Tata Technologies Q2 FY25

Key Financials (Q2 FY25)

• Revenue: ₹ 1,296 Crore (2.2% sequential growth)
  • Services: ₹ 1,005 Crore (2% sequential growth)
  • Technology Solutions: 2.8% sequential growth, driven by 19.5% growth in the Education segment
  • Products: 21% decline due to seasonality, expected to reverse in H2 FY25
• Operating EBITDA Margin: 18.2% (flat quarter-on-quarter)
• Profit After Tax: ₹157 Crore (2.9% sequential decline)
• Net Cash: $145.3 million (up from $131.4 million in Q1 FY25)
• DSO: 85 days (improved from 92 days in Q2 FY24)
• Free Cash Flow: ₹ 453 Crores in the first half of FY25
• Headcount: 12,680 employees (1.4% sequential increase)
• Attrition: 13.1% (down from 13.7% in Q1 FY25)
• Offshore Revenue Mix: 43.7% (up 470 basis points sequentially)

Key Pointers

• Services Segment Return to Growth: The Services segment, after a decline in Q1, returned to sequential growth in Q2 FY25, although at a moderated pace. This indicates some resilience in the core business despite the challenging market conditions.
• Robust Education Segment Performance: The Education segment within Technology Solutions continued its strong performance, exhibiting a 19.5% sequential growth. Successful project deliveries in Bihar and Telangana, coupled with new wins with state governments, are driving this growth.
• BMW Joint Venture: The strategic partnership with BMW, forming BMW TechWorks India, is expected to be a significant growth driver in the coming years. The JV will focus on advanced software development for SDVs, AI-based solutions, and enhancing customer brand experience.
• Focus on Digital Engineering: The company is witnessing increased demand for digital engineering services like smart manufacturing, digital thread solutions, and Gen AI.
• Resilient Margins: Despite headwinds, the company has maintained stable operating EBITDA margins, demonstrating strong cost management and focus on efficiency initiatives.
• Strong Cash Position: Tata Technologies continues to maintain a debt-free and cash-rich balance sheet, providing financial flexibility to navigate market uncertainties and pursue strategic investments.

Outlook

• Stronger Second Half Expected: Management anticipates a stronger performance in the second half of FY25 compared to the first half. This optimism is based on the company’s healthy order book and pipeline, positive momentum within anchor accounts, and expected improvement in market clarity in early 2025.
• Growth in Aerospace and Industrial Machinery: The company is bullish on the aerospace and industrial heavy machinery sectors. The recent partnership with Air India and accreditations in the aerospace sector position the company for growth in these areas.
• Continued Focus on Digital and EV Solutions: Tata Technologies will continue to invest in building capabilities in areas like software-defined vehicles, digital engineering, and AI. This strategic focus is aimed at capitalizing on the long-term growth opportunities presented by the evolving automotive landscape.

Challenges

• Short-Term Demand Slowdown: The company is experiencing a slowdown in customer decision-making, primarily in the automotive sector. This is attributed to a strategic reconsideration of EVs versus hybrids, geopolitical tensions, and uncertainties surrounding elections in key markets like the US.
• Competitive Landscape: The automotive engineering services industry is becoming increasingly competitive. Tata Technologies needs to continuously innovate and adapt to maintain its market position.
• Talent Acquisition and Retention: Attracting and retaining skilled talent, particularly in areas like software development and digital engineering, is crucial for the company’s growth. The ongoing efforts to enhance employee engagement and upskilling initiatives are crucial in this regard.

Overall, Tata Technologies is navigating a challenging environment while maintaining a focus on its long-term growth strategy. The company’s strong fundamentals, strategic partnerships, and commitment to innovation suggest it is well-positioned to capitalize on emerging opportunities and deliver value to its stakeholders.