Tata Elxsi Ltd (NSE: TATAELXSI) Q3 2025 Earnings Call dated Jan. 09, 2025
Corporate Participants:
Manoj Raghavan — Chief Executive Officer and Managing Director
Gaurav Bajaj — Chief Financial Officer
Analysts:
Shashank Ganesh — Analyst
Bhavik Mehta — Analyst
Vimal Jamnadas Gohil — Analyst
Vijay Pandey — Analyst
Ritesh Poladia — Analyst
Sulabh Govila — Analyst
Nitesh — Analyst
Rishi Maheshwari — Analyst
Jalaj Manocha — Analyst
Abhishek Agarwal — Analyst
Ajay Jain — Analyst
Sanjay Chawla — Analyst
Shyam Ramakrishnan — Analyst
Kanchi Shah — Analyst
Unidentified Participant
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to Tata Elxsi Limited Q3 FY ’24-’25 Earnings Conference Call. [Operator Instructions].
I now hand the conference over to Mr. Shashank Ganesh from EY. Thank you, and over to you Mr. Ganesh.
Shashank Ganesh — Analyst
Thank you very much. Good evening to all the participants on this call. Good morning, if you’re logging in from the Western site.
Before we proceed to 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 will cause further result performance or achievements that differ significantly from what is expressed or implied by such statements.
To take us through the results and answer your questions today, we are the Senior Manager of Tata Elxsi, represented by Mr. Manoj Raghavan, Managing Director and CEO; Mr. Gaurav Bajaj, Chief Financial Officer; and Ms. Cauveri Sriram, Company Secretary.
We will start the call with a brief overview of the quarter by Mr. Raghavan followed by a Q&A session. We would appreciate your cooperation in restricting yourself with 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.
With that, I would like to hand over the call to Mr. Manoj Raghavan. Over to you, Manoj.
Manoj Raghavan — Chief Executive Officer and Managing Director
Thank you, Shashank. Good evening, everyone. Thank you for joining us this evening for the Q3 earnings call, and I hope that you and everyone in your family are safe and healthy. I’m happy to report that we have delivered a steady third quarter in terms of top line in a seasonally weak quarter. Our revenues from operations was reported at INR939.2 crores.
During the quarter, EBITDA margins stood at 26.3% and PBT margin was reported at 26.1%. This was the first quarter in which the full impact of salary increases for all our employees was seen. Our margins in the quarter was also impacted by adverse currency movements in GBP, Euro and JPY. It is important to mention here that our margins in the previous quarter were aided by one-time R&D incentives and tax credits from previous years.
We continue to see positive outcomes of our strategic business focus on Japan, emerging markets and capitalizing on the India opportunity. During the quarter, our revenues from India has grown by 21.9% year-on-year, while Japan and emerging markets grew at 66.8% year-on-year. This will serve us well over the next few quarters, even as we navigate geopolitical uncertainty, currency volatility and industry-specific challenges in Europe and US.
Coming to our businesses. The automotive industry has seen significant business challenges in the past few months with OEMs, especially in the US and Europe reporting sales and growth challenges in their major markets. This has impacted new deal closures and the Tier 1 supplier spend. Amidst this business environment, Tata Elxsi continues to do well to win and execute on large deals won over this year and demonstrated differentiated values to customers to protect and grow our revenues in a difficult quarter for the entire automotive industry.
During this quarter, our transportation business grew 0.5% quarter-on-quarter in constant currency terms. In the last quarter, we announced an offshore development center for Suzuki Corporation, Japan, to support their global technology software and engineering development. Suzuki’s CTO, Kato-san, highlighted the importance of the center as a strategic and core component of Suzuki’s innovation strategy, helping it accelerate software and virtual development across connected autonomous and electric technologies.
We are delighted to be launching our AVENIR software-defined vehicle, software suite at the CES 2025 conference, which is happening this week in Las Vegas, the premier global showcase for technology and innovation. AVENIR encompasses a cloud-native virtual development platform and a hybrid global validation platform and is powered by the Snapdragon Digital Chassis platform in partnership with Qualcomm. We offer a compelling proposition of a ready to adopt solution, coupled with deep digital and software expertise and scale talent base to help global OEM shift left and accelerate the SDV and future mobility road maps.
Our media and communication business reported a 0.4% quarter-on-quarter growth. We are positioned well to help customers in the media entertainment and telecom industry on all three levels of growth, efficiency and innovation. We won a large multi-year deal with a US headquartered operator to develop and manage their portfolio of applications and expect to ramp this up over the next few quarters. We are positioned well in some very large deals across the world with decisions and outcomes expected in the coming quarters and beyond.
Our Healthcare and Lifesciences business reported a growth of 1.1% quarter-on-quarter. We continue to win new marquee healthcare customers and our Gen AI powered regulatory, digital engineering and sustainability offerings are seeing significant traction in the market. Our system integration business witnessed decision delays in some large projects that had a significant impact on revenues in the quarter. While we are aiming to win and execute them over this quarter and beyond, we continue to work on pivoting the business away from project-based to annuity and service-based revenue streams.
In terms of our employee base, we continue to do well with attrition remaining low at 12.4% during the quarter on annualized base. During this quarter, we’ve added net of 85 employees into the system. We step into the fourth quarter of this financial year with confidence of large automotive deal wins in the year and quarter that we’ll see continued ramp-ups even as we navigate the current volatility in automotive market. The stability and return to growth in our healthcare and media and communication verticals and large strategic deals in the pipeline across all our key verticals.
