Ladies and gentlemen, good day and welcome to the Q1 FY 2026/2027 earnings conference call of Tata Elxsi Limited, hosted by EY. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star and then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Shashank Ganesh from EY. Thank you, and over to you, sir. Thank you very much. Good evening to all the participants on the call. Good morning if you are 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, if perceived 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 forward-looking statements. To take us through the results and answer your questions today, we have the senior management of Tata Elxsi represented by Mr. Manoj Raghavan, Managing Director and CEO, Mr. Nitin Pai, Chief Marketing and Chief Strategy Officer, Mr. Nalin Rana, Chief Financial Officer, and Ms. Sneha V., Company Secretary and Compliance Officer. 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 will be happy to respond to them at the right moments. With that, I would like to hand over the call to Mr. Manoj Raghavan. Over to you, Manoj. Thank you, Shashank. A very good evening to everybody who has joined us today for the Q1 FY 2027 investor call. I hope all of you are fine and doing well. I am pleased to announce that Tata Elxsi has passed a key milestone of crossing more than INR 1,000 crore of quarterly reporting operating revenues by delivering INR 1,021.1 crore in the first quarter of FY 2027. In constant currency terms, our revenue grew by 6.5% year-on-year and 1.3% quarter-on-quarter. The growth was led by our major verticals, which is transportation and Media & Communications, which grew 6.7% and 11.5% respectively year-on-year in constant currency. We see this performance as a reflection of the strength and relevance of our unique design-led and AI-enabled engineering capabilities, supported by large strategic engagements in the chosen industries. We posted an EBITDA of INR 216 crore, which grew at 15.7% year-on-year, and an EBITDA margin of 21.2%. The Media & Communications business delivered robust growth of 4.7% QoQ in actual currencies and 2.9% QoQ in constant currencies, which translate to a year-on-year growth of 22.2% in actual currencies and 11.5% in constant currencies. The strong performance was enabled by the ramp-up of key engagements, which we announced in the previous quarters in large programs with global operators and broadcasters. Our transportation business, which contributes more than 55% of the SDS segment revenue, reported a resilient performance in an otherwise challenged macro environment with a growth of 6.7% YoY in constant currency and 13.3% YoY in actual currency. This was led by large automotive OEM engagements and strategic off-road and aerospace deal wins. We continue to strengthen our pivots towards OEM, and today, 78% of our automotive revenues is from our OEM customers. The healthcare business exited near flat with a -0.3% QoQ in constant currency, reflecting the muted global healthcare business environment. The anticipated momentum was staggered by the delayed deal awards from some of our key customers. We, however, remain excited about the long-term prospects of this segment. We continue to invest through scaling our newly launched platforms such as ViTel, AnaTel, reimagining our offerings with AI, GenAI, and taking center stage in MedTech and healthcare events, setting ourselves to capture emerging opportunities. In the quarter gone by, we have accelerated our efforts to expand platform-led offerings. Our NEURON platform portfolio has enabled Sky in Europe to transition towards zero-touch network operations with enhanced cybersecurity, delivering up to 30%-70% efficiencies in various parameters. Our AI-led material intelligence platform, ViTel, also inked a strategic deal with a global MedTech company. We are executing upon our future-focused strategy and will continue to intensify our investments in specialized talent, rigorous upskilling, AI-powered platforms, tools, and infrastructure that strengthens our human plus AI plus domain proposition. These forward-looking investments will enable us to stay at leading edge of technology advancements while accelerating value creation for our customers. The U.S. region performed well for us across verticals, led by new deal wins and deal ramp-ups. Some of these strategic programs demand quick ramp-up at onshore for transition support and initial stabilization. We have incurred additional costs of deploying power teams as well as specialist third-party contractors to help accelerate transitions and mitigate visa delays for our engineers. This is partly reflected in our onsite offshore ratio and bottom line performance and should ease over the next two to three quarters. We are firmly focused on sustainable growth, deepening our engagements with key customers, and positioning ourselves to shape and win strategic long-term deals and add marquee customers. We look forward to carrying the growth momentum to subsequent quarters while remaining steadfast on our operational rigor and business discipline. Thank you, and over to Shashank for the Q&A session. Thank you very much. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and then one on their touch-tone phone. 