Tata Elxsi Ltd (NSE:TATAELXSI) Q2 FY23 Earnings Concall dated Oct. 14, 2022
Corporate Participants:
Manoj Raghavan — Chief Executive Officer & Managing Director
Nitin Pai — Chief Marketing & Chief Strategy Officer
Gaurav Bajaj — Chief Financial Officer
Analysts:
Bhavik Mehta — J.P. Morgan — Analyst
Shashank Ganesh — Ernst & Young — Analyst
Sulabh Govila — Morgan Stanley — Analyst
Vimal Gohil — Alchemy Capital Management — Analyst
Chirag Kachhadiya — Ashika Institutional Equities — Analyst
Sandeep Agarwal — Naredi Investments — Analyst
Sameer Dosani — ICICI Prudential AMC — Analyst
Debashish Mazumdar — B&K Securities — Analyst
Akshay Ramnani — Axis Capital — Analyst
Unidentified Participant — — Analyst
Urmil Shah — Ageas Federal Life Insurance — Analyst
Salil Desai — Marcellus Investment Managers — Analyst
Apurva Prasad — HDFC Securities — Analyst
Bharat Sheth — Quest Investment Advisors — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to the Tata Elxsi Limited Q2 FY’23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Shashank Ganesh from EY. Thank you, and over to you, sir.
Shashank Ganesh — Ernst & Young — Analyst
Thank you very much, Prashanth. Good afternoon to all the participants on the call. Good morning, if you logging in from the western side. Before we proceed with the call, let me remind you that the discussion may contain forward-looking statements that may involve known or unknown risks, uncertainties and other factors. Therefore, it must be viewed in conjunction with the businesses that could cause further results, performance or achievements that differ significantly from what is expressed or implied by such forward-looking statements.
To take us through the results and answer your questions today, we have the Senior Management of Tata Elxsi represented by Mr. Manoj Raghavan, Managing Director and CEO; Mr. Nitin Pai, Chief Marketing and Chief Strategy Officer; Mr. Gaurav Bajaj, Chief Financial Officer and Ms. Cauveri Sriram, Company Secretary.
We will start the call with a brief overview of the past quarter by Mr. Raghavan followed by a Q&A session. We would appreciate your cooperation in restricting yourself to two questions to allow participants an opportunity to interact. If you have any further questions, you may join the queue and we will be happy to respond to them as time permits.
Having said that, I would like to hand the call over to Mr. Manoj Raghavan. Over to you, Manoj.
Manoj Raghavan — Chief Executive Officer & Managing Director
Thank you, Shashank. Good evening, everybody. Thank you for joining us this evening for the Q2 earnings call and I hope that you and everybody in your family is safe and healthy. I’m happy to report that we have delivered a steady quarter of growth. So it’s a good quarter for us, especially with our industrial design and system integration division to picking up on the growth momentum. Our revenues from operations during the second quarter was INR763.2 crores, growing by 5.1% quarter-on-quarter and 28.2% over the same quarter of previous year.
Our EBITDA for the quarter was to INR226.5 crores growing by 23.4% year-on-year. The PAT for the quarter was at INR174.3 crores growing 39.1% of the same period of the previous year. As you would have noticed in our investor fact sheet released earlier today, we’ve added net addition of 1,532 employees. That’s the highest number of Elxsians we have ever added in a quarter. And to support that, we have also expanded our facilities in existing locations and added new locations to diversify our talent base. This is an investment that we’re making to position us for growth in the coming quarters.
On the other hand, these investments have impacted our quarter-on-quarter margin performance. Nevertheless, we still reported industry leading EBITDA margins of 29.7% and PAT of 22.3%. In terms of our divisional performance, the EPD division operating revenues grew by 3.1% quarter-on-quarter and 29% year-on-year in constant currency terms, the industrial design business witnessed a growth of 15.5% quarter-on-quarter and 15.4% year-on-year in constant currency terms, SIS division had a strong quarter by growing 26% quarter-on-quarter and 41.7% year-on-year in constant currency terms.
In terms of verticals, our transportation business unit reported a strong quarter with 4.6% quarter-on-quarter growth and 34.2% year-on-year growth in constant currency terms. We are seeing a good traction in automotive led, automotive business led by EV and it has capabilities. Our healthcare business growth remains robust, registering 5.1% quarter-on-quarter and 45.1% year-on-year growth in constant currency terms. Our media and communication business growth during the second quarter was 1% quarter-on-quarter and 19.5% year-on-year in constant currency terms. The media and communication business witnessed some deferment of platform and large service deals, but we are well positioned to win these in the coming quarters.
While we continue to focus on EPD for product and digital engineering in our three key verticals, we are now seeing our design and SI business expanding and growing and happy with the growth in our SI — System Integration & Support business, even as if reserve the capabilities to run engineering ops and managed services, including some of our own platforms and products, especially in the media and communication industry. While this has impacted the numbers for the media and communication business for the quarter as we transition some ongoing work to the SIS teams, we believe this will create new and stable revenue streams for the company under the division.
During the quarter, we were impacted by supply side challenges as a strong deal inflow and increase utilization of the past few quarters, constrained our ability to immediately address new deals. While our employee engagement measures have helped improve overall attrition for a second consecutive quarter to 18.7%. We saw heightened attrition in our onsite employees signaling the talent mobility that continues in key overseas markets especially for technology and engineering resources. We are making strong investments in growing our leadership pipeline for delivery, technology and sales that lateral hiring and training programs right from technology leads, right up to delivery heads in technology managers. This is essential for us to establish the next base of talent to win, manage and grow. The increasing number of strategic accounts and new offerings we’re bringing to the market.
On the work from home front, senior leaders across the functions and delivery have been working full-time from office for a long time now, along with employees in critical projects, where we had infrastructure dependencies, we have rolled out a hybrid work policies and guidelines across the organization and most employees are now working from home, two to three days a week. The average attendance — daily attendance is now about 50% across locations with almost 70% of the staff coming into office at least once or twice a week. We will phase this out, even as we commission new facilities in space for the increased employee headcount.
We are entering the second half of the financial year with a strong order book, a healthy deal pipeline across key markets and industry and customer confidence in the work we do. Importantly, we are investing in both capacity and capability to strengthen our ability to win, manage and grow customers and business.
