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Tata Elxsi Ltd
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Ladies and gentlemen, good day, and welcome to the Tata Elxsi Limited Q2 FY '23 Earnings Conference Call. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Shashank Ganesh from EY. Thank you, and over to you, sir.
Thank you very much. Good afternoon to all the participants on the call. Good morning, if you're logging into [indiscernible]site. Before we proceed to the call, let me remind you that the discussion will contain forward-looking statements that may involve known or unknown risks, uncertainties and other factors. Therefore, it must be due in conjunction with the business risk that could cause further results performance or achievements that differ significantly from what is expressed or implied by such forward-looking statements. To take you through the results and answer your questions today, we have the senior management of Tata Elxsi represented by Mr. Manoj Raghavan, Managing Director and CEO; Mr. Nitin Pai, Chief Marketing and Chief Strategic Officer; Mr. Gaurav Bajaj, Chief Financial Officer; and Ms. Cauveri Sriram, Company Director. We will start the call with a brief overview of the past quarter by Mr. Raghavan followed by Q&A session.
[Operator Instructions]. Having said that, I would like to hand the call over to Mr. Manoj Raghavan. Over to you, Manoj.
Thank you, Shashank. Good evening, everybody. Thank you for joining us this evening for the Q2 earnings call, and I hope that you and everyone in your family is safe and healthy. I'm happy to report that we have delivered a steady quarter of growth. It was a good quarter for us, especially with our industrial design and system integration division to picking up on a growth momentum. Our revenue from operations during the same quarter was INR 763.2 crores, growing by 5.1% quarter-on-quarter and 28.2% over the same quarter of previous year.
Our EBITDA for the quarter was INR 276.5 crores, growing by 23.4% year-on-year. The PAT for the quarter was at INR 174.3 crores growing 29.1% of the same period of previous year. As you have noticed in our investor fact sheet released earlier today, we've added a net addition of 1,532 employees, that's the highest number of Elxians added in the quarter. And to support that, we have also expanded our facilities in 16 locations and added new locations to diversify timing-based. This is an investment that we are making to position us for growth in the coming quarters. On the other hand, these investments have impacted our quarter-on-quarter margin performance. Nevertheless, we still reported industry-leading EBITDA margins of payment of 29.7% and PAT of 22.3%.
In terms of our divisional performance, the EPD division operating revenues grew by 3.1% quarter-on-quarter and 29% year-on-year in constant currency terms. The industrial design business witnessed a growth of 15.5% quarter-on-quarter and 15.4% year-on-year in constant currency terms. Our SI direction had a strong quarter by growing 26% quarter-on-quarter and 41.7% year-on-year in constant currency terms. In terms of verticals, our Transportation business unit reported a strong quarter with 4.6% quarter-on-quarter growth and 34.2% year-on-year growth in constant currency terms.
We are seeing a good traction in automotive led -- automotive business led by our EV and ADAS capabilities. Our health care business growth remains robust, registering 5.1% quarter-on-quarter and 45.1% year-on-year growth in constant currency terms. Our media and communication business growth during the second quarter was 1% quarter-on-quarter and 19.5% year-on-year in constant currency terms. The Media and Communication business would witness some deferment of platform and some large service deals, but we are well positioned to win these in the coming quarters. While we continue to focus on EPD for product and digital engineering in our 3 key verticals, we are now seeing our design and SI business expanding and growing and happy with the growth in our SI integration and support business, even as we put up the capabilities to run engineering ops and manage services, including some of our own platforms and products, especially in the Media and Communication industry.
So while this has impacted the numbers for the Media and Communications business for the quarter as we transition some ongoing work to the SIS team. We believe we will create new and stable revenue stream for the company and the [indiscernible]. During the quarter, we were impacted by supply side challenges with a strong deal inflow and increased utilization of the past few quarters, constrained our ability to immediately address new deals. While our employee engagement measures have helped improve overall attrition for the second consecutive quarter to 18.7%, we saw heightened attrition in our on-site employees, signaling talent mobility that continues in key overseas markets, especially for technology and engineering resources.
We are making strong investments in growing our leadership pipeline for delivery technology and sales, lateral hiring and training programs right from technology leads right up to delivery heads and technology managers. This is essential for us to establish the next base talent to win, manage and grow the increasing number of strategic accounts and new offerings we're bringing to the market. On the Work-From-Home front, senior leaders across the functions and delivery have been working full time from office for a long time now, along with employees in critical projects or where we had infrastructure dependencies.
We have rolled out a hybrid work policies and guidelines across the organization and most employees are now working for home 2 to 3 days a week. The average attendance -- daily attendance is now above 50% across locations with almost 90% of the staff coming into office at least once or twice a week. We will face this out even as we commission new facilities in space for increased employee headcount. We are entering the second half of the financial year with a strong order book, a healthy deal pipeline across key markets and industry and customer confidence in the work we do. Importantly, we are investing in both capacity and capability to strengthen our ability to win, manage and grow customers and business. So with that, let me wish you [many] a loud one Happy Diwali and happy holidays. I will now hand over the floor to Shashank for the Q&A session.
[Operator Instructions]. The first question is from the line of Bhavik Mehta from JPMorgan.
