It is up QoQ. Probably market expected it to go down further QoQ. An indication probably that situations are normalizing.
Margins declined because of a one time ~22 crore provision for retirement benefit to ex-MD.
Otherwise PBT Margin at 23.1% v/s 18% QoQ.
2 Likes
Tata Elxsi results have several positives. Revenues and PBT has increased sequentially, indicating that decline seen in the last two quarters might have come to an end.
More importantly, there are structural improvements. JLR revenues now comprise only 16.4% of the total revenues as against a quarter more than a year ago. Along with this, concentration of revenues from Europe has also declined to 40% of the revenues and U.S. not far behind at 35%. Similarly, auto sector concentration has reduced from 53% to 48% with Broadcast & Communications not very far behind at 41%. Concentration risk to JLR / Europe / Auto sector was a major risk factor in Tata Elxsi, and that risk has played out. Going ahead, if the current trend continues and company maintains a better balance, it will bring significant strength to the business model and the stock can command a much better P/E in better times.
10 Likes
I think this is a classic case of conservative management operating in a growth industry. A plain vanilla comparison with LTTS will give us a lot of insight into how TELX has been unable to scale up its business by adding new verticals and horizontals. Over-reliance on one sector and one company is biting back hard. JLR Was 20% of revenues 4 years back and is 17% as we speak - inability to grow the Non JLR + Non Automotive means that one problem here and there will eat into TELXs business - as weāre seeing now .
The management used to set aspirations of 20% growth, now theyre setting aspirations of 15% growth. LTTS employee base has increased by 66% on an absolute level whereas TELX employee base has grown at 34% . These softer elements show the ambition at the top and I believe that the lack of growth mindset is a concerning factor in any investment thesis for the stockā¦
6 Likes
Proportionate share of individual verticals is an outcome, not a decision. A customer cannot be refused just because you need a matching customer in another business line. Products / business lines which are more successful will grow faster than others and skew the ratio. This is a natural outcome and not the necessarily a result of bad strategy. One can see this is many other companies as well.
LTTS has a more diversified portfolio, but it may also be limiting its growth or preventing specialisation. I am invested in both and I donāt think one is necessarily better than others. The truth is, no one knows how the future will evolve, not even the management. But in hindsight, both success and failure are easy to explain.
Investors should factor the pros and cons of respective business models (higher risk and possibility of higher return in the case of former) and invest accordingly.
5 Likes
Strange to know you are invested in LTTS. Your post on LTTS AGM was extremely negative and it was sarcastically influencing.
Anyways,I do track LTTS closely and I feel it is consistently evolving towards newer technology.
Margins have been strong for both Tata elxsi and LTTS. Medical and IOT are huge oppertunity. Not sure how deep they are in Tech but the growth has been good and both are sunrise sector. I see a fair opportunity in both, though agree Tatat Elxsi has been a low radar player and LTTS is agressive.
1 Like
@S_Banerjee Investing should be based on objective parameters like company financials and business model. The AGM experience though disappointing, cannot be the sole driver of investing decisions.
Thanks @phreakv6 for sharing your insights. I agree one should not get carried away by the bombastic claims the managements may make at analyst meets or on social media. You are only as great as what your numbers show, nothing more and nothing less. 
4 Likes
3QFY20 concall highlights.
Fellow boarders please add / highlight corrections. (missed some technical aspects, and excuse some english)
Top customer: JLR business bottomed out, growth will start. Other accounts have grown faster so % concentration of JLR has reduced
Since Jan 2019, management was cautioning about automotive segment slowdown. Deals were being pushed back. Last qtr saw a few deal wins and co has started servicing the deals.
10% growth in auto segments
Early to say whether can sustain. Deals that have been won are being serviced aggressively
Healthcare: bullish outlook, continue aggressive growth
Utilisation at 75%. Bench will be required
Margins to remain in 22-24% band, thats the aim
Deal wins:
Media and healthcare: growth happening as per expectations
Automotive: good qtr, need to see its sustainability. Deal wins in US, APAC region, there is some delay in deal decision making. Outlook is somewhat confused but growth is continuing
Total customers : ~160 (few additions/outgoings as usual)
5-6% QoQ growth is reasonable target to aim and achieve
In 3 yrs time frame medical business to be larger share of portfolio. Medical business is usually higher TCV and term (1-3 yrs). Right now more focused in US/Europe due to large healthcare cos present there.
Margins are superior in healthcare
Intent to focus on media and healthcare also does not mean de-focus on auto. Consider it more as a de-risking strategy
Threats: Sharing R&D spend between (auto cos) themselves, competition from other cos or countries. Both risks are clearly there.
