MANAGEMENT DISCUSSION AND ANALYSIS REPORT
GLOBAL ECONOMY OVERVIEW
We started 2022-23 with hopes of gradual economic recovery after the decline of
pandemic. However, a number of issues such as global inflation, prevailing Ukraine- Russia
war, sharp policy tightening in our major markets, financial institutions disappearing and
its resulting side effects have all kept us busy managing risks.
For emerging markets and developing economies like India, the growth rates have
recovered post-pandemic. According to The International Monetary Fund (IMF), the fourth
quarter growth for emerging markets and developing economies of 2022 was at 4.5% compared
to 2.8% during the same quarter last year.
For 2023, economists believe that the downside risks dominate - with talks of mild
recession being heard more frequently in investment circles in addition. The labour market
is expected to remain tight especially for technology skills.
INDIAN ECONOMY OVERVIEW
While the global economic scenario might appear grim, the Indian economy continues to
push forward steadily, growing at 6.8% in 2022, nearly double the 3.4% growth witnessed at
a global level. Agencies worldwide have projected India as the fastest-growing major
economy in the year 2022 and 2023.
Despite several challenges in the global environment, the Indian economy remained quite
resilient, with the PMI-Manufacturing remaining in the expansionary zone for 18 months
since July 2021. According to India Development Update from the World Bank, the Indian
economy continues to show strong resilience to external shocks. Notwithstanding external
pressures, Indias service exports have continued to increase, and the current-account
deficit is narrowing.
As for the currency movement, the Indian Rupee witnessed its sharpest decline in nearly
a decade. This is largely attributed to the Feds aggressive monetary policies to combat
inflation resulting in a strong dollar. This currency movement has been a net positive for
export-oriented companies.
INDUSTRY OVERVIEW
Engineering Research and Development (ER&D)
Today, innovation continues to be the quintessence of new product development as more
products and services become connected through digital technologies. With the rapid advent
of digital transformation, the Engineering Research and Development (ER&D) industry
continues to flourish as companies adapt to the digital trends sweeping the markets. In a
connected and digitalised world, ER&D cycle is shifting from strictly design and
deployment to encompassing maintenance, regular updates, and constant data analytics. This
has extended the product life cycle significantly, creating monetisation opportunities for
product companies and expanding business opportunities for ER&D companies.
India is rapidly growing to become one of the worlds leading centres for ER&D,
aided vastly by a large talent pool and relatively low costs. According to NASSCOM,
revenue from ER&D in India is expected to be US$ 41B in 2023, aided by a steady
increase in digital ER&D spend. And in 2022-23, Automotive, Telecom and Medical
Devices emerged as the top sectors in terms of deals. Tata Elxsi provides Design-Led
ER&D services in these key verticals of Transportation, Media & Communications and
Healthcare & Medical Devices.
Automotive
During the year 2022, the automotive market was significantly impacted by
macro-economic and geopolitical uncertainty and supply chain disruptions. However,
according to a report by International Energy Agency (IEA), electric car shipments
continued to grow in 2022, with global electric car sales exceeding 10 Million. A variety
of regulations and incentives by various local, state and federal governments worldwide
has been a key factor aiding EV adoption.
With the growing electrification of cars across countries worldwide, more and more car
OEMs are expected to focus on in-vehicle experience and bring Software Defined Vehicles
(SDVs) to the market. Some of the in-vehicle experience technologies expected to see
strong traction are voice-enabled services, digital cockpits, digital assistants,
biometrics for driver recognition and console customisation. These technologies support
Over-the-Air (OTA) updates and open up customisation and monetisation opportunities for
OEMs.
In the commercial vehicle segment, electric vehicles are gradually getting competitive
with ICE (internal combustion engine) vehicles in terms of Total Cost of Ownership (TCO)
and this is expected to speed up adoption of ADAS and associated technologies for
platooning and other V2X related communication applications.
Tata Elxsis expertise in Design-Led engineering puts it in a strong position to
address market opportunities arising from SDVs and ADAS. Your Companys award winning
Connected Vehicle Platform TETHER recently crossed the milestone of being onboarded on
more than 500,000 vehicles for one of the leading auto OEMs.