With this, we will open the session for Q&A.
Questions and Answers:
Operator
Thank you. We will now begin the question-and-answer session. [Operator Instructions]. The first question comes from the line of Bhavik Mehta with JP Morgan. Please go ahead.
Bhavik Mehta
Thank you. And so couple of questions. Firstly, Manoj, if you can talk about the outlook for the auto vertical in terms of when do you expect deal closures to normalize or the ramp-ups to normalize and we should go back to the kind of growth we saw in the first half?
The second question is to Gaurav, if you can just give the margin walk for the quarter? And how should we think about the tax rate going forward because tax rate has been quite low over the last couple of quarters? Thank you.
Manoj Raghavan
Yeah. If I break the automotive market into two parts, right? One is Europe. Europe, in general, we see automotive market would take some time to recover. So I would say a quarter or a couple of quarters is where we see continued pain in the European market. The US market is seeing a little bit of traction. We are seeing some positive work happening, and that should recover maybe in a quarter or so. However, we’re seeing a lot of good opportunities in Asia, in India, as well as in Japan, and that, we are hoping that, that business will continue to grow.
As we’ve seen in this quarter, we will accelerate the growth because we have won some good opportunities, some large deals, and we would definitely want to grow and focus on delivery excellence and really accelerate our revenues for Q4 and subsequently, right? So yes, Europe will be a little slow. APAC, India will definitely accelerate. Europe will, US will be steady. So that’s the outlook for the automotive industry.
From a margin perspective, I would request Gaurav to take that.
Gaurav Bajaj
Hey, Bhavik. Hi. So Bhavik, I think what we alluded to, also Manoj mentioned that at constant currency basis, we came flat. However, there had been adverse movement in some of the major currencies in which we operate specifically Euro, Pound and JPY, which has led to almost 140 basis point impact on our margins. So most of the differential margins that you see from the last quarter to this quarter on the operating EBIT basis is due to the currency impact. While this quarter also intakes the wage hikes that has been done by the company, which completes the wage hike cycle for the company at overall employee base this, for this financial year.
The wage hike impact was almost 100 basis point, but that was also compensated and mitigated towards, through some of the other operating leverage and efficiencies that we can bring in towards pyramid optimization, utilization improvement and also on-site salary cost also due to the currency movement help in terms of the reduction in the cost. So most of the wage hike has been compensated and mitigated towards through other means and leverages that we have on the operating front.
Apart from that, there is a slight increase in the other expenses because of the third-party contractor that we have to intake in this quarter for some of the positions that required to be fulfilled where we don’t have the required skill-set. Probably over the period, we can roll-over those third-party contract with the internal workforce. Also some increase has happened on the travel and the visa front due to the renewals and some of the position that required to be fulfilled at the on-site.
This is almost other expense impact of 60 basis point. And apart from this, there is a reduction in the cost of goods sold towards the equipment and others pass-through the related product revenue in the quarter and there is a dip in the depreciation in the finance cost of another INR1.5 crores. So both put together cost of goods sold and the depreciation would give you 45 basis point kind of a benefit into the margin. So in all total, there is an impact of about 150 basis point when you compare 25% EBIT last quarter to 23.5% this quarter.
I think your second question was on the tax benefit and the tax rate for the current period and for the full year. I think we stated at the start of the year that most of our SEZ Unit has come out of the 100% benefit slab and moved to the 50%. And we believe that this year our tax rate would be upwards of 25%. As you know, last quarter it was lower because of one-off income tax refunds that we received last quarter. This quarter also tax rate slightly being at the same level or slightly lower to the last quarter being on two accounts. One, due to the differential in the deferred tax asset because of reduction in the depreciation and we don’t incurring any additional capex during the year and also the M2M for the exchange-related profit that is not computed for the income tax purpose when we do the tax provisioning. So that has led to the income, tax rate for the current quarter at about 22.2%.
With that, on a YTD basis, now tax rate has been at 24.1%, what we believe that quarter four will not have those one-time of unless there is some other favorable tax orders that we can receive. On a normalized basis, I believe that our tax rate would be upwards of 25%, probably 26%, but maybe for the full-year, we may exit the full-year at effective tax rate of something between 24.5% to 25%.
Bhavik Mehta
Okay. That’s very helpful. Thank you.
Operator
Thank you. Next question comes from the line of Vimal Jamnadas Gohil with Alchemy Capital Management Private Limited. Please go ahead.
Vimal Jamnadas Gohil
Yeah. Thank you for the opportunity. Sir, if you could help me with what was the mix of OEMs within our auto vertical for this particular quarter?
Manoj Raghavan
The, you’re talking of the revenues from OEMs, right?
Vimal Jamnadas Gohil
Yes, yes. That’s right.
Manoj Raghavan
Revenues from OEMs has increased, I think from 67% to 72% this quarter.
Vimal Jamnadas Gohil
Okay. So there’s a large amount of, okay, so the Tier 1 continues to be a source of a challenge for us. Is that, would that assumption be right?
Manoj Raghavan
That is true. That is the industry trend that we are seeing, especially in the Western world, the large Tier 1s. They are not winning deals and as a result of which they are outsourcing towards companies like us is also coming down. So a lot of our revenues, we are focusing on the OEM side. Yes, that’s true.
