TATAINVEST Q3 FY25 earnings call.
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Tata Elxsi delivered steady Q3 FY25 results with INR 939.2 crores in revenue amid a seasonally weak quarter. EBITDA margins at 26.3% were impacted by full salary increase cycle (100bps headwind) and adverse currency movements in GBP, EUR, and JPY (140bps impact), partially offset by operational efficiencies. Transportation segment showed 0.5% QoQ CC growth as European OEM headwinds offset gains from Japan and emerging markets (+66.8% YoY). OEM revenue mix increased to 72% from 67%, reflecting Tier-1 supplier challenges. Media/communications and healthcare showed early recovery with 0.4% and 1.1% QoQ growth respectively. Management acknowledged FY25 will be a "soft year" with difficulty exiting above FY24 growth levels, though Q4 will see ramp-ups from Suzuki ODC and large media deal wins. Near-term margin guidance of 25-26% expected as wage hike cycle completes and billability improves. Key risks include prolonged European automotive weakness, geopolitical uncertainty, and currency volatility.
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Guidance to track
- Management plans to return to 25-26% EBIT margins in the near term by improving billability and utilization, driven by top-line growth and completed wage hike cycle.
- Effective tax rate expected to be upwards of 25% going forward as SEZ benefits normalize, with full-year FY25 likely at 24.5-25%.
- Green shoots in healthcare and media/communications verticals should translate to pickup from Q4 onwards with ramp-ups from large deal wins.
Risks flagged
- European OEMs facing sales challenges from Chinese EV competition have reduced R&D budgets, with recovery expected in 1-2 quarters but uncertain timing. Near-term EV budgets being reprioritized toward ICE/hybrids.
- Large deals won in 2024 have not ramped to expected levels, with customers exercising caution on spending. Q4 will see push to accelerate but full ramp-up timing uncertain.
- Adverse movements in GBP, EUR, and JPY caused 140bps margin impact in Q3. Continued volatility could further pressure margins in coming quarters.
- Management explicitly stated it would be difficult to exit FY25 with growth better than FY24 given Q3 flat performance, suggesting potential single-digit growth for full year.
Key quotes
- It's very difficult to give a precise commentary of what's going to happen, but these are all the various moving parts that are there in the market today.
- FY 2025 will definitely be a soft year. We were hoping that these headwinds that we're seeing in the automotive industry, we will still be able to find a way to recover. But with the Q4 performance, I think it'll be very difficult for us to pull so much in Q4 to compensate for the flatness that we're seeing.
- The priority for us is to improve our billability and utilization, and that will come from improving our top line. So there are enough margin levels available for us to get back to those kinds of margins in the short to mid term.
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