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. Again, to register for a question, please press star and one. Your first question comes from the line of Bhavik Mehta with JPMorgan. Please go ahead. Hi. Thank you. A couple of questions. Firstly, Manoj, if you can give some outlook on your three verticals given the Middle East conflict still remains in place. How are the discussions with clients evolving on spending intentions for the next few quarters? If you can segregate across three verticals, how they're different. Secondly is on margins. You did talk about some onshore investments and subcontractors as well. How should we think about the margin trajectory going forward? Is this like a one-time thing, which is in the base now, or will this continue for the next few quarters? Any color on the margin outlook as well for the year? Sure. Upfront, let me tell you, I think it was a reasonable quarter for us because two of our larger businesses, which is transportation and the Media and Communications vertical, had a pretty decent performance. I think Media and Communications vertical has been sort of underperforming for quite some time, and I think some of the deals that we have closed in the previous quarters, we've finally able to ramp up and achieve the full ramp-up situation. As we speak, there are deals that we are chasing. There are some pretty large consolidation deals in the media and telecom space. Some of these we are very confident that we should be able to swing in our favor. Over the next two to three quarters, we strongly believe that we will be able to continue our growth in the Media and Communications vertical. From the transportation vertical, yes, I think the Europe situation is a little we have to wait and watch given the challenges in the German market and so on. We have not been affected as much, and the deals that we have closed, we continue to execute. There is some slowdown in the new deals. Having said that, I think for us, the U.S. market, we were able to really significantly grow, not just the automotive revenues, but also the adjacency revenues, including the off-road and farm and equipment, as well as the aerospace and defense segment. Overall, when we look at it from a transportation business, we are hopeful that, yes, there is softness in Germany in particular, but we strongly believe that all the other adjacencies and the efforts that we are putting in other markets, including Asia, including India, I think we have seen some very good deals that we have closed over the last couple of quarters. These ramp-ups are happening as we speak. I strongly believe that, look, for both our Media & Communications and transportation, we should see growth over the next two to three quarters, right? That visibility is coming in as we speak. Healthcare, again, it's a little bit of a moving target it 's a smaller business for us. Less than 10% of our revenues come from healthcare. It's a very important business for us because we strongly believe we have built fantastic capabilities, including a lot of AI, GenAI-related tools that we have built for this particular market. When we talk to customers and as you know, in this particular industry, the deal pipelines, the deal closures would take some time. There are some very good conversations happening, I wish we had a better story to say w e were really hopeful that Q1 would be a growth story. Unfortunately, some of the deals that we have been discussing, we've still not been able to close it and complete the paperwork and so on. Having said that, we are still in the midterm to long term, this is an area that we're investing in. We have built fantastic capabilities, and we strongly believe that this will eventually, in this financial year, we will see growth in the healthcare and life sciences space. This is somewhere we are definitely continuing our investments and so on. On the margin side, maybe I will request Nalin to give you an overview. I think we have some one-timers that have hit us in the quarter. Definitely we have a plan to grow back. If you look at it over the four quarters, really look at how we can get back to our margin profile. I will hand it over to Nalin to answer that question. Thanks, Manoj. If you look at our EBIT margin. Our EBIT margin has decreased 330 basis point on a sequential basis and increased 80 basis point on YoY basis. Looking at the change in margin in three buckets, to give you some color. The first bucket is cross-currency gains that we have got in the quarter. That's about 40 to 50 basis point. We have, in this quarter, around 150 basis point of one-off costs or short-term costs. There's a third bucket of 220 basis point, which is towards investments in people, go-to market, and capabilities. Now taking the second and third buckets one by one 150 basis point. 150 basis point this quarter, we had to incur some transition costs for some of our large consolidation deals that are taking place. Second one is there were some one-time costs that we also took towards retention of select employees who we believe are sort of critical for the business. Third one here, there were costs in relation to a particular customer that we had to incur in this quarter, which we do not anticipate going forward. The fourth is up-fronting of certain annual costs t hese are absolutely standard costs, pretty much fixed on an annual basis, but we had to, for various reasons, upfront some of these costs in this quarter. This bucket, the way we should think about it is most of these would go away in the next quarter. Some of these will transition over the next couple of quarters. There's this third bucket of about 220-230 basis point t his is on account of a few factors o ne is investment in on-site sales and delivery. In this quarter, we saw significant ramp-up in some U.S. b ased deals. We had to ramp up our delivery there. A lot of this ramp-up we had to do through subcontractors because of, A, the short timelines, B, also visa restrictions that are existing in the industry. In addition to this, we've applied for visas of our own people who will sort of supplement these contractors or replace them over a period of time. There were costs again. For these deals, there were costs related to ramp-up of these deals. We are, as mentioned by Manoj earlier, ramping up our investments in specialized talent, AI tools, and infrastructure. Lastly, we had, very recently, a Chapter 11 in one of our customers, which sort of led to higher provisions for the quarter, which you'll be able to see in the financials. The second bucket t his bucket, the way I would think about it is, these are little more stickier, but also should go away over a period of time. Subcontractors, we look to optimize those by moving some work streams offshore or our own employees