Publication Name: businessworld.in
Date: March 06,2017
Tata Elxsi is looking at accelerating revenue from its existing operations to touch its Rs 3000 crore sales target in the next two years
Being agile to the changing market needs and equip itself to snap the newly emerging opportunities have been the winning formula for any technology player. And for a design software and system integration players like Tata Elxsi, it is rather like life blood. The company, which made strides in an ever changing global designs market, continued adding clients and bagging new contracts.
Tata Elxsi, the design company of Tata Group, is now looking at accelerating revenue from its existing operations as well as outside to touch its Rs 3000 crore sales target in the next two years. While the company’s performance in the last three years proves its guidance quite realistic, the CEO Madhukar Dev always tries to achieve more.
“We had targeted growing upwards of 20 per cent year on year (YoY) and got quite close to it. However, if you were to add that over the next few years, you will find that organically we cannot get to Rs 3,000 crore from where we are. Obviously, there will have to be other events that will help us achieve the milestone,” Dev said during an earnings call recently.
Tata Elxsi, which caters to the communications, consumer products, defence, healthcare, media and entertainment, semiconductor and transportation sectors currently, had an impressive growth during the last three years.
While its key client, another Tata Group company Jaguar Land Rover (JLR), remains its largest business contributor providing at least one fifth of its revenues even today, the auto sector in general stands more promising for the company in future too.
Analysts predict that automobile sector itself provide immense growth potential for companies like Tata Elxsi.
“Global R&D spends by auto sector stand at $120 billion annually, of which the outsourcing proportion is about 10 per cent and offshoring to India is around 0.4 per cent, providing immense growth potential,” says a recent analyst report by brokerage Motilal Oswal Securities. According to this report, software, which comprised 2 per cent of total value of a vehicle in 2000, now comprises 15 per cent of the total value and is expected to reach 20 per cent by 2020. With 40-50 per cent cost savings and just 0.4 per cent penetration, offshoring to India is a multi-year growth story.
“We expect Tata Elxsi to post secular growth led by automotive, broadcast and consumer electronics divisions which together contribute about 75 per cent to its revenues,” it wrote.
The company has restructured its loss-making VCL business and has evolved into a high quality business focused on niche software services, with minimal capital needs.
During the year 2015-16, Tata Elxsi crossed the Rs 1000 crore mark in turnover for the first time. This was possible due to the concerted effort in scaling up the embedded product design and industrial design services business coupled with better utilisation of available resources, states the company annual report for the year. The total income during fiscal year 2016 increased by 27 per cent to Rs 1087.07 crore from Rs 853.54 crore a year ago. The operating profit and net profit too grew substantially at 52 per cent, 50 per cent respectively over the previous year. No doubt, Madhukar Dev has played a key strategic role in delivering these impressive numbers.