Ladies and gentlemen, good day, and welcome to the Tata Elxsi Limited Q2 FY 2024 earnings conference call. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference, please signal an operator by pressing star and then zero on your touchtone phone. 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, Tomin. Good evening to all the participants on the call. Good morning, if you're logging in from the western side. Before we proceed to the call, let me remind you that the discussion may contain forward-looking statements that may involve known or unknown risks, uncertainties, and other factors. Therefore, it must be viewed in conjunction with the business risk that could cause further result performance or achievements that differ significantly from what is expressed or implied by such 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 two questions to allow participants an opportunity to interact. If you have any further questions, you may join the queue, and we'll be happy to respond to them if time permits. Having said that, I will hand the call over to Mr. Manoj Raghavan. Over to you, Manoj. To Shashank, good evening, everyone, and thank you for joining us for the Q2 earnings call. Today, I'm happy to report that our revenue from operations in the Q2 stood at INR 881.7 crore, which corresponds to 3.5% quarter-on-quarter and 10.1% year-on-year in constant currency terms. Our EBITDA margin for the quarter was just shy of 30% at 29.9%. Our transportation business unit grew at 6.9% quarter-on-quarter in constant currency terms. During this quarter, during the last quarter, we won, landmark, you know, a multi-year large deal in the SDV space, which places us as a strategic development partner for one of the global, you know, automotive OEMs. In the media and communication business, we continue to see challenges in both the key geographies of U.S. and Europe. In such a challenging environment, our performance has been quite satisfactory. Our revenue from the business has declined marginally by 0.4% quarter-on-quarter in constant currency terms. We continue to engage with our key customers in helping them drive efficiencies in current operations, and also help them create new revenue streams for their businesses. Our healthcare and life sciences business performed well, registering a 3.2% quarter-on-quarter growth on a constant currency basis. During the quarter, we won a multi-year innovation and reengineering project of a critical care device platform for emerging markets. I'm happy to share that, in the last quarter, our industrial design unit crossed revenue of INR 100 crore for the first time. The industrial design and visualization business grew 4% QoQ in constant currency terms. Regarding our, you know, from an HR perspective, talk about our net additions. We continue to invest in building a talent pipeline with a net add of 585 Elxians in the quarter. So we continue to invest in onboarding, you know, key resources. Also, our employee engagement and talent retention strategies have contributed to attrition further, you know, going down to 13.7%. So as we move into the Q3, we carry the confidence of a healthy pipeline and some good conversations, great conversations going on with our key customers. And you know, I'll now hand over the floor to Shashank from EY for the Q&A sessions. Over to you, Shashank. Thank you very much, sir. We will 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. We have the first question from the line of Vimal Jamnadas Gohil from Alchemy Capital Management Private Limited. Please go ahead. Yes, sir. Thank you for the opportunity, and, congratulations on a very strong comeback, especially in the automotive vertical. Sir, my question was actually, and I'm also pleasantly surprised by the growth rates reported in healthcare. On the comms side particularly, there has been some initial signs of revival in the semiconductor space globally. Semiconductor sales have picked up. Does that have any sort of positive impact for, on our comms vertical as a whole? Do we have some exposure there? If you can just give us some sense, and I'd have one more follow-up after that. Thanks. We have a very small exposure to the semiconductor side of the comms vertical. A lot of our communications business is driven through either operators, you know, or telecommunication, you know, you know, providers, or the folks who make devices that go into the telecom market, right? So these are the main, you know, focus area for us. Yeah, I, you know, usually there is a lag between semiconductor sales and, you know, general market pickup. So I'm really hoping that what you say is true, and maybe in a couple of quarters from now, we will really see the impact of that. As of now, I think, you know, we don't see a, you know, a great uptick, but we are very having all those conversations with some of our key customers. A lot of deals that we are, you know, pursuing. Our closures have been very, you know, we can't predict the closures, so that is why we're not able to give you a very firm update that, look, next quarter, things will really look up. Understood. Understood, sir. Sir, some sense on auto deal wins have been pretty strong. Sir, sorry to interrupt you. One moment, please. Sir, we have a slight echo on your line, so I'll just need to reconnect the management. Please stay with us while we do so, sir. Ladies and gentlemen, we thank you for your patience. We have reconnected with the management. Vimal, you may go ahead with your question. Thanks. Thanks. Yeah. So, sir, just wanted some sense on the strong deal wins that we've had in auto. What would be the size over there? Any sense that we can get? And lastly, a question for Gaurav. Could you give us the margin walks for the quarter? What was the impact of wage hike, or what were the other tailwinds that we had during the quarter? Thanks. Sure. This was a pretty significant win for us. It's a new customer that we have been pursuing for, I think, 18-24 months. It's been a long pursuit, and very happy to inform that, look, we've been able to close the deal in our favor. And it's a multi-year deal and, you know, a multi-million-dollar, you know, a large deal in our perspective, so which will definitely, you know, add to our, you know, automotive revenues in the, you know, subsequent quarters. So, and more importantly, it's in a software-defined, you know, vehicle area, which is where we have also been investing significantly. So it's a validation of all, you know, the activities that we are doing in that area. And this will also be a landmark deal for us to really take it to other customers, you know, in the auto OEM space. Hey, hi, Vimal, this is Gaurav. Yeah. I'm happy to share that our operating profit for the quarter, you know, increased by 4.8% on a EBITDA level and on a profit before tax level of 6.3%, and on a year-to-year basis, it is 16.3% and 20.4%. I think we're able to, you know, drive