replacing the subcontractors over a period of time. Finally, leave only the critical sort of resources that are there. Similarly, customer-related ramp-up costs. As our deals get ramped up and stabilized, I think these should also stabilize over a period of time. Just to recap, around 150 basis points, they should go away more quickly. Second bucket should move away, should sort of improve over a period of time. Okay, got it. That's helpful. Thank you. Thank you. Your next question comes from the line of Vimal Jamnadas Gohil with Alchemy Capital Management Private Limited. Please go ahead. Yeah, thank you so much. Sir, just one follow-up on the margin question. In the other expenses line item, which is about INR 135 crore, are there any forex losses also that are built in this particular quarter? Yeah. This is what actually I referred to. There's other expenses largely increased. I would attribute it to two items. One is a Chapter 11 at one of our customers where we had to provide for the receivables on a conservative basis. The second one related to up-fronting of certain sort of annual costs. I would say not a big forex item, but these are the sort of the two main drivers. Okay. Fair enough, sir. Sir, I missed out on the auto OEM contribution in this quarter. How much was that? 78%. 78. All right. Sir, lastly, we've been talking about revenues from adjacencies. When can we possibly see some sort of quantification of disclosure as to how much are we getting from these adjacencies? I think in this financial year, at some point in time, we will definitely be able to disclose. Hopefully, by end of the financial year, we should be in a position to tell you exactly. All right. Awaiting that, sir. Thank you so much and all the best. Thank you. Thank you. Your next question comes from the line of Ravi Menon with Axis Capital. Please go ahead. Thanks for the opportunity, congrats on a really good performance in the Media & Communications segment. I want to check, what's the pipeline like in transportation? Are you seeing car automakers especially look at new hybrid platforms? What sort of role can you play in that? In the Media & Communications segment, one of your top customers is undergoing a corporate restructuring. Any changes to your engagement that might come either positively or negatively from that? I think, coming to the M&C, we are discussing with our customers at this point in time. There's no clarity in terms of is it going to affect our business or not. If you ask me, I would say that it'll only help us. It could be positive because we have not deeply penetrated the NBCUniversal piece. That is an opportunity for us to really go there. At this point in time, there's nothing to inform in terms of is it going to affect us or not. We are keenly watching that space. From automotive customers' perspective, we've already discussed, I think, globally, yes, both in the U.S. and in APAC, Japan and India. We've seen traction is definitely there t here are large deals that we are bidding for. Continental Europe is a little bit of a wait and watch as we speak. Though there are opportunities that we have bid, there are large deals that we have placed, given the uncertainty in the market, we're not sure on the pace at which some of these decisions will happen. I think there's a little bit of a wait and watch there. Otherwise, overall automotive industry, I think we should see some good growth coming in, minus Europe. Thanks, Manoj. Some of the help, the overall headcount is down a little bit. What sort of hiring plans, especially for fresh college graduates this year, and how does that compare to the last year's fresh college graduate hiring? I think we are on a wait and watch. I think our utilization is just about 75% or so right now. We still have some leeway to go. We have been hiring freshers as we speak, but the numbers have been pretty small. I think hiring fresh grads, we will only look at it as our growth momentum picks up. It will be very moderated the way we go ahead and hire. Especially with now AI and GenAI also coming in, we wouldn't want and go and hire a huge bunch of freshers. As I said, it's a wait and watch. We are hiring freshers, but it's very moderated level. I think last quarter we would've added about 100 or 150 engineers from the colleges. It's a small number that we add. Thank you. Given the current market, you think it's actually preferable to hire laterals because it's still fairly easy? Yeah. Laterals only very specific where there's a need. Most of our focus is utilizing our bench and utilizing our existing team members, and of course focusing on retaining our key talent. That's what we are focused on. Could you talk a bit about the sales investment that you've made? I think both in U.S. as well as in Europe, we have added sales headcount. We've also added advisors to support us in some of the large deal pursuits. Apart from that, we've also spent in terms of events that we participated in to build our brand and also to gain visibility in the larger market space. These are specialized events. We're not going after those large events and so on. For each of our industry verticals, there are those specialized events which are there, and that's something that we are focused on and we're spending money. Thank you so much. Thanks a lot. Yeah. Thank you. Thank you. Your next question comes from the line of Moez Chandani with Ambit Capital. Please go ahead. Yeah. Hi. Good evening. Thank you for taking my question. My first question was on your overall growth expectations for FY 2027. I think you had said last quarter that you probably would be aspiring for a high single digit sort of a number. Is that something which is still the aspiration given issues that you've outlined in transportation? Do you think it would be more, say, closer to the mid-single digit number for the year? No. Our aspiration continues to be the same. We just need our healthcare business also to fire up right. Then I'm sure that we will be able to get to