Tata Elxsi Ltd (NSE: TATAELXSI) Q4 2026 Earnings Call dated Apr. 21, 2026
Corporate Participants:
Shashank Ganesh — Investor Relations
Manoj Raghavan — Managing Director and Chief Executive Officer
Gaurav Bajaj — Chief Financial Officer
Nitin Pai — Chief Marketing Officer and Chief Strategy Officer
Analysts:
Sajal Kapoor — Analyst
Rishi Mody — Analyst
Moez Chandani — Analyst
Bhavik Mehta — Analyst
Abhishek Shindadkar — Analyst
Unidentified Participant
Amit Chandra — Analyst
Ankur Pant — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to the Q4 FY ’25-’26 Earnings Conference Call of Tata Elxsi Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Shashank Ganesh from E&Y. Thank you, and over to you, sir.
Shashank Ganesh — Investor Relations
Thank you very much. Good evening to all the participants on the call. Good morning if you’re logging in from the Western side. 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 business risk that could cause further results performance or achievements that differ from what is expressed or implied by such 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. Sneha V., 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 restating uses 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 report to them if time permits.
With that, I would like to hand over the call to Mr. Manoj Raghavan. Over to you, Manoj.
Manoj Raghavan — Managing Director and Chief Executive Officer
Thank you, Shashank. A very good evening to everybody who’s joined us today. Welcome to the Q4 ’26 Investor Call. I hope that you and everybody in your family is safe and healthy. I’m pleased to announce that we have delivered a healthy revenue of INR993.8 crores for the quarter, growing 0.9% quarter-on-quarter in constant currency terms. In our transportation business, our revenues in Q4 ’26 grew by 0.2% quarter-on-quarter in constant currency terms.
We are delighted with two strategic wins, one in APAC region from a new age OEM; and another one from a next-generation mobility services company in the U.S., paving the path for business growth in coming quarters. Our investment and efforts to pivot towards OEM business is delivering continued success underscoring our strength and focused execution of chosen strategies. OEM customers now represent 77% of the revenue in this vertical. Our Healthcare and Life Sciences vertical degrew by 13.1% quarter-on-quarter in constant currency terms, impacted by delays in deal awards that we were expecting and prepared for in the quarter. However, during the quarter, we opened an offshore development center for the Japanese MedTech leader, Terumo Corporation. This center brings together the power of design, engineering and digital to innovate their cardiac and vascular solutions.
I’m happy to report that our Media & Communication business posted a 5.6% quarter-on-quarter revenue growth in constant currency terms. This growth was led by continued deal ramp-ups a strategic deal for ad tech and Tier 1 U.S. telco. In the quarter, we also won a multiyear large deal from a world-leading device OEM for its portfolio of video and broadband products. For the quarter, our EBITDA margin stood at 24.6%, improving by 130 basis points sequentially. This reflects the constant — continued focus on operational excellence and margin improvement. In FY ’26, we significantly advanced our adoption of Gen AI. This was supported by partnerships with AI companies launch of our own automotive SDLC platform, DevStudio.ai. Earlier in this quarter, curated tool stacks and agent inventory investments in infrastructure sandbox environments with IP protection and data privacy and rigorous upscaling. With these coordinated efforts we are progressing steadily towards being an AI native engineering organization, strengthening our differentiation and innovation quotient.
I am pleased with our sustained and strong operational performance through segment-leading offshore delivery, a continued transition to fixed bid project ownerships and the systematic and enterprise adoption — enterprise-wide adoption of AI-enabled efficiencies these levers strengthened execution discipline and productivity driving consistent margin improvements throughout the year. As we enter the next financial year, we remain focused on scaling our differentiated design-led and AI-enabled offerings, strengthening operational leverage and driving sustainable growth and healthy margins.
Thank you, and over to Shashank for the Q&A session.
Questions and Answers:
Operator
Thank you very much. We will now begin with the question-and-answer session. [Operator Instructions] Our first question comes from the line of Sajal Kapoor from Antifragile Thinking. Please go ahead.
Sajal Kapoor
Yeah, hi. Thanks for taking my questions. And sir, of the deals you have won recently, how much of the value is coming from existing customers expanding their engagements or wallet share versus entirely new logos? And how has this mix evolved over the last two or three years? That’s my first question. Thank you.
Manoj Raghavan
Yeah, I think if you look at it in any quarter, the new customers would contribute maybe 2%, 2.5% of the revenues. So a large portion of the revenues come from existing customers and the deals that we win with them. But however, we also see a good — a new set of customers that are coming in. For example, this quarter, we have announced a deal with Terumo, for example. That’s a new customer that’s set up an ODC with us in the Healthcare & Life Sciences space. Similarly, the deal that we announced with — in the Automotive segment with APAC customer, that is also a new customer for us, and that’s a deal that we have announced. The deal that we have announced in the media and communication space with the multiyear deal, that’s an existing customer of us. So it’s always a mix of existing as well as new customers.
