Tata Elxsi Ltd (TATAELXSI) Q4 FY23 Earnings Concall Transcript

Tata Elxsi Ltd (NSE:TATAELXSI) Q4 FY23 Earnings Concall dated May. 18, 2023.

Corporate Participants:

Mr. Manoj Raghavan — Managing Director and CEO

Mr. Gaurav Bajaj — Chief Financial Officer

Mr. Nitin Pai — Chief Marketing and Chief Strategy Officer

Analysts:

Diwakar Pingle — Ernst & Young LLP. — Analyst

Bhavik Mehta — JP Morgan — Analyst

Vimal Gohil — Alchemy Capital Management. — Analyst

Sulabh Govila — Morgan Stanley. — Analyst

Utkarsh Katkoria — PGIM India Mutual Fund. — Analyst

CA Garvit Goyal — Invest Research, — Analyst

Ajay Jain — Astute Investment Management. — Analyst

Akshay Ramnani — Axis Capital. — Analyst

Urmil Shah — Ageas Federal Life Insurance. — Analyst

Ajay Garg — Individual Investor — Analyst

Tushar Bohra — MK Ventures. — Analyst

Rajesh — Zenith Financial Services — Analyst

Sanjay Satpathy — Ampersand Capital Investment Advisors. — Analyst

Karan Uppal — PhillipCapital India. — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Tata Elxsi Q4 FY ’23 Earnings Conference call.

[Operator instructions]

I now hand the conference over to Mr. Diwakar Pingle from E&Y. Thank you and over to you, sir.

Diwakar Pingle — Ernst & Young LLP. — Analyst

Thank you very much, Govind. Good evening to all participants on the call. Good morning, to those who’ve joined us from the investment side. Before we proceed with the call, let me remind you this discussion may contain forward-looking statements that may involve known and unknown risks, uncertainties and other factors. Therefore it must be viewed in conjunction with the businesses that was caused by the results, performance, achievements, but this was significantly from what is expressed or implied by such forward-looking statements.

To take us through the results and answer your questions today, we have the senior management of Tata Elxsi. [Indecipherable] Mr. Manoj Raghavan, Managing Director and CEO; Mr. Nitin Pai, Chief Marketing and Chief Strategy Officer; Mr. Gaurav Bajaj, Chief Financial Officer, and Mr. Cauveri Sriram, Co. Secretary.

We will start the call with a brief overview of the first-quarter and the year by Mr. Raghavan, followed by very a Q&A session.

Having said that, I would like to hand over the call to Manoj. Over to you, Manoj.

Mr. Manoj Raghavan — Managing Director and CEO

Thank you, Diwakar. Good evening, everybody. Thank you all for joining us today for the Q4 earnings call. By now, you would have received a copy of the Q4 earnings release and fact sheet, both of which are available on our website.

As we are meeting at the fourth-quarter earnings call. I’m happy to report that for the full financial year 2023, they delivered a strong performance with revenue growing by 27.3% and profit-after-tax growing by 37.4%. During the financial year, we crossed the INR3,000 crore revenue milestone. For the fourth-quarter of the financial year 2023, our revenue from operations was rupees INR837.9 crores, which translates to a quarter-on-quarter growth of 2.5% and year-on year growth of 22.9%.

In US dollar terms, the quarter-on-quarter growth was 2.9%. Our EBITDA for the quarter was at INR249.5 crores, which translates to an EBITDA margin of 29.8%. Our PAT for the quarter was at INR201.5 crores. In a year which had macroeconomic uncertainties and several challenges for the industry in general, we have been able to grow our revenues and protect our margins.

I’m happy to report that the Board of Directors have recommended a final dividend of 606% for the financial year ending 31st March 2023. This represented a 42.6% increase over the previous year and corresponds to a payout ratio of 50% of our PAT.

Talking of our divisional performance for the quarter in constant-currency terms, our Embedded Product Design, our EPD division grew 1.6% quarter-on-quarter and 13% year-on year. The other two divisions IDB, and SI had a remarkable growth during the financial year. IDV grew 52.8% year-on year and our System Integration grew 77.6% year-on-year.

And talking of the verticals, we had a steady quarter of performance for all the three verticals, but more importantly, our healthcare and the media and communication business, both have returned to growth from last quarter, even if moderately. We are building a strong deal pipeline and hope to see large deal conversions picking-up over this quarter and beyond.

Across the three verticals, our growth has been primarily volume led and we have witnessed strong growth with our large accounts. Across the key accounts, we have increased the wallet share against competition, underscoring our differentiated value proportion and offshore delivery capabilities.

I am personally excited with the opportunity ahead in the automotive and transportation business, the scale and rate of transformation that the automotive industry needs to undertake, changes driven by the regulatory sustainability and evolving customer consumer preferences and business models, extraordinary opportunity for Tata Elxsi. This transformation will demand deep domain knowledge, scale in software development, application digital technologies like AI and IoT, and more importantly, design will take center stage in creating consumer delight.

I believe we are at the right place and bring the right capabilities. And are engaging with the right conversations global automotive leaders in their transformation journey.

Our strategic long-term deal with Alps Alpine in Japan to establish a global engineering center for developing next-gen mobility solutions in India and a multiyear SDB deal with a European OEM reflect this opportunity.

I do recognize that an offshore-centric and ownership driven delivery model is not only harder to execute, but also requires almost three times the number of resources to deploy, as compared to on-site deployment for the same impact on-top line. However, we strongly believe that this is the only way to create long-term and sustainable value and we are best-positioned to deliver on this.