that sort of a growth rate that we are aspiring. I think we're not changing our aspirations. Okay. Understood. Secondly, just broadly on, I think in a previous question you briefly touched upon AI and that's impacting some of your hiring, but how have your conversations with clients been on the AI implementation? What are your clients saying, and is that impacting, say, your volume growth or your TMM projects going forward? Yeah. Maybe I'll take that question, Moez. This is Nitin here. Yeah. I think AI in general, on one hand in product engineering, given the fact that the industries that we operate in are largely mission-critical, especially automotive and healthcare, has been very careful and measured in the first place, especially when it comes to implementing it into the SDLC process, into products that will deploy in the future. There is a certain amount of care and caution that is being exercised. Having said that, I think we are driving a very strong path of Providing a path of transformation aided by two parts. One is the platform-led offerings that we are building. What we are saying is it's not so much about AI for itself. Each of these industries require solutions that are tailor-made to their context that provide for coverage of certain aspects of cybersecurity, of FMEA and so on, that are very specific to those industries. To that extent, I think what we're doing is we're taking a very domain plus AI, if I may, view of each of these industries, and we're saying, "Look, you don't have to transform all at once, but we will provide a platform-led approach that allows you to take your SDLC part by part and still connect it up at the end." What we're actually seeing is that kind of a measured, calculated adoption, and I think we're doing very well there. To that extent, I don't see deflation, I don't see shrinkage. I don't see any of that. We'd rather see opportunities. Having said that, I think the overriding problem is, and point is, the spend that is being earmarked for AI, unfortunately, is also kind of curtailing R&D spend, if I may. I think that's the larger perspective rather than anything else. Got it. Thank you. That was all my questions. Thanks. Thank you. The next question comes from the line of Amit Chandra with HDFC Securities. Please go ahead. Yeah, thanks for the opportunity. My question is on the increased investments that we have been doing. If you can elaborate a little more on what are the investments around. These are mostly platform investments, or you're spending more on R&D? Or is it more related to client-specific engagements that we have? As you said, we are investing more in subcontracting, investing more in on-site. Is it fair to say that the new deals that we are taking, they are initially lower-margin deals? Yeah. These investments definitely are around building specialized talent pool. That is definitely there. We talked about the AI infrastructure that is needed that we are building. Also all the tools and the cloud investments that are needed to deliver value to our customers. It's a combination of all of that which are the investments. Of course, in some of the large deals that we have taken, there is also the transition cost. There is some bubbling of costs that happens because these are typically three or five-year deals, wherein in the first quarter of commencement of the deal, there is some amount of bubble cost that comes in. These are all the investments that we are doing, and that has sort of affected our margins in this quarter. Okay. In the transportation vertical, obviously OEM is now 78% of the automotive revenue. Within the OEM bucket, how are you seeing the top client and the non-top client moving? Also if you're seeing some softness in some of the OEM accounts, especially what is happening in the European region. If you can provide the commentary around what is happening with the OEMs. Yeah. Yeah. Yeah. The top customer has been pretty steady for us. That's definitely a positive. I've already indicated the softness in the OEMs in Germany. There are large deals that we've already closed. Those ramp-ups are going a little slow there. As a result of which, what we would have expected that we will achieve in Q1, we have not reached that. I'm hopeful that over the coming quarters, we will be able to ramp up to the expectations. The good part is we've had a good recovery in the U.S. as well as in the APAC region, all that has actually contributed to the growth in the automotive segment for us. Okay. Sir, lastly on the subcontracting part, if you can quantify the subcontracting cost and what it is as a percent of revenue in this quarter versus last quarter. I'm not sure whether we can give specific details of the subcontracting costs. Amit, maybe Nitin here. I can just provide one slice, which is if you'll look at our on-site offshore ratio, you'll see that the ratio has shifted by about 1% or 90 basis points, 0.9%. This all happened within one quarter. So you can look at that part and assume that a fair part of that is- Yeah what we contracted out t hat has an associated impact on margins. Okay. Okay, sir. Thank you, and all the best. Thank you. Thank you. The next question comes from the line of Karthik with R. K. Investments. Please go ahead. Yeah. Can you hear me? Yes, sir. We can. Yeah. All right. Yeah. Thank you. Thanks for the opportunity. A couple of questions. Maybe you addressed the first one a bit earlier. First is there is this growing concern of the deflationary impact on software coding, maybe especially on engineering R&D. Maybe it might hit much harder than traditional IT. Is there a pressure, and how are you ensuring that the Tata Elxsi margins are protected? Right. The second question is related to your slide on transitioning to platform-led engineering, right? In terms of these proprietary platforms, NEURON, Agnire and TETHER, right? I want to know how aggressively you're sort of deploying this to address this pricing pressure. Anything on what are the clients looking for? Is