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Tata Elxsi reported Q4FY24 revenues at INR9,059mn (-0.6% QoQ and +7.2% YoY in CC terms), de-grew 0.9% sequentially but grew 8.1% YoY. For FY24, it delivered a growth of 9.6% YoY in cc terms and 13% YoY to INR35.5bn despite global macroeconomic uncertainties and volatility in the media and communications industry over the last few quarters. The reported PAT for full year stood at INR7.9bn (+4.9% YoY) representing a net margin of 22.3%. EPS for the year stood at INR127.2.

• Outlook for FY25E: The management has laid down a strategy of integrating its design business deeply with its key industry verticals, complementing their software and digital business with a design-led proposition. This will enhance its competitive differentiation, provide early visibility into customer product roadmaps, and create larger downstream development deals. Under Transportation segment, management is confident of maintaining its growth trajectory from the SDV programs of 5 global OEMs. Under Healthcare segment, company has established a strong foundation for continued growth with the addition of five market customer logos in the year and expanded capabilities and platforms in new growth areas such as digital therapeutics and connected health. It is making strategic investments and securing contracts for GenAI-driven solutions tailored for the healthcare sector. Management is quite bullish and expects Healthcare segment to lead the organization for next few quarters. Media and Communication segment seems to have bottomed out and is expected to witness recovery from FY25E. There are opportunities in contributing to the revenues through advertising technologies and enabling optics reductions to automation and transformation of network operations. SIS business is pivoting to value-added services, innovation-led projects such as experience centres, and supporting downstream deployment and run management for its products and platforms. Company expects FY25E to be better than FY24.

• GenAI ready: On the AI and Gen AI front, company continues to invest strongly in solutions, POCs and projects and ramp up the talent across the company. It has created and deployed specialized programs to be able to get 25% of its engineers AI-ready by Q3FY25E. Company is working on experimenting and innovating using GenAI across design and software. It is targeting areas that may be impacted by GenAI in the business, such as coding, automated testing, that is being proactively taken to customers.

• EBITDA Margins to improve: EBITDA margins for Q4FY24 came at 28.8%, down 70bps QoQ and 100bps YoY due to high training cost in investment capability building. Company aspires to be in the similar range as FY23 with huge headspace in utilization level improvement. Company saw a net addition of 178 new employees in Q4, contributing to a total of 1,535 new Elxsians in FY24 with attrition levels at 12.4%. Looking ahead, the company plans to on-board approximately 1,500 to 2,000 fresh engineers in FY25E depending on demand.

Valuation: The management is committed to growth backed by strategic relationships built over the years with key customers, the qualitative change in revenues towards OEMs and SDV programs, entries into new operators and marquee healthcare logos, investments and talents in hiring, investments in strategic technology areas in AI and a strong deal pipeline We maintain our rating to BUY with a revised target price of INR8,095 implying a PE of 45x on FY26E EPS of INR180.

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