So with that, let me wish you and your loved ones a prosperous and Happy Diwali and happy holidays. I will now hand over the floor to Shashank for the Q&A session.
Questions and Answers:
Operator
Thank you very much. [Operator Instructions] The first question is from the line of Bhavik Mehta from J.P. Morgan. Please go ahead.
Bhavik Mehta — J.P. Morgan — Analyst
Yeah, thank you for the opportunity. So I have two questions, mostly, Manoj, the growth slowdown this quarter was mainly due to supply side challenges or there also some issues where clients would have deferred project execution that also impact the goal this time around. And secondly, what are you hearing from clients for the next quarter or let’s say, for the next six months. How are they thinking about project execution, given the macro? Are there any [indecipherable] you expect in this quarter or any with the lengthening of the decision making cycles, which could lead to be dealer and deal closures. So any color on that would be helpful?
And the second question, got always, we saw a very sharp decline in margins this quarter, it seems like the headcount additions was much higher than the top line growth, which probably impacted margins to an extent, but whether also any other factors would like to the sharp margin decline and what’s the outlook going forward on margins, in case, let’s say, the supply side issues persist? So whatever levers you have to go back to achieving more than 30% of margin level?
Manoj Raghavan — Chief Executive Officer & Managing Director
Sure. So let me take the first question. So as you going to see over the many quarters, our utilization rates have been going up and we have been winning pretty large deals and opportunities and we have been able to maintain that momentum. However, at very — at the mid-management level and slightly senior level delivery managers and so on. As the number of programs that we have been winning we faced a crunch at those levels on the supply side. And so what we’ve done this quarter is proactively we decided to go ahead and looking at the outlook, we decided to go ahead and invest in resources, because we’re not looking at this investment for the next one quarter or two quarter. I think these investments that you’re making up for the next four to six quarters we are setting applying for us to ensure that at those levels we continue to grow, right?
Yes, in transportation business and if you look at our medical business, as well as, if you look at industrial design business, we’ve had decent growth. In fact, the pipeline is also pretty strong and we continue to be bullish there. There has been some deferment of projects in our media and communication business. There has been some softness in the top five accounts in that particular business. So that is why we have seen, almost like a flattish growth in constant currencies. I think the situation in the media and communication business in our view, I mean, it has also affected the macroeconomic situation. Europe as well as the high inflation in U.S. has affected to some extent, but I think it could continue for, I would say, maybe one more quarters. That is the visibility we have. Customers are a little cautious. We continue to engage with all the top customers, we continue to look for projections from them and there is — as of now, there is nothing for cost of concern or we’re not hearing that projects are certainly going to be shut down and so on. But even our customers are cautious with their spent. So we need to wait and watch for at least the quarter here in this particular business.
Gaurav, you can handle the margin question.
Gaurav Bajaj — Chief Financial Officer
Yeah, sure. Hey, Bhavik. Bhavik, you’re right at margins for the quarter got impacted due to the highest number of the net add that we have done during the quarter, about 1,532. We have also on-boarded the campus as part of this 1,532 headcount and we did some campus on-boarding during the end of the last quarter itself. Along with the campus, which has impacted in the lateral, which has impacted our margin and increase our people costs, there are certain other cost, which is also going to come back and we always expecting those costs to be in fact, whenever we start our operations back from the offices. So our facility operations are now are influencing.
I think, as Manoj mentioned that we have asked our people to get back to office in this quarter. So people are coming to office two to three days in a week. So we have to have all the facility running at a full scale now. Along with that, I think we have over the last two years during the COVID. I think we expanded from your headcount almost increased by double — two times and all. So we also need to add new facilities that also we have started kicked off new facilities in this quarter. So we started three new centers, one in Bangalore, one in Calicut, Kozhikode and one small expansion in Chennai.
Along with that, I think the certain discretionary spend, driver, recruitment and training of the new hires that we have done. Those people will come from various domains and other skill related training and for them to be ready for the product billings in the quarters to come. So all put together, all those things have kind of impacted our margins, but I think these are the expectation level that we always knew that once we start our office and ask to people to come back. Those would be the alignment or little bit switch here will happen from the margins that have been reported in the last two quarters.
Bhavik Mehta — J.P. Morgan — Analyst
Okay, got it. But that’s very helpful. Thanks a lot.
Operator
Thank you. The next question is from the line of Sulabh Govila from Morgan Stanley. Please go ahead.
Sulabh Govila — Morgan Stanley — Analyst
Yeah, hi, thanks for taking my question. So a couple of questions from my side. First one to begin with is on the supply side challenges that we mentioned, is there a quantification to that, at was there an impact on the revenue, how much did that impact come in this quarter from that perspective. That’s the first one. And related to that, you mentioned some deferment that happened in the media and the communication business. In the other parts of the business, which is transportation and medical, you mentioned that it continues to remain strong. But in the new deals that you’re signing or you’re part of the discussions, are you facing some sort of challenges there with respect to closures or the way clients are thinking about it. So any color there would be very helpful.
Manoj Raghavan — Chief Executive Officer & Managing Director
Yeah, I’ll address the second question, first. Especially, in other businesses including transportation, medical, even IDV and SIS, we don’t see that — we don’t see the sort of deferment and so on. We continue to close deals. We continue to ramp up customer engagements. And so we don’t see any of that happening, it is specifically focused — the issue that we are seeing is primarily in our media and communication business and both in the U.S. and Europe. So we are seeing some of the deals take longer time to close. And in some cases, customers are also postponing decision — move that to the next quarter and so on.
Regarding your first question, regarding supply chain challenges, yes, we have seen these challenges across, I would say, the industry vertical. Our growth rate could have been definitely higher if we had — if we had such a number of people at the mid-management to really ramp up some of the deals that we have learned and really moves something, right? But however, we are taking steps to sort that out and we’re pretty confident that that can be — the supply side challenges can be addressed. I will want to put a number there in terms of what we lost and so on, but we are on track. We understand challenges and we are working on it.
