Tata Elxsi Ltd Management Discussions

BUSINESS ENVIRONMENT

During 2024-25, the world saw a year marked by a sense of global uncertainty, including elections in over 70 countries and the continued impact of conflicts like the Russia-Ukraine war and the Israel- Hamas war. The year was characterised by a general sense of geopolitical uncertainty and subdued business sentiments.

Extreme weather events such as floods, heatwaves, and wildfires became increasingly frequent and severe, causing significant damage and loss of life. 2024 was the first calendar year to be more than 1.5?C above the pre-industrial era, requiring action from industry and the government alike.

There were also positive developments, including advancements in renewable energy, more electric cars on the road, the discovery of plastic-decomposing worms, and the UK becoming coal-free and more organisations adopting science-based targets and sustainability goals.

Technology Spend

From a technology perspective, Gen AI continued to gain adoption leading to digital acceleration and bringing Experience Innovation to centre stage. Cloud computing on the edge, APIs and microservices, IoT and sensors continued to dominate the solution discussions. The interdisciplinary nature of solutions to business problems is seen as essential.

Enterprises are investing in organisational efficiency and optimisation projects. Businesses are disproportionately spending on adopting AI, cloud, and cybersecurity solutions, registering a >25% increase in spend in these areas. Productivity improvement, faster time to market, and areas which are less customer-facing are being targeted to calibrate and mature AI adoption in most organisations.

The overall technology spends in 2024-25 remained stable at 2023-24 levels. However, the spend saw significant increases in AI cloud infrastructure, embracing AI internally, data maturity programmes and internal talent development.

In general, organisations are focussed on streamlining data, doing several pilot engagements on AI and Gen AI with a view to build internal capability and acquiring talent. Many have taken the approach of setting up Global Competency Centres (GCC) in India, Eastern Europe and other low-cost locations.

As Tata Elxsi steps into the next financial year, it is seeing tariff regime-related issues. Globalisation and trade were used to produce goods wherever it is lower cost and efficient and sell them wherever there is demand for such goods & services. The

tariff regime is forcing organisations to rethink their strategies of value chain realisation, including supply chains. This would create new opportunities but will create short-term flux for technology companies. Agility, lower CAPEX spends, SaaS models of consumption, and platforms for nondifferentiating services are likely to be in demand. In such an environment, new regulations and compliance needs will emerge, and they will get prioritised.

In summary, it has been a challenging year for Tata Elxsi, as some of its clients and prospects are focussed on doing things internally, deferring spending in view of market uncertainties and conserving cash. Some of these are likely to continue in 2025-26, at least for the short term.

The global automotive industry faced a challenging environment during the year under review, with sales growth stagnating, and the outlook appears muted in the short term. The 2024 year- on-year sales growth of light vehicle sales globally is estimated to be less than 2%.

In particular, the European auto industry is facing increased challenges where the growth is likely to be less than 1%.

Electric vehicle adoption continued to increase due to factors like government incentives and consumer awareness. However, the industry faced challenges like slow consumer spending, high interest rates, supply chain disruptions, and more, especially in Europe, the Middle East and Africa.

India, China and Southeast Asia contributed significantly to this volume growth, and consumers were willing to pay for connected vehicle services. Consumers are aware of cybersecurity threats owing to such connectivity of vehicles and are demanding advanced security measures.

In this context, leading OEM players across the world are expected to continue the innovation journey, while being cautious about the R&D budget spending. Some of the key technologies that would see significant interest from OEMs would be Telematics and Connected Vehicles, Cybersecurity, Vehicle to Everything (V2X), and fast charging technologies—apart from investments in Software Defined Vehicles (SDVs) and Advanced Driver

Assistance Systems (ADAS). It is expected that by 2030, an overwhelming majority of the new vehicles in advanced economies will be SDVs and will feature a good level of ADAS features.

In 2025, the automotive industry is anticipated to innovate on technology, particularly in electric vehicles (EVs), software-defined vehicles (SDVs), integrated powertrain systems, servitisation, shared mobility, sustainability, and redefining supply chain issues, trade tensions, and economic pressures. The industry is likely to witness higher consolidation, partnerships and alliances among OEMs and sharing of platforms in order to drive down costs of ownership and time to market.

-

In 2024, the Media & Communication industry saw a significant shift towards digital platforms, with digital media overtaking television as the largest segment. AI, 5G, and cloud computing played a crucial role in shaping the communications industry, with AI being used for cost management, customer service, and network operations hitherto.

Key trends included:

> The rise of digital advertising, particularly on social media and e-commerce platforms.

> Over-the-top (OTT) streaming services continued to be a strong growth area within the media and entertainment sector.