Sajal Kapoor
Sure. And just a follow-up. I mean, is there a pattern where the new logos typically take X number of years to scale up? Or is there no such pattern? I mean, it depends on customer to customer.
Manoj Raghavan
It depends on business to business, I would say. Usually, yes, even if you win a deal for it to make a significant impact, it takes anywhere between nine months to 12 months, right, for ramp-up, actually, ramp-ups to happen and start delivering.
Sajal Kapoor
Sure, that’s helpful. And my second and last question is, you have highlighted AI-led productivity and a shift towards fixed bid and platform-based delivery. Are these changes starting to alter pricing power and contract structures? Or are they mainly improving internal efficiency so far?
Manoj Raghavan
It’s both, right? Definitely, we are using a lot of that for internal efficiencies. However, there are customers that are demanding better efficiencies, productivity and so on, which automatically leads to — if you’re able to deliver that performance and productivity, then a better pricing power, right? So it’s a combination of both.
Sajal Kapoor
Okay. Thank you. I’ll rejoin the queue. Thank you.
Operator
Thank you. [Operator Instructions] Our next question comes from the line of Rishi Mody from RDM Advisory LLP. Please go ahead.
Rishi Mody
Yeah. Hi. So my first question is pertaining to the quarterly result. So healthcare, we’ve declined 13% Q-o-Q on constant currency revenue. Last quarter, you called out that probably Q3 was the bottom. Just wanted to get your view that do we see Q4 as now the bottom? Or is there something which has changed over the past three months for us there?
Manoj Raghavan
Yes, I think we were very optimistic that the healthcare business has reached the bottom and we will turn around. And we were pretty confident because there were a few deals that we are bidding for, and we are pretty confident that we will be able to close those deals. Unfortunately, for us, those deals have not closed, and that resulted in this situation that we’ve had. But however, we still continue to carry those items in our high probability funnel.
And in fact, a few of them, actually, we have closed in the couple of weeks in the new quarter, right? So I think I’m pretty hopeful that last quarter, Q4 was the bottom, and we will be able to recover this — and if we had closed these deals earlier in the quarter, then we would have had a fantastic exit to Q4, all the three businesses really firing and so on. And that is what we were aiming for. But hopefully, it is just shifted by a quarter and we should be able to recover that position in Q1.
Rishi Mody
Got it. So say, Q1 plus Q4 combined should have positive growth over Q2, Q3, if that’s how we look at it. Second, on the U.S.A. business, the media and communications industry, the consolidation seems to have happened. Are we now going to go back on the higher growth trajectory here? Or is there something which needs to be recalibrated in U.S.A. in the Media and Communication both, sorry.
Manoj Raghavan
No. So the Media and Communication business has smartly grown for us in the U.S., right? But overall, the U.S. business has declined a little bit. That is primarily because of the healthcare piece because healthcare for us is largely U.S. focused.
Rishi Mody
Okay, got it. Finally, more on a structural question, right? You had mentioned in the past that now incrementally, we’re doing fixed contracts, which might — may or may not be a trend that we are following, but also we are doing longer tenure contracts, which are not as profitable in year one, as, say, the earlier shorter-term contracts that we were doing. But if you were to take, say, a two-year, three-year profitability combined, do we even out on our margins? Or we’ll take the hit on the margins, but we’ll get higher absolute amount. Is that the approach? Or we have levers to get margins ramped up in your year two, year three.
Manoj Raghavan
Yeah. So obviously, when we look at a three-year or a five-year deal, right, the initial one year would have a lot of costs involved, right? That could be sometimes rebadging costs, that could be acquisition costs and all of that, right? So — but however, when you look at a three-year or a five-year, we definitely would be looking at seeing how we can improve our margins sequentially quarter-on-quarter and year-on-year, right? So that is the focus for us. So definitely, we would want to bring back and especially now with using AI, Gen AI and so on, we have many ways of really bringing out the margins in a positive way. So I think that’s what we are focusing on.
Rishi Mody
All right. Finally just a bookkeeping one, if I could get the utilization rate for the quarter?
Gaurav Bajaj
It is about 73%.
Rishi Mody
73%. Got it. Thank you. That’s it from my end.
Gaurav Bajaj
Thank you.
Operator
Thank you. The next question comes from the line of Moez Chandani from AMBIT Capital. Please go ahead.
Moez Chandani
Hi, good evening and thank you for taking my question. My first question was on the broader transportation segment. So the last year has been turbulent for the entire segment. But looking at Q4, I think things were flattish. How — what’s your outlook for the Transportation segment going into FY ’27? And for the overall business, is the aspiration still double-digit growth for the financial year?
Manoj Raghavan
Yeah, I think the good part for us is while as you rightly said, the overall market outlook was sort of mixed, right, throughout the last financial year, but we were still able to win some large deals and so on.