Vimal Jamnadas Gohil
Right. And sir, in the auto vertical, most of your peers are also calling out a bit of softness. But are OEMs also, relooking at their long-term spends on their EV architectures or their software architectures for, let’s say, four years, five years out. Is that also being reconsidered? Or are some of the near-term, typically what we’ve seen in a soft auto market in EU or the US is that the capex, immediate capex on the existing platforms is cut? But in this particular downcycle of autos in the West, are you seeing some of the electric, the EV platforms or the software platforms being reconsidered upon?
Manoj Raghavan
Yeah, you’re right. It is the near-term projects that are being reconsidered because as you would have read, right, most companies are really looking to refocus back on ICE and hybrids. So that is where we see there’s some amount of reprioritization of their near-term EV R&D budgets. Long-term EV strategy continues, but it’s just the near-term budgets that are being relooked at.
Vimal Jamnadas Gohil
And most of the projects that we are working on would be or towards the long-term, a long-term initiatives of these OEMs, right?
Manoj Raghavan
It’s a mix. It’s not that 100% of it is long-term, but it’s a mix of both near-term and long-term.
Vimal Jamnadas Gohil
Understood. Thank you so much. I’ll come back in the queue.
Operator
Thank you. [Operator Instructions]. Next question comes from the line of Vijay Pandey with Nuvama. Please go ahead.
Vijay Pandey
Hi, thank you for taking my questions. I have one question. I just wanted to understand like the electric vehicle sales in Western market, particularly in US and Europe, are they stagnated? But how do you look, how the software-defined vehicle like ADAS level, is that also move, is that also you are showing a senior slowdown, or is it like continuing at the similar pace as what was expected? My understanding is that it has slowed down. Maybe you can highlight what is the level of penetration you expect, particularly by end of the decade by FY 2030 auto?
Manoj Raghavan
If I understand your question right, you’re asking of how is the software-defined vehicle market outlook, right, for Tata Elxsi? And —
Vijay Pandey
Yeah, [Speech Overlap] and ADAS.
Manoj Raghavan
Yeah. SDV and ADAS, right? So yeah, I think Tata Elxsi has been investing in building our own SDV framework, right? And we have announced it in the Consumer Electronics Show, CES this week, it’s AVENIR, which we have partnered with Qualcomm. It’s built on a Snapdragon Qualcomm Chassis. We are, so we are pretty confident that SDVs are here to stay. We have interest from many of our customers, not just the passenger car companies, but also commercial vehicles because from a fleet management perspective, SDV makes a lot of sense. So we have, we have ongoing customers where we are engaged on the SDV platform, plus we are also in discussions with a few OEMs, both passenger vehicles and commercial vehicle companies to really license the solution that we have and build over that, so that we can give time-to-market benefits for our customers. So yes, I think SDV definitely has a lot of interest.
AD/ADAS is of course, it’s another area that we have been investing for quite a few years now. We see continued interest in ADAS opportunities from the OEMs to bring in differentiated solutions to the market. There’s a lot of opportunities also on the verification and validation side of AD/ADAS. So that’s something we believe will, the spend will continue. So, if you ask me by 2030, what is the outlook? I would say, especially if EVs pick up and definitely there will be SDV play both in the passenger car vehicles as well as in the adjacent markets of commercial or off-road and other areas as well. So we continue to invest in SDV.
Vijay Pandey
Okay, okay.
Operator
Thank you. Next question comes from the line of Ritesh Poladia with Girik [Phonetic] Capital. Please go ahead.
Ritesh Poladia
Yeah, thanks for the opportunity. My question is on the Automotive segment. Sir, with China EV exports rising, maybe 2025 might be flat here. But how does that change the segment for us?
Manoj Raghavan
Yeah. So I think a lot of the reason today for, I would say the softness in the automotive market, especially in the West is due to the rapid growth of the Chinese OEMs, right? And actually if you look at it, many of the auto OEMs, you look at the big three in Germany, look at the US companies, they used to make a lot of money in China. And China market used to be pretty big for many of these customers.
With the Chinese OEMs now launching EVs that are at par or even better than some of the equivalent models available from the Western car companies, many Chinese consumers are buying Chinese cars, right, which automatically means the market share of the Western OEMs in China is coming down and hence the top line and bottom line for these companies are actually coming down because of the effect of, impact of the successful ramp-up of the Chinese OEMs like BYD and others, right?
So I think, yes, so that is also one of the reasons why the Western market is sort of in a state of, you know they are reducing the budgets. They are not clear. They’re talking of non-tariff barriers. The governments, local governments are talking of putting up barriers for the Chinese OEMs to come into their markets and so on. So that is a, and of course, there’s also a push towards ICE and hybrid, because in some sense, they believe that moving towards the EV is only going to strengthen the China ecosystem because most of the batteries and components, the motors, inverters, everything comes from China, even for the global OEMs, right? So there is a little bit of, there is competition, there is politics, there is everything intertwined there.
So yeah, I think that is a challenge that the Western world is facing, and it’ll be interesting to figure out how they will address it and unfortunately for us our fortunes are also linked to how, how the OEMs are able to compete effectively with the Chinese car companies and grow their market share, right? So it’s a challenge as well as it’s an opportunity for us to bring in solutions, bring in capabilities like the SDV platform that we have, we are investing in various other products, battery passport, BMS and a number of things that we are doing and we are hoping that, that whatever investments which we make will help the Western, the OEMs effectively compete with the Chinese OEMs and win back our market share, right? So I think 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.