Equally, there is an emerging opportunity for applications around 5G that allow enterprises to harness the speed and reliability of this technology. We are seeing deals with operators and enterprises to make this a reality. Two of the large deals that we announced this quarter precisely address this opportunity, we have been selected by a leading Middle-East telecom operator as a design-led consultancy and development partner for next-gen applications around 5G, including healthcare, IoT and connected digital services. We also won a strategic deal with a world-leading telecommunications product company for 5G broadband software and solution deployment that will power the next-gen consumer devices. Our healthcare and life sciences business was impacted by the extension of regulatory deadlines, which cut into our existing work and revenues, but I’m happy to see the business recovering from the setback within a quarter, and building a strong pipeline of deals and penetrate — penetration into a new marquee customer.

So we are seeing the success of our key strategies deployed over the last two years with strong synergies between the EPD, IDV and ISI playing out well, allowing us to address upstream and downstream product lifecycle requirements.

We are seeing increase in duration and size of deals leading from this up-selling and cross-selling. This is reflected in the strong performance of our IDV and the system integration business in FY ’23. On the attrition front, our annualized attrition for the 4th-quarter stood at 17.3%, which is again, one of the lowest among our peers and IT industry at large. So we enter the new financial year with the confidence of working with the marquee set of global customers, scaled delivery capability from talent investments that they’ve made over the years and a unique profession of design digital that is more relevant today than ever.

So I strongly believe we are in good shape to move forward. And I now hand over the floor to E&Y for the Q&A session. Over to you, Diwakar.

Questions and Answers:

Diwakar Pingle — Ernst & Young LLP. — Analyst

Thank you very much. We will now begin the question-and-answer session.

[Operator instructions]

The first question is from the line of Bhavik Mehta from JP Morgan. Please go-ahead.

Bhavik Mehta — JP Morgan — Analyst

Thank you. Couple of questions. Firstly, on the Transportation vertical, we saw a very sharp deterioration in growth on a sequential basis. So was it due to any project deferrals of unknowns[phonetic], which you saw during the quarter and what’s the outlook going into 1Q as well, in this vertical?

The second question again is on the [Indecipherable] vertical, which is media and healthcare. We saw some growth coming back in 4Q, but what’s the outlook going-forward, do you expect growth to start activating from here on or do you expect it to remain maybe weaker for a couple of more quarters before we start seeing green shoots over here?

And lastly, just a bookkeeping question on the ESOP, [Indecipherable] scheme in March. So what is the outlay going to be and any impact on margins because of that? Thank you.

Mr. Manoj Raghavan — Managing Director and CEO

Sure, so — so on the transportation business, I — we have one significant deal in the quarter, we have announced that. So we strongly believe that moving-forward, we have a good deal pipeline and we are seeing customer confidence in the value proportion that Tata Elxsi has. So I think from a from a transportation business, I strongly believe that that growth that we have shown over the years, we will be able to replicate that in the coming financial year. On the media and healthcare business, yes. We seen some amount of green shoots and some of the growth come back. It is still early days. I would say, but from a mid-term to long-term perspective, I see no — no challenges for us and this business will definitely recover and more important, as we see a lot more of these 5G opportunities and deals that are coming back, we strongly believe that towards the latter half of Q1 and Q2, we will see the growth coming into Tata Elxsi. So on that front, I think we are pretty, pretty confident.

Regarding ESOPs, I think, on a quarterly basis, we are looking at about INR4.5 crore or so of expenses that we would — we would incur on the ESOP front.

Bhavik Mehta — JP Morgan — Analyst

Okay, that’s helpful. But just on the transport, what was the reason for the weakness in 4Q because 3Q was a very strong growth of 7%, now we saw only 1.5%, so any color on that would be helpful.

Mr. Manoj Raghavan — Managing Director and CEO

No, I think you should — it’s very difficult for you to look at — it’s a large business that we have. So you don’t really look at it from a quarter-to-quarter basis in that sense. You look at it from a mid-term to long-term perspective, the fact that we have continued to grow and grow significantly over the years is what do you need to look at, I’m not really that much bothered about this one quarter issue because we definitely see strong deal pipelines and so on. There have been some amount of deferments in some of our customer places, but that, that is fine and we strongly believe that in — that growth will come back in Q1 and Q2.

Bhavik Mehta — JP Morgan — Analyst

Okay, thank you. That’s it from my side.

Operator

Thank you. Ladies and gentlemen, we request you to restrict your questions to two per participant. For follow-up questions, you may rejoin the queue. The next question is from the line of Vimal Gohil from Alchemy Capital Management. Please go ahead.

Vimal Gohil — Alchemy Capital Management. — Analyst

Yes, sir. Thank you for the opportunity. My questions on automotive growth has been answered. Sir, just on cash-flow despite our P&L going very strongly this year, operating cash has been slightly muted, and that is largely driven by our sharp increase in receivables. So how do you see that going-forward?

Mr. Manoj Raghavan — Managing Director and CEO

I would request Gaurav to answer that question.

Mr. Gaurav Bajaj — Chief Financial Officer

Yes, hi, yeah, so this quarter if you see, there is an impact on our trade receivable. This is primarily because we embarked on the system transformation in the quarter four, which kind of little bit rolled over the invoicing that has to be done to the customer, but. I think that is only a short-term phenomena. We believe that that cash-flow will be back-in and we will recoup those collection in the coming quarter. So that will get normalized over the next one quarter.

Vimal Gohil — Alchemy Capital Management. — Analyst

Understood, understood. Sir, just wanted your comments on this Alps Alpine initiative that we’ve taken, if you could just highlight something more than that. What is — what could be our revenue model and could we see some — some contribution accruing from that? I know it does signify, as you highlighted it’s a very-very significant effort — offshore effort from my side. But just wanted to understand. so we already have some clients here or is it still a, it’s still very early stages?

