L&T Technology Services Ltd (LTTS) Q2FY27 Concall Transcript - Sep-2026 Qtr
Moderator: Ladies and gentlemen, you have been connected for L&T Technology Services conference call. The call will begin shortly. Request you to please stay connected. Reminder to all the participants that you have been connected for L&T Technology Services conference call. The call will begin shortly. Request you to please stay connected. Thank you.
Moderator: Ladies and gentlemen, good day, and welcome to the Q2 FY '27 Earnings Conference Call of L&T Technology Services Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sandesh Naik, Head of Investor Relations. Thank you, and over to you, Mr. Sandesh.
Sandesh Naik (L&T Technology Services Ltd): Thank you, Danish. Good evening, wishing you and your family a happy festive season. I am Sandesh and welcome you all to the earnings call of L&T Technology Services for the second quarter of FY '27. Our financial results, investor release and press release have been filed
Sandesh Naik (L&T Technology Services Ltd): exchanges and are also available on our website www.ltts.com. I hope you have had a chance to go through them. This call is for 60 minutes. We will try to wrap up the management remarks in 20 minutes and then open up for Q&A. The audio recording of this call will be available on the website approximately 1 hour after the call ends. With that, let me introduce the leadership team present on this call. We have with us Amit Chadha, CEO and MD, Alind Saxena, Executive Director and President, Rajeev Gupta, Executive Director and CFO, and Munjay Singh, Chief Operating Officer. We will begin with Amit providing an overview of the company performance and outlook, followed by Rajeev who will walk you through the financial performance. I now invite Amit for his opening remarks.
Amit Chadha (L&T Technology Services Ltd): Perfect. Good evening everyone. I thank you all for joining the call on this last day of Navratri and wish you and your families a very happy Navratri and Dussehra. With our investments in AI and diversified portfolio, we are addressing a broader market with our customers, resulting in accelerated sequential growth across revenue, profitability, large deals, and AI revenue. Large deal wins from earlier quarters are converting into revenue and we are continuing to have a robust pipeline of the same. Let me move to key highlights of quarter two. Revenue was 317.1 million dollars, up 2.7% sequentially and 4.8% year on year in constant currency on a continued operations basis. EBIT margins improved 60 bps quarter on quarter to 16.3%, delivering ahead of timeline on our aspiration for mid-16% EBIT levels. Large deal TCV was at 203 million across segments, with over 50% of them being AI-led wins. Both order backlog and pipeline are up year on year. Sustainability continue to grow and delivered its strongest growth in the last six quarters. Mobility sustained its growth momentum and tech remained steady, with gross margins improving across all segments. We completed the divestment of our SWC business on schedule, giving us a sharper and more focused portfolio. We would like to recognize our SWC employees for their amazing work and wish them all the best in their journey. Moving on to AI, which is the center part of our strategy. AI has an annualized led revenue of 120 million for us in this quarter. Our deep domain expertise, proprietary AI toolkits, and a growing ecosystem of academia and industry partnerships are expanding our addressable market and creating new revenue opportunities. LTTS's AI strategy spans across three areas: AI for engineering, AI for products, and AI for manufacturing and operations. We made progress across all these three areas in the last couple of quarters. AI for engineering: as V model moves to a W model, we are embedding AI across engineering life cycle through a human plus agent delivery model. In one of our major engagements, we are helping clients accelerate time to market by 50% with 40% of the code being generated by AI. To date, we have upskilled more than 16,000 engineers, about 67% of our workforce, in AI. AI for products: AI1 is our platform of 100-plus AI solutions is gaining client traction. Our AI patent filings crossed 253 this quarter, taking total patent count across the company to 1,808. AI for manufacturing and operations: we launched a new AI lab in partnership with NVIDIA to build and deliver next-gen physical AI native applications across manufacturing, robotics, and supply chain. We conducted multiple AI readiness workshops for clients in collaboration with MIT Media Labs and expanded our partnership ecosystem to include Cognite, Anthropic, NVIDIA, and Databricks. Innovation remains central to our long-term agenda with a focus on frontier applied research and emerging technologies to address evolving market needs. Looking ahead, our FARM program will connect deep tech startups with clients to accelerate innovation and bring in new technologies to the market. The LTTS Distinguished Fellows Program recognizes and empowers technical leaders who drive innovation, create business impact, and represent LTTS as global industry leaders across the forums. Moving on to segmental performance, Mobility. Mobility has delivered a phase of steady growth with revenues up 2 point
