Tata Elxsi de-risk business model: To focus more on aerospace and rail communication

Bengaluru based, a Tata Group design and engineering service firm, Tata Elxsi is planning to de-risk its business model. It is reported that the firm will focus more on aerospace and rail communications. The recent shift came just after its most significant client – Jaguar Land Rover (LJR), which accounts for a quarter of its revenue, is going through a rough patch.

Owing to the slowdown of the Indian automotive sector, the firm reported a 31 per cent decline in net profit to Rs 48.79 crore. The automotive industry contributes about 50 per cent of the total revenue of the company. Since this announcement, the share price of the firm has declined steeply, close to 14 per cent.

Manoj Raghavan, executive vice-president and CEO-designate of Tata Elxsi who will take over incumbent Madhukar Dev in October this year said “As a strategy to de-risk the automotive, we have started some initiatives in both rail and aerospace (segments), and have already (signed) some good logos (clients). In that sense, we have started winning those deals and have to make those deals sizeable.”

The company has already created a team of almost 100 engineers with an objective to reduce its concentration risk in automotive. Raghavan added that the company is also planning to increase the contribution of medical, and media & communication – the other two crucial verticals of the services of the company.

“Medical is a relatively smaller business for us, and in a three-year timeframe, we would like to make it almost the same size as other verticals. So, my hope is that we have three major pillars (verticals), with each contributing close to 30 per cent of business, which will eventually de-risk our business,” Said Raghavan.

The firm, to drive innovation, is focusing on enhancing its engagement in the start-ups. “We may also look at acquisitions to add new capabilities, apart from boosting growth. Sub-optimal captives of multinational corporations with less than 1,000 people could be a good fit (for acquisition),” said Madhukar Dev, CEO and MD of Tata Elxsi.

The company hopes to regain in the third and fourth quarter asserted Dev. He said “In the near term, we have an issue, from which we have to recover. However, by Q3 and Q4, we should be back to our run rates and hope to end this financial year with close to double-digit revenue growth.”

In June quarter, the company reported that its net profit fell 31 per cent year on year to Rs 48.79 crore, while revenue operations came down 5.3 per cent to 361.71 crores.