Sulabh Govila — Morgan Stanley — Analyst
Got it. The second bit from my side is on the cost side. So one is, I wanted to understand that within this 1,500 bunch of people that we’ve added this quarter, what’s the breakup of freshers and what is the breakup of freshers versus lateral that we’ve taken in this quarter? And the associated impact on utilization that we’ve seen Q-on-Q-on-Q basis. The second-related question is on the cost structure as we mentioned that now, we are running full scale on some of the facilities and we are ramping up, so that the people that we’ve added can become productive and billable. So just trying to understand that from a cost perspective. Now this is going to be — and this is going to be a steady state cost, which is there in the P&L and as and when these people become billable, you get benefit from the revenue that they generate. Is that the way to think about it?
Manoj Raghavan — Chief Executive Officer & Managing Director
Okay. So regarding the headcount that we have added, roughly around I think 1,100 to 1,150 odd is sort of fresh people that we have added and about the 350 audit collaterals that they’ve added. Regarding the cost, Gaurav can you address that question?
Gaurav Bajaj — Chief Financial Officer
Yeah, yeah. Sure. So Sulabh, I think Manoj mentioned that out of 15, 11 or something was at 10% related. In terms of the cost impact, I would say that campus would have impacted our margins by 120 basis point and lateral along with some correction that we have to do for the on-site people in this quarter would have impacted that 60 basis point. And rest of the impact in the margin because of the facility expansions and operationalization of the facility for the people to come back to the offices and other travel related expenses and the training recruitment for those things. So that is the kind of the breakup. And at the same time, we have some gain from the cross currencies in the USD improving in our favor. So these are 30 basis points gain from the currencies that’s how — that walk from the quarter-to-quarter perspective works out.
Sulabh Govila — Morgan Stanley — Analyst
Sure, sure. Got it. Just a quick follow-up, Gaurav. I just wanted to understand at the line items like other expenses and depreciation. So is this more of a steady state number from here on? Or you expect further increases in the coming quarters on this as well?
Gaurav Bajaj — Chief Financial Officer
Our business is not like a proportionate linear business. So there are certain costs that will continue and all those costs also depends upon the scale and the volume at which we are growing. See, I think, look — to look at all these costs are not the expense for us. These costs are basically the kind of an investment in the right capability and capacity that we need to add for the future growth. These people campus will take somewhere from six months to nine months to go through the various training, domain trainings and all those things. So we can — I mean some of these costs will continue, some of the cost, yes, there are certain costs which maybe some differentiate of cost could be there in the next quarters to come, because there would be certain costs that have gone significantly behind hiring and onboarding and training of those people.
But yes, I think what we see that as we continue to have positive demand outlook, some of these costs will get normalized over the quarter. Of course, there would be other levers, but there could be other costs also that can come back, because we don’t want to cut on to the cost and don’t invest on the right technology, right product and all those things. So there will be a balance between these two.
Sulabh Govila — Morgan Stanley — Analyst
Understood. Thanks for taking my questions. I’ll get back into the queue.
Operator
Thank you. The next question is from the line of Vimal Gohil from Alchemy Capital Management. Please go ahead.
Vimal Gohil — Alchemy Capital Management — Analyst
Yeah, thank you for the opportunity. Sir, my question on margins and opex has been answered. Just wanted to check on the hiring outlook, so we’ve done close to 2,500 for H1, what is the expectation for H2?
Manoj Raghavan — Chief Executive Officer & Managing Director
I think we will — our utilization has dropped to around 78.9% almost 79% and so on from about, I would say, 83% or 84%. So I think the first focus for us is to get back our utilization back to above 80%. We will continue to hire on especially for the specialized capabilities and so on, but we will be careful about let’s say bulk hiring and generic skills and so on. Still, our utilization picks up. So there will be a balance.
Vimal Gohil — Alchemy Capital Management — Analyst
Perfect, thank you so much, sir and all the best.
Manoj Raghavan — Chief Executive Officer & Managing Director
Thank you.
Operator
Thank you. The next question is from the line of Chirag Kachhadiya from Ashika Institutional Equities. Please go ahead.
Chirag Kachhadiya — Ashika Institutional Equities — Analyst
Hello. Sir, I have a question like in last two quarters, we posted a very good set of numbers and also received a good amount of order inflow in the first half of this fiscal. So is there any one-off, which we experienced in revenue as well as in order inflow due to disturbances in the tier operation in war related territories or any softness you expect in the H2 due to seasonally weak season, your thoughts on same?
Manoj Raghavan — Chief Executive Officer & Managing Director
See, it’s very difficult to comment on the war and the macroeconomic situation in general, right? I think it is prudent for us to be a little bit cautious about it. What we are doing is proactively going and talking to all our top customers in Europe, especially in Germany, which could be affected if the war escalates and so on. So we are really trying to understand, I mean really trying to have regular meet ups in connections with them to understand, if there is any change in their own thought process and are they going to be affected, winter is coming, energy prices are going up in Europe. So will there be any cut in budgets and so on? And these are the questions that we’re asking our customers. As of now, none of our top customers they are stalling any of the committed investments, right? Entering that they’ve already committed and where we have already on-boarded resources and those projects are ongoing. They are ongoing. We don’t see too much of an issue. What — if at all, there is any slowness it is in, the new opportunities that we are going after I think customers, in general, are being a little cautious, the time to closures are going up and that’s something that we’re watching closely. And so one never knows when situation goes out of control. What will the customer behavior? What will the customer — how will the customer react, right?
But the good thing is, I think 95%, 96% of our revenues in the quarter come from our existing customers. So we are keeping a close tab on them. And then, we don’t see any sort of uncertainty at this point in time. But having said that, it’s — we have to watch it really month-on-month you have to watch. Did we talk to our customers? We have to really keep close to them. So that’s as far as I can talk about the macroeconomic situation at this point in time.
Chirag Kachhadiya — Ashika Institutional Equities — Analyst
Okay. Sir, one more question. Like India is — all PLI schemes and all, government focusing on making the Indian manufacturing of — on global front, so do we find opportunities of our EPD, IDV, SIS offering within India later on.
Manoj Raghavan — Chief Executive Officer & Managing Director
Yeah, absolutely. Absolutely. That is — I mean, we are having discussions with few customers who are utilizing the PLI scheme, launching products earlier, they suggest import products from China or anywhere else, and they just used to brand them and sell them in India. Now, many of these companies are deciding to start manufacturing, deciding to design their own products in India and manufacturing. So I think this scheme is positive for Tata Elxsi and then we are in discussions with a few customers to see how we could be the design arm, because many of these companies don’t have that design capabilities, they earlier use to just import from China and just put their brand. So now, a lot of companies are — because of our design heritage, they are talking to us to see how we can support them in their new product R&D.
