Ladies and gentlemen, good day, and welcome to Tata Elxsi Limited Q3 FY 2022 earnings conference call. 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 then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Diwakar Pingle from Christensen Advisory. Thank you, and over to you, Mr. Pingle. Thank you very much, Niro. Good afternoon to all the participants on the call. Good morning if you're logging in from the Western time. 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. It must be viewed in conjunction with our businesses that could cause actual 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, Nitin Pai, Chief Marketing and Chief Strategy Officer, Gaurav Bajaj, Chief Financial Officer, and G. Vaidyanathan, Chief Investor Relations Officer. We will start the call with a brief overview of the past quarter by Mr. Raghavan, followed by Q&A session. We would appreciate your cooperation restricting yourself to two questions to allow participants an opportunity to interact. If you do have any further questions, you may join the queue, and we'd 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. Thank you, Diwakar. Good afternoon, everyone. Thank you for joining us today for the Q3 earnings call. At the outset, let me wish you and your families a safe, healthy, and a very, you know, happy New Year to you. I'm pleased to report that we have delivered another quarter of consistent strong growth. Our revenues from operations for the quarter gone by was INR 635.4 crores, registering a growth of 6.7% quarter-on-quarter and 33.2% year-on-year. The growth was almost entirely volume-led, reflecting in our constant currency revenue growth of 6.5% quarter-on-quarter and 32.7% year-on-year. On the bottom line, we have delivered another quarter of industry-leading performance. Our PBT grew by 17.1% quarter-on-quarter and 36.9% year-on-year to INR 200.3 crore. Our company's net profits for the quarter stood at INR 151 crore, reporting a growth of 20.4% quarter-on-quarter and 43.5% year-on-year. We have crossed the INR 200 crore PBT and INR 150 crore PAT milestones for the first time in our history. The company's growth continues to be powered by our largest division, which is the Embedded Product Design division, EPD. EPD grew by 9.6% quarter-on-quarter and 35.4% year-on-year in constant currency terms. If you note, I think this is the second quarter that we are showing almost 10% quarter-on-quarter growth for EPD. Within EPD, the growth was broad-based across verticals. The transportation business posted a third quarter strong growth of 9.7% quarter-on-quarter and 30.9% year-on-year. Media and communication delivered another quarter of consistent growth with 6.5% quarter-on-quarter and 31.1% year-on-year growth, respectively. Healthcare continues to be the fastest to grow faster than the rest, and posted a growth of 22% quarter-on-quarter and 23.4% year-on-year. As you would have seen in our fact sheets, we continue to add new marquee logos to our customer base and win new strategic deals across key growth areas in all these three verticals. We are focusing on building a base of customers in each vertical and segments that can drive consistent growth for us. You will find this reflected in our overall performance across industries and regions beyond the top 10 customers. Our design-led offerings are powering differentiations and deal wins for us with customers and provide a force multiplier with downstream development integration. This also helps us improve margins as we increase the overall composition of software work in the design and digital deals. In the last earnings call, I had mentioned an existing top ten customer where a large design digital deal was put on hold, which affected Q2 and the full Q3 numbers for our industrial design business. The IDV business posted a growth of 61.9% on a year to date basis, even with this impact. We are confident that we will resume this project in the coming quarters. We have been steadily adding our talent base all through last year and in the last three quarters with laterals as well as fresher hiring. In Q2, we added almost 500 fresh engineers, while we added about 150 fresh engineers in Q3. We are selective in fresh engineer hiring, and we will invest further in bringing in a large number of fresh engineers over the next three quarters. Especially delighted with the industry recognitions both from analysts as well as the awards we are winning for innovation and technology. The safety center for Tata Steel uses augmented and virtual reality to deliver experiential safety training to 45,000 workers. For the first time this is done anywhere in the world. The VideoTech Award for the most innovative OTT technology of the year was won against some of the leading product companies across the world in the OTT space. Again, underlines our product and solution-led capabilities. In summary, I would say it has been an excellent Q3 with superior top line bottom line performance that was supported by industry-leading operational excellence and talent retention. We continue to execute strongly on all our three key strategies, driving growth across our three primary industry verticals and regions, building our software and digital platform engineering, product engineering capabilities. We are also entering the fourth quarter with a strong order book and a healthy deal pipeline across our key markets and industries. With that, I would hand over for the Q&A session. Thank you. Thank you very much. We'll now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and one to ask a question. The first question is from the line of Bharat Sheth from Quest Investment Advisers. Please go ahead. Hi, Manoj Raghavan and Nitin Pai. Congratulations on an excellent performance. Hello? Yes, Mr. Sheth. You. Yeah. Raghavan, since FY 2021 as well as in these two quarters, we are talking of everything, our growth is volume-led growth. To understand what is driving our margin, that one lever you say was because of this Design Linked Incentive. What are the other levers that is helping us? Because when we are doing more of advanced work or advanced technology, are we getting some kind of a price increase or not? If you can give some color on that part. Yeah, Gaurav, if you want to go ahead, yeah. Yeah, sure. Hi, Bharat. This is Gaurav. So I will take that, and maybe Nitin and Manoj can add to that. See, when it comes to the margin, there are few things that is very important to us, and we have definitely been, you know, always focusing on this. I think the first and foremost, as you also rightly said, is the business growth and the consistent business growth, okay? If you see that all our business verticals are, you know, are doing really well, and for the past few quarters we have, you know, given at the overall company level, very sustained and healthy quarter-on-quarter and year-over-year growth. Of course, those scale and economics always helps to, you know, for your margin and, you know, bottom line expansion. The second, I think what we prioritize