Mr. Gaurav Bajaj — Chief Financial Officer

No, so we have set-up a global delivery center for them, and. And it is a multi year engagement. I would look at it anywhere from 5-to-10 year sort of roadmap that is the roadmap that we have at this point in time. The color I would like to say is, especially with Japanese customers [Indecipherable], the first a couple of years of engagements are very-very critical. So we have been engaged with them for a few quarters right now before we got into this — before we were empaneled as a global partner for them, right, in some sense. The challenge for them, if you look at it is, outside of Japan, they had a large presence in China and because of the geopolitical issues and so on that we are seeing, they definitely needed to find a partner in another country to derisk their China presence, and that is where Tata Elxsi came in and since we already had a relationship with them, this really helped us. And of course, we delivered significantly on the existing projects that we are developing for them. So that really gave them the confidence to trust us as they are engineering beyond China. And this could be a significant business for us long-term business that we would continue to grow over the subsequent year.

Vimal Gohil — Alchemy Capital Management. — Analyst

And sir, just on margins or do you think you will be able to recoup — what you’re effectively highlighting is about half a percentage of impact –incremental impact which is margin of — which is of ESOPs. So how do you plan to sort of offset that going ahead?

Mr. Gaurav Bajaj — Chief Financial Officer

No, so of course, you know, we have different levers available, including utilization, yes, there will be cost that will be coming in because of wages and salary hikes and so on. So, I think for the year, we are pretty well-positioned to be in, say, a band of I would say from a PBT perspective or I would say between 28% to 29%, so that is a brand that we are targeting to operate in.

Vimal Gohil — Alchemy Capital Management. — Analyst

Understood, sir. Thank you very much and wishing you all the very best.

Mr. Gaurav Bajaj — Chief Financial Officer

Thank you.

Operator

Thank you. The next question is from the line of Sulabh Govila from Morgan Stanley. Please go-ahead.

Sulabh Govila — Morgan Stanley. — Analyst

Yes, hi, thanks for taking my question. So. I had a couple of questions. So one is with respect to the divergence in growth within the top 10 client bucket and outside of that. So outside of top 10 client buckets, the growth was a bit soft. So just trying to understand what you’re hearing from clients with respect to the spending patterns and whether the growth that you’re expecting in the coming year, it’s going to be broad-based, or you expect the top 10 clients to continue to do well for you?

The second bit is on the margins. But if you could provide the margin walk for the quarter, as well as if you could talk about where we are on the investments journey that we started, with respect to hiring middle level managers and developing a on-site location in Germany, for example. So where are we in that process and how do we plan coming into next year?

Mr. Manoj Raghavan — Managing Director and CEO

Sure, so. So, I would say, we definitely have been able to mine, especially our large customers pretty well, not just in the quarter, but I think over the over the financial year. I think you’ve done a commendable job in really increasing our wallet share and taking business away from competition. And really growing those accounts, right. And then when you say growing the accounts, as you may realize we — a lot of our business is offshore based, so we have been able to convince customers to move a lot of work offshore and you know –and that has really helped us. So we will definitely continue to grow our top 10 accounts within — in the next financial year and so on. And when I saw top 10, it includes the top 20 customers that we are looking at.

So — so, I think overall if you look at it in the market, tes, it is a difficult macroeconomic situation. And you know the R&D budgets are all discretionary. So we see some signs of it, there are some customers that continue to invest and grow and you know and trust Tata Elxsi’s delivery capabilities and work with us and so on. But there are a few, the customers that — that have, have had some issues in terms of their our own R&D initiatives, they are either getting paused or put on a hold or for whatever reasons, right. So, so — so beyond the top 20 customers, so we definitely have a set of accounts that we would really want to push into the top 10 and top 20, so we are focused on that and we’re really working on that select set of customers to see how we have we can move them into — gain larger market-share there and move them into a bigger bucket and so on. So that’s something that we continue to do, but at the same time, if you look at the overall set of customers, large wave customers that we have, there could be a few customers that have some issues in their own business and so on. So that is why I think there is a relatively softness in the beyond the 20 bracket, I would say.

But I think that’s — that happens every quarter and I don’t think it is a cause for concern. So definitely a large part of our growth will be — will be pushed by our top 20 customers. At the same time, there is the next set of customers also that we are carefully curating and really working with — working with very-very clear objectives of moving them from one bucket to another. So that’s something that we continue to do.

From all the initiatives that we have, hiring managers, mid-level managers and the offices in Germany and other places, right. So, we have, we have also investments in UK, as well as in US and so on. We have over the year, we have — those investments continue, and I think those ramp-ups are happening satisfactorily. In fact, we have been able to deliver value for some other customers, including in Germany and UK, based out of our delivery locations in those respective countries.

So I think — I think it is still a — still a work-in progress. And we would continue to execute on the strategies that we have laid out and we are as per our plan I don’t think we have a concern there. The SMEs, the mid-level managers and so on, that we continue to both internally ramp-up resources as well as hire laterally, so that efforts continue.

Regarding the margin, Gaurav, can you answer that?

Mr. Gaurav Bajaj — Chief Financial Officer

Sure. Hi Sulabh, this is Gaurav, I will take your second question on the margin walk. If you see, for the quarter, our margin on the EBIT front, it was in the narrowly below what we delivered in the last quarter, just 30 basis-points, that is primarily to do with the campus onboarding that we did during the quarter and also what Manoj also alluded to the fact that we continue to make investment into the people, subject matter — subject matter experts and augment our sales team across the location, which is important from a forward-looking strategy and technical capability that we want to continue to build upon. So we continue to invest in that– in those parameters, but that’s why the EBIT margins came 30 basis-points lower compared to the last quarter, but if we see at the PBT level, PBT level our margin was 29% this quarter compared to 28.7% last quarter. So, in fact on the PBT, we have delivered better and stronger growth and the margin this quarter that has to do with the higher other income due to the interest incomes and the R&D credit that we get from some of our onsite businesses and the exchange gains that we have made during the quarter. If you see at a PBT level, we have done better than the last quarter. And that is even better than PAT — at the PAT level, we had done 23.3% and PAT is almost at 37.4% on a year-to-year basis if you see on a full-year basis, we have a 37.4% growth in our PAT.