Opportunity: Disruption led by technology. software or digital content will be very high. R&D in our capabilities will increase. Competition will increase no doubt, we have to differentiate
Co has deal wins in China as well
Cash and cash eq of 600 Cr at Q3 end
5 Likes
thanks for that Phreak. Point was not just about vertical concentration, other pointers like hiring, deepening expertise beyond JLR, Client mining - I mean i cant understand why would I Want to buy the second guy when the bigger guy is doing the exact same thing at a bigger scale - thats the basic point. this business anyways seems to lack predictability as it is project based and involves a significant āpushā or a marketing factor to it.
Elxsi managed saidā¦they like to achieve Q-o-Q growth of 5%ā¦that translates to 20% growth annual
Elxsi never achieved 20% growth even under Mr. Madhukar Daveās timeā¦thatās an aspirationā¦
I feel , 12-15 % will be reasonable growth for them
3 Likes
With foot hold in autonomous side they have huge advantage in nurturing Electrification of car. Also CES 2020 can help it garner some new accounts. Not sure if expanding in autonomous Railway yielded any new projects
Many a time, without understanding, capability to deliver of our Mid Cap IT cos, we overestimate the earnings projection and get trappedā¦
People who are little overjoyed , with Elxsi result, should look after LTTS Q3ā¦Reversion to meanā¦
Hardly 10% Y-o-Y
You need to preserve your capital and refrain from assigning higher PE to mid cap IT
I find it very hard to understand why FMCG companies growing at 10% with similar cash flows command PEs of 40+ and 20 appears high for IT stocks.
Below parameters play a role:
- B2B vs B2C
- Brand value basis perception
- Obsolescence risk
- Barriers to entry
- Global vs local
4 Likes
Tata Elxsi IoT Software Powers Tata Motors Connected Vehicle Platform
Nexon EV is the very first application enabled vehicle
Tata Elxsi has partnered with Tata Motors in developing their unified Connected Vehicle Platform that powers the Nexon EV range of electric cars.
With a collaborative approach, Tata Motors & Tata Elxsi developed a cloud-based IoT Platform which provides Tata Motors with a common standard technology stack that delivers the scalability and high performance required to support the entire range of electric, commercial and passenger vehicles.
Tata Motors is in the process of offering the connected Vehicle feature as a key differentiator to most of its BS6 range of Passenger & Commercial Vehicles. Nexon EV, āIndiaās own Electric SUVā, is the very first application enabled vehicle, with a number of connected vehicle features.
This unified cloud native approach will enable data & analytics synergies for Tata Motors, across product development, customer use cases, dealerships, allied businesses and service networks, enabling innovations in customer experience, offerings, services and business models.
āIn line with Tata Motors stated objective of offering differentiated products based on our CESS philosophy (Connected, Electrified, Safe & Shared), we are delighted to have partnered with Tata Elxsi which not only allowed us to take the decision of developing a native platform for the Connected Vehicle Program, but also helped us to jump start and meet the critical product launch timelines. Tata Elxsi brings strong automotive electronics experience, coupled with an excellent understanding of cloud-based applications, data governance and world class user experience capabilities. The collaboration between the two teams has been outstanding and will continue to ensure a wonderful customer experience,ā said Rajendra Petkar, President & CTO of Tata Motors.
āWe are delighted to partner with Tata Motors in the Connected Vehicle Program, to help unify and synergize data through a common digital services platform enabling completely new services, innovative business models and enhanced customer experience. We are proud to be a strategic ecosystem partner to Tata Motors in their vision for the future of mobility that is Connected, Electric, Safe and Shared,ā said Manoj Raghavan, MD & CEO of Tata Elxsi.
2 Likes
Decent Q4 results by company, have to see the Earnings call for more details about the business impact.
Declared Rs 16.5 as dividend for FY20
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Decent results.
Key takeaways from Tata Elxsi concall:
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COVID-19 issue has given impetus to Communication & Broadcasting segment, somewhat countering the slowdown in the automobiles.
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Medical devices will also do well, though there are some immediate challenges as everyoneās attention is focused only on ventilators in which Elxsi is not present. This segment is growing faster than the rest though currently has a small base.
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WFH culture may help save some investments in office space. Good for cash flow.
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Greater acceptance from WFH will also increase offshoring which will be positive for both margins & volumes.
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Evaluating inorganic opportunities. If we get a good bargain due to current crisis, we are open for it.
My observation: Over the years, Elxsiās exposure to automobile sector (and JLR concentration) has come down significantly, giving it a more balanced portfolio. This is a long term positive. But analyst community seems largely obsessed with auto, and stock discounting has also come down.
8 Likes