and strategize, you know, at the start of this year and, you know, two years back, is the quality of the revenue of earnings. Okay? We always strategize that we want to prioritize, you know, the value of the offering and the better margin deals. We have been signing few sizable deals and with a multi-year contract. These are at the terms where we feel very satisfied and happy, and those strategies are, you know, really working for us. That also, you know, kind of add to the, you know, better margin profile at a company level. The third probably is on the cost side, which is our operating leverage and arbitrage. Our internal focus always been, you know, the disciplined execution and also the operational efficiency. If you see our utilization, it has been, you know, at all-time high. Earlier we used to be in the, you know, band of 73%-75%. Now that utilization is almost 80% up. It's almost 83%. Employee pyramid is the sector we've been able to, you know, achieve certain kind of leverage. Then the last probably is the offshore and onsite arbitrage. We've always been, you know, offshore-centric approach, and our customer also, you know, always accepted that. During these pandemic times, it's also, you know, further cemented that kind of approach with the customer. That is also, you know, kind of helping us. Earlier it was, you know, pre-pandemic level, our onsite mix was about 35%-36% odd. Now it is almost 23-24. Our offshore, you know, revenue mix has improved in the overall business, which is helping our margins. Probably it's, you know, combination of both top line growth, quality of earnings and operational leverage and arbitrage. Fair point, Raghav. If one really look at we are reaching almost full kind of operating leverage that we are enjoying, and now we have to keep on adding lateral. If volume will continue to rise, I understand higher margin, but are we getting some better pricing or how long this kind of a trend will continue? On the margin trajectory side, if just quick, I mean, not in one quarter or two quarter or medium-term perspective, if you can give some more color. Bharat, see we don't make any forward-looking statement for margin- Directionally, Gaurav. Having said that, see, we believe, and we are quite confident we will continue to deliver one of the, you know, industry-leading margins and, you know, better T2 on most of the parameters. As you know that, in the current scenario and situation, everyone in the industry is kind of benefited from some kind of suppressed SG&A and some discretionary spend. We believe that, you know, once things gets open after some of that will come back, but we don't know. I mean, of course that will not be immediate, but that would always be over the period. We believe that it will never be at the 100% level of the pre-pandemic level. It could be some percentage of it, but today it would be very difficult to, you know, say that, you know, when, how much it will come back. You know, on the other side, if you see with our growth and we believe that with our you know, our overall pipeline and funnel and the you know, the robustness of the demand for this industry, I think the growth will always be there. And with our other operating levers You know, along with our growth, I think with execution strategies and all those things, we will continue to drive and, you know, offset some of those parameters. We have set ourselves some aspiration margin band, and we are quite confident that I think we will continuously deliver, you know, one of the better margins of the industry. Okay. Thanks for detailed explanation, and I'll join back in the queue. If I have a question, I'll come back. Thank you. Thank you, Rajeev. Thank you. Thank you very much. The next question is from the line of Hiren Ved from Alchemy Capital Management. Please go ahead. Hi, Manoj and Nitin. You know, congratulations on, you know, fantastic execution, quarter after quarter. Thank you. Thank you, Hiren. You know, my question is that you had mentioned that in the transportation vertical you're seeing growth back, you know, and you also had initiatives of essentially tapping into other adjacencies like off-road, you know, railways. Could you tell us if you've been able to make any headway and what kind of progress you're seeing in the non traditional transportation that we are already very strong in? That's question one. Second is, you know, given the fact that you know, skill sets in this area are still relatively few, are you able to get a pricing uptick on the services that you are delivering with the customers? Sure. On our transportation business, if you look at it, primarily a lot of our business used to come from passenger car vehicles. Over the last I would say 6-8 quarters, we have diversified our revenue profile to include commercial vehicles as well as off-road you know farm equipment and the rail segments. It's been a steady progress. We won some good deals on the commercial vehicle space in the last quarter. That really you know helped us you know grow this piece of revenue. Our rail business is also growing steadily. I would say our focus is, you know, over the next three years that 20% of our revenues in the transportation business should come from these adjacencies that we called out, right? We are working towards that, so I don't see any concerns there. I believe we'll be able to achieve our objectives there. Skill set, as you rightly said, there is a huge pressure on skill sets. These are not run-of-the-mill skill sets. You can't use, you know, fresh engineers here. You need experienced people. All of that is applicable. Yes, we have been able to negotiate, you know, good better terms with customers. It definitely also helps us in our overall business growth. Just one last question. Also, I think this year as you know, this quarter as well, your healthcare vertical has grown very well. Do you believe that this vertical will lead in terms of Q-on-Q growth even going forward, considering the base is still small? Yeah. Base is small, but again, you know, the problem with some of these smaller businesses is that, you know, you can always have one bad quarter here and there, right? While I would really want to say that, yes, this growth is going to be indefinite, but I can't predict the future, right? Having said that, I think we have been both quarter-on-quarter and year-on-year, we have been having, you know, a pretty decent growth in the healthcare business. Our long-term, you know, 3-year roadmap that we put forward talks about a 40/40/20 ratio, right, between automotive, media and communication and the healthcare business. We are moving towards that direction. If you look at the fact sheet that we laid out, we are moving towards that direction. I would really focus on the, you know, we've. I think last year is when we laid out, so we are one year into that. The next two years we hope that we will achieve this ratio of 40/40/20. I would really focus on that and not what happens quarter on quarter and so on. I think we're moving in that