Tata Elxsi sets over 15% growth target despite challenges in auto sector

Tata Elxsi, a part of the Tata Group, is optimistic about delivering growth in excess of 15% in the current fiscal i.e. FY2020. According to top company executives, the growth target will be achieved despite challenges in the automotive sector. Tata Elxsi provides design and technology services for product engineering and solutions across industries including broadcast, communications and automotive.

Madhukar Dev, managing director and chief executive officer, Tata Elxsi Ltd, said fiscal 2019 has been a difficult year on many counts and the company did manage to grow its business by 15%. "Given the scenario, we should be able to grow the business in excess of 15% if not 20%. In terms of earnings before interest, depreciation, taxes and amortisation (ebitda) margin, we have been very lucky. At times we have been very cost conscious for most of the year. I would say an ebidta margin of between 22% and 25% is what we should be ready to deliver," said Dev during an earnings call on Tuesday.

While there are big challenges in the automotive market, Dev also sees big opportunities. According to him, the credibility of the (automotive) business is going to be affected not the overall possibilities in that market.

On the company's approach to grow the business, he said, "We may have to take a completely different approach and engagement models with our clients in addition to expanding to other areas of transport, and not confine ourselves to the passenger car segment. Some of our efforts have worked in the last quarter (fiscal 2019) and others will have to be actioned in the coming quarters in the current fiscal. We already have a strategy in place that will take care of the business in the long term," said Dev who is set to retire on October 1, 2019.

According to analysts tracking the company's business, there has been a considerable deceleration in growth, quarter-on-quarter in fiscal 2019 in the company's automotive vertical. This has been mainly owing to challenges in the passenger car segment in general and the JLR business in particular.

Nitin Pai, senior vice president - marketing, Tata Elxsi Ltd, said there is a bit of softening in the passenger car market. "We looked at other markets and adjacencies outside of the mainstream passenger car markets. Some of them include the very stable and sustained market of the rail industry and other segments of the automotive industry like the commercial and off-road vehicle market. We've had a very satisfactory progress. We've won some new customers, got some good sustained deals and we believe that will continue in the future," said Pai during the earnings call.

Among other market segments being looked at is the medical and healthcare sector that's now coming to the fore for Tata Elxsi. While it's comparatively small compared to the scale and size of the automotive or the broadcast and communications business, the company has already registered a very healthy growth here.

"We've added to the portfolio of customers we've had in the medical and healthcare space. We have gone well beyond new product development and research and development (R&D) to actually supporting them downstream to their entire regulatory support. The scale here is much larger and sustained, programmes are larger and longer. I think that's a very healthy sign not only in our ability to scale with existing customers, build wallet share but also move into adjacent areas of service and expand the overall pie of the market itself. That way medical has been a very satisfactory segment for us this year," said Pai.

The company is also sitting on bank/cash balance to the tune of Rs 500 crore and the management plans to use some of it towards inorganic activities. "There are investments plans through merger and acquisition (M&A) kind of activity as well as technology that we think are promising. Particularly, things that may not be invented in Tata Elxsi but are relevant to our markets. So, we'd like to use some of this money to acquire such technologies, scale them up and take them to market," said Dev adding that a substantial portion of the cash will get utilised in the current fiscal.

Pinning Hopes

• Fiscal 2019 was a difficult year on many counts and the company did manage to grow by 15%
• Co looking to deliver Ebidta margin of 22% and 25%