In fact, even in Q4, we won some fantastic good opportunities for us multimillion dollar deals. So what we are confident is that, look, some of the new deals that we have won, we will be able to scale in the next six to 12 months’ time period, right? So that is what will help us really deliver growth in the automotive space. Of course, on top of it, as you — as we have been updating all the investors that we have been gradually moving to more and more of our business on the — from an OEM side, right? I think today, we are looking at about 77% of our revenues — 77% the automotive revenues coming from OEM. So I think that is also — that pitch is also — shift to OEM business is also helping us.
So I would say I’m still pretty optimistic about the overall automotive market. But however, given the current geopolitical and all the war and all that, right? So while we have the deals in hand, and we will definitely look at ramping up and so on, there could be some amount of uncertainty. We are still talking to customers on that. Having said that, I think we would — maybe we would look at high single-digit exit, right? May not get into double digit for automotive.
Moez Chandani
Understood. And the second question is on margins. Again, margins saw a very sharp improvement this quarter. What seems to be driving that, especially since utilization is still at about 70%, 73% like you said. And then in terms of sustainability for the — for this margin improvement going forward, what would your comment be?
Gaurav Bajaj
This is Gaurav. Let me answer that question. I think we have been talking about the margin for the past few quarters. And I think we have been mentioning that I think we are making constant effort to go back to our original margin band, which is about 27% to 28%. So I think the work has been happening towards that in terms of the operating model, operating efficiencies and leverage. It’s not only about the utilization. Of course, utilization was below 70% at one point of time. Now we are almost inching towards mid-70. So every 1% increase in utilization also helps at least 25 to 30 basis points on the margins. So that is helping one.
Second, I think the sum of the fixed price contracts that increase that has happened, that has also come sometimes with better margins because you are able to have a better optimize and rationalize pyramid on those deals if you’re able to deliver and execute on those contracts the way you have contracted for. I think third is that pyramid in terms of managing the pyramid and the further hiring, so that is well calibrated in terms of the future requirements, supply-demand state. So that is giving me almost 65 basis point kind of improvement on a quarter-to-quarter basis.
And yes, I think there has been some currency tailwind, which is also helping margins for the current quarter. So if I have to put in terms of the margin work, probably 150, 155 basis point is coming from the currency movements against most of the cross currencies has improved compared to the INR. INR0.65 — 65 basis point would have come from the operating efficiencies across different levers that is into play. And also, we have done the salary increase for the rest of the staff for the — in the organization effective 1st Jan. So that would be 90 basis point kind of impact on the quarter. So that sums up to almost 130 basis point improvement in the operating margin on a quarter-to-quarter basis.
Moez Chandani
Understood. And just one last question, if I can squeeze in. So media, one of the concerns that were there last year in terms of consolidation. And again, that a lot of deals were getting cut. So do you think that phase is behind us now? Or do you think looking at the very strong growth we’ve had in media? Or do you think that the segment is still challenged from a growth perspective for the next quarters?
Manoj Raghavan
I think the — in general, I would say that we are still challenged — the entire media and telecom industry is challenged. But however, what has happened for us over the — over last quarter and the financial year is we had won some large deals that — especially from some of the large customers. Those ramp-ups have really started happening, and we have seen those ramp-ups happening in Q3 and Q4 as well.
On top of it, we won a large deal in Q4, which we would be literally taking over the engineering for one of our customers, all their legacy products and so on. And that’s a pretty significant deal for us. And that single deal actually also bumped up our overall growth in the segment. Having said that, deals are still consolidation deals and cost takeout deals that are there on the table. And we are still participating in those deals selectively. So overall, yes, I think we are still not out of the woods in this particular industry segment. However, because we have won a few good deals for us, we are able to show this growth.
Moez Chandani
Understood. Okay, thank you so much for taking my question.
Operator
Thank you. Your next question comes from the line of Bhavik Mehta from JPMorgan. Please go ahead.
Bhavik Mehta
Hi. Thank you. So just wanted to understand on generative AI, how are the client conversations evolving? Are you seeing clients asking for productivity pass-through or pricing discount if they want you to implement more of Gen AI into the projects? Or is it still at a very nascent stage that’s not the conversation in a big way so far? And different — for the three different industries you cater to.
Manoj Raghavan
Yeah. So I think from a generative AI way perspective, I think we are seeing a lot of conversations happening in the media and telecom space, not so much in automotive and healthcare.
Yes, there are conversations happening and so on. Those are more in terms of for example, in automotive space, there’s a lot of interest from OEMs and customers in terms of how do you manage, for example, cybersecurity and confidentiality requirements and so on and so forth, right? So that’s why we have built our own DevStudio.ai tool chain to address some of the concerns that customers keep asking us, right? So I think in both in automotive and healthcare, that are — those initial conversations happening. There is an interest to see how we can use some of these technologies to — for better efficiencies and so on.