direction. I'm pretty confident that we will achieve our objectives over the next two years. Thank you. Yeah. Just one last question from me, you know, which I've asked before, and I'm sure many shareholders would want to know is, you know, what do we intend to do with the cash, that is now sitting in the balance sheet? I know you mentioned before that you would look at some acquisitions or, you know, if you would look to distribute that cash to the shareholders in form of higher dividends, or so on and so forth. You know, both options are available, right? There are discussions happening regarding you know M&As and acquisitions and so on. We would definitely want to have some cash available to really do any organic you know acquisition. Having said that, I think we will be having those discussions in the next board meeting regarding you know payback to investors and dividends and so on. Essentially, yes, both options are available, and we will take those decisions in the next board meeting. Okay, thanks. Congratulations again and best of luck. Thanks. Thanks a lot. Thank you. The next question is from the line of Aditya Ahluwalia from Invesco. Please go ahead. Hi. Thanks a lot for the opportunity. I think my first question would be just some outlook on the sustainability of this growth that we were shown last year. Do you think it's possible to continue at these numbers next year and the year after? Sustainability, if you look at it, you just need to go back eight quarters and see, right, how the growth trajectory has been. We have shown that sustainability over eight quarters. Will we be able to show the same growth the next eight quarters? I believe we are pretty confident about it. You never know how the industry outlook would change and so on, right? As a management team, we are pretty confident, pretty bullish. Whatever we laid out as a strategy two, three years ago, and we have followed that strategy and we have communicated that multiple times to investors. Whatever performance you're seeing are down to those strategies that we laid out, right? Including adjacencies, including in focus of, you know, medical business, including the sort of, you know, growth in the U.S. market and so on. We've laid out certain themes and so on, and we have followed through on all of those themes. I'm pretty happy that we have been bang on, you know, whatever strategies that we laid out. We have followed it and we are seeing those results, you know, right now. We have a great set of customers, good logos to have, and quite a lot of them are under-penetrated. There is a lot more, you know, lot more that we can do with some of these key logos that we have. I would be pretty bullish about sustaining this growth going forward. Thank you very much. That's very helpful. You said you have very good customers and we noticed that your top customer has been doing pretty well and then the concentration of the share of the top customer has also been increasing in the last couple of quarters. Can you tell us what is driving this growth, strong growth in the top customer and is it JLR or any trends in that? I think it's a lot to do with deeper mining and focus and actually some of the large deals that we have been able to win over the last two, three quarters, right? I would say, you know, some of the growth that we're seeing is a ramp-up of the deals that we have won over two, three quarters ago, right? Yeah, we're pretty happy with where we are. Right. The outlook is strong on JLR front as well, is it? Sorry, I couldn't hear the question. What is it about JLR? The growth outlook on JLR is also the same as the rest of the company. It will perform in line. Yeah. I think JLR is also, you know, JLR's business over the last couple of quarters have also, you know, looking up. I think they have been affected by the semiconductor crisis, but I think they are on a very strong wicket. In the next two quarters, once the crisis, you know, it comes out of this semiconductor crisis, JLR will definitely, you know, be much more profitable. They'll have a lot more cash on hand. We really hope that that will really help us also in terms of more outsourcing budgets and, you know, more R&D work and so on. We're pretty bullish there. Thanks a lot. Thanks. Just, are the deal structures similar, as far as, you know, the life cycles of the project, or has that changed, in this time? No, what we have been seeing is, you know, over the last, you know, 6-8 quarters is that we have become more and more strategic with many of our customers. We have been able to strike long-term deals with many of these customers and actually provide value to these customers, right? I think there's definitely been a shift from a, you know, one-off project basis to a more long-term sustainable win-win relationship from both parties. That's. We continue to see that. All right. Thank you, Mustafa. Okay. I'll request you to come back in the question queue for a follow-up question. A request to all the participants, please restrict to two questions per participant. If time permit, please come back in the question queue for a follow-up question. Next question is from the line of Mayank Babla from Dalal & Broacha. Please go ahead. Thank you for taking my question. Am I audible? Yes, sir. Congratulations on a great quarter and consistency in performance. My question relates to the previous participant as well. As far as sustainability is concerned, if you could, it would be great if you could give us your opinion on what percentage or component of our revenues are related to discretionary spend by clients. And what indicators should one follow, in case, you know, things turn around from here or, you know, or even become better? What indicators should one follow for, you know, demand environment basically? Can you repeat that question on what do you mean by indicators? I mean what indicators? What macro indicators should we look at, you know, to gauge how demand is translating into our revenues basically? I think you should just focus on how the world is moving towards more and more digital spend, right? That will give a good indication, especially on all the three verticals. Increasingly, what we see is a lot of our business comes from you know integrating design and digital put together, right? That is a theme that we have been focusing on. Whether it's our media and communication business, wherein a lot of our new you know projects or new customers have been focused on the digital part of the business, right? Even in the medical business, if you look at it, how does digital technologies, cloud, DevOps, Agile, all of this affect the various industry verticals, right? We have bang on, we are right there in all this transformation that is happening, you know, across the industry verticals. Even in the automotive industry, if you look at it, a lot of the new deals that we're winning are on digital spend, on connected cars, on cybersecurity. You know, a number of those trends that are really changing the way, you know, the industry is