L&T Technology Services: Q2-25 Earnings Call Highlights
FY25 guidance reaffirmed with 8-10% revenue growth in constant currency & 16% EBIT. Strong pipeline, focus on higher-quality revenue deals suggest continued growth momentum in coming quarters.
lnttechservices.com | NSE: LTTS
1. Key Takeaways
1.1 TLDR
LTTS delivered a strong Q2 performance, driven by growth in strategic segments and significant deal wins.
Focused investments are impacting margins in the short-term, but the company remains confident in achieving its FY25 guidance and medium-term aspirations.
While short-term margin pressure is expected, management's focus on operational improvements and large deal closures should drive margin expansion in the second half of the year.
The company’s strong pipeline and focus on higher-quality revenue deals suggest continued growth momentum in the coming quarters.
Macroeconomic uncertainties and election-related delays remain a potential risk factor.
1.2 Operational Highlights:
Strong Q2 Performance: 3.9% sequential revenue growth, broad-based across regions and segments.
Sustainability Leads Growth: 6.5% sequential growth, rebound driven by both Process and Industrial sub-segments.
Mobility Shows Continued Strength: 5% sequential growth, driven by large deal ramp-ups in SDV and Hybridization.
Tech Growth Moderate: 1% sequential growth, with strong performance in Semcon and ISV sub-segments offset by softness in Comms and Media.
Significant Deal Wins: Two $20 Mn deals, four $10 Mn deals, and two significant empanelment agreements across segments.
Customer Mining Improvement: Increase in $30 Mn and $10 Mn+ accounts.
Investments Impacting Margins: Focused investments in strategic segments have impacted H1 EBIT margin.
Positive Outlook: Strong deal pipeline, with multiple large deals expected to close in Q3 and early Q4.
FY25 Guidance Reaffirmed: 8-10% revenue growth in constant currency and aspiration of 16% EBIT margin levels.
1.3 Key Themes:
Growth Strategy & Segment Performance:
LTTS is repositioning its brand around being "Purposeful. Agile. Innovation." focusing on three strategic segments: Mobility, Sustainability, and Tech, with the aim of building each into a standalone billion-dollar unit.
Sustainability saw a strong rebound in Q2, driven by both Process (Plant Engineering) and Industrial sub-segments.
Customers are investing in automation, digital platforms, and manufacturing & supply chain optimization, leading to strong demand for setting up centers of excellence.
LTTS is leveraging its Industry 4.0 expertise with the launch of its proprietary Factory Next framework.
Mobility continued its strong performance, driven by SDV and Hybridization.
LTTS is seeing increased exposure to OEMs, particularly in Europe and the US, and is offering advanced automotive solutions across ADAS, virtualization, AI, digital twin, and connected apps.
LTTS launched LTTSiDrive, a proprietary framework for accelerating SDV implementation, and has already won two programs leveraging it.
Tech saw moderate growth, led by Semcon and ISV sub-segments.
Growth in Hyperscaler accounts and the Semcon sub-segment driven by AI tailwinds.
Softer performance in Comms and Media, but potential transformational deals in the pipeline for Q3.
Deal Wins & Pipeline:
LTTS secured significant deal wins across segments, including two $20 Mn deals and four $10 Mn deals.
A healthy and growing pipeline, including a good number of large deals in the $25-100 Mn range, is being tracked closely.
The company expects a good number of closures in Q3 and early Q4, some delayed due to elections and macro-related uncertainty.
Deals reflect clients' interest in leveraging LTTS’ differentiated solutions and expertise for new product development and operational transformation.
Margin Performance & Outlook:
Focused investments in strategic segments have impacted H1 FY25 EBIT margin.
Q2 EBIT margin came in at 15.1%, slightly lower than Q1, primarily due to increased SG&A expenses related to sales and technology investments.
Management expects margin trajectory to move upwards with improving growth, larger deals in strategic areas, operational lever improvements, and a focus on higher quality revenues.
H2 EBIT margin is expected to be better than H1, with the company reiterating its aspiration for a 16% EBIT level for the year.
1.44 Key Quotes:
On LTTS' growth strategy: "I'm confident this will create a platform for the future and establish LTTS in 3 strategic segments – Mobility, Sustainability and Tech, and build each of them into standalone billion-dollar units over the coming years."
On Sustainability segment performance: "Leveraging digital technology is a priority for our customers – one of the large deal wins in Q2 is with an O&G customer where we are developing a digital twin of the refinery."
