Tata Elxsi — Q3 FY26 earnings call

Call held 13 Jan 2026

Management summary

Tata Elxsi delivered a healthy Q3 FY26 performance with 3.2% constant currency revenue growth and significant margin expansion. The transportation business was a key driver, while Media & Communication and Healthcare are expected to turn around from Q4 FY26. Management is optimistic about sustained growth and margin recovery, targeting 80-85% utilization and double-digit growth in key verticals by FY27.

Highlights

  • Revenue grew 3.2% QoQ on a constant currency basis, driven by volume and improved utilization.

  • EBITDA margin improved by 220 basis points to 23.3%, and PBT improved by 200 basis points to 24.2%.

  • Transportation business, accounting for over 55% of revenue, grew 7.7% QoQ, led by accelerated ramp-ups in SDV-led OEM deals and normalization of work streams.

  • Healthcare and Life Sciences business bottomed out in the quarter, with multiyear deal wins and strong new customer additions.

Concerns

  • Media and Communication business registered a marginal decline of 0.3% QoQ due to seasonal furloughs and deal delays.

  • Decision-making times for clients are still a bit slow, requiring careful calculated additions.

  • The new labor code resulted in a one-time exceptional item, though ongoing impact is expected to be minor (15-20 bps).

Key financials

  1. Revenue Growth (CC) 3.2% +3.2%QoQ
  2. EBITDA Margin 23.3%
  3. PBT Margin 24.2%
  4. Transportation Business Growth 7.7% +7.7%QoQ
  5. Media & Communication Growth -0.3% -0.3%QoQ

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.

Order book

low confidence

Pipeline

deal pipeline tcv

Healthy deal pipeline in Media & Communication; funnel of opportunities in Transportation.

Management highlighted accelerated ramp-ups of SDV-led OEM deals, large deals won in Media & Communication, and multiyear deal wins in Healthcare as key drivers of growth. They also noted a healthy deal pipeline across businesses.

Source: Prepared remarks

Guidance & targets

Profitability

  • Overall Margins Profitability · by the exit of the next year · High confidence margins that we used to operate at
    I cannot commit in the short to midterm, but we are very positive that we can go back to the margins that we used to operate at maybe by the exit of the next year.

    — Gaurav Bajaj

  • Q4 Wage Hike Impact (Junior/Mid Staff) Profitability · Q4 · High confidence 60-70% lower compared to Q3
    So you can expect the impact for that would be lower compared to what we have in Q3, maybe probably 60-70% of that.

    — Gaurav Bajaj

  • New Labor Code Impact (ongoing) Profitability · going-forward basis · High confidence not more than 15, 20 basis points
    However, given the change in the labour code and the definition of the wages, on the going-forward basis, we expect this impact to not be more than 15, 20 basis points, but probably that will also get compensated with the other levers and the utilization factors that we still see there is a scope for the improvement over there.

    — Gaurav Bajaj

Utilization

  • Utilization Rate Utilization · short term · High confidence 80%
    we are targeting to look at least moving around to 80%, before we start adding capacity and so on.

    — Manoj Raghavan

  • Utilization Rate (Maximum) Utilization · Medium confidence 85%
    we can go all the way up to 85%, right?

    — Manoj Raghavan

Hiring

  • Large-scale Hiring Hiring · couple of quarters from now · Medium confidence after maybe a couple of quarters from now
    the large-scale hiring probably can be seen after maybe a couple of quarters from now.

    — Gaurav Bajaj

Growth

  • Double-digit growth in Transportation and Healthcare Growth · heading into FY '27 · High confidence double-digit growth
    Yes. So that is the aspiration from our next financial year perspective, if I understood your question right. So that is what our internal planning says and that's what we are aiming for.

    — Manoj Raghavan

Revenue

  • Non-PV Transportation Revenue Share Revenue · next couple of years or 3 years · High confidence 20%

    From 7.5-8 % today

    Yes, we are still tracking that 20%. So I think today, we are about 7.5-8 % is where we are today. So, I think there's an opportunity in the next couple of years or 3 years to really look at 20%.

    — Manoj Raghavan

What to watch in Q4 FY26

Healthcare Business Growth

Q4 FY26 onwards
Current Bottomed out in Q3 FY26
Target Return to growth from Q4 FY26

Why it matters

Verifying the turnaround in Healthcare is crucial for overall growth acceleration as guided by management.

Manoj Raghavan: "We're confident of bringing back growth in this business starting Q4 FY '26."

Risks & concerns

  • Macro-level Headwinds

    medium

    Macro-level headwinds are still present in the market, though the company's value proposition helps navigate them.

    Management acknowledged

  • Slow Client Decision-Making

    medium

    Client decision-making times are still slow, leading to careful and calculated additions rather than rapid spending.

    Management acknowledged

  • Defense Business Challenges

    medium

    Defense projects face challenges like long deal cycle times and compliance requirements (e.g., ITAR for US projects).

    Management acknowledged

  • New Labor Code Impact

    low

    The new labor code resulted in a one-time exceptional item this quarter; ongoing impact is expected to be minor (15-20 bps) and offset by other levers.

    Management acknowledged

Q&A highlights

8 direct
Auto Vertical Momentum and Margin Trajectory Direct
I think we definitely expect steady growth moving forward. We're really looking to see accelerated momentum in the next financial year for the transportation business for us. I think we are working hard, and we're pretty confident that we will be able to have a sustainable growth for us in the coming financial year.

Analyst sought clarity on the sustainability of strong auto growth and the path for margin recovery, which management addressed with confidence in future momentum and utilization-led margin expansion.