So I have two questions. Firstly, Manoj, the growth slowdown this quarter was mainly due to supply side challenges? Or there are also some issues where clients would have deferred a project execution, that would impact the goal [indiscernible]. And secondly, what are you hearing from clients for the next quarter or let's say the next 6 months? How are they thinking about project execution given the macro? Are there any follows you expect in this quarter or any local [indiscernible] of the decision-making cycles, so it could lead to delays in these closures? So any color on that will be helpful. And second question to Gaurav is, we saw a very sharp decline in margin this quarter. It seems like the headcount addition was much higher than the top line growth, which obviously impacted margins and exchange. But whether also any other factors which led to the sharp margin decline? What's the outlook going forward on margins in case,let's say, the supply side issues persist. So what are the levers you have to go back to a more than [indiscernible] margin levels?
So let me take the first question. So as you have been seeing over the many quarters, our utilization rates have been going up, and we have been winning pretty large deals and opportunities, and we have been able to maintain that momentum. However, at very -- at the mid-management level and slightly senior level delivery managers and so on, as the number of programs that we've been winning, we face a crunch at those levels on the supply side. And so what we've done this quarter is proactively we decided to go ahead and looking at the outlook we have to go and invest in the resources because we're not looking at this investment for the next one quarter or two quarters. I think these investments are making up -- in the next 4 to 6 quarters, that we are setting a plan for us to ensure that at those levels, we continue to grow, right? In Transportation business and if you look at our medical business as well as if you look at the industrial design business, we've had decent growth. In fact, the pipeline is also pretty strong, and we continue to be bullish there.
There has been some deferment of projects in our Media and Communications business. There has been softness in the top 5 accounts in that particular business. So that is why we've seen almost like a flattish growth in constant currency. I think this situation in the Media and Communications business, in our view, I mean, it also affected the macro funding situation in Europe as well as a high inflation in U.S. has affected to some extent. But I think,it could continue for, I would say, maybe one more quarter. That is the visibility we have. Customers are a little cautious we continue to engage with all the top customers, we continue to look for predictions from them.
And there is -- as of now, there is nothing for cost of concern or we're not hearing that the projects are totally going to be shut down and so on. But even our customers are cautious with their spend so we need to wait and watch for at least a quarter here in this particular business. Gaurav you can handle the margin question.
Yes sure. Bhavik, you're right. The margin for the quarter got impacted due to the highest number of the net adds that we have done during the quarter about 1,532. We have also onboarded the campus as part of this 1,532 headcount. And we put some campus onboarding during the end of the last quarter, along with the campus, which has impacted in the later [indiscernible] which was impacted by margin and increase of the people cost. There are certain other cost, which is also going to come back and we're always expecting those costs to be back whenever we start our operations back from the offices.
So our facility operations are inflating. I think as Manoj mentioned, that we have asked our people to get back to office in this quarter. The people are coming to offer 2 days in so we have to have all the facility running at a full scale now. Along with that, I think we have over the last 3 years during the COVID, I think we expanded from the headcount almost by 2x [indiscernible] and all. So we also need to add the new facilities that also we have started and picked up new facilities in this quarter. So we are started 3 new centers; one in Bangalore one in [indiscernible] and one small expansion in the Chennai.
Along with that, I think there are certain discretions [indiscernible] driver recruitment and the training of the new hires that we have done. So those people will undergo various domain and other skill-related training. I mean, for them to be ready for the productive billing in the quarters to come. So all put together, all those things have kind of impacted our margins. But I think these are the expectation level that we always knew that once we start our office and ask the people to come back, those would be the alignment or a little bit switch or will happen from the margins that have been reported in the last 2 quarters.
The next question is from the line of Sulabh Govila from Morgan Stanley.
So a couple of questions from my side. First one to begin with is on the supply side challenges that you mentioned, is there a quantification to that was there an impact on the revenue? How much did that impact come in, in this quarter from that perspective? That's the first one. And related to that, you mentioned some deferment that happened in the media and the communications business. In the other parts of the business, which is Transportation and Medical, you mentioned that it continues to remain strong. But in the new deals that you're signing or you're part of the discussions, are you facing some sort of challenges there with respect to closures or the way clients are thinking about it? So any color there would be very helpful.
Yes. I'll address the second question first, especially in other businesses, including Transportation, Medical even IDV and such. We don't see that -- we don't see the sort of deferment and so on. We continue to close deals. We continue to ramp up customer engagements. And we don't see any of that happening. It is specifically focused. The issue that we are seeing is primarily in our Media and Communications business. And both in the U.S. and Europe, we are seeing some of the deals take longer time to close. And in some cases, customers are also postponing the [indiscernible] to the next quarter and so on.
Regarding your first question regarding supply chain challenges, yes, we have seen these challenges across, I would say, the industry vertical. Our growth rate would have been definitely higher if we add -- if you had such a number of people at the mid management to really ramp up some of the deals that we have won and really [indiscernible], right? But however, we are taking [indiscernible] to sort that out. And we are pretty confident that can be the supply side changes can be addressed. I wouldn't want to put a number there in terms of what we lost and so on. But we are on it, right? We understand changes, and we are working on it.