Amit Chadha (L&T Technology Services Ltd): growth came from auto North America, aero and rail, and trucks and off-highway. Auto Europe remained muted, but we believe it should bounce back next year, and we continue to see significant large deals in the pipeline in Europe. We are working on building capabilities in system engineering and diversifying with new age mobility providers to work on advanced transportation platforms and digital microservices. Aerospace continues to grow strongly as clients continue to expand production, modernize supply chains leveraging digital transformation. Rail as a sub-segment is growing for us, supported by freight rail, rolling stock, modernization, and digitalization. In trucks and off-highway, we added four new logos across global OEMs, led by EAC with wins spanning autonomy, AI, embedded software and digital programs. In a strategic deal, a leading automotive technology provider renewed and scaled their engagement with us for AI powered engineering across product and digital engineering. In summary, mobility is showing sustained growth and we expect strong momentum ahead, driven by a robust pipeline across geos and ramp-ups of large deals. Moving on to Sustainability. Sustainability continued to be a strong growth engine, up 13.4% year-on-year and 4.9% quarter-on-quarter, as we execute multiple large deals won over the past six quarters. Nearly half of our Q2 large deal wins were in this segment. Industrial Products growth is led by data centers, energy transition, motion and robotics and AI-enabled automation, with electrification and smart manufacturing driving a robust pipeline. A leading cleaning equipment manufacturer selected LTTS to design and develop robotic machines. In Plant Engineering, demand continued steadily across oil and gas and chemicals, supported by LNG, upstream and non-conventional energy projects. In CPG, we partnered with a leading food and beverage company to scale its Industry 4.0 framework, enabling IT/OT convergence and enterprise-wide AI readiness across its global manufacturing operations. The Sustainability track segment is on track to deliver another double-digit growth year. Finally, on Tech. Tech was stable this quarter. The demand was driven by client investments in agentic AI, AI infrastructure, cloud-native, modernization, data center software, advanced connectivity, and semiconductors. Tech Infra and Semcon delivered another strong quarter, while Media maintained steady. We have set up a dedicated data center engineering business line, servicing AI infrastructures, servers, storage ecosystem, ODMs, and OEMs. We expect it to become an important growth area as customers redesign infrastructure for AI workloads. As filed earlier, we won a large AI-led engagement with a global telecom equipment provider to design end-to-end systems spanning AI and data centers. This program started ramping up in the current quarter. In MedTech, we are expanding in Pharma and Life Sciences, while demand remains healthy across digital health, diagnostics, and connected devices. In the current quarter, a specific program ramped down per schedule, and the next phase will kick in only in H2. In Software and Platforms, pipeline quality is improving. Pure-play software world is impacted by the adopted of new age tools, AI tools. We see demand for AI-led software development across existing and new logos in retail, FinTech, and platform companies. Providing you two more inputs, one on business landscape and then we will summarize. On business landscape, across our client interactions this quarter, the common theme is that clients are doubling down on growth. This makes us cautiously optimistic about their investment plans. Technology spending is shifting towards AI infrastructure, silicon, cloud platforms, data centers, and time-to-market. We have aligned our portfolio per our Lakshya 31 strategy to these priorities, and our EAC capabilities help clients improve productivity in current programs and free up investments for next-gen technologies. To summarize, Q2 was a good quarter. I'd like to thank our clients, our employees, our stakeholders for that, with improved growth, margins ahead of plan, and our strategic investments gaining traction. With our order backlog and pipeline both improving year-on-year, and several large deals in play, we expect revenue momentum to further strengthen in H2 while sustaining healthy EBIT margins. Growing demand for our EAC solutions, diversified portfolio, dedicated large deal engine, and improving regional opportunities gives us confidence in our medium- and long-term trajectory. This progress supports our long-term aspiration of 13% to 15%
Amit Chadha (L&T Technology Services Ltd): CAGR with EBIT margins in the 16% to 17% range over the next 3 to 5 years. With that said, I am going to stay back for questions. I would like to request Rajeev to provide his comments.
