Summary of L&T Technology Services Q1 FY25 Earnings Call
Key Highlights:
- Revenue grew 6% YoY (Year over Year) but declined 3% QoQ (Quarter over Quarter) due to SWC seasonality.
- Large deal wins were strong, with two $30 million deals, two $15 million deals, and three deals with a total contract value (TCV) of $10 million.
- The company is investing in Sales and Technology under its “Go Deeper to Scale” strategy to prioritize growth.
- They expect their revenue and margins to improve from this quarter onwards.
Segment Performance:
- Mobility: Strongest growth in the last 6 quarters (6%+), driven by Auto, followed by Commercial Vehicles and Aero. Won 3 large deals in Mobility. Focus on EV, Hybridization, Vehicle Engineering, and Software Defined Vehicles (SDV).
- Sustainability: Slight YoY growth due to strong performance in Plant Engineering, offset by a decline in Industrial Products. The decline is temporary due to supply chain issues and large deal delays. They are investing in asset management solutions and see this as the next growth engine.
- Hi-Tech: Good growth in Semiconductors, with strong demand for AI chip design. Medical sub-segment is seeing spending on Sustenance engineering, QARA, Value analysis and Value engineering, Digital manufacturing solutions for operational excellence. They are seeing multiple large deals in play across Telecom, Semcon, ISV, and MedTech.
Outlook:
- The company is comfortable with its guidance of 8-10% revenue growth.
- They see growth in all three quarters ahead and expect H2 to be better than H1.
- Their aspiration of $1.5 billion in revenue by FY25 remains unchanged.
- They will host an Investor and Analyst Day on August 27th in Bangalore.
Other Points:
- The company filed 47 patents in Q1 and has a cumulative total of 1,343.
- They are ranked as a Leader in the Everest Connected Product Services assessment.
- EBIT margin for the quarter was 15.6%, in line with the aspiration of 16% for FY25.
- The company expects the EBIT margin trajectory in H2 to be better than H1.
- They are actively recruiting freshers and laterals, but automation is reducing the straight-line impact of headcount on revenue.
- Wage hikes for the year are expected to be finalized in the next week or so and will be effective from October.
Key Points:
- L&T Technology Services (LTTS) is targeting an 8%-10% organic revenue growth for FY25.
- The company is also aiming to achieve a $1.5 billion revenue run rate by the end of FY25, which may include inorganic growth through mergers and acquisitions (M&A).
- LTTS has a strong pipeline of deals, with a significant portion being proactive deals initiated by the company.
- The company is focusing on M&A in three key areas: Automotive in Europe, ISV & Hyperscalers in North America, and Medical in North America.
- LTTS expects its revenue to grow every quarter for the rest of FY25, with a stronger H2 compared to H1.
- The company is confident in its growth prospects despite potential macro headwinds.
Other Call Highlights:
- LTTS is seeing increased customer interest in cost reduction, cash conservation, and faster time-to-market solutions.
- The company is investing in Artificial Intelligence (AI) and is incorporating it into many of its bids.
- LTTS plans to be more transparent by issuing press releases on new wins and partnerships.
- The recent large deals won by LTTS are ramping up at different paces depending on the specific customer situation.
Inorganic Growth:
- LTTS confirms that M&A is part of their strategy to achieve the $1.5 billion revenue target.
- The company is looking for targets in the range of $50 million to $150 million with the right margins and valuations.
Overall, the call portrayed a positive outlook for LTTS with strong growth prospects and a clear M&A strategy. L&T Technology Services is focused on growth and is making investments to achieve its goals. They are confident that their revenue and margins will improve in the coming quarters.
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