Ritesh Poladia
Sir, just to extend on this, even that R&D is all inside the country, so that’s, don’t you think that is a much bigger challenge for a company like us to compete with the China?
Manoj Raghavan
When you say, you are talking of the R&D of Chinese companies, right?
Ritesh Poladia
Yes, yes.
Manoj Raghavan
Yeah. So that definitely, the only problem with the Chinese companies have is, in general, there is the Western companies, especially the large major car companies are wary of using Chinese software. So there will always be a reluctance to rely completely on Chinese vendors. So that is something that companies in India can really tap into and provide that capabilities to the global, other global car companies.
Ritesh Poladia
Great. That’s all from my side. Thank you.
Operator
Thank you. Next question comes from the line of Vimal Jamnadas Gohil with Alchemy Capital Management Private Limited. Please go ahead.
Vimal Jamnadas Gohil
Thank you, sir, once again. So since you are discussing China, a simple question arises is, do we really sense an opportunity here? I mean, given the fact that there’s so much happening there, do we really have a chance to tap into some of their software-defined architectures or BMS or wherever?
Manoj Raghavan
No, so we are not ignoring the China market. While there is competition, while our customers, OEMs are competing with the Chinese companies, in some sense, they’re also collaborating with them. We have heard of all those announcements in the market, right, where OEMs, the global OEMs tying up with Chinese OEMs for the China market and so on, right? So there are various collaborations that are happening. So through our customers, we are definitely engaged with the, both the Chinese OEMs and the Chinese suppliers. And so in some sense, we are aware of what is happening in the market, right? And there is some amount of collaboration that is happening as we speak.
Yeah, so I will not be able to give more details on it, but we are very much aware, a direct, whether we can directly enter China market and work for Chinese OEMs. I mean, we are looking into it, but I think it’s a very, very difficult proportion at this point in time, because just the speed of the market and the culture, the language, there are a lot of other challenges that, that is there in the market that we need to address. But we are finding an indirect route by working via our customers.
Vimal Jamnadas Gohil
Understood. And sir, within our transportation vertical, I think a couple of years back or even or even more, we had spoken about some of the adjacencies. Is there any update over there? Has that taken a bit of a backseat? How should we look at that? I mean, rail, maybe aerospace or something like that?
Manoj Raghavan
Yeah. So there are a few adjacencies that we continue to focus on, right? Primarily, I think it’s, one is the commercial vehicle space. That is something as I’ve also indicated that look, even from a software-defined vehicle perspective, that is something we are seeing a lot of interest. On the connected car or the connected vehicle perspective, there is a lot of interest in that space. We are also winning deals in that space. So commercial vehicles definitely.
Rail, we have invested heavily. It’s sort of plateaued. We grew well, but it’s sort of plateaued and we are trying to figure out how to increase that, because the number of rail operators or the OEMs are very limited. It’s not as if it’s a pretty large market, but we have not given up there. We’re really now focusing on three aspects, commercial vehicles, off-road and also the aero avionics and defense, right? These are the three adjacencies from a transportation business that we are placing our bets on.
Vimal Jamnadas Gohil
Understood. Thank you so much, sir. All the best.
Manoj Raghavan
Thank you.
Operator
Thank you. Next question comes from the line of Sulabh Govila with Morgan Stanley. Please go ahead.
Sulabh Govila
Yeah, hi. Thanks for taking my question. My first question is, with respect to the growth in transportation vertical that we’ve seen this quarter. So just wanted to understand that if you were to break down this growth that we’ve seen, let’s say compared to last two quarters, then this lower growth is more a function of the ramp-ups that were expected to happen, they did not happen on time or those ramp-ups, they were as per plan, but there were other project deferrals or cancellations that were ongoing.
Manoj Raghavan
Yeah. So, yes, I would say, look, we definitely have taken a hit in the transportation business from our customers in Europe because of the market conditions and some of the projects being deferred, right? The spend has reduced there. At the same time, we have won certain large deals and those ramp-ups have happened, but those ramp-ups have not happened to the extent that we would have wanted, right? And there’s also a little bit of a customer is also a little careful in terms of how much they would want to spend. Plus, there are sort of new customers that we have announced like Suzuki and so on. Those ramp-ups have happened to the extent that we have, that we would want to, right?
And those are the things, those are three buckets that we have. So anytime, even in the next quarter, we will look at it in these three buckets and really push forward on those customers that have money and the willingness to spend and that’s something that we’ll really, really focus on. And the remaining two buckets, we will, especially on the deals that we have already won, there is a slight deferment in terms of full ramp-ups. Ramp-ups are happening, but not happening to the extent at which we had expected. So we’ll definitely push to see to get back to that original ramp-up plan. And those customers where we have, there’s still a little bit of a hold in the budgets or pause in the budgets, that is where we’ll have to wait and monitor and see how it progresses.
Sulabh Govila
Okay, okay. Understood. So, just taking this forward, so if you were to think about this particular quarter 4Q, given where we are standing today, would you say that based on these multiple moving parts in the three buckets that you mentioned, a decent acceleration from the current levels is going to take some time because there are multiple moving parts here?