there more demand, using more with less pricing, something like that? Can you add some color on that? Sorry to interrupt. The line for the management has been disconnected. Please stay connected while we reconnect the line for the management. Ladies and gentlemen, we have the line for the management reconnected. Karthik, sir, could you please repeat your questions once again? Yeah. Okay. Yeah, thank you. I was talking about the whole deflationary impact of using AI autonomous tools on the software coding, and the fact that it might hit the engineering R&D higher than traditional IT spending, right? I wanted to understand how Tata Elxsi is protecting their margins in such impact like this. The second question is on the slide on transitioning to platform-led engineering. I wanted to understand how aggressively you're deploying these platforms like NEURON,TETHER, right, in terms of addressing this pricing pressure. Anything more on how the clients are using these proprietary platforms. Karthik, this is Nitin here again. Maybe I'll take those two questions. Yeah. On the first part, as far as the impact of AI on the SDLC, I think the point that I was trying to make is when you're working with B2B customers in the chosen industry that we operate in, which is healthcare, media, telecom, as well as automotive and transportation, you tend to have, one, very large code bases. Two, these have been built over many years, so this is not fresh code. Three, these are fairly complex and built by multiple teams, right? First you understand the scale, size, and complexity of the problem. Like they say, a car has 100 times more code than a Boeing 747 does, right? That's the complexity you're talking of. Part two, while we tend to think of software coding as the biggest part of what work is done, the reality is that product planning, feature planning, architecture- Requirements Requirements capture, requirements mapping, regulatory alignment to the multiple countries that these products were deployed in actually is a bigger part of the problem than the actual coding. Coding is just one part of the whole cycle. That is where we believe that my AI can come in and you can say that, "Look, software code, I can write C plus plus code, I don't know, 20% faster, 30% faster, and so on." The net impact of that part of saving in the entire life cycle is not too high. That is part one p art two is customers are not as much focused on cost savings as they are on whether it delivers productivity or quality. In the ranking of CTQ, cost, time, and quality, right? I think the industries that we operate in inverted. It's quality, time, and then cost comes last. To that extent, I think the proposition stays strong, which is Tata Elxsi leading-edge technology capabilities, deep domain expertise, now backed by AI. I think that is the proposition that we're offering a ll, of course, delivered from India at scale. I think this is the real If I may, tagline that we are delivering on, right? I believe that is still very relevant now and going forward. Your second question was to do with our own platforms. If you think about it, there are two types of investments that we're making. One is in platforms like TETHER and NEURON and so on, which go into the customer products and services because it's transforming their products and services. I think NEURON, that's why we took a lot of time to craft the value that our customer is deriving. The press release that we made is, I think, absolutely clearly calls out multiple dimensions on which we are delivering value, whether it's efficiencies, whether it is autonomous operations, whether it is customer experience and so on. The same is with our connectivity platforms, right? Because these are customer-facing. Investments that we're making in platforms like ViTel or AnaTel or DevStudio.ai are more to do with how do you accelerate the software development lifecycle of a customer. This is something that end consumers will not see. This is something that provides efficiencies, but more focused on quality and time savings rather than on cost. Right. That is the view we are taking tr action is fantastic r eception is fantastic a doption, we believe, will be thoughtful and calibrated simply because customers are not going to jump at the first platform they see. I think they're taking a very careful long-term view of what are we doing, who are we working with, how do we make sure that what we are taking on and adopting is supported for the long term. I think these are decisions that customers take very thoughtfully and carefully, and hopefully the proposition that Tata Elxsi provides, both as a brand and as a capability, stands us well. If I have to summarize, you're saying the first one is not much of a differentiated impact as such because the cost of the R&D stuff is much lesser in the whole pipeline. Right. For the second one, you're saying it's a long-term view that it doesn't have anything to do with the billing rates right now. They're really a long view. Right? Correct. It definitely is making a positive impact on our win ratios and winnability. It's definitely having a definite halo effect even as we speak on what we offer to customers and what customers believe we are capable of for their long-term transformation. Okay. Yeah. Thank you, Nitin. Yeah. Thank you so much, Karthik. Thank you. Your next question comes from the line of Sulabh Govila with Morgan Stanley. Please go ahead. Yeah. Hi. Am I audible? Yes, you are. Thank you for taking my question. I had two questions, both on the investments that you made in the quarter. One is on the on-site investments and delivery that you spoke about. Historically, we've excelled at an offshore-centric delivery model. Should we see that this investment on the on-site front as a change in the nature of demand versus what we used to do earlier, and this is more structural? Or you would say that this is more tactical and specific to a few projects? I think as you said, right, some of the large consolidation