Tata Technologies

Tata Technologies Q1 FY 2025 Earnings Call Summary

Revenue:

• Overall revenue declined by 2.5% sequentially.
• This was due to seasonality in the value-added product reseller business and the completion of the ramp down at VinFast.
• Technology Solutions revenue (which includes the value-added product reseller business) declined by 7.4% sequentially.
• Services revenue declined by 1% sequentially due to short-term phasing of a few large programs.

Profit:

• Despite the decline in revenue, net profit increased by 3.1% sequentially.
• Operating margin remained resilient at 18.2% compared to 18.4% in the previous quarter.

Growth Outlook:

• The company expects sequential revenue growth to pick up from Q2 onwards.
• This is supported by a healthy deal pipeline and order book.
• Growth is expected to be range-bound across the remaining quarters.

Other Key Points:

• The company won three large deals in Q1:
  • A multi-million dollar, multi-year award for battery and pack design services for a global EV battery manufacturer.
  • A turnkey development project for a new cab for a North American commercial vehicle manufacturer.
  • A large deal from a European Aerospace Tier 1 to develop first and business class seats for commercial airlines.
• The company is confident in the long-term growth prospects of the engineering services sector driven by trends like electrification, autonomous vehicles, and connected and shared mobility.
• The company is making significant investments in Gen AI (Generative AI) and training programs to capitalize on this growing market.
• The company maintains a strong balance sheet with healthy cash flow and liquidity.

Analyst Questions and Answers:

• The isolated cases of weakness in client demand were attributed to specific customer-related issues and not broader trends in the EV market.

• The phasing issues with large projects are expected to be resolved in Q2.

• The BMW joint venture is expected to launch in the second half of the fiscal year.

• The services business (excluding VinFast) grew by 26% year-over-year.

• The company sees an opportunity for increased contribution from the commercial vehicle segment in FY 25, but did not provide specific figures.

• Semiconductor Business: The company sees an opportunity in smart manufacturing and is in discussions with some customers to leverage products from Tata Electronics.

• Airbus: The company expects continued growth from Airbus in Q2 and H2 FY 25. They are also looking for additional opportunities beyond the current order book.

• Margins: The company aims to maintain margins for FY 25, targeting the higher margin between Q1 and FY 24 exit margin.

• Utilization Rate: The company is close to the optimal utilization level and will focus on improving onshore utilization. They will also continue hiring strategically while focusing on capability building.

• Growth Opportunity: Among key sectors (aerospace, education, industrial, automotive), aerospace has the highest percentage growth potential due to a smaller base and recent investments. However, automotive remains the core business, driven by R&D in areas like autonomous driving and electric vehicles.

• VinFast: The company has completed work on the two VinFast vehicles and expects a modest level of support going forward. They anticipate future opportunities if VinFast expands their portfolio.

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