Not so much conversations around cost and cost takeout and so on at this point in time. But Media and Telecom, we see a lot more customers asking us can we use Gen AI to overall what do you say, help in efficiencies at the same time also manage with their budget situation.
Bhavik Mehta
Okay, got it. And any sense on what would drive this different customer behavior between, let’s say, the media? Is it because media is under more pressure right now and hence, the clients are more desperate for low cost efficiencies versus the other two factors?
Manoj Raghavan
Yeah. I think automotive is still very — in some sense, it’s still very regulated and automotive software development follows certain processes. And using a generic AI tool will not — it will be very difficult for automotive companies to pass various regulatory requirements and so on, right? And that is why you need to build custom tools for automotive. Healthcare is also the same, right? It’s more a very regulated industry. Whereas Media and Telecom, it’s — that sort of very, very strong regulatory requirement is not there in terms of that if you do something, it’s not going to cause an accident or kill somebody and so on.
Nitin Pai
And maybe I can just add to that. I think in general, the telecom industry, especially telcos are actually at the forefront of deploying data centers, building the infrastructure and the connectivity that you need to deliver AI and Gen AI. So to that extent, in many ways, I would say they are ahead of the curve at least between industries in terms of being ready and being — in terms of being comfortable and already having sorted out some of the key questions around how do you deliver.
Bhavik Mehta
Got it. And just lastly, Gaurav, how should we think about the trajectory of margins because it’s been increasing since the last three quarters, which is good to see. Should we continue to expect similar kind of expansion even next year? Or do you think it could slow down a bit given that most of the was utilized in FY ’26.
Gaurav Bajaj
So Bhavik, I think we will have a sustained effort in terms of improving our margins from here. Probably it will not have an uptick on a quarter-to-quarter basis. Probably it would be more gradual increase or the improvement that will happen on a quarter-to-quarter basis. And also, it needs to be tightly aligned with the top line growth. So focus would be on the top line as well as the bottom line. But some of the margin will come back as we see some of the growth coming back and most of our verticals start to deliver on the top line.
Having said that, of course, there could be a quarter where the margin can have a left or right shift depending upon some of the onetimers and other events. For example, whenever in the quarter, we have to do a salary hikes, there could be an impact in those quarters for the margins. But overall, if we have to see in a mid- to long term, probably, I think the idea is that if we can exit the next financial year, somewhere near to 27% kind of a margin, not for the full year, but maybe for exit of the next — this financial year quarter four.
Bhavik Mehta
And just a clarification, is 27% at the EBITDA level or the PBT level?
Gaurav Bajaj
I mean at the PBT level.
Bhavik Mehta
Okay. Thank you.
Operator
Thank you. Your next question comes from the line of Abhishek Shindadkar from InCred Equities. Please go ahead.
Abhishek Shindadkar
Hi sir. Thanks for the opportunity and congrats on a good quarter. Sorry, this could be a repeat. I joined a little late. But just wanted to understand the Healthcare and Life Sciences traction. The anticipation was that the deals won earlier could help traction in terms of growth for the current quarter. Was the — did healthcare perform as anticipated at the start of the quarter? Or was there any mid-quarter or late quarter challenges in terms of daily decision-making, so on and so forth and so forth?
Manoj Raghavan
Yeah, I think I discussed that earlier in the question that came up earlier. Yes, we were hoping on a couple of deals because we are very close to signing those deals and those are large deals that could have really helped us with improving the numbers. Unfortunately, those — both those deals did not come through in the quarter, and they have been pushed to Q1. So I think it is more a shift of some deals.
At the same time, there have been a few projects that have also closed, right? So a combination of that has created this situation for us. But I think I’m very confident or hopeful that we will be able to recover in Q1.
Abhishek Shindadkar
Understood. Sir, just a clarification. So this planned out or this happened more in March? Or was it a phenomenon starting January itself? Just trying to understand the behavior of the clients in this context?
Manoj Raghavan
In fact, these deals started in October itself. It was more — we were hoping that it will definitely close, but it took six months. And that was a delay that we were not — we’re not expecting that it will take so much of time to close these deals.
Abhishek Shindadkar
Understood, sir. That’s very helpful. And the second question, again, maybe a repetition, I just wanted to get clarification. So when there was a question about margins, our answer suggested that we are okay to let go margins in the interim to win larger deals. Is the understanding right? Because what I’m trying to understand is we are also talking of a 27% PBT number for next year. And at the same time, we also made a comment about leaving margins at the table for growth. So I’m just trying to put a context to both these commentary.
Manoj Raghavan
No, the 27% we talked about was the exit margin in Q4 this financial year. It is not the margin for the year, okay? So that is very clearly — and that is why we were aiming for, right? I think today, I mean, upwards of.
Gaurav Bajaj
Of 25.6%.