Got it. And the second bit from my side is on the cost side. So one is I wanted to understand that within this 1,500 bunch of people that we've added this quarter, what's the breakup of pressures? And what's the breakup of pressure versus laterals that we've taken in, in this quarter and the associated impact on utilization that we've seen Q-on-Q-on-Q basis? The second related question is on the cost structure, as we mentioned that now we are running full scale on some of the facilities, and we are ramping up so that the people that we've added can become productive and billable.
So just trying to understand that from a cost perspective, now this is going to be a steady state cost, which is there in the P&L. And as and when these people become billable, you get benefit from the revenue that they generate. Is that the way to think about it?
Okay. So regarding the headcount that we have added, roughly around, I think, 1,100 1,150-odd is sort of fresh people that we have added and about 350-odd laterals that we have added. Regarding the costs, Gaurav, can you address that question?
Yes, yes, sure. So Sulabh, I think Manoj mentioned out of 1,500, 1,100 minutes or something was 10% [indiscernible] was later. In terms of the cost impact, I would say that campus would have impacted our margins by 120 basis points. And later along with some the correction that we have to do for the on-site people in this quarter would have impacted by 60 basis points. And rest of the impact in the margin are because of the facility expansions and the operationalization of the facility for the people to come back to the offices and other travel-related expenses and the training and the recruitment for those things. So that is the kind of the breakup. And at the same time, we had some gains from the cross currencies and the USD improving in our favor. So there is a 30 basis points gain from the currencies. That's how that walk from the quarter-quarter perspective in [indiscernible].
Sure, sure. Got it. Just a quick follow-up, Gaurav. I just wanted to understand that the line items like other expenses and depreciation. So is this more of a steady state number from here on? Or do you expect further increases in the coming quarters on the -- as well?
See, our business is not like a proportionate linear business. So there are certain costs that will continue. And all those costs also depends upon the scale and the volume at which we are growing. See, I think to look at all these costs are not the expense for us. These costs are basically the kind of an investment and the right capability and capacity that we need to add for the future growth. These people can take some -- somewhere from 6 months to 9 months to go through the various training and domain training and all those things. So we -- I mean some of these costs will continue.
Some of the costs -- yes, there are certain costs which may be some differentiate of cost could be there in the next quarters to come because there would be certain costs that had gone significantly behind hiring and onboarding and training of those people. But I guess, I think what we feel that as we continue to have a positive demand outlook, some of these costs will get normalized over the quarter. Of course, there would be other levers, but there could be other costs also that can come back because we don't want to cut on to the cost and don't invest on the right technology, right product and all those things. So there will be a balance between these 2.
The next question is from the line of Vimal Gohil from Erkan Capital Management.
Sir, my question on margins and OpEx has been answered. Just wanted to check on the hiring outlook. So we've done close to 2,500 for H1. What is the expectation for H2?
I think we will -- our utilization has dropped to around 78%...
78.9%.
78.9%, almost 79% and so on from about 83% or 84%. So I think the first focus for us is to get back our utilization back to above 80%. We will continue to hire on -- especially for specialized capabilities and so on. But we will be careful about, let's say, bulk hiring and generic skills and so on until our utilization picks up. So that will be a balance.
The next question is from the line of [indiscernible] from Asia Institutional Equity.
Sir, I have a question. Like in the last 2 quarters, we posted a very good set of numbers. And also, if you look a good amount of order inflow in first half of this fiscal. So is there any one-off which we experienced in revenue as well as in order inflow due to disturbances in the peer operation in war-related territories? Or any softness you expect in the H2 due to the seasonally weak season, your thoughts on same?
See, it's very difficult to comment on the war and the macroeconomic situation in general, right? I think it is prudent for us to be a little bit cautious about it. What we are doing is, proactively going and talking to all our top customers in Europe, especially in Germany, which could be affected if the war escalates and so on. So we are really trying to understand, we're really trying to have regular meet-ups and connections with them to understand if there is any change in their own thought process. And are they going to be affected?
Winter is coming, energy prices are going up in Europe. So will there be any cut in the budgets and so on. And these are the questions that we're asking our customers. As of now, one of our top customers there, are stalling any of the committed investments, right? Anything that we've already committed and where we have already onboarded resources and those projects are ongoing, they are ongoing. We don't see too much of an issue. What -- if at all, there is any slowness, it is in the new opportunities that we are going after.
I think customers, in general, are being a little cautious. The time to closures are going up. And that's something that we are watching closely. And so one never knows when situation goes out of control, what will the customer behavior, what are the customer -- how will the customer react, right? But the good thing is, I think 95%, 96% of our revenues in the quarter come from our existing customers. So we are keeping a close tab on them. And then we don't see any sort of uncertainty at this point in time.
But having said that, it's -- we have to watch it really month-on-month, we have to watch. We have to talk to our customers. We have to really keep close to them. So that's as much I can talk about the macroeconomic situation at this point in time.
Okay. Sir, one more question. Like India is all PLI teams and all government focusing on making and manufacturing of global brands. So do we find opportunities of our [indiscernible] sales offering within India later on?
No, absolutely. That is -- I mean we are having discussions with a few customers who are utilizing the PLI scheme, launching products earlier. They would suggest import products from China or anywhere else, and they just used to brand them and sell them in India. Now many of these companies are desiring to start manufacturing, desiring to design their own products in India and manufacturing. So I think this scheme is positive for Tata Elxsi. And then we are in discussions with a few customers to see how we could be the design arm because many of these companies don't have the design capabilities. They earlier used to just import from China and just put their brand. So now a lot of companies are -- because of our design heritage, they are talking to us to see how we can support them in their new product R&D.