operating in. I think that is a sort of a hint to you in terms of where we are making our money. Sure. That was all from my side. Thank you and best of luck for the future. Thank you. Thank you. The next question is from the line of Naveen Bothra, individual investor. Please go ahead. Yeah. Congratulations, sir, for the stellar set of performance and continuing the last 10 quarters, more than 5% quarter-on-quarter sequential growth in this quarter also. As you spoke about the confidence that coming 8-10 quarters will be almost similar to like that. Congratulations for great set of performance. My question is, regarding the IDV division, we have performed quite better compared to last year-on-year. When we see the numbers, quarter one was INR 78 crore, and after that it has come to INR 56 crore around. If you can throw more light on the IDV division going ahead, and what are the prospects there. Second question is regarding our top customer is still from the media sector or, again, JLR has come back to the top slot. Sure, so yes, you know, IDV is a smaller business that we have. IDV has seen some amount of yo-yo, you know, in their quarter-on-quarter revenues and so on, right? I think it's largely to do with one large customer, where you know we've completed a particular work and next set of activities was supposed to happen in Q3. That project did not get started, right? At the same time, we are hopeful that we will kickstart that in Q4 or in Q1 of next year. Again, that is, you know, one of the customers in the top 6-10 bracket that we have, right? And that is, that's a pretty sizable engagement for IDV. I think it's a temporary issue. As you rightly pointed out, you know, if you look at the quarterly numbers, sometimes it's quarter-on-quarter numbers, sometimes it is misleading because it's a small business. Yeah. Even one significant deal moving here or there will cause your numbers to look, you know, very different, right? As you rightly pointed out, from a year-on-year basis, if you look at the full year basis, IDV would definitely grow, you know, 60%-70% over the last year's performance. That is the sort of confidence that we have and, which is very positive for us. However, you know, we get your point. We are working on strategies wherein, you know, we are building a set of, you know, good customer base for IDV, so that we can consistently grow that business and consistently be able to report, numbers there, right? In line with what we have done in EPD. Having said that, the real issue is also that, you know, IDV, the IDV capabilities really help the organization, right? Not just IDV alone. It helps our customers in EPD also. So many a time it's a combined deal between EPD and IDV and EPD. Sometimes it's very difficult to split the revenues between EPD and IDV and so on. So from an organization's perspective, IDV has definitely contributed in the growth that EPD has shown. Though the numbers IDV shows a smaller number and maybe even a quarter on quarter, you know, degrowth. Actually, from an organization's perspective, the capabilities that we have in IDV has actually helped us to win larger deals in EPD and also to get better margins and, you know, better pricing also because of the capabilities that IDV bring in, right? IDV is very critical. We will definitely see how we can stabilize the IDV revenues, you know, moving forward. I think last time we discussed we are also contemplating because IDV is also in under service line, right? The way we represent EPD, IDV and so on, we may have to relocate and so that it, you know, it more aligns with the industry verticals that we are operating in, not the service lines. That's something that we are working on. Regarding the top customer, yes, it is still media and communications vertical customer, and then we're pretty happy that we've been really growing those revenues, winning large deals and really, you know, winning, you know, market share from competition. JLR also continues to grow. I think these are very positive for us. Okay. One last question from me. If you can share about the IPR and licensing revenues, are they still below the 5% or crossed the 5%, if you can share about that? No, it's still below 5%. It's still below 5%. Again, the products or the frameworks that we have are standalone even though the revenues are not very significant. From a positioning perspective, from you know, right to win perspective, these are all important for us to invest on and really you know, build these products and these solutions to help us win large deals and you know, beat competition. While the standalone revenues may still not be significant, but definitely, to build credibility in the space, we need to continue to invest in building these products and IP, and we'll continue to do that. Okay. Thank you very much, sir. Congratulations once again. Great set of numbers. Thank you. Thank you. The next question is from the line of Karan from Gita Global. Please go ahead. Yeah. Hi, can you hear me? Yes. Okay, great. So I wanted to just dig into the win you cited in your fact sheet with the New Age OEM. Perhaps you can just give us a sense for the size of the deal and the various components, you know, of the deal. That's the first question. The second question, which is somewhat related, is it appears to be a trend where, you know, your peers are starting to win business from not just auto companies, but also auto semiconductor companies such as Renesas or, you know, Qualcomm, or at least they're in trials with those companies. I'd just be curious as to whether, you know, you would be exploring the same opportunity. Then the last question I had is just the shortage. You know, of course, Toyota announced recently or, you know, last week that it's still being impacted by the auto shortage. You mentioned, you know, you think it is a 1- or 2-quarter problem, you know, and then after that we're sort of in the clear. Just wanna push on that and ask, you know, how much visibility there is there, where if that slips, you know, do we then see a slowdown in the transportation segment? Sure. I will ask Nitin to take the first part. I will answer the second part. Yes, we work with the semiconductor companies. I mean, for example, we have been working with some of these names for the last 20 years. Auto semiconductor companies is something that we have been working for many years. In fact, some of them are large customers of ours. Though we don't publicly announce these large deals, but we are very well entrenched with some of these auto silicon companies. In fact, we will be making some press releases so that you're aware of the type of activities that we do with some of these companies, right? That is. That's very much a part of our you know our focus. Regarding the last part of your question, I think it's. You talked about the semiconductor shortage and so on. Yes, I strongly believe that it's a couple of quarters away. In fact, I mean, in this quarter, I suppose companies like JLR and so on will show much better you know improvement