Sulabh Govila — Morgan Stanley. — Analyst

Understood. Thanks for the comprehensive answer and thanks for taking my question.

Mr. Gaurav Bajaj — Chief Financial Officer

Thank you.

Operator

Thank you. The next question is from the line of Utkarsh Katkoria from PGIM India Mutual Fund. Please go-ahead.

Utkarsh Katkoria — PGIM India Mutual Fund. — Analyst

Yes, sir. Hi, good evening. Thank you for taking my question. So I just wanted to understand in light of Tata Technologies IPO that is likely to get the market, how do we compete for business say versus a Tata Technologies, which is a part of the same group? And what is our go-to-market strategy and how is that distinct, say from Tata Technologies or some of the other players in the sector?

Mr. Manoj Raghavan — Managing Director and CEO

Yes, so, Tata Technologies is a group company and as you know Tata Technologies is a subsidiary of Tata Motors, right, and they get a significant portion of their business from the group companies TML and JLR, a lot of their business is around, definitely, the mechanical engineering, the PLM, they do a lot of work on the ERP side and of course, in a few verticals. I think automotive, aerospace, industrial, and those are verticals that they operate operator in. Whereas Tata Elxsi is primarily focused on the embedded engineering hardware and software, along with a strong focus on design. So literally speaking, we are orthogonal to orthogonal entities, the service offerings are literally orthogonal. So, so. I think, you know from a Tata Elxsi’s perspective, we really don’t see an impact of Tata Technologies affecting our business. But they have a very-very strong portfolio of services that they deliver to their customers and we are literally a complimentary sort of offerings that they have.

Mr. Nitin Pai — Chief Marketing and Chief Strategy Officer

Maybe I can just add a little bit. This is Nitin here. Tata Technologies has been in business for many years now. And they have been in the market for many years now. So in that sense, from a competition and the customer perspective, they’re already there, they are already factored in. It’s only for investors that is a new factor, because they now coming up with an IPO, rather than being a subsidiary that is not investable, right, so in that sense, it will — it won’t change the status or world view doesn’t change for us at all.

Utkarsh Katkoria — PGIM India Mutual Fund. — Analyst

Right, right. So what I understand is that while they have heavy on automotive and we are also heavy on automotive, the kind of service offerings they have are very different from what we are doing?

Mr. Manoj Raghavan — Managing Director and CEO

Yes, half of them, I would say, yes.

Utkarsh Katkoria — PGIM India Mutual Fund. — Analyst

And when it comes to other segments, we are — have strength in healthcare and communication while they have more strength in aerospace and industrial.

Mr. Manoj Raghavan — Managing Director and CEO

Yes, that’s correct.

Utkarsh Katkoria — PGIM India Mutual Fund. — Analyst

So is there a time when both Tata technologies and Tata Elxsi together have gone to a client to sort of win some part of the business. Is there a combined go-to-market strategy as well or we operate completely in different spaces?

Mr. Manoj Raghavan — Managing Director and CEO

No, we are two different companies, so we operate independently. But at the same time, we’ve had occasions where we have come together to deliver a end-to-end service for the customer. So that has also happened. Okay. Thank you. Thank you for that. Thank you so much.

Operator

Thank you. The next question is from the line of CA Garvit Goyal from Invest Research, please go-ahead.

CA Garvit Goyal — Invest Research, — Analyst

Hello, good evening, sir. Am I audible?

Mr. Manoj Raghavan — Managing Director and CEO

Yes, please go ahead.

CA Garvit Goyal — Invest Research, — Analyst

Just one question basically on the margin sustainability side. So do you think these level of margin will become sustainable going-forward for next two-three years?

Mr. Manoj Raghavan — Managing Director and CEO

It’s very difficult, difficult to forecast two-three years and so on. But if you look at the next financial year, we strongly believe that we can sustain this level of margins.

CA Garvit Goyal — Invest Research, — Analyst

Okay, understood. And what about the growth outlook for next year, next year?

Mr. Manoj Raghavan — Managing Director and CEO

We are pretty bullish about the growth prospects that we have. Yes, there are still macroeconomic uncertainties and challenges that there in the industry, but I guess we will get-out of it. It’s a question of one quarter or two-quarter time-frame. There are parts of our business that are already showing green shoots and that is what will really focus on and we really hope that we’ll be able to get back to a decent growth path.

CA Garvit Goyal — Invest Research, — Analyst

Okay, understood, sir. Thank you.

Operator

Thank you. The next question comes from the line of Ajay Jain from Astute Investment Management. Please go-ahead.

Ajay Jain — Astute Investment Management. — Analyst

Hello. Hi. My question is does AI and generative AI, like ChatGPT affect positively or negatively on our profitability and billable values going-forward?

Mr. Nitin Pai — Chief Marketing and Chief Strategy Officer

Yes, hi, this is Nitin here, Ajay. Maybe I’ll take that question. If you look at it, ChatGPT has the greatest impact on jobs that are automatable easily. So to that extent, a lot of typically what would constitute shared services, creative services and so on, is where we believe the impact is a lot more direct from generative AI. But when it comes to very domain-focused problems, and let me give you an example, when it comes to autonomous cars for example, you have to train cars to be able to drive on roads and deal with scenarios that are completely complex and different. You cannot use a generative AI like ChatGPT to cars to drive on roads. You can, you can ask CHATGPT about what is the best car to buy, but you can’t allow it to run the car that is, that you want to buy. So to that extent, I think the fact that we operate in domains, the problems that we address problems are very deep domain problems, for example, the recommendation engines that go into OTT products, that tells you what you like, what should we watch next and so on. The AI that goes into cars that allows it to drive or the AI and healthcare that looks at radiology results, looks at precise image mapping, identify disease. So we think about it, these are specific problems, these are not generalized problems. So to that extent. We see very little impact from ChatGPT or generative AI directly in our businesses. Ours — there are areas where we are actually starting to use it ourselves, right and there are very interesting applications that we can use it beyond what we do today. So that would be our assessment at this time.