Chirag Kachhadiya — Ashika Institutional Equities — Analyst
Okay, sir. All the best.
Manoj Raghavan — Chief Executive Officer & Managing Director
Thank you.
Operator
Thank you. The next question is from the line of Sandeep Agarwal from Naredi Investments. Please go ahead.
Sandeep Agarwal — Naredi Investments — Analyst
Thank you, sir. Sir, my question is, where expenses increase to INR102 crores from INR82 crore Q-on-Q, is there any one-off item or any of recurring in nature or what type of expenses included.
Gaurav Bajaj — Chief Financial Officer
Sorry, I think our expense line item is not clear, on which line item of expense you are referring this to.
Sandeep Agarwal — Naredi Investments — Analyst
Sir, other expenses, increase from INR102 crores from INR82 crore Q-on-Q basis, so is there any one-off item or recurring in nature?
Gaurav Bajaj — Chief Financial Officer
So there are both there. I mean, there are certain recruitment-related, onboarding-related one-time items also, but there would be ongoing expenses also like travel cost, all those things and facilities and all those things maintenance, utilities that has come back. So it’s a mix of both.
Sandeep Agarwal — Naredi Investments — Analyst
Okay. Sir, my next question is regarding — sir, we have 34% income from Europe region and 43% from U.S.A. So how currency movement impact our company in this particular quarter, any specific number regarding currency losses in dollar and euro?
Manoj Raghavan — Chief Executive Officer & Managing Director
So on an overall basis, I think, if you see we have — on revenue side, we have a 40 basis point benefit from the USD moving in our favor and partly, which were offset by dampening of the pound and the euro. But overall at the topline basis, we have a 40 basis point gain. On a margin basis, I think that translate, because we have certain costs also into those respective currency. On a margin basis, it is 30 basis point kind of a gain on our bottom line.
Sandeep Agarwal — Naredi Investments — Analyst
Okay. Thank you, sir.
Manoj Raghavan — Chief Executive Officer & Managing Director
Okay.
Operator
Thank you. The next question is from the line of Sameer Dosani from ICICI Prudential AMC. Please go ahead.
Sameer Dosani — ICICI Prudential AMC — Analyst
Thanks for the opportunity. Just one clarification, sir, freshers, I think you mentioned that we have added freshers, but is this — at the end of the quarter, is my understanding correct, towards the end of the quarter?
Manoj Raghavan — Chief Executive Officer & Managing Director
No. We have added throughout the quarter. In fact in on top of this, I think we had added about 250 freshers in Q1 towards the last month. I mean towards — that full quarter impact is also there this quarter.
Sameer Dosani — ICICI Prudential AMC — Analyst
Okay. Okay. And also just generally speaking this industry as a whole, Q3 is a weaker quarter because of furlough. What do you see, is there some impact that we are expecting some normalization, if you can just throw some light on us — on that? Thanks.
Manoj Raghavan — Chief Executive Officer & Managing Director
Yeah, Q3, it’s traditionally, yes. But if you look at our — I think last financial year Q3 also, we did a pretty good growth. So yes, we are waiting and watching. We have not really seen furloughs, and so on yet from any of our customers. So that is something, again, we are closely watching and talking to these customers, so we hope we will continue the trend like last time.
Sameer Dosani — ICICI Prudential AMC — Analyst
Okay. Understood. Glad to hear that. And also on the facility and travel expenses we explained, right. There is an impact, do we see more, more expenses coming through our way going forward in Q3, Q4? Any idea on that you can give?
Manoj Raghavan — Chief Executive Officer & Managing Director
Yeah. See, facilities, as I mentioned earlier, we have started — we have actually mandated hybrid work for our employees from October 1. Okay. And earlier, there were about maybe 25% to 30% of employees who are coming to work in Q2 and a little lower number in Q1. Right now, if you look at it — if you look at an average number of employees in a particular week, right, unique people who are coming in we’re almost touching 60% to 70%, so which means and hopefully in this quarter we will increase that number to almost 80% or so, which means we are almost back to our — even pre-COVID numbers, if you look at it, we were maybe 6,000 or 6,500 people at that point in time, and with all these employees coming back, we will definitely exceed that number we’ll grow to maybe people in office being to about 8,000, 8,500 and so on. So associated expenses, utilities, employee-related expenses, employee-dropped expenses, cafeteria-related expenses, you name it all expenses that will be associated with work from office, all of that will come back. I think if you ask me, I think that’s a positive. I wouldn’t consider that as expenses. I won’t be worried so much, because these are needed for us to deliver value to our customers and I think that is something that we will like to take into account.
Sameer Dosani — ICICI Prudential AMC — Analyst
Right, right. Completely understand that these are necessary expenses. But additionally, do you think there are some expenses that would come because we already at a respectable number in terms of coming back to office and we already have facilities that we’ve taken up. The increment — yeah, I was just understanding.
Manoj Raghavan — Chief Executive Officer & Managing Director
Yeah. So it is possible that either in Q3 or in Q4, we may have to add two office spaces because of the headcount that has come back, right. So we would need to take additional office space at least in a few locations. We are evaluating that depending on when individuals will come back and so on. At this point of time, it is okay, but there could be additional leases that we would need to sign to accommodate for the growth and the new employees are coming back.
Sameer Dosani — ICICI Prudential AMC — Analyst
Okay. Okay. Okay. Okay. And lastly on the transportation segment you already explained, media had some caution in terms of clients, but how do you see revenue or how do you see traction in your transportation business because auto as a whole is, I mean, it’s the traction has been good, right, is what we are. So if you can give some color whether it will accelerate from here or you can — you see momentum continue from here. Thanks.
