Tata Elxsi operates at the intersection of design and cutting edge technology
to create innovative solutions for clients. After a period of volatility with
revenues, the company’s latest results show it back on the growth track. In
this interview with Vibha Rao, Tata Elxsi managing director Madhukar
Dev talks about new and emerging areas where the company is finding
traction, and outlines plans to explore new opportunities for expansion.
Tata Elxsi has posted an impressive 73-percent jump in net profit
for 2011-12. What are the factors that have influenced the company’s performance
in the recent past?
Over the last three years, we have had a choppy ride, primarily because
some long-duration projects were called off in early 2009 and the predictability
in revenues from our Japanese customers went awry. It forced us to look at
alternate sources of revenue and, for a while, we booked orders from diverse
businesses, knowing that there were certain risks involved in engagements
where the scope of work was not well defined or understood. Some of these
turned out to be good projects and gave us interesting new capabilities, while
others resulted in unusually high financial write-offs.
We now do business with larger customers and more respectable names, where
engagements are more predictable and, therefore, revenues are more secure
than they were in the last couple of years. Even during this period of difficulty,
we continued to invest in our animation and visual effects studio, the Tata
Elxsi Visual Computing Labs (VCL), in the belief that it would pay off some
day. That our other businesses, embedded product design, industrial design
and systems integration, have done well last year is an outcome of the processes
that we set in place the previous financial year and the discipline that we
have brought to the execution of our projects. Also, we have also been helped
in 2011-12 by a favourable exchange rate.
Has the economic slowdown in the United States and Europe affected
At the moment we don’t see any negative impact of the economic conditions;
beyond the fact that deals are taking a little longer to close, we are not
seeing much of a negative effect. During the slowdowns of 2001-02 and 2008,
companies that continued to invest in new product development prospered subsequently,
and that seems to be the case this time round as well. So, instead of just
cutting back on all expenditure in product development, the better run companies
are continuing to invest in this area.
What are the growth opportunities for Tata Elxsi in India and overseas?
In India, the government’s draft electronics policy could present
interesting growth opportunities. We see major growth potential in three markets
that we address: broadcast and media, transportation and communications.
In transportation, the scope of electronics in new cars is increasing substantially.
There is a lot of opportunity in putting together interesting electronic solutions
for various auto companies. Original equipment manufacturers depend on service
providers like us to create unique, customised products. We have a play here
and in the next 6-12 months, we should have many interesting offerings to
make to car companies.
The second big driver for growth is broadcast-related electronics, which
is undergoing interesting changes, especially in display technology and transmission
media; we have some engagements in this area.
In communication, we have what is called a ‘long-term evolution’ (LTE) micro-cell
stack that has been licensed and has found a lot of traction in the market.
This should benefit from this as the technology matures.
Tata Elxsi has made its presence felt in Hollywood for a few years
now. What has the overseas experience been like for the company?
We are working on some television shows for European broadcasters
and producers but, clearly, the major market is Hollywood. We need to complete
our joint venture productions and get them into the market quickly. Once that
happens, our play in the American market will be bigger.
The company recently announced a small cell software suite for LTE.
Are there any other innovations forthcoming from Tata Elxsi?
For every 10 ongoing initiatives, we have only one or two that we
take to completion. One of our promising products is a medical device that
prevents maternity fatalities. We have been commissioned by an international
medical trust to create this device. It is a work in progress, but once it
is successful it will make a huge difference, especially in a country such
Will the animation, visual effects, gaming and comics policy enacted
by the Karnataka state government have any effect on Tata Elxsi?
The policy is interesting but it will be limited in its impact. For
instance, the proposal to waive or reduce state taxes and to set up a Rs500 million
venture capital fund is a good initiative, but more is needed to make a meaningful
impact. The biggest game changer would be income-tax exemption; if that happens
more investment will flow into this area. Having said that, Karnataka is the
first state in India to have enacted a policy in this sphere and, hopefully,
it will inspire other states and the central government to take similar action.
What corporate social responsibility initiatives does Tata Elxsi
We are a very eco-friendly company. In the Bengaluru campus, we have our own
source of water and we practise rainwater harvesting and recharge the water
table. We have an effluent treatment plant which provides recycled water for
our gardens. Our social responsibility activities are mostly employee-led.
We give financial aid and donate notebooks to schools that have limited financial
resources, and occasionally we donate equipment requested by schools.
We also try to work on products that can positively impact people. The original
Pureit water filter was reasonably priced and required no electricity and
running water. The medical device that we are working on is another example.
We don’t lose focus of the fact that we are a commercial enterprise, but,
at the same time, we try to do things that improve the lives of people.
What are the critical challenges faced by Tata Elxsi as it seeks
The biggest challenge right now is to make VCL profitable; once that
happens we can start investing in other growth areas. When we started we provided
services under customer supervision, and we soon moved into providing services
to customer specifications. Now we have to get to a point where we write the
specification of products, develop them, put together a functioning prototype
and license it to our customers. So we need to invest in the transition from
working to customer specifications to creating new products.
What are Tata Elxsi’s plans for the year ahead? And how do you see
it evolving over the next five years?
We are in the process of firming up plans for the next financial
year, aiming to get back to our old growth trajectory. In terms of strategic
shift, we have to get into full product development and licensing within three
years. We will continue to focus on transportation, broadcast and communication,
and look at new offerings, sub-markets and territories.