deals that we won needed on-site resources to be available. Over the long term, the business model is to move a lot of that work offshore. We're not moving away from a business model perspective. We would be in a 75/25, 75 being offshore and 25 being on-site. Today, I think it is 74/26 or so. It's just a 1% that we moved. We will over the subsequent few quarters, as Nalin explained, we will be able to move a lot of this work back offshore. We are not changing our business model, if that is the question. Okay. Understood. Secondly, a large part of the cost that you mentioned, they were either transition-related or ramp-up related. One is that, is this specific to a particular vertical or is this broad-based? The benefit of this investment on revenue, have you already seen that in this quarter or should we see that in the coming quarter? Partially, we have seen the uptick in revenue both in our Media & Communications vertical as well as in the Transportation vertical, primarily if you look at it from a U.S. geography perspective. I think our U.S. geography has grown pretty well and I think that is one of the reasons. Subsequently, over the subsequent quarters, you will see us going back to offshore-based execution. Understood. Thanks for taking my question. Thank you. Thank you. The next question comes from the line of Karan Uppal with PhillipCapital India. Please go ahead. Yeah. Hi. Thanks for the opportunity. Just a question on the transportation vertical. Last quarter, U.S. OEMs have commented pretty strongly in terms of R&D investments, either on SDVs or investments in hybrid platforms. Are you seeing any traction in these areas from the U.S. OEMs? Secondly, do you expect the transport vertical to start growing from Q2 onwards sustainably? I think definitely on the SDV, a lot of the deals that we are discussing and a lot of the deal pipeline is based on SDV, so that continues. As I've explained earlier, both U.S. and APAC regions, we are seeing good deal pipeline and good conversions as we speak. Europe is a little moderated right now. We would wait and watch in terms of especially continental Europe, given all the troubles that the OEMs there are facing. Having said that, I think overall, both automotive and adjacencies, we see growth happening in subsequent quarters. Okay. Got it. Manoj, can you just help us with the broad split of the transport vertical within U.S., Europe, and APAC, if that is something which you can share? I think for us, still it is Europe heavy. If I'm not mistaken, close to slightly more than 40% of our revenues would come from Europe, and roughly about 25%-30% coming from U.S. and remaining from APAC. Europe is still the number one geography for us from an automotive perspective. Got it. Despite pressures in Europe, you are still expecting the U.S. and APAC to basically Yeah Offset and help? Yeah. Thanks. Just on margins, shall we expect 19% EBIT margins as the floor? From here on, we should expect improvement in margins? How should we think about it from next few quarters? Sure. Karan, as mentioned, there is one bucket of costs which should go away in the next one or two quarters, around 150 basis points or so. Although this will be partially offset by or this will be offset by wage hikes that we have planned. We had done a cycle of wage hikes last year in October for juniors and in January for seniors. We are implementing a company-wide revision in Q2 to remain competitive in retaining our talent, that we are investing in and that we want to retain who have done projects, valuable projects, et cetera. For the next quarter, I would say the margins will be sort of a combination of two things, impact of wage hikes coming in, also impact of some of these one-offs going away. It will be sort of a balance of these two things. Post that, once the wage hikes are fully sort of baked in, we should see a ramp-up in margins as we go through the rest of the year as our revenues pick up and wage hike is sort of already built in. There should be a sequential ramp-up as we move towards Q4. Got it. Thanks a lot and all the best. Thank you. Thank you. The next question comes from the line of Abhishek Shindadkar with InCred Capital. Please go ahead. Hi. Thanks for the opportunity. My first question is regarding this one-time cost that we had to bear for the customer. Probably, I missed the customer vertical, but I presume it is U.S. and transportation. What I wanted to understand, is this a generic trend that customers are asking the vendors to onboard subcontractors? We heard a similar trend in one of the other IT companies as well. Just wanted to understand what could be our reaction in case there are other customers who come back with some similar demands. That's the first question. The second question is on the wage hikes from 2Q. Can you just quantify, given that we are doing it for a company-wide versus staggered last year? The third one is for Nitin. Nitin, you mentioned that the AI spend is curtailing ER&D. I mean, that was a comment you made. Can you just elaborate in terms of what are the clients thinking, given that the perception was that ER&D is something that given it's revenue generating, may not be paused immediately. Thank you for taking my question, Abhishek Shindadkar. Yeah. I think I'll answer the first question in terms of contractors and so on. No. Let me, I think, correct or make it clear. Customers are not asking us to take on contractors. I don't think that is right. What is happening is in the U.S., as you know, with H-1B visas hard to come and so on, when we win a large deal, for transition and so on, we need to have our own people out there maybe for one quarter or a couple of quarters, and then move work offshore and so on. At any given point of time, we have a limited set of visas that are available. To augment the team on a short-term basis, we need to augment the team with contractors so that we do due diligence and we really do the transition within the timelines and so on. That is what this