The next question is from the line of Sandeep Agarwal from Naredi Investment.
So my question is other expenses increased to INR 102 crore from INR 82 crores of Q-on-Q. Is there any one-off item or any of recurring in nature? Or what type of expenses increased? And the second...
Sorry, I think your expense line item is not clear. On which line item of expense, you are referring this to?
Sir, other expenses increased to INR 102 crores from INR 82 crores, Q-on-Q basis. So is there any one-off item or recurring in nature?
So there are both there. I mean there are certain recruitment-related, onboarding-related onetime items also, but there would be ongoing expenses also like travel cost, all those things and facilities and all those things, maintenance, utilities that has come back. So it's a mix of both.
Okay. Sir, my next question is regarding -- so we have 34% income from Europe region and 43% from U.S.A. So how currency movement impact our company in this particular quarter? Any specific number regarding currency losses in dollar and euro.
So on an overall basis, I think if you see, we have -- on a revenue side, we have a 40 basis point benefit from the USD moving in our favor where -- and partly, which was offset by the damping of the pound and the euro. But overall, at the top line basis, we have a 40-basis point gain. On a margin basis, I think I translate because we have certain costs also into those respective currency. On a margin basis, it is 30 basis points kind of a gain on our bottom line.
The next question is from the line of Samir [indiscernible] on from ICICI Prudential, AMC.
Just one clarification. Sir, fresher, I think you mentioned that we have added fresher, but is this at the end of the quarter? Is my understanding correct? Towards the end of the quarter?
No, we have added it throughout the quarter. In fact, on top of this, I think we had added about 250 freshers in Q1 towards the last month -- I mean, towards the -- so that full quarter impact is also there this quarter.
Okay. Okay. Okay. And also, just generally speaking, this industry as a whole -- Q3 is a weaker quarter because of furloughs. What do you see? Is there some impact that we are expecting for normalization? If you can just throw some light on us on that?
Yes. Q3 traditionally, yes, but if you look at our -- I think last financial year, Q3 also, we did a pretty good growth. So yes, we are waiting and watching. We have not really seen furloughs and so on, yet, from any of our customers. So that is something, again, we are closely watching and talking to these customers. So we hope we will continue the trend like last time.
Okay. Understood. Glad to hear that. And also, on the facility and travel expenses as we explained, right, there's an impact. Do we see more expenses coming through our way, going forward in Q3, Q4? Any idea on that, if you can give?
Yes. See, facilities, as I mentioned earlier, we have started -- we have actually mandated a hybrid work for our employees from October [indiscernible] And earlier, there were about maybe 25%, 30% of employees who were coming to work in Q2, and a little lower number in Q1. Right now, if you look at an average number of employees in a particular week, right, you need people who are coming in. We're almost touching 68%, 70%. So which means -- and hopefully, in this quarter, we will increase that number to almost to 80% or so, which means we are almost back to our -- even pre-COVID numbers, if you look at it, we were maybe 6,000 or 6,500 people at that point in time.
And with all these employees coming back, we will definitely achieve that number. We'll go to maybe people in the office being to about 8,000, 8,500 and so on, right? So associated expenses, utilities, employee-related expenses, employee-drop expenses, cafeteria-related expenses, you name it. All expenses that will be associated with work from office, all of that will come back. I think if you ask me, I think, that's a positive -- I wouldn't consider that as expenses, and I won't be worried so much because these are needed for us to deliver value to our customers. And I think that is something that we would like to take into account.
Right, right, right. Completely understand that these are necessary expenses. But additionally, do you think there are some expenses that are -- that could come? Because we already had a respectable number in terms of coming back to office and we already have facilities that we have taken up. The incremental, I was misunderstanding.
Yes. So it is possible that either in Q3 or in Q4, we may have to add to office spaces because of the headcount that has come back, right? So we would need to take additional office spaces, at least in a few locations. We are evaluating that depending on when individuals will come back and so on. At this point of time, it is okay, but there could be additional leases that we would need to sign to accommodate for the growth and the new employees who are coming back.
Okay, okay, okay. And lastly, on the transportation segment, you already explained Media has some caution in terms of clients. But how do you see revenue? Or how do you see traction in your transportation business? Because auto as a whole is -- I mean it's -- the traction has been good, right, is what we hear. So if you can give some color, whether it will accelerate from here or you see momentum continue from here?
Yes, we definitely see momentum continue and we want to accelerate, and we want to really push the pedal there because we have large opportunities that we have signed off. And so for us now, it's a question of really how -- from a supply side, how do you handle that, especially around what I talked about, the mid management and the cycle management folks who can manage customers, who can really handle some of these large programs and so on.
So that is some -- that is a place where we are really, really investing in and really seeing how we can expand that, right? So again, in that business, demand is not an issue for us. Supply at that critical level is a little bit of an issue. Junior people, we have no issues. We have a number of them available. So that's something that we're working on. And [indiscernible] Q3 and Q4, we will put a lot of focus. In Q2 also, we have done a lot of focus and really brought in a huge number of resources in that bank. And hopefully, all that will help us accelerate our business in Q3 and Q4.