Ajay Jain — Astute Investment Management. — Analyst

Would it be on-balance lead or cost-cutting area or to improve your billable value or reduce your billable value in the future?

Mr. Manoj Raghavan — Managing Director and CEO

No, for us, we think we see AI as something that enhances value all-the-time. So even in our own domains and our on projects, we don’t see standalone AI projects, we see AI building into the projects that we deliver. So to that extent, I think ChatGPT is just another lever in the armory.

Ajay Jain — Astute Investment Management. — Analyst

Yes, I agree, but GP — apart from that, there are so many new AI solutions going to be available soon. So that — I’m asking my question in that context, not limited to ChatGPT.

Mr. Manoj Raghavan — Managing Director and CEO

I mean, no, sorry. So your question is? If you can repeat the question in that case, please?

Ajay Jain — Astute Investment Management. — Analyst

Will AI affect you positively or negatively?

Mr. Manoj Raghavan — Managing Director and CEO

AI is a great positive. It is already a great positive for us. What we’re saying is, it’s alway been a great positive, it will continue to be a great positive and generating AI by itself doesn’t represent a threat.

Ajay Jain — Astute Investment Management. — Analyst

Okay, thank you very much.

Mr. Manoj Raghavan — Managing Director and CEO

Sure.

Operator

Thank you. The next question is from the line of Akshay Ramnani from Axis Capital. Please go-ahead.

Akshay Ramnani — Axis Capital. — Analyst

Hi, thanks for taking my question. My first question is on employee cost. I’m just trying to understand it. It is up about 4.5% on a sequential basis. If I look at last quarter headcount, it was flat. This quarter headcount is also up by about 2.2% and I’m assuming we don’t have a wage hike this quarter, so what explains this increase in employee costs?

Mr. Gaurav Bajaj — Chief Financial Officer

Hi, Akshay. This is Gurav, let me take that question. The employee cost increase I mentioned earlier is because of one, the headcount increase that we have done, also some of the on-site investment that we have done in the people, sales, subject matter expertise and also remember that while we have a benefit from the revenue side, but for the onsite headcount, there is also a cost impact that comes from the exchange — exchange movement during the quarter compared to the last quarter, plus we have certain new contribution plan that we have started in the US geographies, which — for which also cost got added in this quarter. So those three, four factors added to the cost from as when you compare from the last quarter.

Akshay Ramnani — Axis Capital. — Analyst

Got that. Got that. And other expenses line-item has been quite volatile over the past three quarters, so any sense on what’s the sustainable basis number there or is it expected to get volatile in the near-term as you see it?

Mr. Gaurav Bajaj — Chief Financial Officer

So if you see the last three quarters, after quarter four and quarter one or quarter one of this financial year, when the COVID related lockdown started to open, so we had to open back the offices, travel started to resume — started again. So there will be — it slowly started to come back and as people started to come back, we also need to set-up the facilities, then there are certain increase in the discretionary expenses, nut on a quarter-to-quarter, they will always be even, which will be very quarter-specific, which may not have the cost in this quarter versus the last quarter, but most of the cost that was not there during the lockdown period is now back. So probably, if you see quarter-to-quarter, two quarter average, that would be the level of operating, I would say, the other expenses that — where we will operate now.

Akshay Ramnani — Axis Capital. — Analyst

Sir, you mentioned quarter two, quarter three average, is it?

Mr. Manoj Raghavan — Managing Director and CEO

I’m saying last two-quarter averages if you see, don’t take one quarter as a benchmark of basis, but take a couple of quarters to take average as what percentage of our overall operation where we will run those other expenses.

Akshay Ramnani — Axis Capital. — Analyst

Got that. Got that. And my question was to Manoj. Manoj, if you can touch upon the hiring outlook for next year and maybe based on the deal wins which you have in hand, how do you expect the revenue to shape up over the next couple of quarters?

Mr. Manoj Raghavan — Managing Director and CEO

Yes, so from a hiring perspective, in this financial year, we will be adding almost, I would say 2,200 odd headcount. That is the current plan that we have. Out of which almost 1,800 or so would be the fresh grads that we would add. And about 450, 500 gross laterals — I mean net laterals that we will add. So that is the sort of headcount that we are looking.

From a growth perspective, I think I’ve already answered. We definitely see in each of the businesses that we are, we see a good confidence of the opportunity is coming back. There are large deals that we’re signing, in the process of signing. There are lot of discussions happening with customers. So yes, there is a little bit of the macroeconomic uncertainty, so, I would say, let’s wait for the quarter and see how it how it rolls out. But we are –sitting out there today, we are fairly confident of the way forward.

Akshay Ramnani — Axis Capital. — Analyst

Got that. Just one if I can squeeze in. So offshore revenue has come off slightly in this quarter, is it just a quarter phenomenon or is there anything any diversion we are seeing there?

Mr. Gaurav Bajaj — Chief Financial Officer

I think it not significant, it’s very marginal, that kind of movement between onsite and offshore, depending upon the project completion in a quarter will always be there, but if you see that range of movement quarter-to-quarter, that is very insignificant.

Akshay Ramnani — Axis Capital. — Analyst

Got that. Thank you.

Operator

Thank you. The next question is from the line of Urmil Shah from Ageas Federal Life Insurance. Please go-ahead. Urmil Shah, the line for you guys been unmuted, you may proceed with your question.