> TSPs continued their 5G deployment, albeit selectively, owing to the absence of new revenue streams on 5G as ROCE concerns on 5G persists.

> Increase in paid music subscriptions, the growth of organised events, including concerts, content creation and design services are seen as growth drivers.

> Adapt to increased scrutiny on large online platforms for content moderation, focussing on privacy and regulations.

The industry in 2025 is expected to be driven by technological advancements, particularly in AI and digital platforms, leading to increased personalisation, immersive experiences, and content creation and diversification. Gen AI tools will increasingly be used in content creation, recommendation systems, focussed on enhancing customer experience, improving network reliability, and delivering innovative connectivity solutions.

The industry believes that revenue growth in coming years would be highly correlated with the R&D investments in AI and other emerging technologies. Direct to Mobile (D2M) is likely to gain momentum as TSPs are looking to offload content on broadcast infrastructure and more efficiently use the spectrum for voice and data services.

Healthcare —

Healthcare, MedTech, and Pharma have reached an inflection point where incremental improvement initiatives are giving way to more holistic digitalisation. The medical devices market is investing a significant part of the R&D budget towards connecting them and gaining useful insights for better health management using data analytics and AI. The industry also believes that they will need to navigate external pressures on pricing and reimbursement, regulatory processes, and geopolitical uncertainty.

In 2025, the Life Sciences, Healthcare, and MedTech industries are expected to be driven by:

> Adoption of AI in improving diagnostics, developing personalised treatments, and optimising drug discovery.

> Widespread adoption of digital home monitoring, wearable technology, and telehealth to enhance patient care and accessibility. Integration of behavioural and mental health services into primary care to enhance overall well-being.

> Advances in genomics and biomarkers will enable more precise and targeted treatments, improving efficacy and reducing side effects.

> Robotics will enhance surgical precision, reduce recovery times, and enable remote or teleoperated surgeries.

> A stronger emphasis on prevention and early intervention will reduce long-term healthcare costs.

Engineering Research & Development (ER&D) —

According to an estimate by NASSCOM, the average annual growth in the global ER&D market is expected to be in the range of 8-9% during the period 2023 to 2030. And this growth is anticipated to be led by Healthcare & Medical Devices, Automotive and Telecommunications.

The Engineering Research and Development (ER&D) outsourcing services market is expected to show a stable or increasing trend driven by the following demand drivers:

Business Performance Analysis

Tata Elxsi has been on the journey of building a robust portfolio of clients by diversifying on both geography and industry vertical dimensions.

During 2024-25, the Company further strengthened its presence in North America, Europe and Japan through calibrated investments in client servicing teams, establishing design studios and labs. In addition to the Transportation, Media & Communication, and Healthcare sectors, the Company started to win engagements in semiconductor, defence & aerospace verticals during 2024-25.

Tata Elxsi continued to consolidate its domain expertise, digital capabilities, and a design-driven approach in each of these verticals to differentiate its offerings. The Companys clients perceive it as a specialised technology partner, delivering

a better combined value proposition. Moreover, Tata Elxsi has been rated by its clients as agile, quick to respond comprehensively and easy to do business with.

During 2024-25, the Company announced operating revenues of Rs. 3,729.0 crores, reflecting a year-on-year (YoY) increase 5.0%. This growth was primarily driven

by volume, with a constant currency growth rate of 3.1% YoY. Tata Elxsis operating profit, measured as EBITDA, reached Rs. 972.9 crores, with EBITDA margin of 26.1%. Profit before tax amounted to Rs. 1,028.4 crores. The Companys profit after tax (PAT) for the year was reported at Rs. 784.9 crores.

System Integration and Support (SIS)

The SIS business has gradually been pivoting to value-added professional services and monitoring and management of cloud-based applications for enterprises. This business has now aligned with the three verticals and offers consulting- led end-to-end solutions to clients, including Hardware, Software, IT infrastructure, and Cloud, among others, in a multivendor environment.

With the amalgamation of leading technology capabilities like AR/VR, Digital Twins and data analytics-based decision support services for running large IT infrastructure, the opportunities for the SIS business are immense.

The SIS business accounted for revenues of Rs. 111.7 crores across verticals, reflecting a year-over-year growth of 12.5% during 2024-25.

During the year, Tata Elxsi was recognised as the Top Customer Experience ISG Partner by Dell Technologies at their Service Partner Awards ceremony in Austin, Texas.

Products and Platforms

Tata Elxsis products and platforms are gaining traction and registered multiple wins during 2024-25. They are maturing across geographies and the Companys focus is to bring non-linearity to its business using these products and platforms.

