Tata Elxsi — Q2 FY26 earnings call

Call held 9 Oct 2025

Management summary

Tata Elxsi delivered a mixed Q2 FY26, achieving modest sequential revenue growth and strong profitability margins. While key segments like Media & Communications and System Integration performed well, Healthcare saw a decline, and the Transportation segment was impacted by a cybersecurity incident. Management expressed confidence in a stronger H2, driven by recovery in auto and healthcare, and aims for improved margins through better utilization and strategic deal wins.

Highlights

  • Operating revenue of INR 918.1 crores, up 2.9% QoQ (actual) and 1% QoQ (constant currency).

  • EBITDA margin at 21.1% and PBT margin at 22.2% demonstrate strong profitability.

  • US market showed robust growth of 7.9% quarter-on-quarter.

  • Media & Communication business reported a smart 6.8% sequential growth, driven by large deal ramp-ups.

  • System Integration business grew 20.5% over the previous quarter, winning an award from Dell Technologies.

  • Utilization improved from approximately 66% to over 70% in the last quarter, with a target to reach 75% by FY end.

Concerns

  • Healthcare and Life Sciences business declined 2.3% primarily due to the conclusion of some large regulatory and MDR programs.

  • Media & Communication growth is expected to moderate in H2 due to ongoing industry stress, M&A, and corporate actions.

  • A cybersecurity incident at a top auto client impacted Q2 growth, preventing positive constant currency growth for the automotive segment.

  • Attrition levels marginally increased for the third consecutive quarter, though management views it as not significant.

Key financials

  1. Operating Revenue ₹918.1 Cr +2.9%QoQ
  2. EBITDA ₹193.3 Cr
  3. EBITDA Margin 21.1%
  4. PBT ₹214.7 Cr
  5. PBT Margin 22.2%

What they filed

Q1 FY27: revenue up 14.5%, net profit up 18.8% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue955 939 908 892 918 −4%953 +1%994 +9%1,021 +14%
EBITDA266 247 208 187 193 −27%222 −10%245 +18%216 +16%
Net profit229 199 172 144 155 −32%109 −45%220 +28%171 +19%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Media & Communication
    0.068 decimal_fraction Sequential Growth
  • Transportation
    0.007 decimal_fraction Growth0.53 decimal_fraction Revenue Share
  • Healthcare and Life Sciences
    -0.023 decimal_fraction Decline
  • System Integration
    0.205 decimal_fraction Growth
  • US Market
    0.079 decimal_fraction QoQ Growth

Order book

low confidence

Pipeline

deal pipeline tcv

Robust pipeline momentum driven by global OEM SDV programs and other large deal wins.

Management noted robust pipeline momentum in transportation and strong pipelines in healthcare, alongside large deal ramp-ups in Media & Communication and new deal wins across segments.

Source: Prepared remarks

Capital allocation

high confidence
  • Capex Capex disclosed
    Ankur, this is Gaurav. Let me answer that question. First, on your depreciation one. I think there is declining depreciation in our books due to no new capex being added/significant capex that has been added. I think we are well managed capacity that we can live with it for at least some period or may be few more quarters before we have to do another layer of infrastructure development or capacity in addition to the required structure today.

Guidance & targets

Overall Growth

  • Company Growth Overall Growth · H2 FY26 · High confidence far better than H1
    We are definitely confident that our growth in H2 will be far better than the H1.

    — Manoj Raghavan

Transportation Growth

  • Transportation Business Growth Transportation Growth · FY27 · High confidence double-digit growth
    we believe that next year, we will be able to look at a double-digit growth from a transportation business perspective.

    — Manoj Raghavan

Healthcare Growth

  • Healthcare Business Growth Healthcare Growth · FY27 · High confidence double-digit growth
    I'm pretty confident both healthcare and automotive, we will be aiming for double-digit growth in FY '27, right?

    — Manoj Raghavan

Media & Communication Growth

  • Media & Communication Business Growth Media & Communication Growth · next financial year · Low confidence double digits
    would ideally also want Media & Communication to aspire to grow double digits next financial year. But at this point in time, given the visibility and so on, it's difficult to commit that, that is something that we can achieve. But we will relook at it in maybe Q3 and Q4 time frame.

    — Manoj Raghavan

Utilization

  • Utilization Rate Utilization · end of this financial year · High confidence 75%

    From above 70% today

    So, the first focus for us is to get to 75% utilization by the end of this financial year.

