Favoured by design

From shaping coffee bottles to making foldable shoes, building 3D smartphones and designing the interiors of airports, Tata Elxsi is doing work that was earlier domain of European, Japanese firms

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Whitefield - Bangalore's information technology, or IT, hub - is where Eurasian families had settled down in the later years of the 19th century on land donated by Chamaraja Wodeyar IX, the ruler of Mysore. The IT boom of the 1990s reshaped the suburb. Today, its skyline is dotted with tall glass and chrome towers. In one corner, surrounded by tall trees, stands a low-rise building that takes one back to the idyllic pre-IT days. The red tiled roof is supported by teakwood rafters. Each room opens into a courtyard with a manicured garden and a pool of blue water. This pre-modern house, designed by renowned architect Charles Correa, is where the 1,600-odd engineers and designers of Tata Elxsi work.

Their customers are blue chip corporations in Europe, Japan, South Korea and the United States. The men and women who work out of this 5-acre campus have helped Subaru build an electronic control unit for its cross-trek hybrid vehicle, Panasonic develop an activity monitoring app which is integrated into the TV for the US market, and Europe-based GeneActive produce a wrist-worn accelerometer which retails at £200. It has done the visual effects for Yashraj Films in Dhoom 3, shaped the new Bru pack, and has designed the interiors of the Mumbai airport.

These are the customers who can be named. There are others whose names are closely guarded secrets. For one such unnamed customer, a top-notch Japanese company, Tata Elxsi has just designed a 3D smartphone and tablet, the hardware as well as the software. Another team is working on jewellery with embedded safety features - targeted at the Indian market. A voice-activated remote control for TV has also been developed here. And in the works is a foldable tablet for people who want larger screens but in smaller devices and a low-cost sternum saw (used for bypass surgeries) which will substantially reduce the cost of cardiac care. A senior Tata executive calls it "tomorrow's company within the group" because "design is getting more and more important for business the world over".

For many analysts, Tata Elxsi is one of the top design companies in Asia and the little-known jewel in the Tata crown. The company's profitability is high (profit before tax of Rs 112 crore on income of Rs 787 crore in 2013-14), which means its work commands a sizeable premium in the market. In the stock market, Tata Elxsi is valued at over Rs 1,800 crore with a price-earnings multiple of over 24. As much as 60 per cent of its revenue comes from global customers.

To market itself better internationally, in May this year, Tata Elxsi opened a design studio in London. The United States and Japan could be next. It has set up a sales office in China; the country, which has become the global manufacturing hub, is ready to try out Indian design companies but prefers to work with those which have a presence there. Nick Talbot, the soft-spoken Englishman who studied in the Royal College of Art and has been the global design head of the company for over three years, says overseas offices will help the company scale up its relationship with customers. "We have a lot of customers in Europe, and they want face-to-face meetings rather than phone calls. This move will help us stabilise our relationships with them." Japan also seems to be on Talbot's mind. Tata Elxsi advises Japanese companies that want to enter India, especially about customisation of products. Talbot says customer acquisition could also happen through buyouts. Two years ago, the company had selected a target but the realisation that the work could be done better in-house made it drop the plan. Now, it wants to acquire a boutique design house and build the business.

Tata Elxsi could fall into the IT trap if it restricts itself to work contracted to - most IT companies do not have their own products, which means they are at the lower end of the value chain. Talbot knows that though such work is steady, the company has to grow beyond it. So Tata Elxsi wants to - some say adventurously - build strong intellectual property by developing products through blue-ocean thinking. The risks are high - failures can drain a lot of cash - but so are the rewards. Every year, Tata Elxsi gets 20 to 30 interesting concepts from its employees, but picks not more than six for development. However, only half of these make it to the prototype stage and then to the testing stage. The numbers may be small but, as Talbot says, "even if one of them succeeds, you make good money".

The investment risk could range from Rs 20 lakh to Rs 25 lakh (if components can be bought off the shelf) to over Rs 1 crore (like in the automotive sector) where significant new elements have to be cracked. It could take anything from one-and-a-half years to three years to test the final product, depending on the complexity. Thus, Tata Elxsi has developed Chotapay, a tiny machine which is useful for small retailers with the problem of having to give small change to regular clients. The machine helps them to square up the accounts of frequent customers. It has also developed a sachet dispenser that can be useful in offices and retail stores. The Whitefield centre has successfully designed a foldable shoe that takes up less space to store and has applied for a patent on it.

For all these products, Tata Elxsi is on the lookout for buyers who will pay an annual royalty. But Tata Elxsi executives say that while earlier most companies wanted to buy the design, many do not mind paying royalty now, especially for product categories in which they do not have expertise. But why would overseas companies buy from Tata Elxsi when they have their own teams and there are design boutiques all over Europe and the Far East? What works in Tata Elxsi's favour is the cost factor: it is 30 to 40 per cent cheaper if it does the work.