Urmil Shah — Ageas Federal Life Insurance. — Analyst

Yes, thanks. Good evening, gentlemen, thanks for taking my question. My question is a follow-on the transportation business. Sir, just to understand, you mentioned that a few [indecipherable] that happened in case of select clients, was it towards the back of the quarter or it was more that one project got completed and the ramp-up was the follow-up time. Secondly, as regards to [indecipherable] performance, the US has been relatively softer in this quarter, was it to do more with the auto business or it was broadly across the vertical. And lastly, as regards the top five clients in the auto segment, how has the performance been, specifically, for the transportation segment among the large clients?

Mr. Nitin Pai — Chief Marketing and Chief Strategy Officer

Yes, maybe I can take that on behalf of Manoj, this is Nitin here. With respect to auto and the revenue ramp-up over the last quarter, it’s a combination of factors. So to some extent, like Manoj said, there are projects that have ended and the renewals and extensions have taken a little time in some cases. In some cases, it’s about — I mean including Alps Alpine and so on, you’ll find that the whole announcement was made on May 20, sorry, March 23rd, almost the last week of the quarter, right, because the inauguration done on that time and we have started to build-up an entire center starting from then. So we would have ideally liked to have had that announcement made in the first week of Jan and then got to building the business and ramping-up revenues right from there. So to that extent, I think nothing to worry, simply it’s a combination of factors, but the path ahead is clear, right.

Moving to your second point in terms of US, for us, US as far as almost secular. In fact, Europe is typically auto dominated while US is a lot more media and healthcare. So to that extent, that more or less explains the softness, if at all. And was there anything else that you had, Urmil?

Urmil Shah — Ageas Federal Life Insurance. — Analyst

The top clients are from transport verticals, right?

Mr. Nitin Pai — Chief Marketing and Chief Strategy Officer

I think they are doing extraordinarily well.

Mr. Manoj Raghavan — Managing Director and CEO

Yes, we don’t see an issue there in the top-five customers there.

Urmil Shah — Ageas Federal Life Insurance. — Analyst

Sure, and sir, just on [Indecipherable], which quarter should see a ramp-up of he deal?

Mr. Manoj Raghavan — Managing Director and CEO

It will happen over this — this financial year, right, from Q1 to Q4, so. So it, it is not going to be step-change right from one, it will be a gradual ramp-up that will happen.

Urmil Shah — Ageas Federal Life Insurance. — Analyst

Sure, so safe to assume that —

Operator

Sir, sorry to interrupt. Can I ask you to please rejoin the queue for further question?

Urmil Shah — Ageas Federal Life Insurance. — Analyst

Sure, thank you.

Operator

Thank you. The next question is from the line of Ajay Garg, an individual investor. Please go ahead. Ajay, the line for you, has been unmuted. You may proceed with your question.

Ajay Garg — Individual Investor — Analyst

Yes, so I believe all the questions have already been answered, there are no questions from our end.

Operator

Thank you. The next question is from the line of Tushar Bohra from MK Ventures. Please go-ahead.

Tushar Bohra — MK Ventures. — Analyst

Yes, thanks for the opportunity. Sir, first, I would like to understand some of the initiatives beyond your top three segments, automotive, media and healthcare. You have been ramping-up on initiatives in defense, aerospace, maybe a few other industries or segments, if you could give more qualitative comments, inputs around that.

And in a related question, we’re seeing a revival of manufacturing, domestically, lot of interesting opportunities coming up E&S, semiconductor space and so on, does Tata Elxsi have play in any of these areas? Defense offset for example, defense-related stuff in India? If there are anything interesting things you would like to highlight?

And lastly. I want to understand on the IP front, if there are any notable wins or any interesting qualitative comments on your IP side?

Mr. Manoj Raghavan — Managing Director and CEO

Sure, so maybe on the IP front, I would ask Nitin to respond. Yes, apart from the three main verticals that we have, we’ve really been focusing on our design business. And within the design business, really focusing on, of course, consumer electronics, manufacturing is an area that we have been investing in and you rightly said, in India we, we see a lot of opportunities in the manufacturing space, especially with our industry [Indecipherable] and IoT solutions that we have. So-so yes, so we are building that muscle. And we have some interesting deals that they have won over the last financial year, right. So that’s something that — and I think that progress is satisfactory way I would say,

We are really not working from a defense perspective, but we really work with organizations like ISRO or VSSC. So I’m happy to let you know that we have been involved in the Gaganyaan project and we’ve done some very fantastic work there, and whenever — I’m not sure whether they already published on our website and so on. Okay, at an appropriate time, we will — we will definitely talk about that. It’s a cutting-edge work that we have done and we are very proud of the type of work that we’ve done for ISRO.

Yes, on the IP front, is there anything that we want to specifically talk about?

Mr. Nitin Pai — Chief Marketing and Chief Strategy Officer

Yes. Tushar, to that extent, there is nothing new to report in terms of our portfolio, we are building some and we have some very interesting IP that we are investing in, especially that leverages AI significantly, whether it is to be able to do predictive maintenance and prognostic relating to automotive or otherwise, relating to battery technologies and being able to predict state of charge and advanced algorithms that Power EV experiences. We are investing in ad tech, especially the recommendation engines and related content moderation and so on because we see a lot of opportunities around how do you manage and automate the management of content that’s being published on social media or streaming video and so on. So in that sense, is very selective and very careful investments that we’re making.

To develop some more and augment our existing platform and products with AI-based capabilities. There are some wins and there are some interesting in fact. I would say very good traction that we’re seeing, especially with our IoT platforms, connected car platform. We are seeing some good traction with TEPlay, which is our white label OTT platform, especially in emerging markets. I’m hoping that we can make some of these announcement and we’ll actually see that also reflecting a little non linearly and our revenues in the quarter to come.