overall optimization in terms of the cost and efficiency to, you know, various levers during the quarter. And this is in spite of the wage increase, you know, last quarter, we did only till the lower and the middle level. This quarter, we completed our wage hike cycle for the year, where we covered, you know, all the senior management and the executive of the company. So salary increase for the, you know, the remaining management people for the quarter, that has a cost impact of 160 basis points. If you also recall, last quarter, there was a partial cost towards the RSU, you know, which launched by the company last quarter. This quarter, we have a full quarter impact of about 50 basis points, you know, compared to the last quarter. So both salary increase plus the ESOP has an impact of 210 basis points. The net add that we have done in this quarter, including the tailwinds of the net add done in the last quarter, was largely offset, you know, by the utilizations increase in the scale of the volume revenue growth, plus the pyramid optimization. So there, you know, it kind of optimize and, you know, offset the, you know, against each other. So 210 basis points from the salary increases, plus the ESOP impact was largely offset by the other, you know, improvisations in the lever that we, you know, dispose of in this quarter, which includes the other expenses. So we continue to optimize, rationalize our other expenses, be it travel costs, visa costs, sales promotions. And we also significantly, you know, reducing our third-party contractors, because we have now good strength in our bench, which we are, you know, put to the billable projects, which was, you know, one time, you know, at the last year, it was a bit of worry because the attrition was high. Now, attrition is also well, you know, under control. So that gave us, you know, lever in terms of, you know, rotating people, third-party contractor with our own people. So including, you know, reduction in the third party and other discretionary expense optimization, we have a saving of around 120 bps. And also there is a, you know, large cost increase in the last quarter towards, you know, various hardware tools, because there were certain deals which, you know, we kicked off in the last quarter, at the end of the last quarter, where we need to, you know, significantly, you know, invest as part of the lab setups, other costs towards the tool, hardware, and software. Those get, you know, more, more or less normalized in this quarter, which gave us, you know, another 120 bps. So, you know, this 240 bps of improvisation against 210, you know, cost inflation kind of give you 30 basis point of, you know, improvement over the last quarter. That is at the EBITDA level. Then if you come to the EBIT level, there's an increase in the depreciation because we keep adding. You know, we added to our capacity. You know, facility capacity that we are having since we are adding people, we are growing. So we added couple of facilities as required by the, you know, company to accommodate the increase in the headcount since all the people. You know, people have also started to come back to office. So at the EBIT level, that gives you, you know, almost knock off all the, you know, pluses and minuses and, you know, continue to, you know, operate at the same 27.1% of EBIT, what we operated in the last quarter. So with the revenue growth, that gave you almost 3, 3.7% kind of a quarter-to-quarter growth. This quarter, on our other income, we have a significant gain due to exchange gain, which, you know, came positive. Our hedging strategy worked well in terms of, you know, protecting us, not only from the downside, but also, you know, provided some kind of exchange gain. Also, interest yield on our investment, investment also help us in in terms of increasing our other incomes. So overall, you know, with the other income, you know, better from the last quarter at the profit before tax level, we able to increase our profitability by 6.3% on a quarter-to-quarter basis and on a year-to-year basis by 20.4%. So in spite of, you know, all the cost intake, including the wage hikes, including the RSU impact, but we have another lever at our disposal, which help us to, you know, maintain our profitability and rather improve in terms of the absolute terms. Thanks, thanks. Thanks for that detailed answer, guys, and all the very best. Thank you. Thank you. Thank you. Ladies and gentlemen, if you wish to ask a question, you may please press star and one. The next question is from the line of Ruchi Burde Makhija from Elara Capital. Please go ahead. Hi. I have a couple of questions. Our industrial design revenue has crossed INR 100 crore milestone. So how does this change with your market position, and does this open new scale opportunity for you? Your line was not clear, so the question was about industrial design crossing INR 100 crore, and if this is going to help us grow our revenues? Is... What is the question? Yeah, I'll repeat the question. Hope my, my voice is a bit better. Yes. With this INR 100 crore milestone, how does our market positioning changes, and does this help us being eligible for new scale opportunities? Sure. Okay. So you know, you know, I would say just about, you know, three or four years ago, the industrial design business was a very small business. Our run rate would have been INR 30 crore-INR 40 crore per quarter. And so today, I think we have invested significantly in the industrial design business, and we're happy to say that, look, that business has really scaled up. So, hopefully, you know, on a yearly basis, if you take a read, we will soon reach about INR 500 crore of revenues, you know, annually. So that's the first target that we have. More importantly, you know, design is such a critical differentiator for us, from a margin lever perspective, from a positioning perspective. Any large deal that, you know, we usually bid for, there is a significant component of design, and that capability definitely helps us position the company very differently as compared to competition. So I'm very happy that standalone, that business is scaling. More important, the combination of design and EPD business is what will help us, you know, scale rapidly, you know, moving forward, and that is the focus of the company. Understood. In media vertical, you have mentioned that you are working in collaboration with clients to develop new offerings and partnerships. Could you please elaborate on this? What do we mean by new offering and partnerships? Yeah, Ruchi, this is Nitin here. Maybe I'll take that question. Some of the partnerships are explicit, so you'll find that we announced two significant partnerships just leading into IBC, which is the global broadcasting trade show. We announced a partnership with INVIDI, which is the world leader in targeted advertising. What they do is essentially provide technology for targeting