direction of where we are looking at staffing and where our numbers will come from. That's one way to look at it. The other way to look at it would be, of course, the fact that we are looking at a better balancing of our geo mix. Now that has lesser bearing for us, why? Because we don't do too much onsite. In any case, for us, everything is offshore or a large part of it is offshore, so you don't have to worry about people addition or staffing overseas. That's a much smaller problem for us. So, I would say, that's the largest guidance that we can provide.
Mr. Bhandari, may we request that you return to the question queue for follow-up questions. The next question is from the line of Madhu Babu from Canara HSBC.
Sir, just on the emerging verticals, we have been investing a bit on the -- even in the rail transport and all the transport sector. So how is that diversification on the emerging verticals going on, first? And second, in terms of Ukraine impact, see, are there any boutique vendors in Ukraine and is there any possible market share shift towards us there? Because on the digital engineering there has been some -- a large vendors like EPAM there. But on the embedded side, are there any players there and are there potential market share shift? And last one, with the kind of a strong valuation where stock is getting, could we use this as a tool to go for acquisitions?
[ How we are handling ] adjacencies leading to Ukraine and boutique vendors?
Sure. Adjacencies, I think, on the Transportation business we called out rail and off-road vehicles as an adjacency. I would honestly say it has been a little slow, maybe about 5% is what we have achieved. Our target is to achieve close to 20% over the next 3 years. So we don't have much to report in this quarter regarding adjacencies. It is hard work, it is business development, it is new sales addition, so all of those investments are happening as we speak. But I'm confident that in a couple of quarters we should see some good traction there. Regarding Ukraine, regarding companies like EPAM and so on, yes, we are seeing a few inquiries coming our way where customers have outflows to companies like EPAM and they are really looking to derisk and looking to see if they can move that work to companies like us in India, right. So we do see a trickle of such inquiries coming our way. We can't claim a large set of inquiries, but definitely there are a few inquiries. Regarding M&A, yes, I think that's always there, but like I say, some other investors of us tell us very clearly that you have been growing very aggressively, 30% plus growth organically. So what is the need to look at inorganic. Don't lose your way by doing an inorganic, so that's the advice. So we are keeping that in mind. We're definitely keeping that in mind and -- but, at the same time, if there is a good company that's a strategic fit for us and it comes within our valuation range, definitely we will go for it.
Yes. So maybe I'll just add to what Manoj said, this is Nitin here, Madhu. On the adjacency side, while he did, of course, call out what's happening with us on the Transportation part, do note that we have similar adjacencies of media and new media. In our LCV vertical, we have similarly pharma and digital health and healthcare. So the ultimate goal, of course, is to converge to a 20% of each of these adjacencies as a mix of that overall vertical and we are at different points of the journey. So if you look at media and new media, we are far ahead of what our targets were for this point of time. In the case of digital health, we are well on our way. In pharma, we are a little behind. Like transportation, we are a little behind again. But, for us, I think that's the way of business. Why? Because we look at 2 parameters: revenues is one, marquee customers is another. I think we are tracking well on the customer front. So we just [indiscernible].
The next question is from the line of Debashish Mazumdar from B&K Securities.
And congratulations for the extreme result...
This is the operator, sorry to interrupt you, sir. We are not able to hear you clearly, please use the handset mode.
Yes. Can you hear me?
Yes.
Yes. Congratulations to the management team. Sir, I have a question, which is not linked to Q4, more linked to FY '23 and beyond. If I understand the ER&D business nature correctly, it's a long gestation and high investment business at the initial stage and once you reach an inflection point, the fruits are also -- it could be very, very high. So from your delivery for last 2 years, especially last 6 quarters, it seems to be that we have reached to that inflection point where the investment is behind us and we are getting the fruits of that investment. So just wanted to get some sense, at what stage we are with most of our clients, especially Top 20, Top 50 clients? Have we reached to that stage where we are getting these fruits back and -- which is visible into your growth and margin? So that is first one. And second one is, if I also can get some sense that how is the client mining activity is happening from your side, especially in the Top 50 clients, are we getting some pricing power with them? And is it -- and what is the direction going forward?