Manoj Raghavan — Chief Executive Officer & Managing Director
Yeah. We definitely see momentum continue and we want to accelerate and we want to really push that pedal there because we have large opportunities that we have signed off and so for us now is a question of really how — from a supply side, how do you handle that especially around what I talked about the mid-management and the senior management folks who can manage customers who can really handle some of these large programs and so on. So that is some — that is a place, where we are really, really investing in and really seeing how we can expand that right. So again, in that business, demand is not an issue for us. Supply at that critical level is a little bit of an issue. Junior people we have no issues. We have a number of them available. So that’s something that we’re working on. And once Q3 and Q4, we will put a lot of focus. In Q2 also, we’ve done a lot of focus and really brought in a huge number of resources in that brand. And then hopefully all that will help us accelerate our business in Q3 and Q4.
Sameer Dosani — ICICI Prudential AMC — Analyst
Last question if I may squeeze in, what is the pressure — what is the timeline that you expect and obviously, you have hired a good number of freshers in Q1 also, have they started getting deployed and what is the client feedback overall that is one thing. And what is the — what levers, is it a big lever that we look for in our margins. Thanks.
Manoj Raghavan — Chief Executive Officer & Managing Director
For us it is not margin. We’re not looking at freshers from a margin perspective. We’re really looking at building the bench strength for us for the next few quarters, right. How do we — how are we able to grow our overall revenues and so on. I would say, out of the number of people that we have had maybe less than 100-odd freshers have been billable — have been made billable and that’s because these guys have interned with us and worked with us and they have already been trained and they could hit the ground running. So that has really helped. The other set of freshers, I think it will take at least two quarters to get the majority of them built. So we would look at maybe in Q2, we could target maybe another 200 or 250 people from that batch, sorry, coming in Q3 to get built and subsequently but in Q4 and Q1, we should have a majority of them built.
Sameer Dosani — ICICI Prudential AMC — Analyst
Okay. Okay, thanks. Thanks for the answers. Good luck for future.
Manoj Raghavan — Chief Executive Officer & Managing Director
Thank you.
Operator
Thank you. [Operator Instructions] The next question is from the line of Debashish Mazumdar from B&K Securities. Please go ahead.
Debashish Mazumdar — B&K Securities — Analyst
Good evening to the management team. One question that I have is, if I see the IT salvage companies.
Operator
Sorry to interrupt you, Mr. Mazumdar, please use the handset mode. The audio is not clear from your line.
Debashish Mazumdar — B&K Securities — Analyst
Am I audible clearly?
Operator
Yes, sir.
Debashish Mazumdar — B&K Securities — Analyst
I have some of the IT service companies have clearly called out that there is a pressure on the discretionary spending and the clients are moving towards more maintenance projects. If I understand correctly, the R&D as a business is more discretionary in nature, further planning seems to be we’re not seeing that kind of pressure there. So any change [Technical Issues] we are dealing with today or clients in the discretionary level are maintaining their budget despite having uncertainty at the economic level?
Manoj Raghavan — Chief Executive Officer & Managing Director
Yeah, I think I’ve answered that look most part of our business, we see customers continuing to invest and we don’t see any slowdown and so on. Slowdown if any is, because of our supply constraints and we are working on that and that will be sorted out. On the media and communication business, we do see some slowness and that is, where we are looking at seeing how we can go to the customers and see what budgets they have and where we can expand our services, right? So to that extent, yes, in a part of our business, we see some effect, but it’s too early. I think it’s a question of really talking to customers and really understanding what is causing this deferment of projects and hopefully, it’s just a one quarter issue. And the confidence will come back and we’ll be able to ramp up our business that. So yeah, I think we are working on it.
Debashish Mazumdar — B&K Securities — Analyst
Just a related question, sir, the growth that we are getting is because of the markets delay or the overall market itself is also going?
Manoj Raghavan — Chief Executive Officer & Managing Director
It is both, right? You can’t say it is only one or the other. The overall market is definitely growing with a lot of digital opportunities, especially, in all the areas that we are working in. At the same time, yes, we are also winning market share from our competition, right? That is a combination of both.
Debashish Mazumdar — B&K Securities — Analyst
Okay, one last question if I may squeeze in, if I just read the fine print, it seems to be that some of our media entertainment projects related to India and APAC has slowed down. Any specific color on that, sir? Is it like one-off or it is like a permanent loss of business?
Manoj Raghavan — Chief Executive Officer & Managing Director
I’m not really sure whether that is true, majority of our business in the media and communication is from the U.S. and the slowdown that we see is definitely a lot in the U.S. and some in Europe. India, yes, it is also important market for us, and I don’t say it is specifically APAC and so on, right? That is causing this sort of a slowdown. It’s across.
Debashish Mazumdar — B&K Securities — Analyst
Thank you. Yeah, thank you very much for answering the question.
Operator
Thank you. The next question is from the line of Akshay Ramnani from Axis Capital. Please go ahead. Akshay Ramnani, your line is unmuted.
Akshay Ramnani — Axis Capital — Analyst
Hi. Hi, thanks for the opportunity. So Manoj, you mentioned about deal wins and pipeline being strong, but you also talked about delayed decision making environment to close those deals. So I wanted to understand what are the clients are indicating to your conversations especially your top ones, any sense you’re getting on the visibility of their spending over the next four to six quarters or CY’23, because it looks like you made a very strong investment in hiring to fulfill demand over the next four to six quarters. So of course, there would be some visibility that you might be having to make such a strong hiring commitment. So wanted to understand your thoughts on visibility of demand over the next few quarters?
Manoj Raghavan — Chief Executive Officer & Managing Director
Absolutely, Akshay, so I think we have been talking to all our top 20 customers, pretty closely. If we look at it from a top five customer base and our top 10 customer base, we have been steadily growing. I don’t think there is any cause for concern that. So we have done this investment primarily based on the sort of pipeline that we have from our top customer and you’re right. This hiring is not for this quarter or the next quarter and so on. It’s for the next four to six quarters and that we are in alignment. So customers are definitely not indicating especially in our transportation business, medical business as well as in our industrial design business. We see a strong traction. We see a lot of the requirements coming in. In the media and communication space, I believe it’s an issue just in this quarter maybe next quarter also, but there are lot of transformation happening in that market.