in their you know sales and so on because the shortage is easing down. We really hope that that will really help us translate into more business for us. We're pretty bullish there. Nitin, if you would take the first part. Yeah. Thanks, Manoj. In fact, I just wanted to add to what Manoj said, that unfortunately we don't have much to announce on the semiconductor side because we've been working with them for long. There's nothing new about it to talk about. Coming back to that New Age EV OEM, yeah, we have initiated an engagement on core platform software development. When you talk of platform software, that essentially forms the architectural hub for everything on top, whether it's electric, whether it's autonomous, whether it's connected. This is the platform architecture itself. While we made a small start, we believe that it's the beginnings of something that can be much larger. Thank you. Thanks. Thank you. The next question is from the line of Pranav Thakkar, individual investor. Please go ahead. Yeah. Thank you for the opportunity, and congratulations. I'm sorry to interrupt you. Your sound is slightly distant. May I request you to speak a little louder? Am I audible now? Right. Yes. Yeah. Hello. Congratulations on great set of numbers. The quarterly profit of the yearly profit of 2016 is now quarterly profit of our company. Very happy and great going. My question is with reference to the Design Linked Incentive initiated by the central government and wherein certain percentage of revenue of semiconductor chip being designed will be you know the company who designs will be eligible for it. Is Tata Elxsi eyeing to get that DLI scheme? And another is in reference to the number of count of EV players we are associated and also if you can share the number of count semiconductor companies we are providing services for. Thank you. Yeah. Well, the DLI scheme I think is something that we are evaluating and as you know, we definitely do you know a lot of you know chip design sort of you know activities. But at this point of time, we really don't have anything else to report on that, right? We do work with about close to four semiconductor companies in this space. What was the other question, Nitin? Nitin? Out of top 10 EV manufacturers we are associated with, because it's like a follow or the clarification given before two quarters. How many EV companies that we've associated with us? Yeah. Manoj, I think that's difficult to call out because the question is when you say EV, who? Because all the conventional car companies also make EVs today. Then you have a whole set of new age OEMs who don't have, I mean, except for barring one maybe, don't either have volumes or even production commenced in most cases, right? I don't think that's a fair count. We would not want to call out that number right now. All I can say is that we work with a very, very good number of traditional OEMs who are pivoting very strongly to EV and a whole set of new age OEMs who are born EV. Okay. Thank you so much. Thank you. Thank you. The next question is from the line of Dev from InvestYadnya. Please go ahead. Yeah, good afternoon. Can you hear me? Yes. Yeah. Yeah. Congratulations on a good set of numbers. My question is, can you tell me the total contract value of this year's quarter? Usually we don't disclose these numbers. Okay. I'm sorry, we'll not be able to share that detail with you. Okay. Can you just tell me about this ER&D space in general? What is the future outlook around? Nitin, you want to address that? The future Sure. future of ER&D. Let me take that. I think, as far as digital spend goes, as far as budgets outlaid by companies go, I think ER&D is seeing the largest growth among all of the spends that are possible from companies or enterprises, right? You have typically IT spends for run management. You have application development spends. You have infrastructure spends, and you have ER&D spends. Within these buckets, while ER&D has traditionally been the smallest piece, it's now the fastest growing, right? That is simply because I think, in general, what is happening with companies is that the context of connected and intelligent products and services which can be monetized based on the kind of data that you have and the connectivity and the relationship you have with customers, irrespective of which sector you operate in, whether you're a car company, whether you're a media tech, telecom company, whether you're a medical device company. The fact that you're connected to consumers or customers, and you're able to deliver more services to them because of that connectivity and connection, and that data that you get from them allows you to enhance the value of what you're delivering, I think is the strongest trend for what brands and products and companies will do for the future. I think as in a simple word, that is what is driving this industry. Therefore, the space that we are in, which is software centric, design led, I think forms the crux of what we believe value will be delivered on the basis of. I'm hoping that kind of answers your question with a more simple answer or a small answer to your question. Yes, sir. Any growth, I mean growth rate, if numbers, if you can tell me. Yeah. Again, I think like Manoj said, we don't offer a guidance on future growth. I think the closest you get to is Manoj's statements on our past performance over the last many quarters, and the fact that we don't see any significant reason for why that should not continue without any significant external factors changing. Thank you. Dev, I'll request you come back in the question queue for a follow-up question. The next question is from the line of Pradeep Gokhale from ITI Mutual Fund. Please go ahead. Hello sir. Thanks for this opportunity and excellent congratulations on excellent numbers. My question is regarding operating margins. If you look at last year or even the like the December 2020 quarter or the quarter gone by, the margin range was around 30-odd%. I believe the COVID related cost savings and all would have been there in those quarters. In your remarks, you said that large growth is largely volume led. What explains the almost 2-plus% improvement in operating margin versus December 2020 or September 2021 quarter that we see? I think that has been answered by Gaurav in the first question that was raised. Maybe, Gaurav, you can repeat it once again. Yeah, yeah, sure. I think that was the first one which we took. I think what we mentioned that it has always been combination of, you know, on the top line and the bottom line, what strategies and what we are doing. It will be a combination of, you know, the growth and the sustainable growth and versus the quality of the revenue. I think the focus that we have, you know, this year we have been focusing and prioritizing is the, you know, better margin deals and also prioritizing the value offering to the customers. That is also helping in terms of building the, you know, better top line compared to, both top line and also the bottom line