TATATECH - Tata Technologies Limited Share Price

In the conference call for the second quarter of FY26, Tata Technologies' management provided an optimistic outlook for the company, highlighting a return to sequential growth with a 6.4% overall revenue growth in Indian rupees, reaching Rs. 1,323 crores. The services business saw a 5.1% sequential increase, contributing Rs. 1,013 crores. Key growth drivers included strong performances in the aerospace sector, achieving a 14% revenue increase in USD terms, and the technology solutions business, which expanded by 10.6%.

Management reaffirmed confidence in the outlook for the second half of FY26, despite expecting some moderation in Q3 due to seasonal factors and ongoing customer operational challenges, particularly with JLR's IT system restoration. A significant recovery is anticipated in Q4, supported by new deal wins and improving demand signals.

A strategic milestone included the signing of a definitive agreement to acquire ES-TEC, enhancing Tata Technologies' presence in Europe and automotive engineering capabilities, while also providing access to key customers like Volkswagen.

Management reiterated a commitment to sustained growth, balanced operational efficiency, and continuous investment in capabilities, positioning the company well for long-term value creation. The EBITDA margin for Q2 was reported at 15.7%, improving to 16.4% when adjusted for extraordinary expenses.

In summary, Tata Technologies forecasts a solid Q4 and remains cautiously optimistic about future growth, emphasizing ongoing diligence, strategic acquisitions, and robust operational enhancements as key components of their forward-looking strategy.

Questions and Answers from the Q&A Section of the Earnings Transcript (Q2 FY26)

Question 1: "What would be the approximate case of the education contract that you mentioned had delays, which has benefited this quarter?"

Answer: In terms of education, we faced delays in accessing innovation centers earlier in the year due to logistical issues. Those centers are now operational, allowing us to catch up in Q2. This, alongside other closed deals, has reinforced our order book. We remain confident in continuous growth in technology solutions, especially in education, in upcoming quarters.

Question 2: "How should we view the expectations for Q4 growth compared to the solid Q2 performance?"

Answer: We anticipate strong momentum based on Q2's recovery from earlier macroeconomic uncertainties. The visibility on deal wins provides confidence for Q4. We expect improved demand and investments from customers as they adjust to the new tariff environment, which has caused past delays in decision-making.

Question 3: "Is the Q4 expectation a result of organic growth, or is the upcoming acquisition also expected to support revenue?"

Answer: Our comments pertain to organic performance. Q3 is seasonally weak, but we expect Q4 to rebound due to strong underlying business momentum. The acquisition's impact may also support our overall growth trajectory, but we focus currently on the organic factors driving our business.

Question 4: "Could you share some insights about the automotive vertical's performance?"

Answer: In Q2, our automotive vertical showed signs of growth for the first time in several quarters. We achieved growth across all three verticals, indicating improved industry prospects. The automotive sector is crucial as it drives demand for our solutions, and we are optimistic going forward.

Question 5: "What impact do you foresee from the delays in JLR's IT systems restoration?"

Answer: We're actively supporting JLR's phased restoration, but there might be some short-term impacts on our revenue. While we cannot quantify the exact financial effect yet, we are committed to mitigating potential disruptions and enhancing our operational support during this transition.

Question 6: "What synergies do you expect with the ES-TEC acquisition, particularly regarding customer relations?"

Answer: ES-TEC possesses critical capabilities in systems engineering and validation within the VW ecosystem. We see strong potential for leveraging their existing relationships to expand our service offerings. We anticipate that the trust established with VW will enable us to better sell our broader capabilities in automotive engineering.

Question 7: "What are your thoughts on recent attrition rates?"

Answer: Our attrition has increased slightly to 15.1%, mainly aligned with industry trends and natural market fluctuations. We're focusing on retaining talent by offering competitive growth opportunities and fostering employee engagement. While there are challenges, our internal career pathways remain strong.

Question 8: "Can you help quantify the margin impact from upcoming salary hikes?"

Answer: We rolled out salary increments for approximately 88% of our workforce. While this will add expenses, we employ various operational strategies to mitigate the impact. Our goal is to balance capacity and profitability while adapting to growth expectations for the subsequent quarters.

Question 9: "Which areas are you focusing on in the aerospace sector?"

Answer: We are diversifying our aerospace capabilities across several domains, including aero structures, propulsion systems, and MRO systems. Our relationships with major players like Airbus are critical, and we're investing to address industry challenges, positioning ourselves strongly for future growth in aerospace.

These questions and responses provide insights into Tata Technologies' operational dynamics and forthcoming strategies, reflecting a cautious optimism for future growth despite recent challenges.