    — Manoj Raghavan

  • Utilization Rate Utilization · next financial year · Medium confidence 80%
    And then next financial year to see how we can reach 80%.

    — Manoj Raghavan

Margins

  • Margins Margins · H2 FY26 · High confidence much better than H1
    Our target from a H2 perspective, we definitely want to do much better than H1.

    — Manoj Raghavan

Tax Rate

  • Effective Tax Rate Tax Rate · full year · High confidence 26% to 26.5%
    Otherwise, what we believe is that for the full year our effective tax rate would be anything that would hover around 26% to 26.5%.

    — Gaurav Bajaj

Depreciation

  • Depreciation Depreciation · at least two more quarters · High confidence keep coming down slightly
    So hence, you will continue to see depreciation keep coming down slightly on a quarter-to-quarter basis for at least two more quarters.

    — Gaurav Bajaj

What to watch in Q3 FY26

Utilization Rate Improvement

by end of this financial year
Current above 70%
Target 75%

Why it matters

Improved utilization is key for margin recovery and operational efficiency.

Our utilization, as I said, we have touched 70%. The focus is to see how to get to 75% utilization by the end of this financial year.

Risks & concerns

  • Cybersecurity incident impact on client projects

    medium

    A cybersecurity incident at a top auto client caused project delays in Q2, impacting growth, but management sees signs of normalcy returning.

    if that incident had not happened, we would have definitely shown CC positive growth. And that would give you an idea that, look, that instance did affect us a little bit.

    Both acknowledged

  • Volatility and stress in Media & Communication industry

    medium

    The industry environment continues to be volatile with business restructuring and M&A, leading to expected moderation in H2 growth for this segment.

    However, the industry environment continues to be volatile with business restructuring and M&A across leading operators and broadcasters.

    Management acknowledged

  • Muted US automotive market

    low

    The US market for core automotive remains muted, though adjacencies (aero, rail, off-road) are seeing traction.

    U.S. is still a little muted for us, and that is something we hope that in the next half year, we will have a lot more clarity, but for us, at least the coming quarter will be a muted quarter.

    Management acknowledged

  • Increased attrition levels

    low

    Attrition has marginally increased for the third consecutive quarter, but management considers it not significant and is monitoring it.

    I think attrition has gone up marginally. It's not very significant. We are aware of that. We're keeping a watch on it.

    Both downplayed

Q&A highlights

7 direct
Impact of cybersecurity incident on Q2 growth Partial
if that incident had not happened, we would have definitely shown CC positive growth. And that would give you an idea that, look, that instance did affect us a little bit.

Management confirmed the cybersecurity incident had a material negative impact on Q2 constant currency growth, though no specific quantification was provided.

Asked by Bhavik Mehta

Clarification on H2 auto business growth drivers Direct
No, no. I said only about the U.S. market. All other markets, we see good traction in the automotive sector as well.

Clarified that the muted outlook for auto in H2 is specific to the US market, while other key regions like Europe, Japan, and India are expected to show good traction.

Asked by Karan Uppal

Benefit from offshoring trend in automotive Direct
Tata Elxsi is known for offshoring, right? If you look at the percentage of revenues that comes from offshoring and so on as compared to all the other competitors, our ratios are far, far higher than anybody else. So yes, without a doubt, I think we would definitely benefit from the offshoring trend.

Management highlighted Tata Elxsi's strong position to benefit from the increasing offshoring trend in the automotive sector due to its established capabilities and high offshoring ratios.

Asked by Karan Uppal

Outlook for Media & Communications growth in H2 Direct
So definitely, I believe that the growth will moderate in H2. This industry segment is still under a lot of stress with a lot of M&As and a lot of corporate action happening with our customers. So I believe we have to wait and watch, and we are not projecting a pretty large growth in the H2 for this business segment.

Management tempered expectations for Media & Communications growth in H2, citing ongoing industry stress and M&A activity, despite a strong Q2.

Asked by Moez Chandani

Details and impact of the Bayer deal Direct
this is a marquee deal for us. It is, again, a start of a multiyear relationship, at least a 5-year relationship... definitely a multi-year deal and a multi-million dollar deal. This will give stability to our business definitely at least for the next 3 years, if not more.

Management described the Bayer deal as a significant, multi-year, multi-million dollar engagement expected to provide business stability for at least three years.

Asked by Karan Uppal

Strategy for competing with Chinese players in auto and market share in China Direct
we are not competing with the Chinese. Our customers are competing with the Chinese, right? ... we don't do much. We have very miniscule presence in China.