Manoj Raghavan
25.6% in Q4 last financial year. We want to take it to 27% in Q4 of FY ’27, right? So that’s the indication that Gaurav talked about. I don’t think we made a statement that we are leaving money on the table or we want to — it’s not a generic strategy that, look, from now on, we will drop rates and go out. Yes, there could be certain specific deals which are from existing customers, which are large deals, and we feel that we would not want to let competition in or we want to vacate that space. Sure, for those cases, we’ll definitely look at seeing how we can be competitive. But as a generic strategy, we still definitely want to improve our margins, and we have not given any guideline to our sales team or to a finance team that we can drop our margins.
Abhishek Shindadkar
Super helpful, sir.
Nitin Pai
Just to add a line. Also note that even in those deals, there’s a path to improving margins. It’s not that you win it and it would stay where it is, right? The understanding is there are some deals. They constitute a small percentage of your incremental revenues every quarter. Some of those deals may need that investment period ranging from a quarter to more. But the expectation is, over the longer term, especially because we’re going for longer-term foundational revenue baselines, you would start to recover some of the margin back. And hopefully, you would improve well beyond two.
Abhishek Shindadkar
Perfectly understood, Nitin sir. Thank you for taking my question and best wishes for the next year. Thank you so much.
Operator
Thank you. Your next question comes from the line of Pratik, an individual investor. Please go ahead.
Unidentified Participant
I am audible.
Operator
Yes. Are you audible?
Unidentified Participant
Yeah. Can you please share the margin breakdown for this quarter once again in terms of what led to the 130 bps Q-o-Q increase?
Gaurav Bajaj
Sure, Patrik. I think I mentioned earlier also, but quickly, just to summarize what we are saying that 155 basis points from the currency, 65 basis points from the operating leverage. And then we have a 90 basis point impact due to the salary hikes that has been done during the quarter. So that adds up to 130 basis points.
Unidentified Participant
Understood. That’s it from my side. Thank you.
Gaurav Bajaj
Thank you.
Operator
Thank you. Your next follow-up question comes from the line of Rishi Mody from RDM Advisory LLP. Please go ahead. Rishi. Sir, your line is unmuted. Please proceed with your question.
Rishi Mody
Hi, can you hear me?
Operator
Yes sir, we can hear you now.
Rishi Mody
Yeah, hi. So Manoj, one fundamental question on how the market is behaving? How is competition behaving in terms of pricing aggressiveness, especially with AI benefits being priced into, say, contracts? Are you seeing rationality or irrationality in the market currently? And how are we tackling this?
Manoj Raghavan
No, I don’t think we have seen irrationality in general, right? Because see, ER&D is still a very, very specialized. It is not that we can use AI or Gen AI across the board, right?
So having said that, yes, we have seen a few contracts there. There have been competition that has priced very, very aggressively, and we are also a little bit surprised. We don’t know whether it is because that they have used Gen AI and — or they have assumed that Gen AI will lead to certain productivity. See, Gen AI, I don’t think you can see Gen AI as you can cut and paste in all situations, right? That is a very wrong way of looking at Gen AI. And there are — I know that there is — there are a few competition who are pretty aggressive in using some of this.
But even customers are very, very careful before they accept a complete Gen AI-based solution and so on, right? So largely, I would say, we’re not seeing irrationality that you indicated. There are a few cases here and there, but we’re not sure whether it is Gen AI or some other factors that are playing.
Rishi Mody
Got it. And are we being conservative, moderate or aggressive in pricing inefficiencies from AI in our bids?
Manoj Raghavan
No. So we are definitely looking at AI and we have — in all the projects that we are bidding for. There is a component of it, which we attribute to AI and we track it, and we want to see how we can use that to really improve our efficiency, productivity and ultimately, margins, right? So that’s how — those are things that we are definitely tracking internally. So I wouldn’t say that we are aggressively going overboard. At the same time, we’re not conservative at all.
Rishi Mody
Got it. Yeah, sorry, Go ahead.
Nitin Pai
Yeah, no, so I think much more than cost, I think we are double-clicking on value. So I think what Gen AI does, coupled with domain expertise is that I think it allows you to move up the time to market and quality factors as much as cost. And I think in the ER&D space, that is invaluable. At times, it’s much more valuable than simply cost because engineering cost is a fraction of your overall product and product development costs. So I think the opportunity is actually enhancing value rather than reducing cost.
Rishi Mody
Understood. So bigger contracts should — or at least execution speed for existing contracts is more likely to be the outcome for us rather than, say, cost efficiencies, which might be for other IT — traditional IT services. Is that understanding correct?
Nitin Pai
Yes, although I don’t want to generalize that again. But all I’m saying is that the simple factor of only cost is not the only consideration.
Rishi Mody
Okay, got it. Thank you. Thank you. This is helpful. That’s it from my end. We can move on to the next one.