Manoj Raghavan
It’s very difficult to sit here today and give an exact commentary, but from a management perspective, we definitely want to push all levers to really exit Q4 with a decent run rate. So that’s something that we will be focusing as a management team.
Sulabh Govila
Okay, okay. Understood. And then secondly, with respect to both the media and the healthcare vertical, now that they have sort of stabilized, would you expect them to continue to be stable and steady for some quarters before you think that the growth can return in these verticals where we are today?
Manoj Raghavan
Yeah. So we have seen some green shoots in both these verticals. We’ve also had some large deals in both the verticals, plus we also have some, some deals that we are working on as we speak in this quarter and subsequent quarter. Closures will happen over a period of time. So we’re pretty confident that we can bring back the growth. But you’re right, it could take one quarter, maybe a couple of quarters to really get back. But our, we are seeing those green shoots and we would be laser-sharp focus to really extract that value as soon as possible. That’s something that we will stay focused.
Sulabh Govila
Okay, okay. Understood. And then the last question is on margins. So, if you look at the past several quarters, we have gone down from EBIT margin levels of 27% to now 23.5%, and there are obviously multiple reasons for that a slower growth being one of them. So just wanted to understand that you think that these are the new normal levels of margins or we can go back to those 27% margins in due course of time? Or the third thing would be that in the near-term because of the lack of growth or moderation in growth, as you know the margins uptick will also happen by time.
Manoj Raghavan
Margin uptick, I mean we are heavily focused on ensuring that we get back to our margin profiles that we had indicated earlier. As Gaurav discussed in the beginning, this quarter margins are tad lower because of the full impact of the wage hike that we had given. I mean, those are things that we can’t push beyond a particular timeframe. So that’s already a committed expense. So we were working on margin levers as you rightly pointed out, the biggest lever for us is, improving our billability and that stems from growing our top line and along with growth, the margin performance also will improve. So we are very cognizant of that and we’re keeping a sharp focus on our overall costs and that’s something that in the short-term to medium-term, we will be working to improve the margin performance.
Sulabh Govila
Understood, sir. Thanks for taking my questions.
Operator
Thank you. Next question comes from the line of Nitesh [Phonetic], an Individual Investor. Please go ahead.
Nitesh
Yeah. Thank you. Thanks for the opportunity. So this is the first time I’m attending the conference call. Okay. So I would like to know like where do you see the growth coming, say, the coming quarter and also for the next financial year considering the various challenges what we are facing at the moment?
Manoj Raghavan
Yeah. So definitely there are headwinds and challenges that I’ve discussed in detail, right? So in each of the industry verticals, we are really looking at adjacencies and how we can bring in growth, right? So in the medium to long-term, definitely our focus on the adjacencies in the transportation business, for example, aero and defense and the commercial vehicle side is something that we are really pushing to see if that growth can come back.
At the same time, we’ve also built a suite of products, right? We talked about SDV, talked about Battery Passport. In the media and communication vertical also, we talked about a number of products and intellectual properties that we have already invested in. So while the market has been weak and availability has been low, we have been using that time to really invest and build products that we can license subsequently and earn returns and so on.
So I think mid to long-term, I think we have definitely levers that we can use to bring, to bring back growth. And that’s something that we’re fairly confident that given all these uncertainties and so on, right, once we have a clearer picture, we will be able to really get back the growth. The fundamentals of the company are still strong. Tata Elxsi is known for its design digital capabilities. We still have a very good name with all our customers. Most of our projects are executed in a timely manner. They are green projects. Our customer satisfaction is almost at the rate of 4.75 out of 5. So we are tracking all of those parameters and all those parameters are green for us. It’s just a question of latching on to the growth engines and delivering that value. We’re fairly confident that we’ll be able to get there.
Nitesh
Okay. Thank you. I just have one more follow-up question. Okay. So are you looking for any acquisition considering the cash we have on the books of around INR1,000 crores? And the second is how much are we dependent on JLR, okay? So from the OEM perspective, are we heavily concentrated on JLR?
Manoj Raghavan
JLR is definitely one of our significant customers, no doubt about it, but there are a number of other OEMs as well that we work with. So I think over a period of time, we have sort of ensured that our dependence on JLR as an account has actually come down. So I think a fairly, I mean, I’m happy with the level at which we are operating with JLR today. And at the same time, also happy with the growth in other OEM accounts. So I’m not overly concerned about that.
Regarding M&A and acquisition, yes, we continue to look out and scan for opportunities, especially in adjacencies and new areas that we want to invest in. And typically we are looking for small-sized companies. We don’t believe in that big bank acquisition. So we will be careful and it has to, it has to be a rational why we acquire a company and it has to result in positive business outlook.
So there are a number of filters that we have. In general, we take a lot of time to really analyze and only take those cases where we believe it makes sense for us. So we are very, very selective when it comes to M&A. Let me put it that way.
Nitesh
Thank you. All the best. Looking forward to speaking next quarter call. Thank you.
Operator
Thank you. Next question comes from the line of Rishi Maheshwari with AKSA Capital. Please go ahead.