Media and Telecommunications
After the spurt in streaming and online media market during the pandemic, year 2022
witnessed a decline in the number of subscribers and overall profitability of service
providers. The subscription-based video-on-demand (SVOD) market and the online media
streaming companies are now seeing some challenges in staying profitable, as on one hand,
content has become expensive to acquire and produce, and on the other, streaming market is
fragmented and unlocking revenue through advertising is not easy. As for the overall
entertainment and media market, the year 2022 witnessed a fall in the growth rate.
On the communication side, according to Grand View Research, the global telecom
services market was valued at US$ 1,805 Billion in 2022 and is expected to expand to US$
2,874 Billion by 2030 at a compound annual growth rate (CAGR) of 6.2%. The advent of 5G
and its increasing footprint across the globe is expected to drive growth in this market.
For companies in the Media and Communications industry, the relevance of sunrise
technologies such as Over- the-top (OTT), AdTech and 5G cannot be denied, and they
continuously look to the future to understand which areas are expected to carry them
forward.
The OTT market has been witnessing abundant interest in both developed and developing
economies, but the tepid market environment does lead to delayed decision-making and
deferred spending by corporations.
Tata Elxsi has a very strong foundation in the OTT industry due to our strong domain
knowledge and deep understanding of customer needs. The Company provides services across
the value chain, including an off-the-shelf OTT build for regional developers, Quality of
Experience (QoE) optimisation for various leading OTT players and iCX for managing and
monitoring customer premises equipment (CPE) like set-top boxes and gateways.
In the area of next-gen CPE engineering, Tata Elxsi has strong presence which is
supported by its partnership with RDK. It also provides a wide gamut of service offerings
in the area of network orchestration, SD/SD-WAN, AndroidTV.
Healthcare
Post-pandemic, global healthcare has displayed a pressing need to digitise, with
digital healthcare and diagnostics emerging as key growth areas for the future. Digital
healthcare helps market players and providers in cost control, quick expansion in new
markets, derive technology and business benefits of connected-care use cases, and
integrate new technologies into platforms to help with real-time diagnosis and consulting.
With the advent of Artificial Intelligence (AI) and the prospect of its proliferation in
the healthcare market, the possibilities to leverage data and image analysis using AI have
increased manifold. Also, these technologies help address the demand gap for expert
healthcare personnel. This has resulted in a blue-ocean scenario for digital healthcare
and life sciences.
With a focus on being patient-centric, the entire value chain has reoriented towards
ease of access, convenience, and responsiveness, and digital healthcare is expected to
bridge the gap between the current scenario and the goal of real-time diagnosis and
prescription. Technologies such as portable machines would allow for treatments such as
dialysis. Predictive diagnostics and remote monitoring of medical conditions will become
invaluable as they present an opportunity to improve the current status quo.
According to Grand View Research, the global digital health market size was valued at
US$ 211 Billion in 2022 and is projected to expand at a compound annual growth rate (CAGR)
of 18.6% from 2023 to 2030. This reflects the market potential and opportunity for all
market players and healthcare providers to leverage design, innovation and emerging
technologies like AI to address the growing demand for preventive diagnostics and
healthcare across the globe.
In a recent development, the EU Commission has proposed to extend the deadline to
comply with the Medical Devices Regulation (MDR). This would give enough time to all the
manufacturers to comply with the regulation and spread MDR-related spend over a longer
time frame.
Your Company had already begun investments in the digital healthcare field before
COVID-19, and has created tools and technologies for remote diagnostics, connected-care
platforms and analytics, and digital healthcare. Witnessing massive traction globally,
Tata Elxsi has managed to stay at the forefront of innovation in the digital healthcare
sector through products such as TEngage and TEDREG.
TEngage is the first-ever digital health platform for omnichannel care that offers a
unified patient experience and remarkable ease of use to patients and healthcare
providers. TEDREG is a global regulatory intelligence platform that monitors and captures
real-time updates to global healthcare standards to allow companies to stay updated and
ensure their products comply with global policy. Your Company is also working with leading
medical device manufacturers to support them on MDR compliance. With established
capabilities in AI and cybersecurity, your Company has all the capabilities and technical
expertise to address the market opportunities arising in connected health and diagnostics.