Operator
Thank you. [Operator Instructions] Our next question comes from the line of Amit Chandra from HDFC Securities. Please go ahead.
Amit Chandra
Thanks for the opportunity. My question is on the transportation vertical. Obviously, we have seen a good recovery there, and now it’s stabilized also and you mentioned in the PPT that 77% is from the OEMs. So if you can share some more light in terms of how the Tier 1 portfolio has been doing and most of the recovery is from the OEM portfolio and the Tier 1 portfolio has stabilized.
And also in terms of the overall spending of the recovery that you have seen from transportation, it is only from the top client recovery and the ramp-up of deals that we have won? Or is it higher spending across the OEMs like both in the U.S. and the European geography? So how is the mix? And what is the confidence that we move to a double-digit growth there in the transportation vertical?
Manoj Raghavan
Yes. So definitely, recovery is broad-based, I would say. It’s not just — and as you said, OEMs contribute more than — I mean, 77% today. And these OEMs are primarily, of course, spread across, right? It’s not just U.S. and Europe we’re talking of. We’re also talking about India. We are talking about Japan. And we’ve also — we are also talking to some Chinese OEMs and so on. So still early days, but I think those are the — so essentially, for us, it’s a global market, and we are not really constrained to only one geography.
Tier 1 portfolio, I would say, continues to shrink. Tier 1s, I mean, if you look at it, are having a tough time given that OEMs are taking more and more responsibilities and so on. So yeah, we — however, we are deeply entrenched with a few Tier 1s and that business definitely continues. Yes. So the deal size is also with Tier 1s are smaller and so on, right? So for us, growth will continue to come from the OEMs.
Amit Chandra
Okay. And sir, you mentioned from the AI side that the adoption of AI in terms of — especially in transportation OEMs is less versus the other verticals. But we are — are we also in terms of the impact of renewals when the contracts come for renewals, are we also seeing AI-led deflationary impact or higher discounts that the client — OEM clients are asking in terms of the AI benefits? Or obviously, in terms of the higher spend related to AI, it’s not seen, but are we seeing the impact on the cost side or in terms of higher discounts in terms of renewals?
Manoj Raghavan
I think it’s very early days, right? So it’s not as if that we have contract renewals coming every now and then and so on. So we — at least what — those contracts that have come up for renewal, we have not seen impact of AI. But having said that it’s very difficult to predict six months to 12 months down the line, what will be the change in the buying behavior of OEMs.
Today, I think AI or Gen AI is not the most important thing that OEMs focus on. It’s more on value and how are we able to support them with the various projects that they have, and it’s about the people that you have and how you are able to deliver value to them, right? So that’s the more focus, not so much on AI and Gen AI at this point in time. But as I said, six months, nine months, 12 months later, it’s very difficult to predict what sort of demands will come in.
Amit Chandra
Okay. And sir, on the margin part, obviously, we have not been adding headcount and we have enough capacity. So till what growth rate until what kind of growth you think that the existing capacity is sufficient or we need to add capacity maybe in the next one or two quarters?
Manoj Raghavan
Yeah, we are at 73% utilization. So I think we can go all the way up to 80% or slightly more than 80%, right? It’s not that we’re not adding people. We’re adding people wherever we need them, but we’re not aggressively adding headcount, right? We are really metering the headcount additions and so on. Only when there is a real requirement do we go out and hire, right? So yeah, I think we can — once the utilization touches 80% or 82%, that is when I think we will be looking at adding more in the larger numbers, right?
Amit Chandra
Okay. So thank you.
Manoj Raghavan
Thank you.
Operator
Thank you. The next question comes from the line of Ankur Pant from IIFL. Please go ahead.
Ankur Pant
Hi. Thank you for taking my questions. My question is around the fact that last quarter, we were — for FY ’27, we were aspiring for a double-digit growth for the business overall for FY ’27 and led by transportation and healthcare verticals. Now this quarter, Healthcare has been a bit of a disappointment. And last quarter, if I remember correctly, you were expecting growth in transportation in 4Q. We’ve come out at flattish. So just comparing your expectations for FY ’27 versus last quarter? And how — what would be the aspiration as you go — as we start FY ’27?
Manoj Raghavan
Yeah, I think — I mean, a lot of things have happened in the quarter, right? Geopolitical situation has changed, customer spend. We have — when we started — when last quarter, when we talked about it, we had high hopes that, of course, transportation would continue the growth momentum as well as Healthcare & Life Sciences, we’ll be able to get back to growth. And I’ve explained the reasons why Healthcare, Life Sciences.
I think automotive, we have given the circumstances, given the challenges and so on, I think we have done reasonably well to exit flat or a small growth, right? So today — I mean, sitting today, looking at what is happening around the world and the conversations we are having with customers and so on, I think for us, overall, we might be looking at a single-digit — high single-digit growth for the financial year. We may not look at a double-digit growth.