Last question, if I may squeeze in. What is the fresher -- what is the timeline that you expect? And obviously, you have hired a good number of freshers in Q1 also. Have they started getting deployed? And what is the client feedback overall? That is one thing. And what is the -- what levers -- is it a big lever that we look for in our margins?
No, for us, it is not margin. We are not looking at freshers from a margin perspective. We are really looking at building the bench strength for us for the next few quarters, right, how do we -- how are we able to grow our overall revenues and so on. I would say, out of the number of people that we've had, maybe less hundred-odd freshers have been billable -- have been made billable. And that's because these guys have interned with us and worked with us.
They've already been trained, and they could hit the ground running. So that has really helped. The other set of freshers, I think it will take at least 2 quarters to get a majority of them built. So we would look at -- maybe in Q2, we could target maybe another 200 or 250 people from that batch to -- sorry, in Q3, to get built. And subsequently, within Q4 and Q1, we should have a majority of them built.
[Operator Instructions] The next question is from the line of Debashish Mazumdar from BNK Securities.
One question that I have is, if I see the IP service company from [indiscernible]...
Sorry to interrupt you, Mr. Mazumdar. Please use the handset mode. The audio is not clear from your line.
Am I audible, clearly?
Yes, sir.
Yes. The question I have is some of the IT service companies have clearly called out that there is a pressure on the discretionary spending and times are moving towards more maintenance projects. If I understand correctly, the ER&D as a business is more discretionary in nature [indiscernible] for the hiring planning seems to be -- we are not seeing that kind of pressure there. So any change [indiscernible] that we are dealing with today? All the clients in the discretionary level are maintaining their budget despite having uncertainty at the economic level.
Yes. I think I've answered that. Look, most part of our business, we see customers continuing to invest, and we don't see any slowdown and so on. Slowdown, if any, it's because of our supply constraints, and we're working on that, and that will be sorted out. On the Media and Communications business, we do see some slowness. And that is where we are looking at seeing how we can go to the customers and see what budgets they have and where we can expand our services, right?
So to that extent, yes, in a part of our business, we see some effect, but it's too early. I think it's a question of really talking to customers and really, really understanding what is causing this deferment of projects, and hopefully, it's just a one quarter issue, and the confidence has come back, and we'll be able to ramp up our business back. So yes, I think we are working on it.
Just a related question, sir, the growth that we are getting is because of the market share? Or the overall market itself is also growing.
It is both. You can't say it is only one or the other. The overall market is definitely growing with a lot of digital opportunities, especially in all the areas that we are working in. At the same time, yes, we are also winning market share from our competition, right? It's the combination of both.
Okay. One last question, if I may squeeze in. If I just read the fine [indiscernible], it seems to be that some of our media entertainment projects related to India and APAC has slowed down. Any specific color on that, sir? Is it like one-off or it is like a permanent loss of business?
I'm not [indiscernible] I'm not really sure whether that is true. Our majority of our business in the media and communication is from the U.S. And the slowdown that we see is definitely a lot in the U.S. and some in Europe. India, yes, is also an important market for us. And I don't say it is specifically APAC and so on, right, that is causing this sort of a slowdown. It's across.
The next question is from the line of Akshay Ramnani from Axis Capital.
So Manoj, you mentioned about [indiscernible] and pipeline being strong, but you also talked about delayed decision-making environment to close those deals. So I wanted to understand what are the clients indicating to your conversations, especially your top ones? Any sense you're getting on the visibility of their spending over the next 4 to 6 quarters or CY '23? Because it looks like you have made a very strong investment in hiring to fulfill demand over the next 4 to 6 quarters.
So of course, there would be some visibility that you might be having to make such a strong hiring commitment. So I wanted to understand your thoughts on visibility of demand over the next few quarters and...
Absolutely, Akshay. So I think we have been talking to all our top 20 customers pretty closely. If we look at it from a top 5 customer base and our top 10 customer base, we have been steadily growing. There is -- I don't think there is any cause for concern there. So we have done this investment primarily based on the sort of pipeline that we have from our top customers. And you're right, this hiring is not far this quarter or the next quarter and so on. If for the next 4 to 6 quarters, and that we are in alignment. So customers are definitely not indicating especially in our Transportation business, Medical business as well as in our Industrial Design business, we see a strong traction.
We see a lot of requirements coming in. In the mid and communication space, I believe it's an issue just in this quarter, maybe next quarter also, but there are a lot of transformation happening in that market. Our customers cannot just stop the innovations that they're doing. And we strongly believe that some of the work that has been deferred will come back. It's a question of a quarter or 2. And I think the general discussion with our customers in the media and communication spaces, they value our relationship and these relationships, especially with our top customers, have been for the last 15, 20 years.
And then we have seen this sort of a situation when the macroeconomic situation is not very clear. Sometimes the customers take a pause, when I say pause, it is not on the existing projects that they're executing, right? Those projects continue in full steam. It is the new opportunities or the new areas that they are looking at. That is just a pause. And I'm sure in a quarter or 2, that will come back. So we are still pretty bullish there. And you should imagine that this is the business that has really helped us during the COVID time, right?