very specific subscribers, especially in the video OTT, as well as digital video ecosystem to deliver ads. So the idea here is really that we are seeing the shift in OTT from subscriber-driven to advertising-driven. And we believe that this will be the new revenue opportunity and the monetization opportunity for both broadcasters who are running D2C businesses, as well as operators who are running an aggregation service for video. So what we're looking at essentially is saying: Look, there are two tracks that you can work with, operators and broadcasters for. One is efficiency driven, which is to look at what are you spending money on now, how much of that is engineering driven? How do we help you through a combination of talent, capability, products, and offshoring, help you get to be even more efficient? I think the second strategy that we're deploying is growth and customer experience. The customer experience part will be driven by design, and the growth part or revenue part for customers will be driven by how do you monetize the services better? Can you look at ad, ad deliveries? Can you look at, things like FAST, which is the free ad-supported television? ... So essentially, those are the partnerships that we're crafting, especially in the media and communications vertical. Of course, what we have not declared to the market is the partnerships that we're crafting, especially with semiconductor vendors as well as hyperscalers. That fuels some of the digital engineering that we're doing for SDV, for connected, medical devices, and so on. Understood. Will this be a growth mover, let's say, in a 12-month quarter time, or you see the scaling up very gradually and will take its own time? Yeah, so, Ruchi, the partnerships are not meant to deliver immediate deals. I think they are a fundamental positioning tool, right? Because what you're trying to do is trying to make sure that you're relevant in the context that is changing for our customers. So what's happening with the telecom industry is fundamentally you're being challenged for revenue, you're being challenged for growth, and therefore, you either have to focus on efficiency or on new revenue streams. And I think we are doing both in different measures. On the revenue streams, we are partnering. On the efficiency, I think we are the best in the business. Understood. Now, coming to your deal in the auto segment, as my understanding in doing your way with incremental work was a way to go and scale the customer. But this deal sounds like an exception to this trend. So do you see these kind of deals being more in market compared to past trend? Or this was one of such unique situation where you could break through with a large deal in a new client? I think there's no one answer there. We do a mix of both types of deals. There are such large deals that even though we are not a part of that, you know, initial, you know, it's not a customer, it's a new customer. But there is a you know, pursuit that goes on and you know, we close such deals. We also have deals you know, wherein there are consolidation opportunities, where it's more about you know, how can you bring you know, what you say, value propositions to customers you know, based on the capabilities that you have, right? Especially from an offshoring perspective. And how can you take a larger pie of the current outsourcing from the customer? So you have both type of deals that are available, and a good part of, yes, there is a portfolio of such deals that we're going after. And then as I said, this deal took a long time, so some of these large deals are not, you know, closing, you know, like earlier, where it used to get closed in six months or eight months. Sometimes it takes 12-18 months also for closure. So, but yeah, but we have to be patient, and we have to be focused on our objectives, and especially when it is critical for us and an important customer to have. I think we have a very good track record in such deals. So, Ruchi, maybe I'll just add to what Manoj said. I just want to call out an important difference. You can think of, in the IT context, renewal deals, where the contract given out to one vendor, and when the contract period is getting over, you call out for a whole set of new vendors and look at who can do better. But typically, who can do better is in terms of cost. The kind of entries that we are talking of are strategic entries where we are not replacing somebody else. We're getting all new because the customer is moving to an all new. So in that sense, there is a critical difference between the kind of entries we talk of versus a classical IT situation of a renewal deal, where you may come in cold and win simply because you're delivering the best cost on the table. And I just wanted to leave that with you. Got it. That's helpful. The last one, we just heard, you are- We request you to please rejoin the queue for follow-up questions. We have the next question from the line of CA Garvit Goyal. I'm sorry, that's Garvit Goyal from Nvest Analytics Advisory LLP. Please go ahead. Hi. Good evening. Am I audible? Yes. Yes, sure. So congratulations for a good set of number. I have two questions, one on the media side. You mentioned we are closely engaged with key customers. So can you give some color, like, for how many quarters this slowdown is likely to be, based on whatever communication we do have with those customers? It's, you know, very difficult to tell you how many quarters and so on, right? But I would say, you know, there are, you know, fairly, you know, positive signs in some of our customer discussions. There are deals in the pipeline, and we hope, you know, that we'll be able to show, you know, some signs of growth over the next half year, I would say. But again, it's very, very early times, and so I would be a little conservative on the media and communication side in H2. But we are closely working with some of our key customers. There are opportunities that we are going after. Definitely as compared to, say, the beginning of Q2, I would say beginning of Q3, we are definitely in a better shape as far as deal pipeline and, you know, the opportunities that we are chasing. So that gives me a little bit of confidence that, look, yeah, things could be better for us in the H2 from a media and communication perspective. Understood. And just secondly, on the overall business perspective. So considering this slower growth in other two segments, so is it fair to assume this financial year is likely to end with lower double -digit kind of growth in top line? Or do we expect something good as compared to first half to improve our annual growth? No, so every attempt will be made to, you know, continue the growth and, you know, improve on what we have shown in H1, right? So though we don't give projections and so on, but you know, the focus for us as a management team is to see how we can better our H1 performance.... And this is