Ankur Pant
Sure. And that — and the verticals that would lead it would again be transportation now?
Manoj Raghavan
Transportation, yes. I mean we ideally would want all the three businesses to grow, right? We’ve had a very difficult, I would say, 12 months where multiple businesses went into a downswing at different quarters and so on. But from now on, we are really hoping that all the three businesses will start showing growth.
Ankur Pant
And the other question is now, given the tough geopolitical issues that we have had in this quarter, did we see clients now pushing back on the signing of deals for decision-making cycles getting slightly elongated, which may again mean that the recovery that we were expecting may also get pushed back by a quarter or two. Are you seeing signs of that as well in this quarter?
Manoj Raghavan
We are seeing both sides, right? We have also announced deals that we have won in the quarter. We also know that there are cases where the deals have been pushed off. So that is no one answer to your question, right? It is — both are happening.
Ankur Pant
Sure. But the expectation of recovery that you had, is that still — I mean, are you still hopeful of the same trajectory? Or does that get pushed off a little bit seeing what is happening around?
Manoj Raghavan
Which is where we — when we look — when we started — when we came in the last quarter, we were hoping for a double-digit sort of growth aspirations for the quarter. But looking at the situation today, maybe I would be a little more conservative and say maybe a higher single-digit is what we should look at. This could change in the next three to six months, right, when we look at the deal momentum and so on. Sitting today, the visibility that we have, conversations that we are having and the deals we have closed and the deals that we are pursuing, this is what we feel.
Ankur Pant
Sure. Perfect. Thank you so much and all the best for the next day.
Operator
Thank you. [Operator Instructions] Our next question comes from the line of Mayur Matani from Mahesh Kumar & Company. [Phonetic] Please go ahead.
Unidentified Participant
Good evening sir. Congratulations on a good set of numbers. My question is regarding pertaining to the fixed price contracts that we have. So over a period of time, we have seen that our fixed price contracts have now increased quite a lot. And I believe that fixed price contracts have a better margin trajectory. So with regards to signing more OEM deals, how you — do you see that trajectory going forward on a sustainable basis? Is there a further scope to increase the fixed price contracts?
Manoj Raghavan
No. So yes, some of the deals — large deals that we have closed are on fixed price contracts. The challenge is that if you don’t execute on those fixed price contracts, correctly and then it could also lead to revenue leakages and profitability dip, right? So it is — it’s not that — it’s not advisable that we continue to shift more and more of our business to fixed price. So I think that is a careful decision that we need to take because the entire processes in the organization, the key — the SMEs that we have, the architects that we have, any deal that we pick, we also need to be able to execute it, deliver on time with the margins, right? Only then we can show the margins. So it’s in some sense, a double-edged sword. So we’ll be a little careful in terms of how this goes, right? It’s not our objective suddenly to move to a 70% or an 80% fixed price, right? That will be putting too much of risk on us.
Unidentified Participant
Right. Thank you. And with regards to your transportation verticals, we have been talking that whenever there is a slowdown that structurally, you see that some of the orders or some of the projects — new projects might get offshored. So are you seeing that traction or there is indecisiveness from the customer side currently?
Manoj Raghavan
No, we are seeing a lot of that, right, especially when there is a need in the customer space, right, that they have to continue their engineering activities and as a slowdown, the only option for such customers is to say, “Hey, can they do more with less, right? With less of a budget, can they do more, right?” And that is where best cost countries like us and companies like us come into play.
So yes, I think we continue to see such customers who are looking at which is the right organization that can deliver outcomes without too much of oversight because if you’re doing offshore, it means a lot of the work, the OEM has to hand over, right? And they should have the confidence that Tata Elxsi is a company that can take up this complex work and deliver outcome remotely. And that is the track record that we have. And that is why customers trust us with a lot more offshore delivery.
Unidentified Participant
Right. We have been speaking about it quite a lot, but over the past one or two years, I think, that has not reflected in the overall revenue. So when do you think that change might happen? Or is it due to that the profitability of the legacy players are impacted, that is why we are not getting that kind of business?
Manoj Raghavan
No, if you look at it, the industry went through massive, what do you say, situation over the last, I would say, 12 to 18 months, right? So it is not as of that such deals have not happened. So deal are happening. Some of them are ramping up as per plan. Some of those ramp-ups are still slow. So it’s a work in progress. So we are seeing that shift happening.
Unidentified Participant
Okay. And last question with regards to the — yeah, sorry, please continue.
Nitin Pai
If I may just add, I’m just adding a little perspective.
Unidentified Participant
Yeah
Nitin Pai
I think you remember, all our revenues and growth or lack of it is organic. A large part of the growth that we have seen across many of the peers that we see in the industry has been actually coming from inorganic. The organic growth has been lacking, if you ask me, not very different. I think what’s different for us is the fact that you will see that consistent offshore track delivery. Nobody else carries that kind of an offshoring capability.