Rishi Maheshwari
Thanks for taking my question. Sir, just got off a call from, with TCS who mentions that the current quarter gives them significant hope of quick deal wins, low deal cycles, improvement in discretionary spend and categorically speaking about CY ’25 is going to be much better than what they’ve seen in CY ’24. Now from your commentary, we’re not gathering the same confidence so far. I may have not been able to understand it in the same vein. So we’re just trying to understand whether is it largely, I understand 50% is automotives and that is still reeling under some form of pressure. But having said that, you’ve also mentioned in your press release that the Japanese and emerging markets deal wins gives you enough confidence in the near-term. So help us understand and reconcile that thought that this is one year where perhaps we’re looking at single-digit growth itself. So what can accelerate this to a double-digit growth for if not this year, at least the next year. What are you looking at? Are you sensing the same forms of market sense that TCS has been speaking of?
Manoj Raghavan
Yeah, I’ve not heard the TCS presentation, so I can’t comment on that. But definitely, as you said, 50% of our revenues come from the Automotive segment. And the major markets there, which is Europe for us is definitely, we are seeing a slowdown. Now and whether it will, I mean, we will get a better clarity after a quarter or a couple of quarters at this point in time, it’s very difficult. And that is also the reason why I cannot categorically say that, look automotive market will definitely do well, right, especially Europe. But however, as I said, Japan, India and the rest of the world and US, we see a lot more positive indications and that is something that we believe will drive our growth in the transportation business for the next financial year. Now whether that growth will overcome any sort of slowness that we’ve seen in Europe is something that we had to wait-and-watch.
Rishi Maheshwari
Sure. And just at the cost of reiteration, aside of the automobile, you mentioned that whether it’s healthcare or whether it’s media and communication, in those verticals, you’ve seen a distinct turnaround versus what we’ve seen in Q3. Am I right?
Manoj Raghavan
Yes. So you’re seeing that, at least there are green shoots, at least there are deal wins happening, revenues are growing. So those are all positive indications for us.
Rishi Maheshwari
And margins, you alluded to getting back to between 25%, 26% in the near-term, barring the one-offs that you had spoken of in the earlier remarks of your call, you would expect now that wage cycle is behind you to get somewhere between in the vicinity of 25% plus. Is that a fair understanding?
Manoj Raghavan
Yeah, I think that is a fair understanding and that is our plan to get back to those kind of the margin. I think Manoj also mentioned during the previous question that I think the priority for us is to improve our availability and utilization and that will come from improving our top line. So there are enough margin levels available for us to get back to our those band of margins in the short to mid-term.
Rishi Maheshwari
Fair enough, sir. Thank you so much.
Operator
Thank you. [Operator Instructions]. Next question comes from the line of Vijay Pandey with Nuvama. Please go ahead.
Vijay Pandey
Sir, thank you for taking my question. I just wanted to understand about the US market. So probably after the new government there in place, are you seeing any improvement in the automotive market and any deal break through that you may think that is going on that may come over the next quarter or for coming quarters? Like Europe is big, but any update if there is any turnaround in the US market?
Manoj Raghavan
Your voice is breaking. So your question is, whether we are seeing any turnaround in the US market, right?
Vijay Pandey
Yes. Yeah.
Manoj Raghavan
Yeah. So and with the new government of Trump coming in and what is that impact, right?
Vijay Pandey
Yes.
Manoj Raghavan
So I think for us, US market is important, because all the three verticals, which is automotive, the media and communication and the healthcare has a significant preference in that particular market for us. So both media and communication and healthcare, we also have a sizable customer-base and large deals happening in the US geography. So I’m pretty confident that, and we’re continuing to invest in the US geography, right, in terms of sales, enhancement of the sales team and a number of things that we are doing in the US market to really ramp-up our business in the US.
Regarding our transportation business, yes, I think there are a number of discussions that are happening with both the OEMs and the Tier 1 suppliers there. We have recently announced strategic announcement with Qualcomm. Those are also positive for us that we will together go and collaborate with customers that use Qualcomm chipset for SDV. So these are various discussions that are happening. And I think those are reasons why I’m a little more confident that there will be some recovery in the US market for us.
Vijay Pandey
Okay. Thank you. Thank you.
Operator
Thank you. Next question comes from the line of Jalaj [Phonetic] with Svan Investment. Please go ahead.
Jalaj Manocha
Yeah. Thanks for the opportunity. I hope I’m audible.
Manoj Raghavan
Yes.
Jalaj Manocha
Yeah. Sir, so my first question was with regards to the, this quarter, in particular, if I were to see even Q2, the growth has been predominantly driven by customers which are ex of top-10. So could you throw a little light onto that as in geography-wise or maybe how do I match this with the growth coming from what sort of clients specifically? So that was first question.
Manoj Raghavan
Yeah, let me answer that before you go. And as I rightly said, look, a lot of the growth for us this quarter has come in from Asia-Pacific region and Japan and so on, right? So these are all set of new customers that we have added and that is why they will not form the part of the top 10 account for us, right? And a lot of the top 10 accounts are auto companies that are based in Europe as well as US. And so the sort of general economic situation there results in, that there is a dip in some of those accounts and that’s causing that top 10 to drop.
Jalaj Manocha
Understood. Understood. And my second question was with regards to the other verticals. So maybe first, I’ll talk about transportation. So your discussions with clients, are they happening basically specifically to the European clients? There has been a steep cut in the budgets on the R&D spend? Or there is a reprioritization of the spend? How is the discussion particularly happened there? Because I’ll tell you why I’m asking this is, because under pressure, ideally the companies should be spending a lot more or trying to defend their market specifically.