the, I joined the team. Thank you. Thank you. Participants, if you wish to ask questions, you may please press star and one. The next question is from the line of Sanjaya Satapathy from Ampersand Capital. Please go ahead. Yes, sir. Can you just ask the cost relating to ESOP, is it like already fully provided for, or there is something more to come? It is already provided for. I mean, the way the accounting happens for the ESOP, it is basically the cost expected out of the, you know, grant option gets, you know, amortized over the vesting period. Last quarter, since grant was only rolled out in the month of June, so it was a partial quarter impact. Since this quarter, we have a full quarter impact, but that is already, you know, part of the financials for the quarter. Okay, okay. So, so this kind of a quarterly expense will continue for next quarters as well? Yes. Okay. And, so the other question that I wanted to ask you is that, now that you have come out of the SEZ and you're full tax paying now, is there any kind of such investment opportunity available to you to kind of plan tax going forward? No, we continue to explore and evaluate what are the possibilities and opportunities available. But please remember that government is not approving any new exemption for the IT purpose, you know, for the SEZ. So we have to wait and watch if there is any new schemes and the policy of the government comes out. But otherwise, we expect our, you know, ETR to continue at the, you know, rate what we have delivered in the last two quarters for the rest of the year. Yeah. The last question is that, considering the new kind of deals that you are signing and you are also starting to have centers outside of India, will your mix of offshore to on-site change meaningfully from here, or it will stay around this level? No, I think the focus for us, you know, you know, Tata Elxsi, you know, we are known for our offshore, you know, execution, and our entire processes systems are built around delivering value, from, you know, best cost countries, right? Not necessarily our... And our business model is also not about, you know, manpower, augmentation, on-site, and, and so on, right? So, and, you know, over a period of time, we have really been able to, you know, move more work offshore and do a lot more, you know, development activities from our centers, you know, in, in best cost countries. So I think that will continue. I don't see it, moving back in a hurry, you know, to the pre-COVID times. There could be minor variations here and there, but our main business model is around our offshore execution. So that will stay. Your deal pipeline across areas is looking pretty okay because you are one of the very few company who has really added employees, again, in this quarter. Yeah, so that continues. That shows the confidence that, you know, we can't take any shortcuts in our business, right? Because our business is all about people and, you know, you need to. Even if, even if in certain areas you don't have full confirmed visibility, you need to go ahead and invest based on your business plan and, you know, what you have. So we are sticking to our business plans. We are sticking to what we have, you know, laid out at the beginning of the year, financial year. There will be, you know, there will be all these, you know, quarterly pluses and minuses from a revenue perspective. But from a resourcing perspective, we continue to go ahead with our original, original plan, because we're confident that, look, we are on the right path, and the investments that we are making in our people will definitely yield us, you know, results, in multiple ways, once the economy picks up and so on. So that's been our focus, and one of the few companies to already, you know, we have already, you know, going out and for next year, you know, campuses also, we have gone out, we are talking to, colleges, and we are rolling out offers. So, so we continue to be, focused on, on all, all of those activities. Thanks. Thanks a lot, sir. Thank you. We have the next question from the line of Ruchi Burde Makhija from Elara Capital. Please go ahead. Ladies and gentlemen, the line for the current participant seems to have dropped from the queue. We will proceed with the next question, which is from the line of Ajaya Jain from Astute Investment. Please go ahead. Hi. Thank you for taking my question. TCS has recently signed a $1 billion deal with Tata Motors JLR. How is it affecting us, or is it coming into our area of operations? No, it is not in our... To the best of my knowledge, it's not in our area of operation. It's primarily on the IT and the manufacturing support side. So, I think it's a great deal, but it doesn't affect us. Okay. Thank you. That's all. Thank you. The next question is from the line of Ruchi Burde Makhija from Elara Capital. Please go ahead. Hi, hope I'm audible this time. Yes. Yes, Ruchi. So we heard from one of your larger peer about likely possibility of volatility in the coming quarter, given the geopolitical situation developing in Israel. Do you see any effect in your early experience of these weeks, client going slow on conversation, decision-making? Is this something that worries you near term? ... we don't have an exposure to Israel or, you know, any of, I mean, the countries there, right? Of course, we have a small, you know, exposure to Dubai and Middle East. Having said that, you know, it is pretty early. We don't have any... So far, we've not heard anything negative from our customers based on this. But, if this, you know, if this spreads, right, if the situation becomes volatile and if this war spreads, and there is a spike in fuel rates and all of that, you know, associated foreign currency fluctuations, you know, all of that could impact our business in some way. From an end customer's point of view, it's too early. We've not heard anything so far, but you know, I mean, you know, if this spreads, I'm sure that there will be an impact, and it's hard to quantify that at this point in time. Understood. Thank you. Thank you. To ask a question, ladies and gentlemen, you may please press star and one. The next question is from the line of CA Garvit Goyal from Nvest Analytics Advisory LLP. Please go ahead. Okay. Hello, thanks for the opportunity again. Just want your opinion on, healthcare segment. Like, it shows some sign of recovery in this quarter. So how do you see this segment for upcoming quarters? Again, I think some good deal wins and some you know positive and especially after you know a couple of quarters of you know relatively flat, I think we've been able to grow our healthcare business. That is definitely positive. So all the initiatives around our you know the digital space and you know you know. Connected health. Connected health and so on, that's really helped us, you know, win new customers. You know, having said that, yes, there are a number of deals that currently we