BUSINESS ANALYSIS
Tata Elxsi continues to push the envelope in the industries of Transportation, Media
& Communication and Healthcare by combining design-led engineering with domain
expertise and digital technologies to create outstanding value propositions. The Company
continues to grow its advanced technology portfolio related to digital healthcare, AI/ML,
OTT, new media solutions, electric vehicles, AD/ ADAS, SDV offerings and many more, and is
therefore well poised to address evolving connectivity, healthcare and mobility needs of
the world. The primary markets for Tata Elxsi remain developed economies of the US,
mainland Europe, Japan and APAC.
Tata Elxsi has always believed in the strength of offshoring model of delivery. The
inflow of demand has allowed us to hone our service offerings and focus on delivering
maximum quality paired with cost competitiveness. Aided by its strong off-shore delivery
model and employeecentric approach, your Company has successfully delivered on its
customers and investors expectations even during times of uncertainty and supply
constraints.
In recognition of its design-led engineering and innovation capabilities,
Tata Elxsi received the Innovative Company of the Year award at the 9th Annual
Confederation of Indian Industry Industrial Innovation Awards 2022. The Confederation of
Indian Industry (CII) created the prestigious CII Industrial Innovation Awards.
The Company reported operating revenues of Rs. 3,144.7 crores in 202223, an increase of
27.3% year on year (YoY). This growth was volume-led with constant currency growth of
24.9% YoY. Our operating profit (EBITDA) was Rs. 961.1 crores, up 25.5% YoY, with EBITDA
margins of 30.6%. Profit before tax stood at Rs. 937.5 crores, up 25.8% YoY. The Companys
net profit for the year was registered at Rs. 755.2 crores, up 37.4% YoY.
The onsite-offshore revenue mix also shifted this year, with the offshore share resting
at 75.0%, marginally up from 74.5% last year. The continued high offshoring ratio
indicates the strong offshoring capabilities of your Company. Customers fully trust Tata
Elxsis mature and proven offshore delivery processes and project management strengths.
During the year, the Company hired a net of 2,489 new employees, which was 23.6% more
than the previous years net addition of employees. Also, the employee attrition rate at
Tata Elxsi has been one of the lowest in the industry. This was made possible because of
your Companys employee centric policies and ability to provide meaningful work and create
a culture of workplace pride and ownership of responsibility. Tata Elxsi also crossed a
headcount of 11,000 personnel for the first time in the organisations history.
The customer revenue concentration from our top 10 clients increased from 46.5% in
2021-22 to 48.1% % in 2022-23. Our geographical revenue contribution continues to remain
diversified in line with our plan, with the US contributing 42.5%, Europe 34.4% and India
17.0% as against 42.2%, 33.4% and 15.9%, respectively, clocked in 2021-22.
Our operations are classified into two business divisions, i.e., Software Development
and Services and Systems Integration and Support.
SOFTWARE DEVELOPMENT AND SERVICES
Tata Elxsis Software Development and Services division is the most significant
business component, leading our growth and creating value-add to stakeholders.
It comprises 3 focus verticals: Transportation, Media, & Communications and
Healthcare. During 2022-23, the Embedded Product Design division generated Rs. 2,734.7
crores in revenues, registering a growth of 26.9% YoY. The divisions growth was primarily
led by Transportation with Media and Healthcare growing at a slightly lower rate than the
previous year.
Transportation
The Transportation vertical posted strong growth of 32.7% YoY, generating Rs. 1,177.0
crores revenue which comprises 37.4% of Tata Elxsis overall operating revenue.
This growth results from our efforts to gain customer traction by being the leading
provider of transformative technologies for connected, autonomous and electric cars, with
solutions like the AUTONOMAI platform for driverless cars and Tata Elxsis e-Cockpit. The
Company also has a vast suite of EV solutions and expertise to provide OEM support for the
design and development of inverters, electric motors, and battery management systems for
EVs.
Apart from its offerings to the passenger vehicle suite, Tata Elxsi has created
adjacencies in fields such as off-road, agriculture vehicles and rail industries for the
purpose of diversification and addressable market expansion.