increase in the one-time costs are. We have never seen customers asking us specifically to onboard specific consultants or contractors. That's not something that we have seen. The second question was on margins, right? On the wage hikes. On the wage hike. Yeah. Wage hikes, I would say that at this stage, we are still sort of working through it. There are a couple of elements there. A, while we are doing it's a company-wide hike. It's a company-wide hike for all eligible employees. Given we have a lot of employees who have sort of joined us at different points of time, there's a set of employees who are not eligible for a wage hike as of now. Again, the hike is a combination of variable and fixed, et cetera. There is that element as well. I think we'll get back at the end of Q2. We don't want to give you a number at this point in time. On the last question, Abhishek, on the point about whether AI has a impact on curtailing R&D spend, I meant it in the context of where budgets get allocated. Ultimately, R&D, some of it is strategic, some of it is discretionary. When you are spending money and you have to now decide where you want to spend money, I think you see certain companies prioritizing AI because obviously it seems like the flavor of the day, the need of the day, the priority of the day. To that extent, it does have a little bit of an impact on how much budget is being allocated R&D. That is the point that I was trying to make. It's helpful. Just to follow up on that. This is more about right shifting of the budgets rather than deferment or let's say perpetual deferment, right? That's correct. Thank you for taking my question and best wishes for the year. Thank you. Thank you. Thank you. The next follow-up question comes from Sulabh Govila with Morgan Stanley. Please go ahead. Yeah, hi. Thanks for the opportunity again. My question was on the wage hikes. When you talked about the investments, you also mentioned that there were certain interventions that you had to do for retention of select employees during the quarter. Now we are also talking about postponement of wage hikes. I'm just trying to understand the attrition in the industry right now doesn't appear to be high. I'm just trying to understand what you're seeing differently, which is leading to some of these initiatives at your end. Yeah. Our attrition is around 16% today. As you know, it's not about how much your attrition is i t's also about are you able to ensure that all your key critical talent are taken care of. I think with the number of GCCs coming into India and with the sort of aggressive hiring and so on, especially for AI-ready talent and talent that really understands domain and digital technologies there is still a huge demand. Though you might say at an overall level in the industry, the demand is muted, but for very niche-specific talent that we carry, I think there is still a huge demand. We need to ensure that we take care of that talent, and whatever we're doing is to ensure that while our revenue clock ticks up and we are seeing traction in the market, we don't want to be in a situation where we are struggling to service them and we have to go out and hire. We really want to retain the key talent that we have. Understood, sir. Thank you for taking my question. Thank you. The next question comes from Rishi Modi with Modi Advisory. Please go ahead. Hi, can you hear me guys? Rishi, we can hear you. All right, great. Couple of quick questions. On the Media & Communications piece, in the previous quarter, you mentioned that the industry growth had not yet picked up. You've done well in this quarter. I just wanted to know whether the broader industry has picked up or it's largely us outperforming. If it's not the industry pickup, when do you see the industry picking up, and how much delta can we capture just from the industry growth? I think the Media & Communications industry in general and the vertical for us, I think in a few quarters have been going through a very turbulent sort of ups and downs and so on. I think over the last two quarters, what we have seen is we have seen some large consolidation deals from some of our customers. This industry is also going through a lot of M&As as we speak. A lot of strategic decisions that customers are taking and so on. What has helped us is in two such transactions where we were the incumbent and we were providing a significant engineering outsourcing. We were the prime vendors in a couple of these deals, a couple of these customers. There were significant M&As that have happened. As a result of which, suddenly, we had access to a much larger pool of projects to focus on. When an M&A happens, of course, the customer is trying to see how to optimize and how to move work to vendors that are a lot more offshore-centric so that their overall cost can come down. I think our value proposition in terms of domain, digital, as well as offshore-centric, really clicked with some of these customers which have gone through these M&As and so on. I think that has helped us really win some deals. Essentially, we have been able to eat into a competition pie of business by showing superior execution and superior offshoring and offshore capabilities. That has helped us win business. Right. Manoj, just to get my understanding right, we were already onboarded with the companies which acquired other companies rather than got acquired by other companies, hence the new target company, we were able to replicate the same thing. Exactly. On the larger front, would you say more of our customers have been acquirers in this consolidation phase? Or now do we see our companies getting acquired and hence we have to get reevaluated by the acquirer? It is both. In many cases, our customers were the acquirers, but there were one or two cases where our customers have also been acquired. The acquiring company did not have a footprint in India. That helped us because they looked at our operations, they looked at how we are delivering, and suddenly they realized