are talking to customers and so on. And as I said, health, the medical space, decisions are slightly. I mean, it takes time, especially those large engagements and, you know, projects. The decision-making is pretty long, and that continues. We don't see that there is definitely, you know, a number of deals that are under discussion, but it's very difficult for me to comment at this point in time, whether you know, that will all, you know, close in the coming quarters. We are pretty hopeful, but I would still be cautious, I would say, next two quarters, and we will see the trajectory. We will see how those deals, you know, move forward, and then accordingly, we will act. Okay. Thanks, thanks, and all the best. Thank you. The next question is from the line of Bhavik Mehta from JP Morgan. Please go ahead. Thank you. Manoj, you know, can you talk about how the decision-making by clients are evolved? You know, last time we spoke in July, was it, has there been improvement or has it status quo, or have you seen some more deterioration given the macro, you know, across your key verticals? And secondly, any impact of this strike in the U.S. by UAW auto unions, you know, on your clients and on your projects? So, because it has come up only, you know, a couple of weeks back, so, any impact we should, you know, for your clients in this vertical, in all verticals in the U.S. Thank you. Yeah, thanks, Bhavik. So, I think, you know, you look at it from a segment-wise and so on, you know, definitely, if you look at it, automotive business, we definitely continue to see continued traction. We definitely continue to see, you know, closures. We continue to see, you know, large deals, pipelines. So, yes, the macroeconomic situation, you know, is causing some amount of, what do you say? Some of these decisions are taking longer. There is a lot more commercial scrutiny. There's a lot more, you know, due diligence that is being done. But at the same time, customers are taking decisions. It's not as if the decisions are getting postponed indefinitely. They are taking decisions. There could be occasional, you know, deals where it slips by a quarter or so. But in general, I think deal pipeline the conversions you know are happening at a healthy pace in the automotive segment. In the media and communication space, as I said, you know, I wouldn't- I don't know whether to call it green shoots or not, but we do see slowly some confidence in our customer discussions and so on, so. But again, I would want to wait for a quarter or so to really see whether this impact, you know, this growth, you know, we'll be able to show growth or not. I've already answered the healthcare piece in the last question. So I would say overall, especially given all the macroeconomic uncertainties, plus the war and all this happening, I think we've done well to be where we are, given all these uncertainties, and we continue to invest in our people. We continue to invest in you know, in providing solutions that you know, that is of interest for our customers, right? Especially what Nitin talked about in the ad tech space, in the media and communication vertical, and so on. So we continue to see what is relevant for our customers and proactively make those investments so that you know, we are always in the line of sight for our customers, right? So that's been our focus. And I think there's enough moving parts that are available for us to continue to be you know, optimistic about H2 for us. Okay, got it. And any on the second question of any impact of the UAW strike in the U.S., any conversations with clients regarding that which could have led to some project pauses or delays? There has been some delays in, you know, closure of projects and so on, but I'm not sure if that is because of UAW or because of anything else. No customer has talked specifically about UAW and its impact. But I think it's an evolving situation. We'll have to wait and watch. I think this quarter we will know exactly the impact. Yeah, but Bhavik, I would call, this is Nitin here. I would call out a parallel to the semiconductor shortage. So if I look at semiconductor shortage leading to the delays in supply of vehicles to the market, union strike would have the same impact, which is to delay production and therefore supply of vehicles. I'm just drawing a parallel that the semiconductor shortage did not stop us. Got it. And lastly, any early signs in terms of what are you hearing from clients on furloughs for the December quarter? Are they expected to be higher or lower, you know, or as of now, it seems like it could be similar to last year. I think it could be similar to last year. There could be some impact on from a media and communication vertical. But otherwise, I think nothing unusual that we'll have an extended furlough and so on. We've not heard anything of that sort from our customers. So fingers crossed, because we know it is a short quarter. It's also a difficult quarter, especially from furloughs and, you know, number of working days and so on. But we have done our internal planning and so on. So hopefully we'll be able to mitigate that exposure that we have. Thank you, and congratulations on a good execution. Thank you. Thank you. Participants, you are requested to please press star and one if you wish to ask a question. We have the next question from the line of Nilesh Jethani from BOI AXA Mutual Fund. Please go ahead. Hi, thanks for the opportunity. So my question was from the strike itself. Just wanted to understand, is it client specific in Europe, where a couple of clients or a couple of players who are facing this and we were not present there? Is that the scenario? Or in general, you don't see impact of strike on our business, which is more of a R&D nature? Yeah. So I think your- The strike is in the U.S., not Europe, number one. Right. And I think, like you said, because we are leading, which is the fact that what we're doing is helping design vehicles for one, two, three, four, five years down. So to that extent, sales and production, unless it has a direct impact on long-term. I mean, if it goes on for long and therefore starts to affect revenue significantly and therefore starts to look at discretionary spend and so on, we believe at this time it is not relevant. Okay, got it. Second question was on deal wins to revenue convergence. A lot of peers, of course, not in the R&D side, but mainstream IT services, have commented that deal wins may have a laggard or a lag impact on the revenue going forward. Given our strong deal wins, I see many read-throughs in the presentation for automotive segment. Are we of the same camp where we believe revenue recognition would be delayed, or do you believe normal course of business action? I think, I mean, including this quarter's, you know, growth has happened from the deal closures that we have closed in, you know, last quarter and the, and the previous quarter, right? To