Conference Call with Tata Elxsi Management on Q4FY20 performance, outlook and COVID-19 impact. Listen in to the full transcript.

Call Participants: Mr. Manoj Raghavan (MD & CEO), Mr. Nitin Pai (CMO & CSO), Mr. G Vaidyanathan (Chief Investor Relations Officer)

Introductory Remarks from Mr G. Vaidyanathan, Chief Investor Relations Officer

Welcome all to the Q4 call of Tata Elxsi and hope you all are safe and healthy. 

Insights from Mr. Manoj Raghavan, MD & CEO

I hope you and your family are safe during this unprecedented time. I am pleased to report that we have delivered another quarter of steady performance despite the current Covid scenario. In the past few weeks, we were forced to work in many new ways, operating at a large scale and at short notice.

We are adapting to the changes, more than 98% of our employees are working from home and it has not hampered any customer commitments. Our customers have come back appreciating us and thanking us for our efforts in ensuring minimum or no disruption whatsoever.

I will take this opportunity to thank my IT team and Admin team who have really worked around the clock to make this possible. I also want to thank all employees who continue to deliver and contribute to our success and of course to all our customers who stood with us in this very difficult situation. We were able to deliver and keep up our commitments.

Last but not least, I would also like to thank my senior management team who really over the last 4-6 weeks have been working tirelessly to ensure that we are able to deliver this performance.

Our revenue for the quarter grew by 3.6% QoQ and very credible 8.3% YoY. Actually, if you look at it, the volume growth is almost two-third and about 2.3% QoQ and 5.5% YoY. Our PBT also grew by 7.5% QoQ and 2.8% YoY. 

Our two main divisions EPD and IDV, both of them showed good growth. EPD, our largest division that contributed over 87% of our revenues this quarter, grew by about 4.1% QoQ and 10.6% YoY.

Industrial Design and Visualization grew 7.6% QoQ and 5.4% YoY.  Our System Integration business is impacted this quarter because of nationwide lockdown and if you understand the business, we get revenues when we really ship the hardware and software for customer plays and install them. But because of the lockdown, we were not able to ship any of the hardware and this therefore, had an impact on our revenue recognition. 

Within EPD, the growth was driven by media and communication vertical in Q4, we had 8.6% QoQ growth. Our medical business continues to be steady. Although last quarter was flat it has delivered 60%+ YoY growth. So, that vertical continues to grow at a rate that is faster than the company. In the automotive segment, we are seeing soft demand. We do anticipate delays and deferments of deals from the automotive suppliers as well.

The third quarter was significantly affected for other market reasons. 

In Q1 last year, we had a significant budget cut among customers but we have managed to recover strongly over the next three quarters to finish the year with a small but positive growth. Automotive now contributes less than half our revenues. While the market remains uncertain and the full impact of Covid on industry, markets and business for us in the third quarter and beyond is still not clear. 

But having been through this over the last year and having recovered well, I have the confidence in my capabilities and my people to meet this challenge too. So we are right now focused on building a platform for growth and aim for performance and growth in every quarter. 

As far as when businesses will see a recovery from the pandemic, your guess is as good as mine. Most of the major European markets whether it is Germany, UK, France, Italy, Spain, the US and Japan have not yet reopened. China is not yet fully opened either so it is very difficult to give commentary on whether the automotive industry would recover and how quickly that recovery would be. 

We are hopeful that over a period of time we will see some economic recovery. We expect maximum impact of Covid-19 in Q1 and hoping in Q2 we should see the economy gradually recovering and by Q3 & Q4, we will get back to our growth rate and so on. 

View on Healthcare and Media & Communication Verticals as it was expected to be less impacted

There is less impact on Media & Communications business as well as Healthcare business, and if you see last quarter, significant growth in the organization has been pushed in Media & Communication. 

When we look 2-3 quarters back, from our mid-term to long-term strategy in terms of diversification, I feel more certain that all the decisions that we have taken in terms of really pushing our investments in the Media Communications side and Healthcare side have been the right decisions.

More importantly, the sub-segments that we are focusing on are all right decisions, which will really help the company in this financial year and the coming financial year. In Media&Communications, it is not to say there is no impact, there will be some impact but we hope to recover, cover up that impact and even grow in this particular vertical. 

In the Medical vertical also, what is happening is most of the medical equipment manufacturers are reprioritising all their R&D expenses into Covid related spend. So, typically in any hospital, they make a lot of money on non-essential surgeries and a lot of manufacturers make money by selling equipment for all of those surgeries. 

Now, with Covid all of the other surgeries have been put on halt and the entire thing is focused on Covid. So, for the later half of the last quarter and even in Q1, we do not see the situation changing. 

All hospitals will be busy with Covid and Covid related issues and on top of it if you realise, a lot of our revenues come from the regulatory work that we do for our customers. Now, what has happened in this Covid scenario is many governments in Europe have really pushed the regulatory timeline. They have relaxed the regulatory timeline. The customers are now able to have a breather and spend some of that money on Covid activity. But, having said that, it is a very very temporary part of the situation. 

We expect our medical business to aggressively grow in the way that we have anticipated. It's just that this Covid related scenario is putting some amount of caution in the way we project our revenues. Otherwise, I still strongly believe that the Media Communication and Medical would be the saviour for this particular company in this financial year and the next year. 

We have got enquiries for designing ventilators specifically for India.  Infact, our Prime Minister has requested Indian companies to come forward and do what we can for ventilators so along with other group companies, we have been involved and we have done some studies on how we can have our own ventilators in India.