On deal pipeline and outlook: "Our pipeline continues to grow at a very healthy pace with a good number of large deals in the $ 25 - 100 Mn range. We are tracking these deals closely and expect a good number of closures in Q3 and early Q4."
On margin trajectory: "In addition, we will continue our improvement efforts on operational levers like offshoring, pyramid optimization, higher productivity using tools and reusable platforms and indeed SG&A optimization."
L&T Technology Services Q2 FY25 Earnings Call FAQ
1. What were the key highlights of L&T Technology Services' (LTTS) Q2 FY25 performance?
LTTS experienced a strong Q2 with a 3.9% sequential revenue growth. This growth was observed across various regions and segments, with Sustainability leading at 6.5%, followed by Mobility at 5%, and Tech at nearly 1%. The company secured significant deals, including two worth $20 million, four worth $10 million, and two notable empanelment agreements. Customer mining also showed positive trends year-over-year and quarter-over-quarter, evidenced by an increase in $30 million accounts to seven and $10 million accounts to 33.
2. How did LTTS's strategic investments impact its EBIT margin in H1 FY25?
LTTS made strategic investments in its three segments—Mobility, Sustainability, and Tech—during the first half of FY25. These investments, aimed at fostering growth, included building new tech capabilities and strengthening leadership across delivery and sales globally. While these investments have yielded positive results in pipeline, deal wins, and revenue growth, they have also impacted the company's EBIT margin in H1.
3. What is LTTS's outlook for its Mobility segment?
The Mobility segment exhibited strong growth in Q2, driven by large deal ramp-ups in areas like Software Defined Vehicles (SDV) and Hybridization. LTTS anticipates a robust deal pipeline but expects a slight softness in Q3 due to seasonality. The company expects a rebound in Q4.
4. What factors contributed to the strong rebound in LTTS's Sustainability segment in Q2 FY25?
The Sustainability segment witnessed a significant rebound, achieving 6.5% growth in Q2. This growth was attributed to strong performance in both Process (Plant Engineering) and Industrial sub-segments. The turnaround in the Industrial sub-segment is linked to customers' renewed focus on investments as the outlook improves. These investments encompass automation in digital platforms, manufacturing, and supply chain optimization. LTTS has also observed a surge in demand for establishing centers of excellence for clients.
5. What is LTTS's outlook for its Tech segment?
The Tech segment witnessed growth in Semcon and ISV sub-segments, driven by tailwinds in AI and partnerships with hyperscalers. While Q2 performance in Comms and Media was soft, the company is pursuing transformational deals in network management and vendor consolidation, potentially closing in Q3. The Med-Tech sub-segment is also experiencing a rebound, driven by strategic focus areas such as Quality Assurance and Regulatory Affairs (QARA), Digital Health, and Digital Manufacturing. LTTS anticipates an improved growth trajectory in Q3, particularly in areas related to semiconductors, hyperscalers, and Med-Tech.
6. What is LTTS's overall revenue growth guidance for FY25?
LTTS maintains its FY25 revenue growth guidance of 8-10% in constant currency, with a target of achieving a 16% EBIT margin.
7. What is LTTS's strategy to achieve its medium-term goals?
LTTS aims to build three $1 billion segments and reach $2 billion in revenue with a 17-18% EBIT margin in the medium term. The company is prioritizing investments in growth, leadership, and technology solutions to achieve this. It also plans to leverage operational levers such as offshoring, pyramid optimization, and SG&A optimization to improve margins.
8. Will LTTS's H2 FY25 EBIT margin be better than H1?
Yes, LTTS expects its H2 FY25 EBIT margin to improve compared to H1. The company has completed a significant portion of its planned investments in H1, and it anticipates revenue growth and efficiency improvements to contribute to margin expansion in H2.
Source: Link to Earning Call Transcripts
Disclaimer
Content Accuracy and Reliability: This summary of the earnings call is generated using an artificial intelligence large language model (LLM). While every effort has been made to ensure the accuracy and completeness of the information, the summary may not fully capture all nuances or details of the original earnings call. The content provided is for informational purposes only and should not be construed as financial advice or a recommendation to buy or sell any securities.
Verification: Readers are encouraged to refer to the official earnings call transcript, company filings, and other authoritative sources for comprehensive and accurate information. The creators of this summary do not guarantee the accuracy, completeness, or timeliness of the information and accept no responsibility for any errors or omissions.
No Liability: The use of this summary is at your own risk. The creators and distributors of this content disclaim any liability for any loss or damage arising from the use of or reliance on this summary.
Consult Professional Advice: For investment decisions or financial advice, please consult a qualified financial advisor or other professional.