TETHER,Tata Elxsis flagship Connected Vehicle Platform, is a cloud-based platform
powered by AI/ML to allow for big-data analytics and off-the-shelf dashboards for
insights. It enables our customers to offer the end customers a range of customer-centric
and digitally enhanced features. With over 500,000 vehicles connected to TETHER, including
personal vehicles, commercial vehicles and EVs, the potential to leverage this platform
for other car and commercial vehicle OEMs is significant.
Tata Elxsi continues to build strategic connections with ecosystem players across the
globe, including working with the Indian Institute of Technology, Guwahati (IIT-G) to
jointly develop and commercialise state-of-the-art solutions for the Electric mobility
market.
In recognition of its effort to bring innovative solutions to the market, Tata Elxsi
and Green Hills Software were recognised by the Collaborative Partnership of the Year
award at the Informa Tech Automotive Awards 2022. The collaborative solution is a Driver
Monitoring System (DMS) platform that combines advanced AI-powered algorithms and AUTOSAR
Adaptive from Tata Elxsi, integrated with the safe and secure INTEGRITY? real-time
operating system from Green Hills Software.
As a result of our differentiated approach and domain expertise, Tata Elxsi was
selected by a global tier-1 supplier for its next-generation e-powertrain development.
This multi-year, multimillion US Dollar deal win underscores Tata Elxsis differentiated
expertise in EV architecture, systems and software development. In the adjacencies market,
your Company was selected by a global leader in transportation systems for Train Design
and Systems Engineering. A key deal-win in the rail industry, this demonstrates our
capabilities in leveraging core strengths in transportation technologies. Our strong
presence in the off-road vehicle space was underlined by a multi-million-dollar
development programme from a leading US based off-road vehicle manufacturer for next
generation platform for Vehicle Connectivity and Infotainment.
Media, Broadcast and Communications
The Media vertical posted strong growth of 18.2% YoY, generating Rs. 1,134.2 crores
revenue which comprises 36.1% of Tata Elxsis overall operating revenue.
The pandemic has changed the paradigm of the media world, vastly accelerating the
spending on digital streaming and associated services. While the Media segment saw
impressive growth in 2021-22, it has been muted towards the second half of 2022-23,
largely due to industry-wide delay in decision-making on platform and large service deals.
In these moderated market growth situations, Tata Elxsi continued with its business
growth leveraging its multiple award-winning solutions, including FalconEye (agentless
test-automation multimedia platform), iCX (Updated device management standards and deep
learning algorithms), QoEtient (cloud-based video DevOps platform as a packaged
Automation-as-a-Service), AIVA (Intelligent Video Analytics platform for Content Curation
and Object Action Event meta-tagging) and TEPlay (off-the- shelf OTT platform for regional
service providers).
To address opportunities created by the growing availability of 5G networks and mobile
edge computing platforms, Tata Elxsi partnered with mimikTechnology to deliver 5G services
for Industry 4.0, Automotive, and Media Distribution Solutions. The partnership aims to
deliver innovation in cooperative optimisation of RAN Edge, and bring industry vertical
solutions to market, that can enhance user experiences for enterprises and consumers and
add value toTELCOs. It would also enable the co-creation of solutions for Media, content
distribution services, Industry 4.0 and Automotive Edge.
As a testimony to the culture of innovation and cutting-edge engineering that your
Company specialises in, Tata Elxsi won the prestigious Tata Innovista Award for bringing
the Future of Connected TV to its customers. This solution provides key moment
generation for sports and is integrated with dynamic brand insertion technology. This AI
and machine learning (ML) enabled key moment generation technology identifies and
generates highlights in chronological order of events.
As a result of our differentiated approach and domain expertise, Tata Elxsi was
selected by one of the worlds leading AdTech companies to support the development of a
next-gen digital content monetisation platform for addressable advertising across ad
formats and devices. Tata Elxsi also won a strategic deal win from a leading operator in
EMEA for Connected Device Diagnostics based on the operations automation platform iCX.
This will be delivered in a SaaS model, with extended managed services from the SIS
division for platform support. This deal demonstrates the underlying synergy between the
two business divisions. In the area of network operations, Tata Elxsi was awarded a large
multi-year deal for smart network operations transformation by a leading North American
MSO.