Sure. So definitely when we look at the top customers and when we look at the top list, there is a lot of client mining that is happening and a lot of the growth that we see in the last few quarters has been growing our existing customers, growing our existing revenues. If you look at Top 5 customers, you would see that the amount of mining that we have done to really grow the customer base, right. So we are winning market share from competition and, in general, there is also lot of new services that our customers want us to take up, digital engineering services and so on. So the market is also expanding and we are also eating away market share from competition. So it's a combination of both that is really helping us grow. When you look at the life cycle, where we are at this point in time, I would say, it depends on -- there is no one answer there, right. It depends on each customer situation. Customers that -- we have been there for the last 10 years and so on. Of course, we are deeply entrenched and as the customers are looking at new areas, new digital opportunities and so on, we get engaged and we grow. And in case of customers that have added recently, then there is a lot of headroom -- there is lot of headroom left for us to really tap into and so on. As I said, right, we have been in U.S. and Europe for a number of years. So in some of the major verticals, which is Media and Communication and Transportation, we have pretty established relationship. In Healthcare, it's a relatively new business, so the relationship is still new. There is again a lot of headroom for expansion and really seeing how we can grow. Similarly from a geography perspective, if you see, the newer geographies, we've just gotten in, we're just understanding the markets and then definitely we believe there is lot of headroom in each of those geographies as well. So I think -- and, at this point in time, I don't think we need to be worried if we have reached a saturation point or so. There is a huge potential available still to be exploited and I think we are on the right track as far as growth for future is concerned.
Excellent. One last question, if I may squeeze. If you see our last 4 quarters performance, there is no seasonality as such. There were consistent 6% to 7% growth sequentially in each and every quarter. So is it like our business is currently structured in that way that there will not be any seasonality going forward or at least in the near term visibility that we have? And so, that is the last question that I have.
Yes. So if you look at it, not just the last 4 quarters, I think, but last 7 quarters also we have been consistently growing. So I think that is again due to all the efforts that we have put in -- of course, one is mining [ the accounts ] to us generating -- getting those new logos and getting those logo -- getting those multi-year deals also, right. So what happens typically is, every quarter when we win these deals, in that quarter the revenue may not be significant, it may be a small revenue, but over the next 2, 3 or 4 quarters it is when we really ramp up teams, we mine those accounts and we keep growing. So as long as we continue to open new logos and open -- I mean, get into these large multi-year deals and so on, I think the trajectory is good for us.
The next question is from the line of Hiren Ved from Alchemy Capital.
Manoj and Nitin, congratulations for consistently delivering superb numbers. Actually most of my questions are answered, but I guess, one of the participants asked that question and I would reframe it is that, given the kind of tightness that we are seeing in resource availability, right, are you therefore able to translate that into better pricing, especially in the transportation vertical?
Yes. So definitely we've gone back to customers wherever possible and we have benefited from rate increase also from some of our customers, especially for whom we are being consistently delivering value and so on, right. So we benefited, definitely benefited from that. Yes. But at the same time, the demand is so much that the challenge for us is to have those trained engineers available so that we can tap into that demand. So that's where we are putting our attention -- focus and attention. And so, for the next 2 quarters that is where the attention would be.
Okay, great. And, yes, I mean, I agree with your strategy and I would recommend that we don't do any hasty acquisitions, because I think there's just enough to grow organically rather than being distracted by any inorganic opportunities unless obviously you guys find the right fit. But thanks again and keep doing the good work. Congratulations.
Thank you, Hiren.
The next question is from the line of Bharat Sheth from Quest Investment Advisors.
Manoj and Nitin, congratulation on extremely -- I mean, which Hiren has already said, so there is no word to put additional word. But Manoj, I mean, when we are aware -- I mean, evaluating -- I mean, inorganic, so which are the gap that we find that thing -- I mean, help us in again accelerated growth where we are envisaging?
Sorry, sir. Can you reframe your question, we didn't get it? Are you...
Sorry. If I could put it in this way, when we are evaluating, say, inorganic opportunity, so which are the area which you think that can help, I mean, by acquiring can help us in growing at an accelerated pace? And second -- and the new geography which you said, is that Japanese market are we looking or any other or -- if not Japanese, then -- we were evaluating Japanese market also, so if you can give some color on that?
No. So regarding the M&A, typically, as we indicated I think in the earlier calls also that we're really looking at a few adjacencies that we need to -- where we don't have, say, capabilities or the right customer connections and so on. So that is clearly one area where we would focus on to see how we can build capabilities or if there is a marquee customer that we want to access and we have been trying to get into that customer, but for whatever reason we've not been able to get into that. Can an acquisition help? If there is an existing vendor that is already working with that customer, can we acquire that company and then as a result of which get an access to those customers, right. So those are the things that we look at when we're doing an M&A. From a geography perspective, I talked about Middle East, I talked about Latin America. So these are 2 new geographies that we have entered. When I say entered, we have customers and so on and we are looking at, should we have a permanent establishment there, right? Should we, say, open up offices and should we set up. So those are some things that are under active consideration. Japan has always been -- I mean, we are one of the earliest companies to be in Japan. Since I think 1997 onwards, we have been in Japan. So Japan is not a new geography for us. Of course, Japan is of late not been delivering -- I mean, that's true for the entire Indian IT industry, right. Japan as a country has sort of fallen off. And then it takes that much more effort to get business from Japan. So, yes, but Japan continues to be on our -- I mean, we continue to have operations and we continue to service customers there.