compared to what has been, you know, reported in the past quarters in the last year. The other factor is on the operating leverage in arbitrage, I think in terms of the utilization factor improvement in client parameter and the arbitrage that we are getting from the offshore mix in the overall revenue. All those factors and the parameters is contributing to, you know, the better margins. Of course, you mentioned yourself that, you know, certain engineering expenses and discretionary expenses, which is little bit suppressed due to the lockdown and pandemic, that is also helping the cause of the margins currently. Yeah, those would have been managed similar, right, in December 2020 quarter also. I mean it was post-COVID or last quarter also. Those would be largely the same, right? I mean. That's right. There's a lesson here. I think, while on the travel costs and the typical SG&A, we would have somewhat a similar situation, 2, 3 quarters before and now. I think the answer really lies in the other factors, right? Onsite-offshore ratios have continued to leverage towards offshore. Mm-hmm. That definitely delivers better margins. Mm-hmm. Our utilization has gone up by a few points, and all you need is a few percentage points of increase to give you that little boost. We have improved the quality of revenues in terms of the kind of work that we're doing. We continue to improve that. We're not saying. Yeah. It's not improved. We continue to improve that. We continue to realize better margins from the kind of design deals that we're signing, right? It's really- Also, the business volume has also increased, right? Contribution of SG&A to that extent also will go down. Right. Okay. Yeah. Okay, perfect. Thanks. Thank you. The next question is from the line of Abhishek from Nomura. Please go ahead. Thank you for the opportunity. Congrats to the management for a good performance. Sir, I'm looking at the, you know, last slide of your presentation, where I see that, you know, your fixed price projects have been rising, you know, consistently, and now they're almost 50% of the total revenue. Can I say that this also has been a factor behind your improving margin trends? Over a longer period of time, do you think, you know, there's further scope for you know, to, you know, make your revenue stream more fixed price annual related business? Or the nature of business means that might be, you know, the kind of mix will work in future as well. Any color here will be useful, sir. Thank you. You want me to take that, Manoj? No, I'll handle that. Yes, fixed price over a period of time has been going up, and you should understand that fixed price means we take a lot more risk in terms of ownership and you know, delivering value to our customers, right? To that extent, I think our internal systems, internal processes have really helped us to be able to deliver value to our customers. At the same time, you know, ensuring that from a Cadillac's perspective you know, we don't bleed or we don't you know, get into such deals wherein you know, profitability gets a hit, right? Having more fixed price essentially means that you need to have very, very strong internal controls. Your entire estimation capabilities, your project management capabilities, all of that, you know, comes to fore. I'm pretty happy and proud to say that, look, we have built one of the very, very strong internal capabilities to really be able to, you know, focus on, you know, project management and delivery excellence, right? To that extent, yes, I would say the fixed price, the type of fixed price projects have increased, have also helped to an extent with the margins. But again, it's a double-edged sword. If we take some wrong deals and if you take full ownership and take it in a fixed price and so on, and if we underestimate or if the complexity of the program is, you know, goes up then, rather than what we have estimated, then there's also a possibility of losing money in those deals. We have to be careful. I'm pretty happy with the current situation. Idea is not really to push more and more fixed bid and so on. Eventually we will have more fixed bids. As we mature in our service offerings and our overall confidence, we will move towards that direction. Sure. That's helpful. Over a longer term, do you think this number can even go up from here towards 55%-60% in line with the IT services companies, you know, who also have ER&D businesses? Do we see a scope of increasing towards that number? It is possible, but I wouldn't want to indicate any timeframe or anything like that. I think as the industry matures, and you should understand that, you know, as compared to IT deals and so on, which is typically maintenance and so on, everything is known, right? Most of the ER&D, at least in projects that we do, are fresh, new developments, mostly new technologies, new areas. Like any product company, venturing into any new development, there is a lot of risk in terms of whether the products will come out on time, on schedule, with the quality parameters, all of that taken care of, right? To that extent, I would caution you to really, you know, we will not move there in a hurry is what I want to say. Got it. This is helpful. Any comments on, you know, attrition, you know, it has jumped up, you know, for us, you know, in line with how the industry is also behaving. Do you think we are closer towards the peak of attrition for ourselves and should possibly stabilize in the coming quarters at around, you know, this 18%-20% mark? Yeah, I do hope. I do seriously hope that, you know, we are doing a number of things to control attrition. There's a lot of initiatives, you know, with our employees and a lot of internal programs that we're doing to really build a better place for our employees, right? So no doubt about it, this is taken very, very seriously. You know, we are also looking at, you know, for example, from a salary hike perspective also, I think, two years ago, we did a salary hike in October quarter. In about nine months last year in July, we did a salary hike. In six months from there, in January, we're proposing a salary hike. Essentially what I'm saying is, look, over the last 15 months, we will be hiking a salary three times. There are a number of things that we are doing. I think we should be able to control this. Thank you. Abhishek, you are requested to come back in the question queue. The next question is from the line of Mithun Aswath from Kivah Advisors. Please go ahead. Can- We are unable to hear you. Can you hear me now? Yes. Hello? Yes. Yeah, yeah. Go on. I think we can hear you. Okay, fine. Sorry, I think we have again lost you. Mithun Hello. You are requested to come back in the question queue. Thank you. The next question is from the line of Kshitij Saraf from Tusk Investments. Please go ahead. Hi. Thank you for taking my question. It's around how deeper we plan to go in our three verticals, auto, media, and healthcare. You mentioned the 40, 20 split. How do you see the total addressable markets for these