Asked by Bhavik Mehta (JPMorgan)

Transportation Growth Drivers and Anchor Customer Direct
Of course, it is the ramp-up with large deals that we have won. Of course, as we reported in the last quarter, one of our customers had an issue. And in this quarter, we had some accelerated ramp-up of the deals that really were put off from the previous quarter. That actually has helped us. And apart from that, we have growth from our adjacency business.

Analyst inquired about the specific components of the strong transportation growth, and management clarified the mix of large deal ramp-ups, strategic client recovery, and adjacency business contributions.

Asked by Debashish Mazumdar (Svan Investments)

Outlook for Media & Communication and Healthcare Verticals Direct
I'm pretty confident that in Q4, we should see some positive signs in our media business... Healthcare, again, healthcare is something that we're really, really working hard. And I think we have bottomed out in this business in Q3. And hopefully, the turnaround will again happen from Q4 onwards.

Analyst sought forward-looking commentary on the two underperforming verticals, and management provided a clear timeline for expected turnaround and positive signs.

Asked by Vimal Gohil (Alchemy Capital Management Private Limited)

Utilization Levels and Hiring Outlook Direct
we are operating at around 75% today. And we can go all the way up to 85%, right? So we are targeting to look at least moving around to 80%, before we start adding capacity and so on... the large-scale hiring probably can be seen after maybe a couple of quarters from now.

Analyst probed on the current utilization and future hiring plans, which are critical for understanding margin trajectory and capacity expansion.

Asked by Vimal Gohil (Alchemy Capital Management Private Limited)

Double-Digit Growth Aspiration for FY27 Direct
Yes. So that is the aspiration from our next financial year perspective, if I understood your question right. So that is what our internal planning says and that's what we are aiming for.

Analyst confirmed if the previously stated aspiration for double-digit growth in Transportation and Healthcare by FY27 remains valid, which management affirmed.

Asked by Ankur Pant (IIFL)

Impact of Wage Hikes and Media Business Challenges Direct
hike for our junior to mid staff, which covers almost two-thirds of the organization, will happen in Q4. So you can expect the impact for that would be lower compared to what we have in Q3, maybe probably 60-70% of that.

Analyst sought quantification of the Q4 wage hike impact and clarification on Media business challenges, providing specific financial detail for the next quarter.

Asked by Abhishek Shindadkar (InCred Capital)

OEM Spending Patterns and Decision-Making Direct
Yes. See, decision-making times are still a little bit slow. Of course, customers are making decisions but they are making very careful calculated additions. So to that extent, I think it all depends on the value proportion and what you've stand for...

Analyst asked about the broader client spending environment and decision-making speed, which management acknowledged as still slow but driven by value proposition.

Asked by Amit Chandra (HDFC Securities)

Non-PV Transportation Revenue Target Direct
Yes, we are still tracking that 20%. So I think today, we are about 7.5-8 % is where we are today. So, I think there's an opportunity in the next couple of years or 3 years to really look at 20%.

Analyst inquired about the progress and timeline for achieving the 20% revenue share target for the non-PV transportation segment, providing a clear current status and future outlook.

Asked by Rishi Modi (RDM Advisory LLP)

2 min read 7 chapters

Detailed narrative

Strong Q3 FY26 Performance and Margin Expansion

Tata Elxsi delivered a healthy Q3 FY26 performance, with revenue growing 3.2% QoQ on a constant currency basis. This growth was volume-led, contributing to better utilization and operating margins. The company's EBITDA margin improved significantly by 220 basis points to 23.3%, and PBT also saw an improvement of 200 basis points, reaching 24.2%.

Transportation Business Leads Growth, Outlook Positive

The transportation business, which now constitutes over 55% of the total revenue, was a key growth driver, expanding by 7.7% QoQ. This was primarily due to accelerated ramp-ups in SDV-led OEM deals secured earlier in the year and the normalization of work streams with a strategic OEM client. Management expects steady growth and accelerated momentum for this business in the next financial year, aiming for double-digit growth by FY27.

Media & Communication and Healthcare Turnaround Expected

The Media and Communication business experienced a marginal decline of 0.3% QoQ, attributed to seasonal furloughs and deal delays. However, management is confident of seeing positive signs in Q4 due to large deals and a healthy pipeline. The Healthcare and Life Sciences business bottomed out in Q3 and is expected to return to growth from Q4 FY26, with both segments targeted for acceleration in the next financial year.

Margin Improvement Driven by Utilization and Cost Discipline

The significant margin improvement was backed by operational excellence and improved utilization, which currently stands at 75% with a target to reach 80-85%. Cost discipline also contributed 80-85 basis points to the uplift. While a 35 basis point benefit came from exchange rates, a 110 basis point impact from junior staff wage hikes was absorbed, resulting in a net positive movement of 200-210 basis points in the bottom line.

Strategic Focus on SDV, Electrification, and Adjacencies

Growth in the automotive sector is largely driven by SDV (Software Defined Vehicle) closures and the company's AVENIR suite. Electrification (BEVs and hybrid platforms), AD-ADAS, and connected car platforms are also key areas of traction. Management is also exploring off-road and adjacency businesses, which are expected to contribute new revenue streams in subsequent quarters.

Calibrated Hiring and Capital Allocation Strategy

The company is currently hiring selectively for specific skill sets, with large-scale hiring anticipated in a couple of quarters, once utilization further improves. Internal discussions are ongoing regarding capital allocation, including balancing dividends with investments in automotive innovation centers and digital partnerships, with a goal to return to previous margin levels by the end of the next financial year.

Non-PV Transportation and Defense Opportunities

The non-PV transportation segment (off-highway, construction equipment, railway) currently contributes 7.5-8% of revenue, with a long-term target of 20% within 2-3 years. The defense and aerospace sector is also viewed as a significant opportunity, particularly in India, despite challenges like long deal cycle times and ITAR compliance for US projects.

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