Two is you’re seeing that gradual but consistent shift to fixed price. Rightly, like Manoj said, the intent is not to simply improve margins. It is to make sure that we can continue to deliver greater and greater value. But the most important point, I think everybody has to remember is ER&D is not very large deals locked in for five years and so on. It is a set of projects that continue to run off. So every quarter, you will lose 10%, 15% revenues, you have to make it up, with new deals and new contracts. So that is the challenge. It is not the proposition or the value that we carry. It is the ability for you to continuously refill that funnel, right?
Unidentified Participant
Thanks a lot. Thanks a lot. Right. Okay. And last question is with regards to the media vertical. So we have been telling that media is still not out of the woods. So do you think that in the media vertical, if we are able to manage the revenues over a three to five-year horizon, do you see that trajectory changing? Or what circumstances may bring the revenue in the media and telecom vertical back?
Nitin Pai
Yeah. So if I may, again, I think two, three things, right? One is that we have seen a plus/minus, plus/minus. So there are some quarters of growth, there are some quarters of degrowth. So the media and telecom vertical for us has been very volatile. And overall, it has not delivered growth, right? And that’s fundamentally reflecting the state of industry, which is whether it’s the telecom operators or whether it’s the large media streaming companies and content studios, they’ve all been under tremendous pressure for top line growth. And therefore, a lot of the focus has been bottom line. And bottom line means when it’s more of an efficiency and cost takeout game rather than an innovation game.
So to that extent, I think what we have really done very, very well, if you ask me over the last six quarters is the building of confidence both in ourselves and in customers that we can execute, we can win, execute and execute very, very well on large consolidation deals. Remember that we have typically not played that game too much. We’ve always been about do the new and less about consolidate, we will take over what we’re doing. We’ll make sure that efficiencies are delivered. So it’s been always less of that, more of do the new.
I think that muscle that we have built, whether it’s in automotive, whether it’s in Media and Communications, I think is the biggest single factor that you are able to go there and win $100 million deal, that you’re able to go there and win $50 million deal. I think that creates that muscle and discipline to say, look, can we build a foundation of revenues that even if there is some volatility, you can stay protected. And hopefully, there’s a growth in certain quarters, there is growth in certain areas. But the real big answer will be that innovation has to come back to the industry for true big upticks and you’ll see moderate, in our view.
Manoj Raghavan
Yeah. And also the industry is also going through a lot of mergers and acquisitions. M&A is happening. So that is also sort of what happens when two media companies come together, there is duplication of engineering and so there is a lot of resources available, and there’s no need to really depend on an external supplier to come in and support them and so on, right? So those things are also happening as we speak.
Unidentified Participant
Right. Thanks. Thanks a lot. And one last question, if I may. We were looking at some new verticals. So if you can share something on it? Thank you.
Manoj Raghavan
Yeah, so I think we were focusing on — for example, the aerospace and defense is one vertical that we are looking at. And we have some very exciting things happening there, but it’s very difficult to — I mean, unless these result in some large revenues and so on, it’s very difficult to proactively tell you what is happening. We’re doing some very, very good work with the defense organizations in India, with HAL, with the Aeronautical Development Agency. There are some large deals that we are bidding for. Working — we’re also working with some global players there, right? So I think till we reach a size, I think we will — we are continuing to invest there.
We continue to build capabilities and also when those initial projects and trial projects and so on. So we’ll keep you updated there. We have also started focusing on the battery energy storage, right? That is a big opportunity because of all the data centers that are being — especially because of AI and Gen AI, a lot of power is needed, right? And for that, battery energy storage is of — there’s a huge demand in the market. And that is something that we have picked up, and that’s something that we would — and of course, even for EV — powering up EV in remote locations and so on, you need that battery energy storage. So that is something we have incubated.
And I think the coming financial year, we hope that, that will be a reasonably sized vertical for us. So we will make those announcements at the appropriate time. We’ve also started — I mean, a little bit on the manufacturing side. We have built certain capabilities. We have won some initial customers. That is another area we continue to invest. Again, so those — all those three areas, we continue to build that muscle, build that strength, do those initial projects, build those capabilities. And we are hoping that, look, next four to six quarters, at least one or two of those will start showing results.
Unidentified Participant
Sure. Thanks. Thanks a lot.
Manoj Raghavan
Thank you.
Operator
Thank you. As there are no further questions from the participants, I now hand the conference over to the management for closing comments.
Manoj Raghavan
Yeah. Thank you. Thank you to all the investors for the call today. I think we are very — we are still optimistic that FY ’27 will be a growth year for us. And as I said, right, it’s not — the growth has to be led uniformly across the three verticals, and that would be the focus for us as we enter into the new financial year. Thank you so much for your time today.
Operator
[Operator Closing Remarks]