verticals growing for Tata Elxsi? And where do you plan to go deeper specifically? If you could throw some light there, it would be very helpful. Nitin, you want to address that? Right. Yeah. Thanks, Manoj. Kshitij, I think the way we see it is that on one hand, the markets that we have picked are very, very large by themselves, right? Automotive obviously is among the largest end markets ever among any segment that you pick up. Media and telecom follows closely. The healthcare market in terms of medical devices is far smaller, but when you look at the expanded definition that we have, which is of both digital health and pharma, you're again talking of a fairly significant market, right? The first thing I want to clarify is that the market sizes are big enough, and we represent only a fraction of that potential market. For us, the way we see it is that we need to drive our growth both in terms of realizing the potential within each of these verticals, but equally also de-risking between any industry cyclicity that we see, right? Because all said and done, every industry has a cycle. You will see that cycle turning up and down over a period of time. We also wanna make sure that we are not single industry focused. We are not completely dependent on the cyclicity of a single industry. To that extent, the ratio that we called out as a strategy a few quarters back, which is to drive 80- 80, 40, 20 ratio, looks at both factors. Looks at one, the market and the market size. Two, looks at the opportunity in terms of technology and where the industry cycles are. Three, looks at risk and balancing all of this. In that sense, I would call it out as a strategy that we have taken rather than a reflection of the potential of each of the markets. Because you could choose to take just one market and get all your money from that. Nothing stops us. Got it. Thank you. That's very helpful. Just one more thing. In the past couple of quarters, we had an announcement on an AdTech partnership, and we have the partnership with Green Hills as well. From a partnership standpoint, could you also throw some light on the plan ahead? Where are the areas that you plan to partner? And for what specific areas? Just any insight there would be really helpful. Sure. Manoj, if it's okay, should I take that? Yeah, yeah. Go ahead. Yeah. The way we look at partnerships really are twofold, right? One is acquisition of technology, and two is go to market. From an acquisition of technology, we already have a large number of partnerships that are already at play, which allow us to understand, absorb, and prepare ourselves on what is coming up. Therefore, there are partnerships that we have with very leading semiconductor companies that are inventing chips and software and applications for certain. Areas like 5G and autonomous cars and so on. We equally have partnerships with companies that are building components of software that go into any of the areas that we are investing in, right? In media and telecom, it could be AdTech. In automotive, it could again be software that goes into autonomous vehicles or electric vehicles and so on so forth. These are all technology-related partnerships that allow us to make sure that we are ready. We are the first off the block in terms of what our customers are exploring and wanting to build on. The second kind of partnerships are where we not only acquire technology, but we include them in our solutions and we go to market together. Now, those are a little more fewer in nature, but they're also more strategic. When you look at areas like OTT, when you look at areas like AdTech, when you look at areas like EV, you will see that we'll be announcing a lot more of these partnerships where two companies come together, build solutions together, and then take it to market together. The idea is, of course, to increase the volume that we have accessible to us in terms of the customers, but also make it easier for customers to select us, right, in terms of time to market, in terms of cost, in terms of innovation, the ability to improve our ride to win. We have clearly laid out plans on both fronts. Technology partnerships are many, and we already have them in play. Go-to-market partnerships are far fewer. We also have to be careful, right? Because that impacts our brand too. When we choose a partner and we go together, we have to make absolutely sure that we are selecting the right partners as the other party is selecting us, and that it does not impact our reputation in the long term. You'll find that we will make announcements as we go along, and you'll find that they're all aligned to where we believe the world is going. Thank you. The next question is from the line of Amit, individual investor. Please go ahead. Hi. Hi, Nitin. Hi, Manoj. Congratulations on a fantastic set of numbers. My question was pertaining to the non-linearity between the revenues and the costs this quarter, where, you know, you know, the revenues have grown faster than the costs and our employee growth is also 5% Q-over-Q. Is this something that is sustainable? Is this non-linearity, or is this a kind of a one-off? Yeah. I think we've improved on our billability and, you know, ratios and so on. Yes, we definitely would need to add a lot more employees, right, moving forward. I would say, I think nonlinearity that you talked about is a combination of multiple factors. You know, better, you know, longer-term deals, better pricing and so on is also a factor there. That part will continue. Definitely we'll add a lot more employees, right? It's not that we'll be able to do greater revenues with lesser employees. We're not at that. Understood. My second question is, we've announced deals in EV-connected vehicles, auto, you know, autonomous vehicles. I just wanted to know what the average length of those contracts would be. Typically, most of these deals are between 12-18 months, you know, some cases 24 months and so on. Okay. Yeah. Thank you and congratulations again for a fantastic quarter. Thank you. Thank you. The next question is from the line of Yash from Indira Securities. Please go ahead. Yash, we're unable to hear you. May I request that you unmute your line a few more seconds and go ahead with your question, please. Getting no response. We move to the next participant. The next question is from the line of Kunjan Chachan from First Global Securities. Please go ahead. Hi, sir. Congratulations on the good set of results. My first question is on the follow-up on the margins. If you can throw some light on the vertical-wise margins between auto and media and healthcare. Hi, this is Gaurav Bajaj. We don't report margins at the industry vertical level. I think as our public operating metrics, we only do at the company level. We won't be able to, you know, disclose the margins at the industry vertical level. It's fairly spread across, you know, all the verticals. We don't see any large difference. Not exact numbers. Just a rough estimate. Like, is there a huge variance between two verticals or all are the