Rajeev Gupta (L&T Technology Services Ltd): Thank you Amit. Greetings to everyone. Wishing you and your family happy Navratri and happy Dussehra in advance. Let me start by sharing key highlights for the quarter. Q2 FY '27 was a strong quarter across all key parameters. Large deal wins of $203 million, sequential revenue growth of 2.7% in constant currency terms, EBIT margins of 16.3% with margin expansion across all segments. Pleased to share that we've been able to achieve our committed mid 16% margin aspiration ahead of time by a couple of quarters. Disciplined capital allocation towards building scalable business and profitable growth is yielding results. Sustainability, our most profitable segment, grew double digit year-on-year basis at 13.4% and now contributes to 38% of our revenues. Our quarter 2 FY '27 annualized EPS came in at 143.12 INR, which is an increase of 23.5% over FY '26 EPS. We've successfully concluded disinvestment of SWC business in this quarter. This resulted in a one-time gain of 165 crores in quarter 2 FY '27. With that, I will move to Q2 financials, starting with the P&L. Revenue for the quarter was INR 3,040 crores, representing growth of 3.4% sequentially and 12.1% year-on-year. EBIT margin for the quarter stood at 16.3%, improvement of 60 basis points sequentially and 220 basis points year-on-year. Effective tax rate for the quarter was 26%. Going ahead, we expect ETR to remain in the range of 26% to 26.5%. Net income for the quarter was 548 crores, up 53.7% sequentially and 66.8% year-on-year. This represents 18% of revenue. This includes a one-time gain of INR 165 crores from disinvestment of Smart World business. EPS from continuing operations was INR 35.78 for the quarter, translating into annualized EPS of INR 143.12, and compared to reported FY '26 EPS of INR 115.89, an increase of 23.5%. This improvement reflects our disciplined capital allocation towards sustainable profitable growth and investments in new technologies aligned with our long-term strategy. Other income was 17 crores for the quarter, higher compared to the previous quarter while absorbing forex volatility and currency movements. Moving to balance sheet and cash flow, let me highlight the key line items. Quarter 2 FY '27, overall DSO came in at 78 days. This is split as billed DSO of 60 days and unbilled DSO of 18 days, which remains stable versus 77 days in quarter 1 FY '27, well below our guided range of 80 to 85 days. With disinvestment of Smart World business now complete, henceforth, we will report overall DSO. Our year-to-date free cash flow was INR 790 crores, a healthy 108% of net income. Our cash and investments stood at INR 4,197 crores end of quarter 2 FY '27, compared with INR 3,394 crores at the end of quarter 1 FY '27. The Board has approved an interim dividend of INR 20 per share, reflecting our focus on creating value for our stakeholders. On revenue metrics, revenue in dollar terms was USD 317.1 million, compared with USD 309.9 million in quarter 1 FY '27, which is a constant currency sequential growth of 2.7% and year-on-year growth of 4.8%. On segment margin performance, we saw margin expansion across all the segments. Mobility margins in Q2 improved to 16.9%.
Rajeev Gupta (L&T Technology Services Ltd): up 130 basis points sequentially resulting from quality of growth and operational efficiencies. Sustainability margins saw improvement to 29.5%, up 40 basis points sequentially, supported by execution of large deals and strong growth in this segment. Tech segment margins improved to 12%, up 50 basis points sequentially. Ramp up of a recently won AI-led engagement with a global telecom equipment provider also aided in margin improvement. On the operational metrics for Q2 FY27, our offshore mix improved to 55.9% in the quarter, reflecting our continued efforts in improving offshore mix. Fixed price mix improved to 35.6% in Q2, progressing towards higher value fixed price and outcome-based engagements. Client profile remained stable on a sequential basis, reflecting the strength of our customer relationships. Client contribution to revenue remained broadly similar compared with Q1 FY27 across categories. Headcount marginally increased from 23,845 in Q1 to 24,035 in Q2. Attrition remained largely range-bound at 14.7% during the quarter. Realized rupee for Q2 FY27 was 95.9 to the dollar, depreciation of 1.09% compared to Q1 FY27. Now, before concluding, I will share a bit around the margin outlook. We achieved our margin aspiration of mid-16% EBIT levels ahead of time by a few quarters, and aspire to maintain this margin range in the near future. Our margin levers mainly will be revenue growth and healthy segment mix, operational efficiency including AI-led productivity gains across delivery and functions, and disciplined SG&A management. We remain confident of our growth trajectory supported by a healthy pipeline, deal ramp ups, prudent capital allocation, engineering intelligence-led execution, and continued operational discipline. We expect these factors to draw stronger revenue growth for us while sustaining our margin performance and reiterate our aspiration of 13% to 15% CAGR over the next five years with margins in the range of 16% to 17%. I take this opportunity to thank our investors, analysts and stakeholders for their continued trust and support and the entire LTTS team for their dedication and resilience. I will now hand over the call to the moderator for questions.
Moderator: Thank you. Ladies and gentlemen, we will now begin with the question and answer session. Anyone who wishes to ask a question may press star and one on their touchstone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will now begin. Ladies and gentlemen, we will wait for a moment while the question queue assembles. First question comes from the line of Ravi Menon with Axis Capital. Please go ahead.
Ravi Menon (Axis Capital): Hi. Thanks. Congrats on a really good performance. In the past we have seen that the sustainability segment was a bit volatile. I think you were trying to move towards more annuity deals and where you've now shown really good growth in the last couple of years. Does that sound like you moved successfully? Could you talk a bit about how much of the revenue of long-term programs and how you managed to bring down the volatility in this?
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