Manoj Raghavan
No, that’s a theoretical way of looking at it, right? That doesn’t happen often, when, for example, if a car companies have been investing heavily on the EV side and suddenly they see that look Chinese companies are coming into their own home country and selling cars. So, that is a little bit of a rethink on their overall strategy do they invest more on hybrids and ICE? And then talk to the government about tariffs and ensuring that the car, Chinese car companies are not able to sell. So there are a number of things that are happening in the market. So I would say the speed at which all of this is changing has taken some of the car companies by surprise and that is also resulting in this confusion about budgets and spends and so on, right? So I think over a period of time, we’ll get a little more clarity.
Jalaj Manocha
Got it. Got it. And one last question maybe, so for both media and telecom and healthcare, at least looks like the bottoming or the rate of degrowth has bottomed out for both the verticals. So you expect or what sort of discussions are you having in terms of both deal wins and otherwise with the clients? The pickup to happen in these both verticals, would it take a little longer or should happen quickly?
Manoj Raghavan
We are happy, we are hoping that in both these verticals, the pickup of business should start from the next quarter onwards. In some cases from Q1, at least there are, that as I said, right, we have won some large deals and those ramp-ups will happen next quarter and the subsequent quarters. And there are a lot of discussions that are happening as we speak. So all of those depending on closures, right, will definitely bring in revenues in Q1 and so on.
Jalaj Manocha
Great. Thanks a lot, and best of luck.
Manoj Raghavan
Thank you.
Operator
Thank you. Next question comes from the line of Abhishek Agarwal [Phonetic], an Individual Investor. Please go ahead.
Abhishek Agarwal
Hi, am I audible?
Manoj Raghavan
Yeah. You are.
Abhishek Agarwal
Yeah. So just wanted to understand in the Auto segment, if I take, let’s say, US and Europe as one cluster and India and other emerging markets where we’re seeing good growth as another cluster. How would you, just wanted to get an idea of the differences in these two clusters in terms of, let’s say, competitive intensity, pricing, pricing power like from the perspective of Tata Elxsi and billability or price sensitivity in general.
Manoj Raghavan
No, we don’t, especially in Japan and so on, we don’t see that much of an issue with respect to pricing. Of course, in the Indian market, we definitely see pricing will be an issue. But we are managing it into ensuring that look our exposure towards the different markets are also based on, look, what sort of price realization we can achieve, right? So we don’t see too much of a difference between the Western world, right, whether it’s Japan or Europe or US.
So I think, and of course, competition intensity is definitely higher in the Western world, because the barriers to working is not there. There is no language, culture, all of those barriers are not there, but if you go to work with a company in Japan, you have lot of other barriers. It’s not an easy, not easy to work with Japanese companies unless you have a history of working with them and you understand their quality processes, expectations, language, culture and typically Japanese companies, right, once you start working with them, it’s typically a long-term engagement. They’re not, they never sign a deal for one year and so on. It’s usually a five-year sort of a large, a commitment that is there from one company to other, right? So that’s the advantage of working with companies in Japan. It takes time, but once you win deals with them, it’s usually for the long-term.
Abhishek Agarwal
Understood. That’s all from my side. Thank you.
Operator
Thank you. Next question comes from the line of Ajay Jain, an Individual Investor. Please go ahead.
Ajay Jain
Hello. Thank you very much for taking my question. I have one question. There have been many collaborations with well-known companies in transportation, healthcare and media, including setting up centers of excellence for the last many quarters. Why are we not seeing any monetization of these? Can we see anything on these lines in future?
Manoj Raghavan
You are actually seeing monetization, right? And that is why in spite of degrowth in say a major market like Europe, we are still able to show growth in the transportation business that is exactly because of the monetization of all the deals that we have won. So it’s wrong for you to say that you’re not seeing that. Yes, at a company-level, you may not see that because of certain markets not performing the way, it was performing, right? So that’s the reason. If you have not done these partnerships, if you have not done these deals, then we would have seen a massive de-growth in our business.
Ajay Jain
Okay, but the growth itself is less than 1% or 2%?
Manoj Raghavan
Yes, Mr. Jain, in a difficult market, it’s a very difficult market out there in Europe and US. We have been able to show growth. It is a very credible performance, I would say.
Ajay Jain
Okay. Thank you.
Operator
Thank you. Next question comes from the line of Sanjay Chawla with Renaissance Investment Managers. Please go ahead.
Sanjay Chawla
Yeah. Good evening. Thank you for the opportunity, gentlemen. You talked about Western governments responding or looking to respond to Chinese EV makers through tariffs and non-tariff barriers. But specifically, do you see a situation of US and Europe pivoting away from EVs like by cutting down the subsidies or credits and scaling back EV penetration targets, because all it seems to have done so far is to let China become dominant in autos and start hurting the Western automakers.
Manoj Raghavan
Yeah, but with Trump coming to power and with Elon Musk by his side, I really don’t know what decisions they would take and so on, right? So plus that will be, that is definitely pressure from the German automotive industry lobby, right? Because Germany as an economy depends heavily on the automotive industry and there is a lot of pain out there with job cuts and factory closures and so on and so forth, right? So definitely, there’s a lot of pressure on the government to take certain actions to ensure that the jobs are protected in those local geographies. So we will see some impact.
Sanjay Chawla
So you think this tariff and non-tariff barriers essentially seems to be the way to go as of now as you look at it?