same, right? Yeah. I think I've answered this question in earlier calls also, right? Our medical business continues to be, you know, on the higher side. The margins continue to be on the higher side, followed closely by both media and communication and automotive. Oh, thank you, sir. Thank you for that. My second question is regarding the attrition rate or you can say the employee costs. What are you seeing the trends in the whole industry? This is not for Tata Elxsi only, but across industry. What are your, you know, thoughts regarding that? Can you throw some light on that as well? Throw light on attrition, you mean? Yeah. The attrition rate is higher in this quarter for all the companies. I just want to I think the fact is that due to the pandemic and so on, many industry segments, right, realize that they need to have a digital play. That's not just in the three verticals that we are working in all other verticals also. Those companies that have had a digital play were still able to continue their operations. They're still able to service their customers and deliver value to their customers. What they're seeing is a lot more of the companies, even the traditional companies are aggressively getting into the digital play. They want to have a digital play. What that means is more demand for engineers who can help them, you know, create the digital play. That is a spiraling effect on the entire industry. Thank you. The next question is from the line of Kanishka, individual investor. Please go ahead. Hi. Congratulations to each one of you. Fabulous performance. My question, I have two questions. First I want to understand, see, there's a marked initiative going in the EV side. So from Tata Elxsi's point of view, I want to understand that, if you, let's say, consider a car, what kind, what percentage of contribution that Tata Elxsi is making in that particular car, which is a ready product as of today? The technologies which you're working on, and you also mentioned about partnerships. If I see the next two years and three years where this particular sector matures, from the current percentage content, where do you think you can take it to in a finished product in the next two to three years? Yeah, maybe I'll take that. We ought to look at it along two dimensions. One is in terms of what is it that goes into a car today. Therefore, if you look at it, you have mechanical components, including structural materials such as steel, plastics, and so on. You have electronics and software. Software, of course, is intangible. When you weigh the car, you'll find that there's no weight attached to software, right? There is value attached to software. Yeah, I was talking about value terms. I'm sorry. I was talking from the value terms in terms of the software contribution or the content contribution which Tata Elxsi does in a finished product today. The technologies that you're working on, where, at what percentage traction you want to take it in the next 2-3 years when it matures? Got you. Therefore, if you look at that journey, the first journey is of software and electronics increasing as a percentage value in the car itself? That is an absolutely upward trend also. While the total number of car units sold globally are not increasing, what is really increasing is the percentage of sophistication in the vehicle driven by electronics and software. That directly drives our growth. Part one. Part two is sophistication by itself, which is not doing the same thing that you did year before and year before that. If you look at autonomy, we had absolutely no autonomous features. We had no driver assistance features. We're now starting to see that come not just in high-end cars. We are actually seeing even mid-end and low-end cars starting to talk of ADAS features, right? We expect that sophistication will continue to accelerate and increase. If you move from level 1 autonomy to level 2, level 3, level 4, level 5, that's 1 journey. 2 is seeing more and more mid-segment, small segment cars starting to deliver features of autonomy. Electric vehicles is a trend by itself, right? We've always been working on electric vehicles. We believe that it had a long road ahead. It just seems to be growing faster. Connected has always been there. We believe that more and more cars will now offer connected services, including infotainment and otherwise. For us, I think that is the driver. The 1, the fact that in general, electronics and software is continuing to increase at a rapid pace. 2, the level of sophistication is increasing in each of these technology trends. Three, there is a larger percolation downward into from premium to mid and lower segments, right? The last and most important trend is also that a lot more of the software development, a lot more of that innovation is being delivered through software, which is, which otherwise was mechanical, electromechanical, or electronic, is now becoming purely software-defined and software-delivered. That again increases the amount of work that we will have to do quarter on quarter, year on year. Right. Yeah. Thanks for that. My second question is that, so you have, like mentioned three verticals, auto, media and, healthcare. You know, I want to understand from you, there is this major shift which is happening, in the manufacturing side. I'm talking about the manufacturing upcycle, where the traditional ways of manufacturing is moving more towards robotics, automation. Like as I see, a car which is more mechanical is moving towards more software-driven. Do you see there could be a tremendous amount of opportunity in the manufacturing side globally, where Tata Elxsi can actually work on that opportunity? Or maybe you guys have already started to look at it as an adjacency? Yeah. That is something that we are both watching and investing in. That is something that's already underway. You are right, there is an opportunity there, not in conventional manufacturing, but in transforming manufacturing to a lot more connected and digital. More the Industry 4.0 path of automation and connected factories. We do see an opportunity there, and we are exploring and investing in some areas. Thank you very much. Ladies and gentlemen, that would be the last question for today. I will now hand the conference over to Mr. Manoj Raghavan for closing comments. Thank you all for taking the time today. I hope you got a good idea about Tata Elxsi and where we stand in this ever-changing, you know, market, right? One thing is pretty clear, we're pretty confident on the capabilities that we have internally as an organization. The senior leadership that we have to drive the business and also the great talent pool of engineering team, architects, subject matter experts, and so on. I'm pretty confident that, you know, we have a right winning combination to really propel our business forward. I just hope that we will get back to you next quarter on similar terms. Thank you so much. Thank you very much. On behalf of Tata Elxsi Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.