AVENIR, Tata Elxsis SDV software suite, which is a cloud-agnostic SDV development, validation, and deployment framework, has further strengthened Tata Elxsis capabilities in the SDV domain. It presents an attractive, ready-to-implement solution which when combined with Companys extensive digital and software knowledge and a large pool of skilled professionals, helps global OEMs in expediting their SDV and future mobility strategies. AVENIR is supported by the Snapdragon Digital Chassis platform in collaboration with Qualcomm.

NEURON, the Companys autonomous network platform that enables telecommunication operators to progress towards Zero-Touch Automation and provides a single pane of glass to operate and manage network across domains.

By harnessing the power of NEURON, telcos can expedite shift towards seamless automation, cloud integration, service orchestration, and robust assurance. NEURON helps streamline operations and drive substantial reduction in operational expenditure, paving the way for enhanced efficiency and profitability.

MOBIUS+, A Battery Lifecycle Management Platform by Tata Elxsi which was launched at CES 2025, provides real time visibility into battery ecosystem, helping companies align with upstream, midstream, downstream and end of life stakeholders, thus supporting every step of batterys journey, from raw material sourcing to end-of-life recycling.

It also helps monitor, calculate and report the carbon footprint of batteries throughout their lifecycle, enabling data driven decisions to reduce environmental impact.

Centrej(TENMIC) at Bengaluru, established in collaboration with NI Emersons Test and Measurement business. It enables OEMs to shift left by validating performance and functionality through virtual and physical testing well before production.

xG-Force lab in Bengaluru aimed at accelerating 5G innovation by providing ready-to-use infrastructure, cutting-edge tools, and an integrated partner ecosystem for diverse applications across Media & Communication, Transportation and Healthcare verticals.

Innovation Lab at Frankfurt in collaboration with DENSO Robotics Europe and AAtek to drive the future of robotics automation across sectors such as medical devices, pharmaceuticals, life sciences and food science.

I Key Wins

Tata Elxsi won significant multi-million USD and long-term deals with leading automotive customers from across the world, including some landmark SDV deals with global top 10 automotive brands.

During Q3 FY2025, we also announced an Offshore Development Centre for Suzuki Corporation, Japan, to support their global technology, software and engineering development. The inauguration of SUZUKI-TATA ELXSI Offshore Development Centre marks a significant milestone in our partnership with Suzuki Corporation and our shared vision for the future of mobility. Tata Elxsis design-led, digital- first approach is uniquely positioned to support Suzukis energy minimisation and sustainability goals, advancing the future of automotive engineering with precision and responsibility.

Tata Elxsi has set up a Global Development Centre with Nidec Corporation, Japan. Nidec is the worlds No.1 comprehensive motor manufacturer handling everything than spins and moves. This centre will support the software and system development, and localization of motors and electrification technologies for the automotive industry.

Our Healthcare and Life Sciences business saw some strategic deal wins across modalities and services lines, spanning connected care, next- gen product engineering, R&D and innovation.

Skanray, a leading global MedTech R&D and manufacturing company specialising in diagnostic imaging, critical care and surgery/OT solutions, has chosen Tata Elxsi as a strategic partner for advanced surgical imaging core technology and software platform development. This collaboration aims to revolutionise diagnosis and treatment by leveraging cutting-edge technology modules, making them predictable, accurate, and consistent.

esss

Tata Elxsi has been chosen by Multichoice, Africas largest operator with presence in over 16 countries, to lead the revamp of its flagship sports platform, with a focus on enhancing user experience (UX) and Application performance. This involves modernising the UI/UX design, integrating advanced front-end technologies and incorporating Al-driven features to optimise the overall user journey.

Your Company successfully delivered the worlds first integration of the RDK-B software stack for Qualcomm? on its 5G Fixed Wireless Access (FWA) Gen 3 Platform. This first-of-its-kind integration opens a new pathway for telecom and multi-service operators to deliver fast, reliable, and scalable highspeed FWA solutions. This integration includes key features such as Wi-Fi 6 connectivity, packet statistics, and advanced security options, ensuring the platform is versatile and can be deployed in both indoor and outdoor environments. Operators can now deliver value-added services like Quality of Service (QoS), band steering, parental control, and VPN, enhancing the overall broadband experience.

Tata Elxsi worked with the leading gaming company Turtle Beach, to design and engineer the Turtle Beach VelocityOne™ Race Wheel, Pedal set and direct-drive force feedback base, to provide fans all over the world with realistic simulation racing experiences.

This award-winning design delivers on high fidelity, affordability, & versatility while providing pro-level management via Race Management Display™, magnetic paddle shifters, and adjustable pedals. In the global sim racing industry, this wheel redefines immersion with its ergonomic, modular design for Xbox and PC with Dynamic Brake Tek™ for realism. This design won the prestigious iF DESIGN Award 2025 in the gaming/VR/AR category.