Healthcare
The Healthcare vertical posted strong growth of 37.6% YoY, generating Rs. 423.5 crores
revenue which comprises 13.5% of Tata Elxsis overall operating revenue.
With COVID-19 bringing the need for a digital healthcare ecosystem to the forefront,
companies find it imperative to digitise their systems, resulting in the opening of new
opportunities to enter the field of digital diagnostics and connected healthcare. However,
these opportunities must be managed within the ambit of various healthcare regulations,
data confidentiality and security.
Tata Elxsi continues to build business traction on its multiple award-winning
solutions, including TEngage (the first-ever digital health platform for omnichannel care
that offers a unified patient experience), TEDREG (global regulatory intelligence platform
that monitors and captures real-time updates to global healthcare standards to allow
companies to stay updated and ensure their products are compliant with global policy),
Digital Health Platform (digital front door to all telehealth services) and TEcare
(configurable platform for digital therapeutic solutions).
Tata Elxsi is one of the very few companies which has that unique combination of design
and digital, expertise in AI and ML, strong capabilities in cybersecurity and vast
experience in designing sophisticated and connected devices.
This makes Tata Elxsi a leading partner of choice for new product development deals for
the healthcare vertical.
Tata Elxsis capabilities to apply emerging digital technologies to improve healthcare
services, is best illustrated through the Design-Digital deal it won, for the development
of an Augmented Reality (AR) based solution from a leading global medical devices company.
This leverages Tata Elxsis capabilities in combining Extended and Mixed Reality
technology, design and content to aid patient outcomes.
SYSTEMS INTEGRATION AND SUPPORT (SIS)
Tata Elxsis system integration and support services is an important component to our
end-to-end product life cycle services - right from conceptualisation to maintenance
services. Key customers of our System Integration and Support division are from
manufacturing, aerospace, government, education, automotive, and information technology
verticals.
Our win from an industrial company for building a safety training centre using advanced
AR/VR modules along the lines of Phygital training and course modules is an illustrative
example of the synergistic nature of this division with the design and software
development capabilities of the Software Development and Services division. This helped
our customer offer re-imagined course content and structure to ensure impactful learning
with multilingual support and visual-rich content. These training programmes were for
workforce with diverse literacy levels.
With help of Tata Elxsis designed training centre, the induction time was reduced from
1.5 days to 2.5 hours with up to 80% overall improvement in knowledge retention.
Revenue generated through System Integration stood at Rs. 83.5 crores, reporting growth
of 54.9% from 2021-22. The high growth of the SIS business in 2022-23 was largely due to
the internal realignment to build the foundation of run services, including tools,
infrastructure, and operation support, along with support for the platforms that we have
built and licensed and the pivot of capabilities to run engineering operations and managed
services. This growth derives almost entirely from Indian geography.
INDUSTRIAL DESIGN AND VISUALISATION (IDV)
The Industrial Design and Visualisation division has been a key component of our DNA,
allowing us to conceptualise design- focused solutions to real-world problems. It allows
us to work with new customers and on products at the far edge of innovation. This also
builds the foundation for larger downstream development projects.
Our NPD engagements usually start with primary research to understand market
psychology, which can then translate product specifications which fit the market needs.
IDV brings the Design aspect to our core Design-Digital strength, which is leveraged by
all verticals of our business.
Over the last few years, IDV has begun orienting itself with the synergies of the
embedded product design (EPD) business, well complemented by our System Integration
division - thus bringing to our customers, end-to-end offerings across the entire product
lifecycle.
Our collaboration with Lenovo to provide end-to-end solutions and services for
customers using Lenovos smart XR devices to deliver immersive Digital Transformation
solutions is an important step in that direction. These solutions span Engineering Design
& Modelling, Maintenance & Repair, Remote Collaboration and Worker Safety &
Training, and help to save cost, improve efficiency and enhance next-level productivity.
Revenue generated through Industrial Design and Visualisation stood at Rs. 326.6
crores, reporting growth of 24.4% from 2021-22. This was largely fuelled by an internal
restructuring to scale up the business over the past few months.
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