Manoj Raghavan
It doesn’t matter what I think or I’m just saying, I’m looking at what I’m reading and then talking to people and so on, right? I’m not the politician who is deciding. But I’m just saying that, that is an opportunity. And I don’t know whether it will happen or not.
Sanjay Chawla
All right. Got it. Thank you. All the best.
Operator
Thank you. Next question comes from the line of Shyam Ramakrishnan, an Individual Investor. Please go ahead.
Shyam Ramakrishnan
Yeah, good evening. In the previous con-calls, it was mentioned that it was difficult to exit. It might be difficult to exit FY ’25 with a better growth rate than FY ’24. So now that Q3 results are out, is there still any possibility that FY ’25 could end better, or is that really optimistic view?
Manoj Raghavan
No, I think FY ’25 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, sorry, with the Q3 performance, I think it will be very difficult for us to pull so much in Q4 to compensate for the flatness that we are seeing, right? So yeah, it will be difficult, yeah.
Shyam Ramakrishnan
And just one final question. Going forward, I think maybe next two years or three years, will the tax rate be upwards of 24%, 25%? Is that the new normal?
Gaurav Bajaj
Yes, Shyam. I think the tax rate going forward would be upwards of 25%. As you know that there is no new approval happening on the SEZ Unit of India. [Speech Overlap] the remaining period for the tax holiday that will continue for some time. So you can expect that tax rate to be upwards of 25%.
Shyam Ramakrishnan
Okay. Okay. Thank you. That’s it from my end. Thank you.
Operator
Thank you. Next question comes from the line of Kanchi Shah [Phonetic] with MC Research. Please go ahead.
Kanchi Shah
Hi, thank you for taking my question. So I had a question on automotive. So can you please guide us like how much does the US, Europe and Asia contribute to this market?
Manoj Raghavan
Geography, you’re talking about geography contribution? Do we have the —
Kanchi Shah
In terms of revenue contribution, like how much are these geographies contributing to the automotive market like since you just said that Europe is still expected to take time to recover. So, Asia-Pacific is doing great for you. [Indecipherable].
Manoj Raghavan
Yeah. We don’t provide the numbers of the geo split of the verticals. We provide typically the revenue mix from the geo at the company level, but we can give you little bit qualitative answer that, yes, from the automotive world, the most of the substantial part of the revenue comes from the Europe, then followed by the US and the APAC market. But off-late, as Manoj mentioned and we also mentioned in our press release that automotive market and especially the Western OEM are under certain pressure. But at the same time, we see uptick happening in the Japanese market and the APAC market. So there is some movement that is happening more towards the APAC and the Japanese market, which gets compensated from the slowdown in the European market. But still the European market is the significant part of the overall revenue mix within the automotive.
Kanchi Shah
Okay. Thank you.
Operator
Thank you. Next question comes from the line of Sanjay Shah with Panishta [Phonetic]. Please go ahead.
Unidentified Participant
Hi, can you hear me?
Manoj Raghavan
Yeah, we can hear you.
Unidentified Participant
Thank you very much for the question. Basically, I just wanted to try and understand what is this relationship or the tie-up or the collaboration that you have set-up with CSIR National Aerospace? And how big can the opportunity be? If you could just elaborate on that? And is there a possibility for you to partner with many other such enterprises, be it in India or overseas for the UAVs and UAMs?
Manoj Raghavan
No, sure. Absolutely. So that’s the, so as I said, we are building our avionics and aerospace and defense vertical. And the tie-up with NAL is one such tie-up that we have, of course for access to technology as well as, access to their infrastructure and labs, right, especially when you look at UAVs and drones, flight control systems and so on and so forth, some of the labs are very, very expensive to set-up and so on, whereas companies like NAL, HAL and others already have those infrastructure that is available. So the tie-up is definitely to, when we bid for projects, there is a need to have both technology and infrastructure in place and we are trying to build that through collaboration with some of these organizations.
Unidentified Participant
And do you have a sense on what kind of an opportunity it could be in a few years’ time? Well, let me ask it slightly differently. Just given the headwinds that you’re facing in some, and then some of the participants have spoken about it, you have spoken about it with respect to the European automobile industry and also your initiatives in some of the other areas. Would it be fair or if you could just elaborate on how Tata Elxsi of, let’s say, three years later would be as compared to where Tata Elxsi is in terms of its business, business mixes.
Manoj Raghavan
So definitely, we see aerospace, Avionics and defense going to be a big opportunity area for us, not just in India, but also overseas. We talked about UAVs, drones, electrical, vertical takeoff, right, eVTOL. These are all very, very significant opportunity areas for us four years to five years down the line, right, the tech, when the technology matures. And so that is something that we are investing today. We have pretty ambitious plans there. I wouldn’t want to put any number there. But if you ask me four years to five years from now, I think that piece of business will be a significant revenue earner for Tata Elxsi.
Unidentified Participant
Thank you.
Manoj Raghavan
Thank you.
Operator
Thank you. Ladies and gentlemen, we have reached the end of question-and-answer session. I would now like to hand the conference over to the management of Tata Elxsi for closing comments.
Manoj Raghavan
Thank you everyone for attending the Q3 conference. We look forward to really working hard on the Q4 numbers and coming back to you with better news in Q4. Thank you so much for your time.
Operator
[Operator Closing Remarks]