Our customers cannot just thought the innovations that they’re doing. We strongly believe that some of the work that has been deferred will come back. It’s a question of a quarter or two. And I think the general discussion with our customers in the media and communication space is, they value our relationships and these relationships, especially with our top customers have been for the last 15, 20 years and then we have seen this sort of a situation when the macroeconomic situation is not very clear. Sometimes the customers take a pause, when I say pause, it is not on the existing projects that they are executing, right, those projects continue in full stream. It is the new opportunities or the new areas that they’re looking at that, there it’s just a pause and I’m sure in a quarter or two, that will come back.
So we’re still pretty bullish there and you should imagine that this is the business that has really helped us during the COVID time, right, when our automotive business was really not doing well. The media and communication business is one that really pushed us forward. So we’ve really had a tremendous run over the last eight quarters in the media and communication business. So I think it’s just — I tend to believe that this is just a pause and they are reevaluating their overall strategy and so on, from their end customer perspective and from their market perspective, relationships are extremely strong. And I don’t see a cause for concern. And, however, we are in very, very close discussions with all our top customers and I strongly believe with the matter of time before we get back that growth. And yes, we are investing for the future, not for just the next quarter and so on.
Akshay Ramnani — Axis Capital — Analyst
Great. Great. That’s good to hear. But, so why I asked this is, because historically, we have seen volatility in revenues in an environment when decision making slows down. And so, just wanted to understand, has it add something changed this time around, which is giving you a higher visibility in an environment, where decision making is slowing down. Maybe your — maybe some larger deals, which are getting adding into your order book, which is giving that visibility or how should one think about it because versus the past and this time around?
Manoj Raghavan — Chief Executive Officer & Managing Director
Sure. Sure. No, I think over the last two or three quarters, right, we have closed some large deals and so on. And naturally, there is a ramp up plan for all those deals and the resourcing that we have hired in this quarter, it should really address those ramp up that is going to happen in the next quarter and the next quarter, right? So we are actually getting ready prepared to ensure that we have that that just to meet the pipeline and the ramp up that has already been closed, right? So that’s what we’re doing. And I think, we are there, right, with this sort of a ramp up that we have done, it’s just a question of how quickly we can get these people ready for customer engagements and how quickly we can get them into billable roles. So that’s what the focus will be for the next at least one quarter. And I think the teams are working pretty hard, along with the customer to make that happen.
Akshay Ramnani — Axis Capital — Analyst
Great, great. And just a small one, so what is the outlook on offshoring? What are clients talking about offshoring any return to onsite or they want to scale increase offshore in an inflationary environment? Your thoughts there.
Manoj Raghavan — Chief Executive Officer & Managing Director
Offshoring continues to be strong. In fact, I’m not sure if you heard it from anybody else but the onsite environment has become very, very difficult, right, in the U.S., and Europe and so on, because of inflation and so on, right. The salary levels are going up like anything and one of the issues I think — one of the things that also hurt us in our ancillary businesses, we’ve had a lot of attrition onsite and one person quits onsite, it’s almost like two or three offshore revenue that gets hit, right? So onsite attrition definitely is an issue and these are guys going joining an Amazon or Google or at two x or three x salary and so on. So these are things that are totally disrupt the — and it’s very difficult for us to really hold such people back. So that is a little bit of a challenge that we have. But the good part is, as you all know, our onsite presence is anyway about 10% or so of our workforce is on-site. So we continue to pivot with our customers strongly on the offshore, and I think this quarter also ratios have been not been very different from the last quarter, so I think customers are okay. I don’t think they’re are asking that we need to return back employees to onsite and so on. We have not seen that trend so far.
Operator
Thank you. [Operator Instructions] The next question is from the line of Naveen Bothra [Phonetic], Individual Investor. Please go ahead.
Unidentified Participant — — Analyst
Yeah, good evening, sir. Congratulations for really good set of performance and continuously growing the TEngage performance even in this challenging environment. Sir, my question is regarding if you can throw some more light on the India business and as well as in the last con call you said that rest of world like China, Korea and Japan, you did not see some new deals closing there. So if you can throw some lights — because we are seeing 3% growth over there in rest of world revenues. So more these geographical areas, you can throw more light currently and as well as the environment for the coming second quarter. It will be helpful, sir. Question for Mr. Manoj? As well as the second question is regarding the healthcare and TEngage vertical to Mr. Nitin, because we have been marketing in addition for since the March quarter, so if you have seen some commercial closures or orders in fact, we have started it will be quite helpful sir, regarding TEngage?
Manoj Raghavan — Chief Executive Officer & Managing Director
Yeah. So yes, our India business has been pretty soft. And I would say, it is not because we don’t have order inflows and so on. There was lot of order inflows in the India region but unfortunately because of the supply-related issues we had to sort of prioritize some of our overseas customers and we had really move, so that we earn better realization and so on. So I think that’s very simple reason, why India business is down, there is lot of opportunities in India and we are being a little selective given the closing situation as to how do we — how do we address that.
Regarding other markets China, Korea, Japan, China continues to be down because of COVID and all the issues. I mean is sort of really — not really focusing on China. I think same with Korea but however, our Japan business, we are definitely ramping up there have been some good deal wins in Japan, in the last quarter and there are some good funnel this quarter also. So we’re pretty positive hopeful that the Japan business will definitely grow.
On TEngage, Nitin, would you want to?
Nitin Pai — Chief Marketing & Chief Strategy Officer
Hello, Mr. Bothra. So on TEngage, I just want to comment that you got to look at that as a strategic platform, right, why? Because this is a make or buy decision that customers make. So it’s really about will you — when you license TEngage, will you use this as the primary platform, you will build your products and services on top or would you build your own? So to that extent, because these represent strategic budgets, we never expected anything to close in a quarter or two quarters. In fact, our view was that most likely it has to be part of the new budgeting cycles, strategy expense. So I would expect something that happens in Q1 2023, when I say Q1, I’m talking of calendar year, why, because typically a primary market being targeted as U.S. So it is really the first quarter of the calendar year there that also budgeting. But having said that, we already have some discussions going on in terms of RFPs, RFIs where we are part of the conversation. What it is — more importantly brought business in is services business where customers are saying, look we are not going to buy, we are going to make, but you’re relevant, your capabilities are already proven with your platform. So we would like you to take up services work that we have already actually won some deals on.