When our automotive business was really not doing well, the media and communication business was one that really pushed us forward. So we've really had a tremendous run over the last 8 quarters in the media and communication business. So I think it's just -- I tend to believe that it's just a pause, and they are reevaluating their overall strategy and so on from their end customer perspective and from their market perspective, relationships are extremely strong, and I don't see a cause for concern. And however, we are in very, very close discussions with all our top customers. And I strongly believe it's a matter of time before we get back that growth. And yes, we are investing for the future and not for just the next quarter and so on.
Great. Great. That's good to hear. But -- so why I asked this is because historically, we have seen volatility in revenues in an environment where decision-making slows down. And so sir, just wanted to understand, has it had something changed this time around, which is giving you higher visibility in an environment where decision-making is slowing down? Maybe you're -- maybe some larger deals which are getting adding into your order book, which is giving that visibility? Or how should one think about it because -- versus the past and this time around?
Sure. No, I think over the last 2 or 3 quarters, right, we have closed some large deals and so on. And naturally, there's a ramp-up plan for all those deals. And the resourcing that we have hired in this quarter is to really address the ramp-up that is going to happen in the next quarter and the next quarter, right? So we are actually getting ready, prepared to ensure that we have that -- just to meet the pipeline and the ramp-up that has already been closed, right? So that's what we're doing.
And I think we are there, right, with this sort of a ramp-up that we have done. It's just a question of how quickly we can get these people ready for customer engagement and how quickly we can get them into billable roles. So that's what the focus will be for the next -- at least one quarter. And I think the teams are working pretty hard along with the customers to make that happen.
Great. And just a small one. So what's the outlook on offshoring? What are clients talking about offshoring? Any return to on-site or they want to still increase offshore in an inflationary environment? Your thoughts there, please.
Offshoring continues to be strong. In fact, I'm not sure if you heard it from anybody else, but the on-site environment has become very, very difficult, right, in U.S. and Europe and so on because of inflation and so on, right? The salary levels are going up like anything. And one of the issues, I think one of the things that also hurt us in our MCV business is we had a lot of attrition on-site. And if one person quits on-site, it's almost like 2 or 3 offshore revenue that gets hit, right? So our on-site attrition definitely is an issue.
And then these are guys going -- joining an Amazon or a Google at maybe 2x, 3x salaries and so on. So these are things that totally disrupt, and it's very difficult for us to really hold such people back. So that is a little bit of a challenge that we have. But the good part is, as you all know, our on-site presence is anyway, about 10% or so of our workforce is on-site. So we continue to pivot with our customers strongly on the offshore. And I think this quarter also ratios have not been very different from the last quarter. So I think customers are okay. I don't think they're asking that we need to return back employees to on-site and so on. We have not seen that trend so far.
[Operator Instructions]. The next question is from the line of Naveen [indiscernible], Individual Investor.
Congratulations for steady set of performance and continuing to grow the TTM performance even in this challenging environment. Sir, my first question is regarding if you can throw some more light on the India business because just in this quarter, we are -- it has been quite short around 2% down. But when we see for the last 4, 6 quarters, it has grown recently from INR 50 crores per range to around INR 125 crores, INR 130 crores. So if you can throw more light on the India business.
And as well as in the last phone call, you said that rest of world like China, Korea and Japan, you did not see some new bills closing there. So if you can throw some -- because we see -- we are seeing 3% growth over there in rest of world revenue. So both these geographical [indiscernible] or like currently and as well as the environment for the coming second quarter. It will be quite helpful, sir. Question for Manoj.
As well as the second question is regarding the health care TEngage vertical to estimating because we have been marketing in this [indiscernible] since the March quarter. So if you -- if we are seeing some commercial closures or orders, in fact, we have started. It will be quite helpful, sir, regarding TEngage.
Yes. So yes, our India business has been pretty soft. And I would say it is not because we don't have order inflows and so on. There is a lot of order inflows in the India region. But unfortunately, because of the supply-related issues, we had to sort of prioritize some of our overseas customers, and we had really moved so that we earn better realization and so on. So I think that's a very simple reason why India business is down. There is a lot of opportunities in India. And we are being a little selective given the resourcing situation. And so to how do you address that?
Regarding other markets, China, Korea, Japan. China continues to be down because of COVID and all the issues. I mean, we're sort of really not really focusing on China. I think same is with Korea. But however, our Japan business, we are definitely ramping up. There have been some good deal wins in Japan in the last quarter, and there is some good funnel this quarter also. So we are pretty positive and hopeful that Japan business will definitely grow. On TEngage, Nitin, would you want to?
Mr. [indiscernible] . So on TEngage, I just wanted to comment that you got to look at that as a strategic platform, right? Why? Because this is a make or buy decision that customers make. So it's really about -- will you license TEngage, will you use this as the primary platform, you'll build your products and services on top or would you build your own. So to that extent, because these references strategic budget, we never expected anything to close in a quarter or 2 quarters. In fact, our view is that most likely, it has to be part of the new budgeting cycles as a strategic expense. So I would expect something that happens in Q1 2023 -- when I say Q1, I'm talking of calendar year. Why? Because typically, our primary market is being targeted as U.S.