And sorry, you might have answered this, because I joined later. On the platform business that we have launched, so are we looking at kind of a SaaS model? I mean, some of the IP that we have developed or what is our thought process on that?
Yes. On products and platforms, we definitely have a view of leveraging cloud and SaaS. And if you look at TEngage, which is on our healthcare side or if you look at TEPlay, which is our OTT white label platform, they're all fundamentally SaaS in their construct and the business model is, of course, subscriber-based and linked to growth. So definitely -- as far as products and platforms are concerned, we are definitely looking at pivoting SaaS.
Is it fair, Nitin, to say that this product has been developed for, say, specific client and then can it cannibalize our business with those client if we offer it on a SaaS base to all the people?
No. So if you look at what we're developing, for example OTT and so on, it is meant for those customers who do not have the technological muscle or the financial muscle or the engineering capability to run and manage by themselves, right. So there has always been the world set of customers who are saying, "Look, the platform ultimately I'm not going to license somebody else's." I'll develop it in-house, but I don't have the capability or the capacity and I need somebody to help me, and that's outsourcing. And their customers who are going to say, "Look, I'm not in the job of running technology. My job is content and brand and business." And they will be the Tier 2s or regional players or customers who are going to look at technology as a core who are going to say, "Look, I would rather the platform came in and did what I need to do." So we see those 2 segments as very distinct. The ones that we do services for may or may not become platform customers at some point of time, but definitely there is a clear segment which are only platform potential customers. Why? Because they're not going to do the technology on their own. It's only a question of whether we become only integrators, helping them integrate somebody else's platform or we provide our own. In this case, we have decided we'll give them our own.
Mr. Sheth, may we request that you return to the question queue for follow-up questions as there are several participants waiting for their turn. [Operator Instructions] The next question is from the line of [ Sandeep Jain, ] individual investor.
Am I audible, sir?
Yes.
Yes. I just had one question, sir. First of all, congratulations to you and your team for consistently good results [indiscernible]. And, sir, I just wanted to know you had laid down one 5-year plan internally in 2019, can you speak a little more on that as because 3 years have passed and how would you review or how do you assess that segment in the scale from 1 to 10, if you can throw some light on that?
I think we -- I'm very happy to report that whatever we have planned from a strategy perspective, the 3-year plans that we laid out, I think we are almost there. We -- I mean, we have definitely set very aggressive goals for each one of us and so on a scale of 10, I would say we have -- whatever we've thought about at that point in time, we have achieved 9 out of 10, that's a pretty -- I would like to thank the entire management team and, of course, the delivery organization and the sales organization. So the entire team has literally worked very hard to -- for us to reach where we are today. And for those of you who know how we used to perform 3 to 4 years earlier to now, you would see the market difference in the way we approach and the consistency of performance and so on. So this is something that we laid out 3 years ago and I'm happy to say that we are -- whatever we set out, we are almost there.
Mr. Jain, may we request that you return to the question queue for follow-up questions. The next question is from the line of Mag Tucker, individual investor. Mag Tucker, your line is in talk mode. Please go ahead with your question. Mag Tucker, please unmute your line from your side if muted. As there is no response from the current participant, we'll move onto the next question from the line of [ Praveen Kumar Ghuram, ] a retail investor.
Congratulations on a very good set of number. Sir, my question is on -- in terms of employees. So like this financial year, like the financial year 2022, you started with 7,300 employees and you lost close to 23% of the employees. Was there any effects on the beginner due to like losing 23% of the employees?
Yes. Praveen, I think you're reading it a little wrongly, why because, that reflects the attrition numbers for the latest quarter and that -- it does not equal to 23% of all the people added. But however, having said that, I mean, you have to remember, any business lives with attrition. It's only a question of how much percent more or less, right? So it is not that attrition was not there 5 years back, currently it has come up and now there is attrition. The attrition has been a reality for the last 30 years that we have been in existence. It's peaked at certain times, it's dropped at certain times. So to that extent, I think, it's only left to the capability of the organization to deal with attrition and how do you manage the impact on customer. I think we are doing an extraordinarily good job considering the fact that we continue to grow -- continue to delight customers and [ our fees are ] continues to improve.
Mr. Ghuram, may we request that you return to the question queue for follow-up questions. The next question is from the line of [ Amit Tawani, ] individual investor.