Management clarified that Tata Elxsi's strategy is to support its OEM clients in competing with Chinese players, rather than directly competing in the Chinese market, where their presence is minimal.

Asked by Hitesh Sharma

Involvement with hyperscaler data centers and NVIDIA for AI solutions Direct
Yes, we do. In fact, I'm not boasting about it, but we do have our own mini-NVIDIA data center that we set up ourselves for our own AI experimentation and workloads. If you look at the work that we're doing and the award that we announced with Dell, you'll automatically know that there it has also to do with infrastructure that will go into on-prem data centers and large part of them are targeting AI workloads. So, now the short answer is, yes.

Management confirmed active involvement with AI-based solutions for on-prem data centers and AI workloads, including having their own mini-NVIDIA data center, indicating strategic focus on AI infrastructure.

Asked by Karthik Vaidyanathan

AI/GenAI use cases and differentiation in product engineering Direct
One is how can we operate and deliver better, which is essentially to do with what gains does AI and GenAI provide for productivity, for quality and therefore resultant cost benefit. The other part is what does it do to innovation and features, right? So if you look at ADAS, if you look at the predictive analytical capabilities of radiology or MRIs and so on and so forth, they're always innovation of features because it is not doing what is already being done, it is actually driving something that has not existed before, right?

Management articulated a clear two-pronged strategy for AI/GenAI: improving internal productivity and quality, and driving innovation in product features for areas like ADAS and medical imaging.

Asked by Karthik Vaidyanathan

2 min read 6 chapters

Detailed narrative

Q2 FY26 Financial Performance Overview

Tata Elxsi reported an operating revenue of INR 918.1 crores for Q2 FY26, reflecting a growth of 2.9% in actual currencies and 1% in constant currencies quarter-on-quarter. The company achieved an EBITDA of INR 193.3 crores, corresponding to a margin of 21.1%. PBT stood at INR 214.7 crores, with a healthy margin of 22.2%. The US market was a key growth driver, expanding by 7.9% quarter-on-quarter.

Segmental Business Performance

The Media & Communication business demonstrated a smart 6.8% sequential growth, bolstered by ramp-ups of large deals. Transportation, accounting for over 53% of revenues, grew by 0.7% in the quarter, supported by a robust pipeline in OEM SDV programs. However, the Healthcare and Life Sciences business saw a decline of 2.3% due to the conclusion of some large regulatory programs. System Integration was a strong performer, recording a growth of 20.5% over the previous quarter and winning an award from Dell Technologies for its infrastructure solutions.

Automotive Vertical Outlook and Strategic Deals

Management expressed confidence in a significantly better H2 for the transportation business, targeting double-digit growth for FY27. While the US automotive market remains muted, Europe, Japan, and India are showing strong traction. The company continues to focus on software-defined vehicles, electrification, AD/ADAS, and even traditional powertrain areas. Key deals include a long-term, multi-million dollar cloud-based hardware and simulation deal with Suzuki and ongoing ramp-ups with European and Mercedes-Benz OEMs.

Healthcare and Life Sciences Revival Strategy

Despite a Q2 decline, Tata Elxsi is building a strong pipeline of new customers and large deals in Healthcare and Life Sciences. A significant multi-year, multi-million dollar deal with Bayer for devices and radiology, including a dedicated technology center, is expected to provide business stability for at least three years. The company is actively working on advanced radiology devices and technology for early and accurate diagnosis of critical illnesses.

Margin Trajectory and Utilization Improvement

The company is focused on margin recovery, aiming for significantly better margins in H2 compared to H1. Utilization improved from approximately 66% to over 70% in Q2, with a target to reach 75% by the end of the financial year and 80% in the next financial year. While a 90 basis point gain from currency movement was offset by 40 basis points of higher employee costs (due to campus onboarding and sales team strengthening), PBT saw a 110 basis-point sequential increase due to hedging gains and R&D credits.

AI and Semiconductor Strategy

Tata Elxsi is actively involved with AI-based solutions for on-prem data centers and AI workloads, leveraging its own mini-NVIDIA data center for experimentation. The strategy for AI/GenAI is twofold: enhancing internal productivity and quality, and driving innovation in product features for areas like ADAS and medical imaging. The company focuses on software for semiconductor platforms rather than chip design itself, viewing its partnerships (e.g., Qualcomm) as crucial enablers for OEM engagements.

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