that extent, I think each deal is different and, you know, I don't think that we will have a trajectory like what you've seen with the IT companies. It'll be a normal, you know, trajectory. And typically, what happens is, you know, while you win deals and you close and you move forward, there could also be certain deals that are certain projects that come to a close, right? So, are you really adding, you know, are you really covering up for all those revenues that go away because you have completed certain projects? That is the critical point that, you know. That's, I mean, that's how, that's the planning that we do internally to ensure that, you know, even while projects come to a conclusion, deals come to a conclusion, there is enough of, you know, items in the funnel and enough of deal closures that are there that can really take up that, you know, even the engineering resources that are occupied in those deals can be moved to these new deals, and that's how we operate. Got it. And my last question, from the margins perspective, just wanted to understand, the little softness in the media space, et cetera. Do we expect margins to remain in the similar trajectory? I'm not asking for an exact number, but color on the same, or the other businesses have capability to drive margins from year on also? ... No margins, you know, if, if you had seen, right, as compared to last quarter, in spite of, all the, you know, employee costs, due to salary hikes and ESOP costs and number of costs that have come into the, you know, come in, we have, we have been able to mitigate all of that, right? In spite of, media and communication, being pretty flat. So I think we have modeled our business, around that and, so we are, we are pretty comfortable where we are. Yeah. During COVID time, we saw margins in the range of 30-odd%. So 27%, 2 6.5% is the new normal now? That's the understanding taken? Yeah, during COVID, it was a different situation, as all of us know. You know, there were a lot of costs were not there, including travel and business expenses and event facility costs and so on, right? So that was unusual. Yeah, but I think we have done pretty well. You know, we are doing pretty well where we are today. Yeah. We have taken into account all the salary expenses and, you know, all of that. But I think, as we grow our revenues and as we, you know, look at the utilization levers- Yeah We will definitely be able. We have—let me state it, you know, that we have enough levers still available for us to. Mitigate any impact. Yeah, to mitigate any impacts that will come up. I think we are reasonably placed, Nilesh, in terms of the margin profile. I think we can continue to make the right investment that is required from the people, technologies, and developing new offerings. At the same time, there is a lever in hand in terms of the pyramid, rationalizations, utilization, expansions, and all. I think the last two quarters has been testimony to that. In spite of all the salary increases, as Manoj alluded, and all other costs, we are able to still mitigate and maintain our margin profile. That's the beauty of our operating model. Connecting back to the verticals, I think some quarter, some vertical will fire. I mean, that's how we have de-risked our, you know, diversified our portfolio in terms of, you know, having enough immunity in terms of, you know, in all such kinds of ups and down. Got it. That's really commendable, and thank you so much for replying to each of the questions. Thank you. Thank you. The next question is from the line of Salil Desai from Marcellus Investment Managers. Please go ahead. Hi. Good evening. My question was on the client concentration matrix. We are at almost 44% in the top five. How would you see this shaping up going forward, maybe next two, three years? Is there any conscious attempt to either increase it or to reduce it? No. So our focus would be to, you know, definitely, you know, look at growing the top 10 and the top 20 customers, right? So we are not necessarily only focused on the top 10, top 5 customers. Top five customers are important because they bring us volume, scale, and, you know, we have a far more, you know, stronger management connect with those customers. So I think we'll continue that because, you know, the, you know, a lot of the growth of the organization comes from these top five and top 10, you know, customers. So, moving forward, you know, two-three years down the line, I would really, you know, it's very, very difficult at this point in time to say that, if we don't have a target, saying that, "Look, we have to maintain this," and so on. But in, you know, as we grow, definitely the top 5 and top 10 percentages will come down relatively. That will be the, you know, focus for us. But no deliberate attempts to- No deliberate attempts. Yeah, no, no deliberate attempts. Yeah. All great. Thank you very much. Thank you. We have the next question from the line of Akshay Ramnani from Axis Capital. Please go ahead. Hi. Thanks for taking my question. So, first one was on the auto vertical side. So while in the past... this was about scale. I'm sorry, my voice is getting echoing. Hello, am I audible? Yes, you are audible. We can hear you, Akshay. Yeah. So maybe I'll start again. So this was about scale of customers in the auto vertical. So we've seen tremendous success with JLR. If you were to think, take a look at your clients from a scale perspective, how many strategic customers would you think you have in your current portfolio for OEMs or Tier One suppliers to get to the similar scale or higher what JLR is currently at? And, what would be the service areas be like for them to drive scale in those accounts? So is it going to be more from HGV side, connected side or electrification side? So if you can help us understand that arithmetic there. If I understand your question right, you're asking how we will scale, you know, what... No, so maybe I'll take that, and, maybe Manoj, you can add on top. Yeah. If you look at the portfolio of customers that we have in auto, I think we have enough customers who represent the scale and size of JLR. Because in order to think about JLR is, here is a customer, he's an OEM. This is the kind of work that they do. This is the kind of technology that they deploy to the market. And in terms of market share and size, this is where they are. So do we have customers who are bigger than them, who represent much more scale? Definitely, yes. Do we have an intent to grow some of them, and hopefully all of them, to sizes equal to JLR and more? Yes. And I think that's the path we are on. So I can be very frank about that, that there is a whole set of customers who are, who have the same capability to scale as JLR can, right? But of course, it takes time. You need to build a strategic relationships and intent. In terms of service areas, the way I see it, SDV is an overarching concept, but ultimately, if