Unidentified Participant — — Analyst
Okay. Just a follow-up regarding the India weakness, as we are saying that in the media vertical, we are seeing some softness or deferrals. So you said that the shortage where using the other overseas markets and all these things, so that’s why some choppiness India business. So going ahead in this second half, do you see India business because you actually said that demand is quite good, pipeline is also good. So if you can throw some more light, regarding we have to India business execution [Technical Issues] and all these.
Nitin Pai — Chief Marketing & Chief Strategy Officer
Yeah, since we have also ramped up hiring and so on. So some of the resources that we ramped up and if are able to convince our customers in India to make use of those resources for billable engagements and so on. Yeah, we will be able to service those requirements that we are not been able to service the last quarter. So that’s something that we’re working on.
Unidentified Participant — — Analyst
Okay. Thank you, sir. Thank you very much. All the very best and Happy Diwali to all at Tata Elxsi. Thank you, sir.
Nitin Pai — Chief Marketing & Chief Strategy Officer
Thank you. Same to you. Yeah.
Manoj Raghavan — Chief Executive Officer & Managing Director
Thank you so much.
Operator
Thank you. The next question is from the line of Urmil Shah from Ageas Federal Life Insurance. Please go ahead.
Urmil Shah — Ageas Federal Life Insurance — Analyst
Yeah, thanks for the opportunity. Good to see we’re being the only company to see a double-digit employee addition in this quarter. So just for more clarity on the softness, which we talked about in the media and communication business, so it’s more on the communication such segment side or in the media side or we have seen a difference in both the sub segments?
Manoj Raghavan — Chief Executive Officer & Managing Director
It’s a good question. So I would say, a lot more on the media side and communication still picking up. We are looking at the investments in 5G and so on. So we are investing there. But a lot of our current business is on the media on the OTT and operator side. So that is where we are seeing a little bit of softness. On the communication side, I think there are a lot of opportunities that are coming up and then we are investing there so. So, yeah, so I think media is where some amount of slowdown.
Urmil Shah — Ageas Federal Life Insurance — Analyst
And so was this deferral more offer towards the end quarter phenomenon and that could provide a positive surprise, if not in Q3 and Q4?
Manoj Raghavan — Chief Executive Officer & Managing Director
I didn’t get that question.
Urmil Shah — Ageas Federal Life Insurance — Analyst
So the deferral was more to done towards the end of the quarter and once the clients have more certainty the spent might come in and that could provide us price in Q3 or Q4 or it was towards mid or the start of the quarter itself?
Manoj Raghavan — Chief Executive Officer & Managing Director
I don’t think I think it’s very difficult to say whether it is the end or I mean, it is — we have been saying this weakness for some time now, but to my mind, it’s a one or two quarter issue and we should — these are not gone, right? These are deferred. We are still engage with the customers and this should come back at some point in time.
Urmil Shah — Ageas Federal Life Insurance — Analyst
And sir, just last question is —
Operator
Mr. Shah, the audio is not clear from your line, sir.
Urmil Shah — Ageas Federal Life Insurance — Analyst
Is it better now?
Operator
Yeah.
Urmil Shah — Ageas Federal Life Insurance — Analyst
Yeah, so just the last question. As regards the commentary of your larger [Technical Issues] on Europe, it’s more of a uncertain kind of impact right now, what would be your commentary on both the media and communication and the transportation segment, specifically in the European geography?
Manoj Raghavan — Chief Executive Officer & Managing Director
Yeah. So again to repeat the same thing, right? We don’t see any concerns on our transportation business. We hope that we have a good — definitely a good pipeline and customers that we have actually closed deals with and for us it is supply side there, and those are the steps that we’ve taken to address the supply side. And hopefully, we should continue that growth. On the media side, definitely there is some slowness that we’re watching in the marketplace itself and that is something that we hope it is just a one or two quarter issue and we’ll get back to the recovery path.
Urmil Shah — Ageas Federal Life Insurance — Analyst
Sure sir, thank for answering my question. And wish you and your team happy festive season.
Manoj Raghavan — Chief Executive Officer & Managing Director
Thank you.
Operator
Thank you. [Operator Instructions] The next question is from the line of Salil Desai from Marcellus Investment Managers. Please go ahead.
Salil Desai — Marcellus Investment Managers — Analyst
Hi, Manoj. When you moving now to a hybrid model from October 1, so can you just throw some light on what is your deficiencies are you trying to plug to get people back into offices? And is this across all geographies or is this specific to say India or too some cities within India?
Manoj Raghavan — Chief Executive Officer & Managing Director
I’m not sure if I understood the question, right? But 90% of our resources are in India only, right? And this applies to all our — all the resources that are there in India, right. So what we have mandated is definitely, I think in Q2 and even in Q1, the mandate was at least all the senior management used to come to office and wherever there are some infrastructure related projects and so on which needed certain infrastructure that can’t be shipped outside the office. Those teams were working from office. And then if there are very, very tight projects. Schedules are very tight or other customer escalations and so on. We have mandated all those teams to come and work in office. So that was how we were managing and about 25%, 30% of the team used to come to office. But come October 1, we have said look we employees have to come back to their base location and that is two to three days. They have to be in office hybrid product scenario.
So we have — yes, we still have a few set of employees that continue to work of — work from home due to whatever, there are certain issues that they have and the medical emergencies, young parent and so on and so forth. But apart from that, almost close to about 70% of our employee base now comes to office. So I’m not sure if I’ve answered your question.
Salil Desai — Marcellus Investment Managers — Analyst
Yes, sir. Just kind of clarify, you think that there is a perceptible productivity.
Operator
Mr. Desai, the audio is breaking from your line, please check.
Salil Desai — Marcellus Investment Managers — Analyst
Sorry. Sorry. Sorry about that. So, sir, just to clarify, you would think that there is some productivity enhancement you’ll see when you’re calling people back to work. Okay. And that should reflect in some metric somewhere down the line. Got it. Thank you so much.
Operator
Thank you. The next question is from the line of Apurva Prasad from HDFC Securities. Please go ahead.
Apurva Prasad — HDFC Securities — Analyst
Yeah, good evening. Thanks for taking my question. Manoj, could you quantify how much would be the impact of the lower growth in IDV rising from the supply constraint and the onsite problem that you referred to and would there also be an impact from lower IP contribution of the current quarter vis-a-vis the previous quarter?