that, yeah, Tata Elxsi is a valuable partner which they want to engage with. Okay. We are not being reevaluated in largely any of these acquisition-led reevaluations that normally happen. Yeah. So far- That's great news all that has happened, we were able to show a superior value through our offshoring. Got it. On all of these immigration changes that keep happening, visa fees keep getting altered, H1B quotas keep getting altered. Do we have provisions in our contracts with our customers that say if there's an unreasonable amount of change and that you have to bear? Who absorbs the hit on these externalities? If you could give me an understanding how that shapes up. No, the usual visa fees that go up and so on. Not just in the U.S., but in U.K. and Germany and many other places. Right. That we have to absorb. When I say absorb, of course, there is a COLA increase that we negotiate year-on-year and so on. In some way, in quite a few customers, we manage to get some amount of increase and so on. It is not as if that, "Oh, okay, your visa fees has gone up by $2,000, so hey customer." Customer will pay exactly that $2,000 to us. It's more an overall, it is bundled into our cost of operations and it's bundled into our rate. Hourly rate. That's how we manage it. However, when you talk about H1B, like $100,000 and so on, no customer is willing to pay that. That is something we can't go back to customers. Right. We will have to increase our onshore mix as we go ahead, right? Yeah. If we get higher growth out of the U.S. market. That is where, if we don't have the visas, we depend on third-party contractors and so on. We have MOUs and partnerships with a set of companies. We depend on them to really help us in the short term. These U.S. contracts that we currently have, I'm assuming the new contracts you would price in, say, a higher onshore mix, but the existing ones, I don't think you can alter. Would these be largely long-term contracts and hence our profitability on these existing contracts reduce versus our estimate when we bid in? No. Just to clarify, existing contracts where you already have on-site people deployed, there is no change in cost. It is only where you are trying to win new contracts or you are winning new projects, which then demand new people to be sent for the transition phases. That is the only point where you would have all these questions raised. Rishi, therefore, I'm not very clear what the question is about. Basically, I'll just explain it quickly. We assume, let's say, 80% of our offshore mix, 20% would be onshore for a contract, for example. Because of, say, these visa issues, you are required to have more onshore employees and the mix turns from 80/20 to 75/25. Does that happen? No, Rishi, I think you're getting it wrong. First of all, we operate 90/10. We have the best offshoring metrics anywhere. Our intent is always to keep it there because that is the proposition. For a given contract, ratios will not increase. It's not that customers are starting to prefer more on-site. Please understand. This is not a COVID reversal where you're saying customers are now starting to prefer more on-site. Nobody is. The need for on-site is demanded by the kind of deals that you're picking up, the complexity of what you're trying to take on, the transition time that it takes to capture knowledge, whether from the customer itself or from somebody else, and ability to architect and bring it back. Just to be clear. Okay. All right. Finally, just a quick one. Utilization rate, if you could just spell it out for this quarter. It's around 75.4%. 75 points? Sorry, 74.7%. Yeah, just getting to 75. Okay. All right. Fine. Yeah, that's it from my end. Thank you. Thank you, Rishi. Thank you. Your next question comes from the line of Randhir Kumar Singh with Randhir HUF. Please go ahead. Hello. Yes, sir. Yes, sir. Please proceed. Thanks for taking my question, sir. Almost Q2 maybe wage hike margin impact or H2 margin, am I right, sir? A small difference to what you are saying. Yes, Q2, we'll see a wage hike impact, but that will also be offset to a large extent because of some of the one-time or the higher cost that we saw in this quarter going away. There's an offsetting element to a large part of that cost. Now, how much gets offset, where exactly we land up is a function of what exactly the wage hike numbers ends up being, how much sort of costs go away, our own revenue growth. It will be a combination of few things. Thank you, sir. Thank you. Thank you. Ladies and gentlemen, we will take this as our last question for today. I now hand the conference over to the management for closing comments. Dear investors, thank you for the time. It's interesting times, and I think, at least from our major markets and major verticals that we have, I'm very happy that we have been able to show a decent growth, especially in the Media & Communications business. If you compare with competition and what we hear commentary from a lot of our competition, I think our automotive, our transportation business has also done reasonably well. Our focus is to really continue growth on both of these large verticals for us. At the same time, focusing on our healthcare business to see how to get it back to a growth path, right? That's the focus for us. Of course, margin improvement and seeing how we can digest the wage hike at the same time, and also look at seeing how we can remove all the one-timers and still show a profitable quarter in Q2, right? That's going to be the focus for us in Q2 and subsequent quarters Q3 and Q4. I think Q1 has gone reasonably well for us. Even if you look at comparatively Q1 of last financial year, I think we have done pretty well, and I hope that we'll be able to continue this growth path in the subsequent quarters. Thank you, and look forward to talking to you again in Q2. Bye-bye. Thank you. On behalf of Tata Elxsi Limited, that concludes this conference. Thank you everyone for joining us, and you may now disconnect your lines. Thank you.