you break it down within, you will still have connected, you'll still have autonomous, you'll still have electric, because these are foundation pillars for what SDV will be built on. SDV will then further add a architectural layer, a hardware aggregation layer, and an off-car data layer. So in our view, everything that we do, I think, is absolutely aligned to where the industry is going. Got that. And Nitin, maybe if you can also add some flavor of timelines of maybe your customers. What is the time horizon to complete all of the SDV programs, the autonomous program, the re-imagining of architecture inside the car? What are the customers' average duration timelines for completion of such projects in their models? Yeah. So I think, Akshay, that's the interesting part, right? I think we are set for a fairly long-term transformation path for automotive. Why? Because there is no one right answer, first of all. Everybody will experiment. And part two, there is no one right answer in that will last forever. So there's no one architecture that will be valid, let's say, five years on. So that is why I think you'll find generations of architectures that will come up, each of them being fueled by what is the state of technology at that time, what is the state of compute and hardware at that time, and what is the state of connectivity, and what you can offload to the cloud, what you can do at the edge. So in my belief, we are in for a cycle where there are going to be 3-4 pivots of the architectures for cars as you talk of SDV. So there is no, there is no one single ideal architecture, and the question only is about how fast do you get there? And that is what makes automotive so interesting. Yeah. Why I ask this is because auto industry is used to reusing and recycling the platform, platforms which they build, so that, that was the intention of that question. But, I get your point. Right. And maybe- I think I'll only add one more item to that, just to clarify. The other big difference that's happening with SDV is the fact that the car is connected means that you're not going to reuse to the extent that, "Okay, I've done this now, I don't need to do anymore." I think the whole point of SDV is, now that you have software, everything is software controlled, how do you drive innovation week by week? So automotive, automotive customers are now going to have to think like an Apple and a Google, which is what features do I deliver this week? What features do I deliver next week? Okay. That's very helpful. The next question is for Gaurav. So, Gaurav, other expenses declined sharply this quarter, and you explained it very well at the start of the call. But the question is more that this line item has been declining for three straight quarters and continues to be very volatile. So from a sustainable basis, how should one think about this particular item? So this has been declining. I think it has been a conscious effort from, you know, from the company perspective in terms of, you know, optimizing some of the costs. There was a sharp increase, you know, immediately after, you know, the COVID-related, uh, closures was open and all those things. But I think we have made all the effort in terms of variabilizing all the cost in tune to the, you know, the scale of the business, and wherever possible, you know, optimize those costs. This also includes, you know, remember the third-party contractor cost, which was, you know, heightened, you know, during the time of the COVID and entire supply chain disruption was happening. So now with the bench strength that has been built by the company over the last few quarters, with the trained people available, we are slowly, gradually, you know, declining our dependence on the, you know, contractor and, you know, rotating with our own people, which helps in terms of our, you know, managing our people cost also, and reducing some of the, you know, other costs, other expenses as well. And also, I think this quarter we have, you know, some collections and provision, doubtful debt, you know, reversals, which is a small amount, but I think, I think we would be able to sustain as a percentage to the, you know, other expenses as a percentage of the revenue for the coming quarter. I think especially with the, you know, growth and the scale that we, we see in the coming quarters. So I think we believe it is quite comfortable, and we are confident that we will able to, you know, deliver it at this level. Got it. Can you please quantify that provision reversal, if possible? It's a small amount, but yeah, it adds up, but it's a very small amount. It's maybe 0.2%-0.3%. Got it. Thank you. I understand that. Thank you. Thank you. Ladies and gentlemen, we request you to please restrict your questions to one question per participant. We have the next question from the line of Apurva Prasad from HDFC Securities. Please go ahead. Yeah, good evening. Thanks for taking my question. I have a question for Nitin. Nitin, you referred to the two tracks earlier in the media communication vertical. So, just wanted to sense on between the efficiency-driven track that you referred to versus the second track of customer experience and monetization. Right. Do you see any change in either of those segments, say, from how the pipe was looking at the beginning of the quarter versus, I mean, now? I think it would be a little too early to say, Apurva, in the sense that, if you look at it, on one hand, there is a big play of digital and AI in both tracks, because you can drive efficiencies through use of AI and digital. You can also add necessarily all the new revenue streams that you're talking of are also predominantly technology and AI-driven. I think the point that Manoj made, I think I'll use the same words. I think we are seeing green shoots of a lot more conversations and a lot more relevant conversations that promise to be deals. Now, I think it'll be still too early to say whether this will have an impact in Q3, or we have to wait a little longer. All right. Got that. And just finally, the headcount addition, Manoj, how should we expect that for the next two quarters? Similar run rate as this quarter? I would assume so. I mean, you know, we are not, we're not, stopping our hiring engine, so that continues to chug along. So, that will be, of course, plus or minus, but we will—we continue to add, you know, people. Got it. Thanks, and all the best. Thank you. Thank you. Thank you. The next question is from the line of Tushar Bohra from MK Ventures. Please go ahead. Yeah, thanks for the opportunity, and congratulations to the management for the excellent set of numbers. So, in terms of the diversity, in terms of domains, can you highlight work being done in, say, you know, space, side, and offshore and aerospace and, you know, things like that, which are still not yet categorized separately, but management has highlighted that at some point we will do so? Yeah, maybe