So it is really the first quarter of the calendar year there that also budgeting. But having said that, we already have some discussions going on in terms of RFPs, RFIs are part of the conversation. What it is, more importantly, brought business in is services business where customers are saying, look, we are not going to buy, we are not going to make, but our relevant -- your capabilities are already proven with your platform. So we would like you to take up services work. So that we have already actually won some deals on.
Okay. Just a follow-up regarding the India business. As we are saying that in the media vertical, we are seeing some softness or [indiscernible]. So you said that we saw [indiscernible] in the other overseas markets and all these things. So that's why some softness in India business. So going ahead in this second half you see India business because you said that demand is quite good? The pipeline is also good? So if you can throw some more light regarding the half 2 India business execution in view of the supply challenges and all business?
Yes. Since we have also ramped up hiring and so on. So some of the resources that we ramped up -- and if you are able to convince our customers in India to make use of those resources for available engagements and so on. Yes, we will be able to service those requirements that we have not been able to service the last quarter. So that's something that we're working on, Mr. [indiscernible].
The next question is from the line of Urmil Shah from Aegis Federal Life Insurance.
Good to see you being the only company to see a double-digit employee addition in this quarter. Sir, just more clarity on the softness, which we talked about in the media and communication business. So it's more on the communication subsegment side or in the media side? Or we have seen a difference in both the subsegments?
That's a good question. So I would say a lot more on the media side. Communication is still picking up. We are looking at investments in 5G and so on. So we are investing that. But a lot of our current business is on the media, on the OTT [indiscernible] on the operator side. So that is where we are seeing a little bit of a softness. On the communications side, I think there are a lot of opportunities that are coming up. And we are investing there. So yes, so I think media is where there's some amount of slowdown.
Sure. And was this deferral more offer towards the end quarter phenomenon? And that could provide a positive surprise. So it's not in Q3 and Q4?
I didn't get that question.
So the deferral was more to turn towards the end of the quarter? And once the clients have more certainty the spend might come in and that could provide a surprise in Q3 or Q4 or it was towards a mid or the start of the quarter itself?
I don't think. I think it's very difficult to say whether it is the end or -- I mean it is -- we have been seeing these weaknesses for some time now. But to my mind, it's a 1 or 2 quarters issue, and we should -- these deals are not gone, but these are deferred. We are still engaged with the customers, and this would come back at some point in time.
Just last question is in regard [indiscernible]
Mr. Shah, the audio is not clear from your line.
Is it better now?
Yes.
Yes. Sir, just the last question. As regards to the country also your [indiscernible] or so it's more of uncertain kind of impact right now. What would be your commentary on both the media and communication and the transportation segment specifically in the European geography?
Yes. So -- and again, to repeat the same thing, right, we don't see any concerns on our transportation business. We hope that we have a good -- definitely a good pipeline and customers that we have actually closed deals with. And for us, it is a supply side there, and those are the steps that we have taken to address the supply side. And hopefully, we should continue that growth. On the media side, definitely, there is some slowness that we are watching in the marketplace itself. And that is something that we hope it is just a 1- or a 2-quarter issue, and we'll get back to our recovery part.
[Operator Instructions]. Next question is from the line of Salil Desai from Marcellus Investment Managers.
Manoj, this -- when you're moving now to a hybrid model from October 1. So can you just throw some light on what kind of deficiencies are you trying to plug to get people back into offices? And is this across all geographies? Or is this specific to say India or to some cities within India?
I'm not sure if I understood the question right, but 90% of our resources are in India only, right? And this applies to all the resources that are there in India, right? So what we have mandated is definitely, I think in Q2, and even in Q1, the mandate was at least all the senior management used to come to office. And wherever there are some infrastructure-related projects and so on, which needed for an infrastructure that is -- that can't be shipped outside the office. Those teams were working from office.
And then if there are very, very tight projects, schedules are very tight or other customer escalations and so on, we have mandated all those teams to come and work in office. So that was how we were managing. And about 25%, 30% of the team used to come to office. But come October 1, we have said, look, employees have to come back to their base location. And at least 2 to 3 days, they have to be in office in a hybrid product scenario. So we have -- yes, we still have few set of employees that continue to work from home due to whatever -- there are certain issues that they have and the medical emergencies or young parents and so on and so forth.
So -- but apart from that, almost close to about 70% of our employee base now comes to office. So I'm not sure if I've answered your question.
Yes. So just to kind of clarify, you think that there's a perceptible productivity difference?
Mr. Desai, the audio is breaking from your line, please. [indiscernible]
Sorry. Sorry about that. So sir, just to clarify, you would think that there's some productivity enhancement you'll see when you're calling people back to work?
No.
And that should reflect in some metric some way down the line, right -- that's. Okay.
The next question is from the line of Apurva Prasad from HDFC Securities.
Manoj, could you quantify how much would be the impact of the lower growth in IDV arising from the supply constraint and the on-site problem that you referred to? And would there also be an impact from lower IP contribution in the current quarter vis-a-vis the previous quarter?
Sorry, you mean lower IP?
Yes. So I mean would Q2 have lower IP revenue as compared to Q1, which had impact on revenue and margins. And if you could quantify how much would be the miss on EPD growth from the supply constraints that you referred to?