Tushar Bohra — MK Ventures. — Analyst

Thanks guys. Just follow-up on the question. By when do you think a, your non top three segment performance would be reasonably large-enough to report as separate segments. And on the design side work that we’re doing in these new areas, you mentioned manufacturing, industrials and so on, does it translate to work on the embedded side and longer-term commitments or does it remain at a design level engagement, get-in, get-out quickly?

Mr. Manoj Raghavan — Managing Director and CEO

That is the that is the change that we have brought over the last, you know, four to six quarters, right, where we strongly we have been pushing design. design as entry strategy, but definitely, our focus is to look at the downstream activities, including software, hardware development and end-to-end product maintenance and the lifecycle of the product, right. So, so that’s how we have been — and then what we have also done is to strongly integrate the design capabilities in our sales team, right, so that the sales team that goes ahead talks from a design perspective, so. I think that has actually also helped us mine our existing customers and also opened new logos for us and so that is a very strategic move that we that we have done and you know, definitely in the quarters to come. That’s something that will help more both topline and bottom-line for the company.

Operator

Thank you. The next question is from the line of Rajesh from Zenith Financial Services, please go-ahead.

Rajesh — Zenith Financial Services — Analyst

Yes, good evening, thanks for the opportunity. I just wanted to check like, do we have the capabilities or do we have any plans to work on something like a geospatial technologies, because somebody mentioned about the aerospace and defense sectors?

Mr. Manoj Raghavan — Managing Director and CEO

No-no, we — currently, we are not focusing on that?

Rajesh — Zenith Financial Services — Analyst

And we don’t have any plans in time to come?

Mr. Manoj Raghavan — Managing Director and CEO

No, because it’s a very-very — very-very niche area that we really are not — at this point in time, we’re not even thinking about it.

Rajesh — Zenith Financial Services — Analyst

Okay, and apart from the three segments you just mentioned that you are also working on some other manufacturing and other segments. So how how soon or how when can we see appreciable reporting of revenues from the other segments?

Mr. Manoj Raghavan — Managing Director and CEO

Yeah, so whenever we reach — we reach a size that we believe we can — we can report and we can sustain — we can sustain that particularly thing, right, that is when we will — we will talk about it, we don’t want to pressure ourself by giving you a number or a time-frame today and then — So we will take it whenever we are confident we’ll come out.

Rajesh — Zenith Financial Services — Analyst

Somebody is taking a long-term, say three to five years, so when can we see that change happen?

Mr. Manoj Raghavan — Managing Director and CEO

Definitely, in that timeframe, you will be able to see.

Rajesh — Zenith Financial Services — Analyst

Perfect. Thank you so much and all the best.

Operator

Thank you. The next question is from the line of Sanjay Satpathy from Ampersand Capital Investment Advisors. Please go-ahead.

Sanjay Satpathy — Ampersand Capital Investment Advisors. — Analyst

Yes sir, thanks a lot for the opportunity. You mentioned that you are fairly confident of the transport vertical growth, which should be something similar to that 25% kind of growth that you’ve seen in recent years. But at the same time, there was a slowdown in Q4. So just what — you have tried to explain it, but just want to understand that when will we start seeing that actualization in that vertical in the revenue?

Mr. Manoj Raghavan — Managing Director and CEO

You will definitely start seeing that as we close the deals and there are definitely large deals at this point in time that we are bidding. And we have been shortlisted and so on. So it’s a question of when the paperwork is done and when we’ll be able to get into a billing situation and so on, so. What we were expecting some of the deals to close, maybe early part of Q4 and some of those have got deferred. So I think we are in active pursuits in many opportunities, I would say, the funnel is pretty strong. But yes, there have been some delays due to the market situations and so on, so. So I’m really not that concerned about it and we will definitely recover moving forward.

Mr. Nitin Pai — Chief Marketing and Chief Strategy Officer

So, Sanjay. I think simply put, we should pick-up speed.

Sanjay Satpathy — Ampersand Capital Investment Advisors. — Analyst

Understood, sir. And considering that your media, you have already managed to get lot of orders, so basically, FY ’24 could be a year that will be more balanced towards, is that what you will say?

Mr. Nitin Pai — Chief Marketing and Chief Strategy Officer

That’s what we’re hoping for. Especially, we want all the engines to start firing right. Yeah, we’ve had some weaknesses in the last financial year in a few of our verticals and we’ve over the last few quarters, we’ve been working hard to really put in steps to really get back to a growth path, and I hope we will see that — those results in subsequent quarters.

Sanjay Satpathy — Ampersand Capital Investment Advisors. — Analyst

Thanks a lot.

Operator

Thank you. The next question comes from the line of Karan Uppal from PhillipCapital India. Please go-ahead.

Karan Uppal — PhillipCapital India. — Analyst

Yes, thanks for the opportunity. Firstly, on transport vertical. So on the SBB related deals, any sense of the reasons of the deal size, because one of your competitor has announced two deals which are in the range of $150 million to $250 million. So anything which you can give a sense on?

And secondly, you have spoken about transport and broadcast, that of healthcare, any outlook which you can provide for FY ’24?

Mr. Manoj Raghavan — Managing Director and CEO

Yes, so on the deal sizes, yes, the deals that we have also closed are multi-million dollar deals, so — so, definitely, yes, the opportunity exists and you — if you look at it, we bring very-very strong domain capabilities in this area, especially on cloud and DevOps and IoT and and so on, right. And this entire what do you say, software-defined capabilities that we’ve built over for many quarters, right. So, I think we are pretty confident on the deals that we have picked-up, right at the right margin levels for us, so. I think that’s something that we will be very-very careful and I have — and again, most of the deals that we have picked-up are offshore-led, right, which means we’re not really looking at the on-site-led business. most of us are offshore-led. Yes, it will take a little while to show in terms of revenue growth and so on, but I think we are in a very-very good wicket, and very good path to take the growth forward.

