LTTS - L&T Technology Services Limited Share Price

L&T Technology Services Limited (LTTS) provided a positive outlook for the remainder of FY26, expressing confidence in achieving double-digit growth driven by a strong order book and large deal wins. The management highlighted several forward-looking points:

1. Growth Targets: LTTS aims for double-digit growth in FY26, supported by a medium-term revenue target of $2 billion.

2. Deal Wins: The company reported a record high large deal total contract value (TCV) intake of approximately $300 million in Q2, with key contributions from a $100 million deal in the Sustainability segment and a $60 million deal in Tech.

3. Segment Performance:

   • Mobility: Growth is anticipated to return in Q4 FY26, despite current subdued performance in the automotive sub-segment due to program pauses and decision-making slowdowns.
   • Sustainability: This segment showed robust performance with a 12.6% annual growth, highlighted by a notable $100 million deal in Industrial sub-segments, reinforcing LTTS's leadership.
   • Tech: The segment demonstrated strong annual growth of 28.6%, bolstered by the integration of Intelliswift, indicating a promising future.

4. Profit Margins: EBIT margins improved to 13.4% in Q2, with an expectation for continued improvement in the second half of FY26. Management projects mid-16% EBIT margins by Q4 FY27 or Q1 FY28.

5. AI and Innovation Focus: LTTS has filed 216 patents in AI and GenAI, expecting to grow revenue derived from AI-related products from 1% to 5% of trailing 12-month revenue in the medium term.

Overall, management remains optimistic about leveraging technological advancements and strategic client engagements to drive growth and profitability in the coming quarters.

Here are the major questions and their respective answers from the Q&A section of the earnings transcript:

1. Question: "Should we think about the decline in the rest of the world correlated to the challenges in Automotive?"

   Answer: "I wouldn't necessarily correlate the decline in the rest of the world to Automotive challenges. While we're focusing on strong geographies like the US, Europe, and Japan, the underperformance in other regions stemmed from our strategic decision to avoid smaller businesses."

2. Question: "How should we think about the pace of recovery in the Auto vertical by CY26?"

   Answer: "I'm optimistic about a recovery, especially as decision-making stabilizes and companies navigate this new normal. We should see growth picking up from February, post the usual furlough period, bolstered by rising client interest in AI in manufacturing and engineering."

3. Question: "Would you clarify the large deal wins? Is part of it renewals and what's the ratio of net new?"

   Answer: "About 20% of our large deal wins include renewals, while 80% are genuinely new business. Most of our significant deals are new contracts, demonstrating our strong sales momentum rather than just renewals."

4. Question: "How do you expect TCV to revenue conversion to improve moving forward?"

   Answer: "The conversion is improving as clients are now more open to spending. Our increasing TCV is partly due to our focus on significant, multi-year contracts, ensuring sustained demand and higher revenue realization."

5. Question: "What's the outlook on margins despite potential wage hikes?"

   Answer: "We anticipate better margins in H2 FY26 than in H1, despite expected wage hikes. The conclusion of client support measures will provide a significant margin uplift, alongside strategic improvements in quality and revenue."

6. Question: "Can you expand on the demand you see arising from US reindustrialization amid tariff changes?"

   Answer: "Clients are now actively pursuing decisions to shift supply chains and expand manufacturing within the US despite the tariff fluctuations, indicating a steady push towards local sourcing and increased activity in discrete manufacturing."

7. Question: "Could you elaborate on the trajectory for the Intelliswift integration regarding revenue and margins?"

   Answer: "We are seeing both revenue growth and margin improvements from the Intelliswift integration. Ongoing projects and SG&A rationalizations are contributing positively, with expectations for margins to reach target levels soon."

8. Question: "Will the market conditions allow LTTS to achieve double-digit growth this year?"

   Answer: "Yes, I firmly maintain our outlook for double-digit growth in FY26. Our focus will remain on leveraging strong segments, particularly AI and sustainability, to support this growth, especially as we approach the year's end."