All of my questions have been answered and I just want to congratulate you guys on a fantastic quarter. Just one -- maybe I can just squeeze in one question. We're doing a lot of offshore development centers for auto ancillary companies. I was just wondering does that mean more longevity of business, does that mean longer contracts or not really?
Yes. Also relevance in there typically is a longer-term engagement, right. It's a commitment from the customer that they want to work with us for x number of years and so on. So, yes, longevity is implied in those projects -- in those contracts.
The next question is from the line of [ Mayur Matani, ] individual investor.
Yes. Congratulations on the stellar set of numbers. I had 2 questions. One is with regards to your interview in 18 today morning that you are saying that demand is outpacing supply and we see challenges in the supply. And so, my question is that, what is the management bandwidth and what sort of growth can we handle? Because in these times when the demand is far outpacing supply, so what is our capability to cater the clients? And how much growth can we handle over the next 2 to 3 years? That is first set of question. And second is, with regards to your advertise -- in your website you mentioned regarding the adtech sector, so what are your plans in the adtech sector?
Yes. So as I said today morning in the interview on TV, so as we sit today, when I look at the deal pipeline and when I look at the sort of demand that is coming in and the sort of deals that we are winning, definitely there is -- we've never been in such a situation of abundance, right. So we have -- so, as I said, right, so demand is not an issue. We -- when customers are interesting, more and more work to us, all this great resignation and so on that is happening in the Western region, U.S. or Europe. Given the geopolitical situation in Europe, what essentially they are looking at is, they're looking at companies in India who both have capacity and the ability to take up these projects, right. So due to all these reasons, we see a lot of demand coming into India at this point in time. Having said that, when I say supply, I'm not talking of generic engineering capabilities or skills or general engineers. For every project that we need, we need a senior level, a Project Manager, a subject matter expert, an architect and so on, right, so people who will actually hold those projects and who will be able to deliver those projects, right. So the supply for those critical profiles is where there is a shortage and we are working over time to see how we can bring in that sort of talent into the organization, at the same time, there are already the existing talent pool which are at the mid-level within Tata Elxsi, within our organization, we're really seeing how we can quickly upscale them, so that they can play those roles, they can play the SME role or the architect role and so on. So we do both. We really see how we can promote our internal talent and at the same time, we also look at how we can hire these people externally. So it's a combination of these that we are doing in this tough market situation. But I am hopeful that in a quarter or 2, we will be able to manage this mismatch of demand and supply and really catch up on the sort of opportunity that lay in front of us.
Mr. Matani, may we request that you return to the question queue for follow-up questions. Next question is from the line of [ Ananda Dasgupta, ] individual investor.
Yes. Am I audible?
Yes. You are audible.
Yes. First of all, congratulations for a brilliant result. Now, my question is coming from the investor presentation what I was reading through. There, it's mentioned that you've unveiled recently TEngage, this is a digital health platform in the USA. What do you think? Is it going to be coming in the future in India also and what is the scope of that in India? This is my first question. And the second question is that, even though the attrition rates of the -- latest attrition rates compared to other companies are slightly lower, but we are seeing it has increased in the past few quarters and I agree with what you said earlier on that attrition is part of the business. But [Technical Difficulty] what is the level in which the attrition [Technical Difficulty].
Sorry, we lost you there, Ananda.
Trying to -- how do you plan to counter it?
Sorry, we missed part of your second question.
Mr. Gupta, we request you to repeat your last question, please.
Pardon.
I request you to please repeat your question, the last question.
Yes. Last question was, the attrition rate was happening more from which level? Is it from the junior level or middle level or the upper level? And how do you plan to counter it in the future?
Yes. So a lot of attrition is in the lower level. We've had a good track record of retaining our mid and senior level people. And I think I mentioned earlier, during this COVID time and so on, a lot of people have been working from home and including the new hires that we've done, a lot of them have not visited our office at all. We have hired them virtually and we have lost them virtually also. So that team bonding, that -- nothing has worked out during this COVID time, right. So we've had a lot of, what you call, infant mortality, which is people leaving us within 6 months of joining or 12 months of joining. So that is where we see attrition at this point in time. However, the senior people and the mid-level people, we have a good track record of retaining them.
Ladies and gentlemen, due to paucity of time, that was the last question. I'd now like to hand the conference over to the management for closing comments.
Good afternoon, everybody, and thank you so much for joining us on this earnings call. We hope we've addressed all your questions and we look forward to hosting you again next quarter. Until then, goodbye and stay safe.
Thank you.
Thank you. Ladies and gentlemen, on behalf of Tata Elxsi Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.