Mr. Gaurav Bajaj — Chief Financial Officer

Right. And Karan, I think your second question was on healthcare and the fact that we are not built inventory. I think I would simply put it this way. If you look at it, it’s been on a great path and suddenly in a quarter, you had a setback of, one part of the business just vanishing or other rather diluting because of the regulatory deadlines change. So essentially, something that was supposed to be delivered in four quarters was now allowed to be delivered over 16 quarters, which means that the [indecipherable] doesn’t change, but our entire business is now going to be spread over 16 quarters. I think the healthcare business has done extraordinarily well in my opinion, not only to recover, but also to find different customers, different work within existing customers and has nothing to do regulatory that allows you to recover. So for me, I think the great plus point, 1%plus return back to growth quarter-on-quarter from the previous quarter, which essentially sets the pace for new customer additions and new business.

So in that sense, we are very-very both happy as well as bullish on healthcare. Maybe while a quarter more of speed that needs to pick up, the long-term —

Mr. Manoj Raghavan — Managing Director and CEO

It’s a long-term lead business, it takes lead time to really convert, so, I think we are working very hard on that.

Karan Uppal — PhillipCapital India. — Analyst

So sir, just to understand, you’re saying that healthcare might grow lower than the company average, while transport may grow higher than the company average? Based on whatever comments you have made, this is what I can conclude or maybe you can correct me?

Mr. Manoj Raghavan — Managing Director and CEO

We’re not — we’re not making those statements, you are putting words into out mouth. Okay, sir. Thanks and all the best for FY ’24. Thank you. Thank you, Karan.

Operator

Thank you. The next question is from the line of Urmil Shah from Ageas Federal Life Insurance. Please go-ahead.

Urmil Shah — Ageas Federal Life Insurance. — Analyst

Yes, thanks for the follow-up. Just on the supply-side, Manoj sir, you had mentioned that at least on the auto front, previous quarters had there been they been more billable headcount, growth could have been better, so going into FY ’24 is the supply-side easing and it could be also a lever for margin? And part of your question is —

Mr. Manoj Raghavan — Managing Director and CEO

You know, as it is, your voice is also breaking and you — so supply-side, yes, definitely, I would say, supply side is easing out a little bit, as compared to maybe a couple of quarters, I think we are in a better position. We have actually built-up bench strength, right, which is significant. And we have been investing in people over the last, I would say three to four quarters and we would have seen, even from a headcount perspective, we have been we have been investing. So I believe we have a healthy bench available today and will be able to use that bench to really deliver the growth that we are planning, so.

Yes, I think from a supply-side, the three critical resources we still. I mean, SMEs and so on. We still have, we could do the definitely if you had more of those, we’ll be very happy. But having said that, we in a better situation as compared to a couple of quarters ago.

Karan Uppal — PhillipCapital India. — Analyst

Sure, sir. Sir and as regards the [Indecipherable] for this year, we should be following the normal cycle?

Mr. Manoj Raghavan — Managing Director and CEO

Yes, yes.

Urmil Shah — Ageas Federal Life Insurance. — Analyst

All right. Thank you. Thank you and all the best.

Mr. Manoj Raghavan — Managing Director and CEO

Thank you.

Operator

Thank you, everyone. Thank you. We have the next question from the line of Vimal Gohil from Alchemy Capital Management Private Limited. Please go-ahead.

Vimal Gohil — Alchemy Capital Management. — Analyst

Thanks. Thanks, again. Gentlemen, just one, one question on media and comms, around 5G, if you could just maybe highlight, are you seeing this demand from 5G coming in from existing customers because I think some of your — a couple of your top-five customers are [Indecipherable] into this vertical or are you seeing some of the newer customers embracing newer solutions around 5G? And what sort of work are we exactly doing, sir?

Mr. Nitin Pai — Chief Marketing and Chief Strategy Officer

Hi Vimal, this is Nitin here. Maybe I’ll take that. The two deals that we announced are actually two new customers for us. So, you will find that in the deals that we announced, you will find that the Middle-East telecom operator who is the deployed 5G and is now looking at monetization opportunities both B2B as well as B2C. And for us, that’s a fantastic intersection, because we’re saying look, that opportunities are going to be with what can you do with logistics, connected cars, connected fleet, what can you do with connected and digital health, what can you do with media? So for us, we are coming in as on top of 5G. And what ties the industries that we are in and applications there from a monetization perspective. So that’s the telecom opportunity, where we are on the side of the operator and looking at how to make money from 5G. The other deal, if you look at it that we announced was whether absolutely world-leading technology company to build — a telecom product company to build products that would go into the consumer homes for broadband and fixed wireless access, it’s 5G on the — in talking to the world and it will possibly be WiFi and so on, in talking to the home. So for us, these are completely new deals, completely cutting-edge work and we believe this can be replicated very-very well across both, new customers as well as existing customers. So to that extent, there are conversations going on, there is some amount of work going on on existing customers. I think these deals represent great opportunities to replicate.

Urmil Shah — Ageas Federal Life Insurance. — Analyst

Understood, thanks. Thanks again. Thank you.

Mr. Nitin Pai — Chief Marketing and Chief Strategy Officer

Thank you.

Operator

Thank you. As there are no further questions, I would now like to hand the conference over to the management for closing comments. Over to you sir.

Mr. Manoj Raghavan — Managing Director and CEO

Yes, so thank you everyone and really look-forward to seeing you again in beginning of Q2 and we definitely hope that we’ll be able to deliver better results to you in this quarter, going forward. Thank you so much and have a god day.

Operator

[Operator Closing Remarks]