I can take that, Tushar. I think, if you look at it, our hands are full at this time with automotive. So if you look at, four years back, even before COVID hit us, we were starting to see certain signs of, stress in the automotive sector because everybody was pouring money into areas and things that they should not logically be doing, including shared mobility and so on. So we believed that there was going to be stress, and we needed to de-risk. And the de-risking at that time was taken very clearly with the view of rail and off-road vehicles being the more stable, mature, if not as large, industries to go into. I think we have done very well in ramping up there, but the problem that we have now is that the demand in automotive is so much that it is consuming everything that we can and more. So to that extent, we are actually starving some of the areas we already are in, just to be able to fuel the growth that we need in automotive. Aerospace, I think we bring all the right capabilities because you look at the ingredients of what is needed in terms of software, in terms of mission-critical capabilities, in terms of fail-safe systems, we bring everything that is right. If you look at the kind of work that we've done for ISRO or HAL and so on, you'll actually find it demonstrated. But is it worth getting our feet and jumping in deep into the aerospace pool? We are not so sure as yet. So right now, I think it'll be a little bit of a dipstick model in aero, because we need to be very clear that we'll not only be able to get in, we'll be able to scale and differentiate. I think we are always very careful about qualifying those two parts. So I think it'll be a little bit of a skunk works for a while. Second, sir, in terms, so in terms of the disruptive components, or I will say that, you know, technologies which have the ability to accelerate, like using Meta, for example, virtual and augmented reality, or the generative AI piece of it. If you can highlight anything meaningful, qualitatively or quantitatively in terms of number of conversations or nature of conversations, or how you are being able to come up with some differentiated assignments, something that, that gives a view as to next, you know, two, three years, how things could be for the company. Yeah. I just don't want to generate auto text on this subject. I think I'll simply put it this way. As Tata Elxsi, I think we are very, very focused on identifying trends that we believe will pick up, if not one year, maybe two years, three years, four years. So we look at it in horizons. And in that sense, AR and VR is something that we've been doing from 2016, right? And you'll find our tie-up is as old as that in terms of a tie-up with Unity to transform what will happen in verticals with AR and VR outside of gaming. Because we said, "Look, we don't want to go into the mainstream piece. We want to look at what it'll do for everything else." If you take AI, you'll find that we announced our own autonomous car technologies right from 2014. We won large programs in 2017. So the point I'm trying to make is that you can take any technology line, AR, VR, metaverse, you can take cybersecurity, you can take AI. AI now taking the form of GenAI. You'll find that our investments actually date back to at least, at the least three years, most likely more like five, six, seven years. GenAI, I think, is just the latest piece on the bandwagon. I think the interesting part about GenAI is it's all pervasive because it seems to have an impact on almost anything that is being done, especially if it's related to text, image, and voice. Primary impact on customer experience and marketing, but then further into operations and product development. We have POCs going on, we have pilots going on, we have conversations going on. We have projects also. Projects also going on. But to start projecting that as the future, I think I would hesitate. Yeah. Thank you. We will now take the last question from the line of Santosh Kesari from Kesari Finance. Please go ahead. Hello, am I audible? Yes, you are audible, sir. Sir, I just had one question, and that was about, there's another Tata Group company, Tata Technologies, and as per media reports, it's coming with an IPO. ... Yes, Santhosh. Am I audible? Yes, you are. Sorry. So my question was that there's another Tata Group company, Tata Technologies, which, which is coming up with an IPO. So what's the difference? Basically, I wanted to understand, what's the difference between the line of business you are in and the Tata Technologies? Santhosh, the line for you is not audible at the moment. Yeah, your question is about how is Tata Technologies different from Tata Elxsi? Yeah, I mean, Tata Technologies has always been there, you know, for many years, right? It's just that they are going their IPO, you know, hopefully in this, in this quarter. Yeah, so I think, Tata Elxsi is a very clearly, design-led, you know, embedded, you know, engineering organization focusing on, product designs. Tata Technologies does a lot of work, including mechanical, you know, PLM, ERP and, you know, so on and so forth. So, yeah, so there is a sort of, you know, good, I would say, a complementary skills between both the companies. We have common customers, and also occasion where we bid together on some projects. So to that extent, I think, they are a great company. So, but however, you know, we, the areas of operations are very different from what Tata Elxsi does. I can say that you are in high-tech engineering, and they are into something like, specifically for automotive customers, into ERP and production and factory-led by engineering. Yeah, PLM and so on and so forth. Yeah. Okay. Thank you so much. That was my only question. Thank you. I would now like to hand the conference over to the management for closing comments. Over to you, sir. Thank you, everybody. You know, Q2 has been, you know, I think, I think an incredible performance, given, you know, all the macroeconomic uncertainties and the challenges that we've had. And, you know, definitely would like, would like to thank, you know, all the Tata Elxsians, who have, who have contributed, you know, to, to bring this, growth. As a management team, we are, we are focused, and to see that we, we continue this, performance and the growth trajectory. So our, our laser-sharp focus, will be on, to see how, you know, how we can, grow, H2 over, over H1. We're confident on the strategies that we have, and we're confident on, the direction that, the company is, moving. With that, you know, I'd like to conclude here and would look forward to interacting with you again, you know, at the end of Q3 results. We will, of course, wish everybody a very, very happy Navratri. Yeah. I wish everybody a happy Navratri, Dussehra, and enjoy all the holiday seasons. Thank you so much. Thank you. On behalf of Tata Elxsi Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.