Maybe I will -- I don't have the data immediately. I'll check if Gaurav has data. And -- but I don't think there's a perceptible difference in because of IP. It's not as if in Q1 we had a lot of IP deals in Q2, the IP deals dipped and so on. Yes, there are some IP deals that we are hoping to close that they have been deferred, especially in the media and communication vertical. Gaurav would you have that number?
It's very difficult, Apurva, to put a number to it. I think, as Manoj mentioned, I think some of the deals are taking a little longer on the IP side to get close. So from that perspective, I think there will -- we are hoping those still get closed and accruals revenue in the quarter to come, basically, quarter 3 and quarter 4. But I mean, any which ways, I think our IT revenue as we -- as you know, is not significant. So it doesn't really impact much on the -- from the growth perspective.
Okay. And what led to IDV growth, sequential growth this quarter? And finally, on the fresher addition for full year, would you still hold on to the 3,000 to 3,500 targets set earlier?
Sure. So ideally, definitely after the design digital event and the general -- the focus on including IDV capabilities in all sales pace, especially to the top 20 customers, we've had focused campaigns going after our existing customers with the IDV capabilities. I'm happy to announce that at least half of these customers have strongly embraced the IDV capabilities, and we are seeing some good design wins there. And I hope this would continue. I'm pretty satisfied with the way IDV is now moving.
And the good part is we have -- a lot of our EPD sales fully engaged in selling IDV services and so on. So that's definitely a positive for us in this quarter. That's something that we have been working on over the last 2 quarters. And I think we've seen the results of that this quarter. From a fresher addition perspective, I think we would have added, in the financial year, almost about 2,000 freshers to date?
Yes.
So yes, we have -- I think we have a pipeline of -- I'm not mistaken about another 750 or 1,000 freshers that there is a plan to onboard. So we will be looking at the business growth and specifically in the sort of areas that we are really growing in those areas, we'll definitely bring in those freshers especially in transportation and in the medical business. That's something that we will focus on. So over the next 2 quarters, we'll bring in the remaining freshers.
The next question is from the line of Bharat Sheth from Quest Investment Advisors.
Manoj, if I -- correct me if I'm wrong, in last 3 quarters, we have just added almost a lateral plus fresher around 50% of total headcount here. And prior to that, our top revenue growth was much higher than the addition of headcount, but in Europe this dealer opportunities. So when do you think, again, those kind of, I mean, revenue growth growing faster pace than the headcount addition will again will start -- expect to start?
I think whatever headcount that we have added that, Mr. Sheth, I think in the next 2 quarters, we should be able to really utilize them, right? And the thing was, I think with the growth that we're seeing both in Q1 and Q2 and utilization, I think one was reaching 85% and so on. They were really be sort of no room especially at the -- as I said, the mid-management level and the senior management level. So we've sort of -- though we have done a number of things to groom people and get them to that level, sort of inflows we have seen it are higher than what we have projected.
So we have caught a little bit there. So that's something that we are correcting. And I think in the next couple of quarters, we should be able to -- so we have actually we are actually in for preparing in a way not to get into the situation that we are in, in Q2 to be able to really encash all opportunities that come our way. So we will take it at a quarter at a time. And then looking at maybe end of next quarter, we will, once again, we look at our resourcing situation and take a call if we have to accelerate for the next 4 quarters.
Okay. And one more question for Nitin. You said that our -- in past, I mean our customer are looking forward to build a new platform than using our own platform and uses the services. So in this challenging macro environment, do you think that can be a most cost-effective solution that we can give it to our client and hence maybe our platform business getting a more [indiscernible] or this kind of an operating leverage they can have?
Yes, Mr Sheth. On one hand, what you're saying is absolutely logical that instead of making a make decision, which then involves investments that take some time and risk a buy makes much more sense. But also has other advantages with this SaaS model, you can also pay as you grow. You don't have to pay lump sum right in the beginning. But having said that, both of them are strategic decisions because if you look at TEngage especially, it is a business platform. It is not a productivity platform. It is not a test automation platform.
It's not to improve something that you already have. It is to start a new. So in that sense, I think we will still see some slowness in adoption. Why? Because companies still have to make that big decision of, are they going to run a new business? And are they then going to do it themselves or are they going to license the platform? So I would still say that it's a strategic call, but logic says that we would actually be a better choice when the environment is tougher because there is lesser risk and you can choose to pay as you grow.
Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for closing comments.
Thank you all for the time today. And I think in spite of all the difficult macroeconomic situation and the supply side challenges that we had in parts of our business, I think we have done reasonably well from a quarter top line perspective. Bottom line has been hit a little bit because of the investments that we have made preparing ourselves for the subsequent quarters. I think personally, we're pretty comfortable and confident with the numbers that we have achieved.
And I think we have sort of done all the right investments, whether in resources, whether in office spaces and so on to really help us in the next 2 to 4 quarters, right? So we will be -- we'll continue to execute our strategies. And then hopefully, we will continue to deliver results that delight our investors. With that, I'd like to thank you all, and happy Diwali and happy holidays to all investors. And I look forward to talking to you again at the Q3 investor call. Thank you so much.
Thank you. Ladies and gentlemen, on behalf of Tata Elxsi Limited, that concludes this conference call. Thank you for joining us. You may now disconnect your lines.