Manoj Raghavan — Chief Executive Officer & Managing Director
Sorry. You mean lower IP.
Apurva Prasad — HDFC Securities — Analyst
Yeah. So, I mean would Q2 have lower IP revenue as compared to Q1, which had impact on revenue and margins. And if you could quantify how much would be the miss on EPD growth from the supply constraints that you referred to?
Manoj Raghavan — Chief Executive Officer & Managing Director
Maybe I will — I don’t have the data immediately. I’ll check if Gaurav has the data and, but I don’t think there is a perceptible difference in because of IP, it’s not as in Q1, we had a lot of IP deals in Q2, the IP deals depth and so on. Yes, there are some IP deals that we are hoping to close that they have been deferred, especially in the media and communication vertical, Gaurav would you have that number?
It’s very difficult to approval to put a number to it. I think as Manoj mentioned I think those, some of the deals are taking a little longer on the IP side to get close, so to — from that perspective, I think there will be — we are hoping those still get close and accruals revenue in the quarter to come. Basically, quarter three and quarter four, but I mean any which ways. I think our IP revenue as we — as you know, is not significant. So it doesn’t really impact much on the — from the growth perspective.
Apurva Prasad — HDFC Securities — Analyst
Okay. And what led to IDV growth — sequential growth this quarter. And finally, on the fresher addition for full year, would you still hold on to the 3,000 to 3,500 target set earlier?
Gaurav Bajaj — Chief Financial Officer
Sure. So IDV definitely after the design digital event and the general the focus on including IDV capabilities in all sales pitch, especially to the top 20 customers, we’ve had focused campaigns going after our existing customers with the IDV capabilities. I’m happy to announce that at least half of these customers have strongly embraced the IDV capabilities and we are seeing some good design wins there, and I hope this would continue. I’ve pretty satisfied with the way IDV is now moving. And the good part is, we have a lot of our EPD sales fully engaged in selling IDC services and so on. So that’s definitely a positive for us in this quarter. That’s something that we have been working on over the last two quarters and I think seeing the results of that this quarter.
From a fresher addition perspective, I think we would have added in the financial year almost about 2,000 freshers today. Yeah. So yes, we have — I think we have a pipeline of if I’m not mistaken about another750 or 1,000 freshers that that there is a plan to on board, so we will be looking at the business growth and specifically in the sort of areas that we are really growing in those areas will definitely bring in those pressures especially in transportation and in the medical business, that’s something that we will focus on.
So over the next two quarters will bring in the remaining freshers.
Apurva Prasad — HDFC Securities — Analyst
Okay, thank you.
Operator
Thank you. The next question is from the line of Bharat Sheth from Quest Investment Advisors. Please go ahead.
Bharat Sheth — Quest Investment Advisors — Analyst
Hi, good evening Manoj and Nitin. Manoj, I correct me if I’m wrong. In last three quarter, we have just added almost literal plus space around 30% of total headcount in a year and prior to that our top line revenue growth was much higher than that additional headcount but in view of this bigger opportunity, so when do you think again those kind of, I mean, revenue growth growing faster pace than the headcount reason will — again, will expect to start?
Manoj Raghavan — Chief Executive Officer & Managing Director
I think whatever headcount that we’ve added, Mr. Sheth, I think in the next two quarters, we should be able to really utilize them, right. And the thing was, I think with the growth that seen both in Q1 and Q2 and utilization. I think almost reaching 85% and so on. There were really because we kind of no room especially at the — as I said, the middle management level and senior management level. So the sort of — though we done a number of things to groom people and get them to that level, the lot of inflows we’ve seen far higher than what we had projected. So we were caught a little bit there. So that’s something that we are correcting and I think in the next couple of quarters, we should be able to. So we have actually — they are actually preparing for — preparing in a way not to get into the situation that we are in Q2 to be able to really end cash all opportunities that come our way. So we will take it at a quarter at the time. And then looking at maybe end of next quarter we will — once again, we look at our resourcing situation and take a call, if you have to accelerate for the next four quarters.
Bharat Sheth — Quest Investment Advisors — Analyst
Okay. And one more question for Nitin. Nitin, you said that our — in past, I mean our customer are looking forward to build a new platform than using our own platform and usage, the services. So in this challenging macro environment, do you think that can be a most cost effective solution that we can give it to our plant and maybe our platform business getting a more excel or is this just kind of operating leverage they can now?
Nitin Pai — Chief Marketing & Chief Strategy Officer
Yes, Mr. Sheth, on one hand, what you’re saying is absolutely logical that instead of making a make division, which then involves investment, it takes some time and risk by makes much more sense by also has other advantages with SaaS model. You can also see as we grow, you don’t have to pay lumpsum right at the beginning.. But having said that, both of them are strategic decisions, because if you look at the TEngage especially, it is business platform, it is not productivity platform. It is not an test automation platform. It’s not to improve something that you already have. It is a lot of new — so in that sense, I think we will still see some slowness in adoption, why because companies still have to make a big decision of — are they going to run a new business? And are they then want to do it themselves? Or are they going to license the platform. So I would still say that it’s a strategic call, but logic says that you would actually be a better choice when — and the environment is tougher because there is lesser risk and you can choose to pay as you grow.
Bharat Sheth — Quest Investment Advisors — Analyst
Okay, thank you and all the best.
Manoj Raghavan — Chief Executive Officer & Managing Director
Thank you so much.
Operator
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for closing comments.
Manoj Raghavan — Chief Executive Officer & Managing Director
Thank you all for the time today, and I think, in spite of all the difficult macroeconomic situation and the supply side challenges that we had in parts of our business. I think we have done reasonably well from a from quarter top-line perspective, bottom line has been hit a little bit because of the investments that we made preparing ourselves for the subsequent quarters. I think personally we are pretty comfortable and confident with the numbers that we have achieved. And I think we have sort of done all the right investments, whether in resources, whether in office spaces and so on to really help us in the next two to four quarters, right. So we will continue to execute our strategies and hopefully we will continue to deliver results that delight our investors. With that, I’d like to thank you all and happy Diwali and happy holidays to all the investors and we look forward to talking to you again at the Q3 Investor Call. Thank you so much.
Operator
[Operator Closing Remarks]