Saw this interview⌠most important point the CEO made is - the order book is expected to triple in 2-3 years from now
In this business, pipeline drives order book, order book drives headcount and headcount drives revenues. Headcount thus becomes a lead indicator for the revenues the company reports. CEO Mr. Manoj Raghavan said as much in the recent conference call:
We have quarterly headcount numbers reported by the company since Q1 FY18.
I looked at the reported headcount and calculated its relationship with the companyâs revenue. Further, it is assumed there would be a time lag between addition to headcount and its reflection in revenue. A month or two will be spent in settling down the new recruit, training her on the project specific tasks etc. till eventually she becomes billable and adds to the revenues.
Hence, headcount at the end of a quarter are directly correlated with the next quarterâs revenue. That is, headcount as on 31st December 2020 generates revenue for the Jan to March 2021 quarter, headcount as on 31st March 2021 generates revenue for the April to June 2021 quarter and so on. A regression equation can then be used to predict the revenue for the quarter Jul-Sep 2021 based on the reported headcount as on 30-June-2021.
The resultant function is y = 0.0877x â 119.45 where x is the headcount at the end of a quarter and y is the revenue in rupees crores for the next quarter.
The companyâs reported headcount as on 30-Jun-2021 was 7914. Using the above function, we get a value of y=574.61 when x = 7914. The function predicts a revenue of Rs.575 crores for Q2 FY22, which gives a growth of around 34% YoY and 3% QoQ.
One can update this data on an ongoing basis. An environment of higher than average pricing power will lead to higher revenues than predicted by the equation. The above may be a base case scenario for the next quarterâs results. When the company declares its numbers next month, the headcount needs to be watched with as much interest as the revenues, if not more.
Excellet strategy. May I suggest some quick improvements.?
R2 value is 64, hence this equation will be 64% accurate. To incrrase accuracy further, make it a polynomial function ( excel has easy option in choosing trendline ) and increase accuracy to atleast R2 > 80.
Also there are types of headcounts , junior to senior levelsâŚif we could have somehow get those numbers, it will be much more accurate.
If by using those headcounts , they are building platforms & reusing them for other clients - growth will be phenominal.
Simplest way to linearly extrapolate in my opinion is net sales/employee cost. This has been stable at 1.8 for tata elxsi other than covid
Based on this Sepâ21 revenue should be ~(303 * 1.15 *1.8) = 627Crs if we assume 15% increase in employee cost
If we assume same employee cost Sepâ21 sales should be ~(303 * 1.8) = 545 Crs which is the number you got.
Basically 545crs sales in the sepâ21 quarter assumes no increase in employee spend by this model. Will be interesting to see how it pans out!
There is a fundamental conceptual difference in the two approaches. Regression is generated using actual historical numbers. And we forecast for y=7914 which is also an actual reported number. None of the âinput valuesâ are assumed.
Sorry for being brief - I meant that the employee cost might be a better independent variable as opposed to number of employees as it accounts for mix
Just to remind, Tata Elxsi is not a typical service provider IT company. Product based IT company have other factors to generate revenues, but I do agree headcount is a âlead indicatorâ but not the only indicator.
Overall this is a good analysis!
Thanks @Riyaj_shaikh for your inputs! I did not realize changing the function to polynomial will improve R-squared so much. With the new function, R-squared increases to 0.7822 and I get y=Rs.497.48 crores for x=7914.
Changing the polynomial to the order of 3 does not increase the R-squared much (0.79), so for the sake of simplicity I leave it at this.
One should be vary about interpretations. There are things called overfitting,with a high enough degree polynomial, one can fit any data accurately. But, it wouldnât have much predictive power.
Anchors on the CNBC TV18 were stating TATAELXSI is rejecting projects from client due to not able to service them. Is it believable? how much is true in that?
This is not that much surprising as it will be seen more in coming years in other good companies as well. Tata Elxsi already recruited a significant number of manpower for the coming projects but as we know a sudden surge in AI/EV and other related projects are coming which can overwhelm anyone. Tata Elxsi is still in nascent stage and a lot of scope is there to scale up.
chip or semiconductor shortage is also an issue
Tata Elxsi will showcase TEPlay in CABSAT 2021. CABSAT is an annual largest broadcast digital media and satellite expo in the Middle East and Africa.
CABSAT 2021 will take place between the dates of the 26 - 28 October in the Dubai World Trade Center.
Results came Post-market hours today. At first glance, the numbers look good.
REMEMBER, unlike most cos, this is AUDITED results
"Tata Elxsi delivers another quarter of strong growth, with revenue
growth of 38.4% y-o-y and PAT growth of 58.9% y-o-y
EPD grows at 9.7% q-o-q, led by digital and automotive deals
Bangalore, October 22, 2021: Tata Elxsi (BSE: 500408 | NSE: TATAELXSI), amongst the
worldâs leading providers of design-led technology services, announced its results for
the second quarter of FY 2021-22 ended September 30, 2021.
The company reported ⨠595.3 Cr of revenue from operations for Q2 FY22, registering a
growth of 38.4% y-o-y. EBITDA for the quarter grew 22.4% q-o-q and 55.6% y-o-y to
183.6 Cr, while PBT grew 11.1% q-o-q and 55.5% y-o-y to 171 Cr. Companyâs net profit
for the quarter stood at Rs 125.3 Cr, reporting a growth of 10.5% q-o-q and 58.9% y-o-y.
Highlights of the Quarter Ended September 30, 2021:
⢠Revenues from operations at Rs. 595.3 Cr, +6.6% q-o-q, +38.4% y-o-y
⢠Constant currency revenue up 7.4% q-o-q, 37.2% y-o-y
⢠EBITDA Margin at 30.8%; Net Margin at 21.0%
⢠Profit Before Tax (PBT) at Rs. 171.0 Cr, +55.5% y-o-y
⢠Profit After Tax (PAT) at Rs. 125.3 Cr, +58.9% y-o-y"
Tata Elxsi Q2FY22 Concall key points :
â Utilization at 80%,if include campus hire then it will be 75%.
â Onsite Offshore mix is at 25.3%:74.7%. Mngmnt guided some increase in revenue from onsite in Q3
â Offshore contribution in rev expected to be 75-77%,it could be around 65-70% in mid term,and onsite offshore mix wont go to pre covid level i.e 50-50%.
â 700 new hire in Q2,9% of total head count. Management guided of hiring of 1200-1500 employee in Q3.For entire FY22 target would be 10000.
â Wage hike effective from 1st July was in range of 14-15 cr
â Semiconductor shortage will have a short term impact that is 1/2 qtrs but long term project will not have any impact.
â IDV segment will take 3-4 qtrs before showing sustainable revenue growth.
â Entering new qtr with strong order book and healthy deal pipeline across market and industry.
â Rail and off-road segment to contribute 20% to transportation segment in next 5 yrs.
â Strong performance in EPD was visible. Epd grew 10.6% qoq and 34.4% yoy.
â Healthcare continues to grow strongly,grew 6.9% qoq.
â Media and com reported 8.6% qoq growth.
â Transportation grew 14.1% qoq and 24.8% yoy. Management guided for significat growth in automotive market,with large and strategic deals coming from both OEMs and suppliers from in EV and autonomous technologies.
â IDV segment registered de growth of 13.9% qoq on account of shift in programme timeline for a large ongoing design innovation for the US customer who is also featured in top 5 customer list. This project will resume in next 1-2 quarters.
Business update : Collaboration with Green Hills Software on Driver Monitoring System (DMS) platform.