From near bankruptcy to profitability: The Japan bet that saved Tata Elxsi

Tata Elxsi was once on the brink of bankruptcy. Today, it ranks among the Tata Group's most valuable companies. The man behind that turnaround is S Devarajan, who joined the company in 1993 as head of sales and marketing and was promoted to Managing Director and CEO in 1996. He led Tata Elxsi until 2001.

"When I joined the company, we were deeply in losses. Our revenues were low, our profits were negative, and we had very limited cash on hand," Devarajan tells Business Today in an exclusive conversation. "We were on the brink of disaster," he recalls. "That was the time when Mr (Ratan) Tata was very worried."

Devarajan recounts the full turnaround in his book, Designed to Win: The Story of Tata Elxsi.

"To increase our revenues, we had to revise our business strategy and pivot our business differently. We also needed to raise money to fund our strategy and invest in growth," he says. 

Rather than competing head-on with larger Indian IT firms in crowded markets, Devarajan chose a different path. Tata Elxsi began focusing on highly specialised, under-addressed niches—areas that its peers were not targeting.

One such vertical was engineering design and services, particularly automotive component design and styling. Another was animation and visual effects, a space then still nascent in India. Tata Elxsi bundled high-end software from Canadian and American firms with powerful graphic workstations, effectively seeding India's early animation and VFX ecosystem.

"We seeded a whole bunch of animation and VFX studios," he says. Studios such as Prasad Studios in Chennai; Ramoji Film City, Annapurna Studios and ETV in Hyderabad; and UTV in Mumbai were among the early clients Tata Elxsi worked with.

Prime Focus, which later merged with DNEG and has since won eight Academy Awards, also emerged from this ecosystem. "That again was a very big market that we addressed," the former MD says.

A third vertical focused on visual simulation for aerospace and defence. Tata Elxsi worked closely with the Department of Space, DRDO, and the Indian Air Force, including on the Tejas aircraft programme. When the Tejas simulator's proof of concept was completed, it drew high praise. Devarajan recalls that when the aircraft finally flew, the Indian Air Force's chief test pilot remarked: "It was no different from the simulator."

The company also ventured into molecular modelling for pharma and biosciences, another niche largely untouched at the time. Tata Elxsi supplied advanced software and workstations to government biotechnology centres and pharmaceutical companies, enabling the simulation and design of new drugs. "That again was an absolute niche, and nobody else was addressing it," he says.

To support these diverse bets, Tata Elxsi created dedicated product managers and specialists for each vertical. Each team was responsible for building and sustaining its own market, with clear revenue targets.

Geography was the next major strategic call. While most Indian technology companies were chasing clients in the US and Europe, Devarajan took a contrarian view. "We were not as big as HCL or Wipro," he says. “We did not want to go there with no presence, no proof of concept, and no credentials."

Instead, he set his sights on Japan.

The decision faced resistance internally and at the board level. No Indian IT company had cracked Japan at the time. "Maybe that is precisely the reason why we should go and be the first to plant our flag," Devarajan told his team.

Tata Elxsi invested heavily in understanding Japanese quality systems, business culture, and engineering expectations. Senior managers spent months studying the market and tailoring solutions. The patience paid off. "After quite a few months, we struck gold," Devarajan says.

Tata Elxsi signed its first major Japanese client - Hitachi, in its medical electronics division. "We built some very high-end MRI imagery interpretation software. We also worked with them in the video space on the latest MP3 and MPEG-4 protocols for audio and video." 

Soon after, other Japanese companies such as Mitsubishi, Sony, and Toshiba came on board. With Japanese references in hand, Tata Elxsi entered Western markets with credibility - and succeeded. 

The results were swift. Within two years, the company achieved a 50-50 split between domestic and overseas revenues, returned to profitability, and began declaring dividends.