Tata Technologies Ltd (TATATECH) Q2FY27 Concall Transcript - Sep-2026 Qtr
Moderator: Ladies and gentlemen, good day, and welcome to Tata Technologies 2Q FY '27 Earnings Conference Call. 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 this conference, please signal an operator by pressing star followed by zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Vijay Lohia, Head, Investor Relations and M&A at Tata Technologies. Thank you, and over to you.
Vijay Lohia (Tata Technologies Ltd): Thank you. Hello, everyone, and a warm welcome to Tata Technologies Q2 of fiscal year '27 earnings conference call. Joining us today from the management team are Mr. Warren Harris, Chief Executive Officer and Managing Director, and Mr. Uttam Gujrathi, Chief Financial Officer. We'll begin today's call with opening remarks from the management team, covering the company's performance for the quarter and key business highlights followed by the Q&A session. Before we proceed, I would like to remind everyone that certain statements made during today's call may be forward-looking in nature. These statements should be viewed in conjunction with the risks and uncertainties outlined in slide two of our quarterly fact sheet, which is available on our website. Our press release, financial results, and investor presentation have been submitted to the stock exchanges and are also available on the IR section of our website. We trust you had an opportunity to review them. With that, I now invite Warren to share his opening remarks. Over to you, Warren.
Warren Harris (Tata Technologies Ltd): Thank you, Vijay. Good eve- evening, everyone, and thank you for joining us. Three months ago, we said FY '27 would represent an important inflection point for Tata Technologies, supported by a strong order book, sustained large deal momentum, and our differentiated position in full vehicle development and engineering transformation. As we close the first half of the year, our performance continues to reinforce that conviction. For Q2, revenues from operations increased 22.2% year-on-year in constant currency to $178 million. Services revenue grew 4.3% sequentially and 26.2% year-on-year to $142 million, contributing approximately 80% of our total revenue. Despite absorbing annual salary increments, representing more than 100 basis point headwind, operating EBITDA margins remained resilient at 16.1%, reflecting continued execution discipline and the strength of our operating models. We also continue to invest in future growth. During this quarter, we added approximately 100 300 associates to support strategic program ramp-ups and strengthen key capabilities across the business. At the same time, attrition reduced by 70 basis points sequentially to 15.6%, reflecting the progress we are making in employee experience, career development, and engagement. As we scale larger and more complex programs, our people remain one of our most important competitive advantages.
Warren Harris (Tata Technologies Ltd): as in to product development. Specifically the automotive in the automotive industry, we believe that the sector is at an inflection point. Chinese OEMs have established new benchmarks for product innovation, development, speed, and cost-competitiveness, and are increasingly expanding globally. In response, Western OEMs are becoming leaner and fundamentally rethinking how products are engineered and brought to market. We believe OEMs will increasingly focus on what defines their brands, while outsourcing more engineering and product development activity. The winners will be partners that can own outcomes, particularly full product and full vehicle outcomes, and build strategic relationships with the C-suite of those companies. This is the thesis around which we are building Tata Technologies. By product realization we mean taking responsibility for the entire product lifecycle, from concept through launch. Our ambition is not just to become a large engineering service provider. It is to become a strategic product realization partner, capable of owning increasingly complex engineering and product development outcomes for the world's leading OEMs. Our JV with BMW provides a compelling proof point to that to that theme. BMW has publicly announced plans to reduce headcount in Germany, while continuing to invest in and scale our joint venture in India. We believe this reflects a broader industry trend as OEMs increasingly leverage strategic partners like ourselves to improve competitiveness, accelerate innovation, and enhance productivity. The quality of our business, the quality of business that we are winning also reflects this positioning. Several large engineering engagements and full vehicle programs secured over recent quarters are now ramping, and we expect a more meaningful contribution from these programs during the second half of the year. Pipeline conversion remains strong, with five large deals secured during Q2. These included a landmark $138 million full vehicle engineering program with a leading European luxury automotive OEM spanning two vehicle programs. This win is an important milestone. It validates our ability to assume responsibility for increasingly complex product development outcomes and reflects the confidence our customers are placing in Tata Technologies. We also in secured an engagement with a leading North American commercial vehicle manufacturer to lead the end-to-end development of a new vehicle platform and support the associated digital SDV infrastructure. Taken together, these wins reflect a broader shift in our portfolio towards larger, more strategic, and more outcome-oriented engagements. Based on our first half performance, continued program ramp-ups, and healthy pipeline conversion, we remain confident in maintaining strong double-digit growth for FY27. While automotive remains our primary growth engine, aerospace is emerging as an important second growth engine for our company. Demand across the aerospace sector remains strong, while the industry continues to face challenges in engineering capacity, production throughput, and manufacturing efficiency. Our strategy is focused on areas where engineering heritage, manufacturing expertise, and digital capabilities can create differen- differentiated value, including manufacturing engineering, propulsion, MRO, digital transformation, and the application of AI and automation. Our relationship specifically with Airbus provides an important foundation, creates opportunities to ex- expand our participation across the broader aerospace ecosystem. Over time, we believe aerospace can become a meaningful contributor to both growth and diversification. AI remains a central pillar of our strategy. Our objective is to combine decades of product engineering, manufacturing engineering, and full vehicle development expertise with AI to help customers achieve significantly faster development cycles, lower development costs, and higher and drive higher engineering productivity. We believe the future leaders of our industry
Warren Harris (Tata Technologies Ltd): now is capable of helping customers achieve China-like development speed and cost competitiveness while maintaining Western OEM-grade quality, safety, governance, and IP protection. Today nearly 1,000 Tata Technologies associates are developing and deploying AI agents across our engineering and business processes. We are systematically codifying decades of engineering knowledge and delivery experience into reusable AI-enabled capabilities across the product development lifecycle. We are already seeing improvements in productivity, quality, development speed, and scalability. More importantly, we are transitioning from AI-assisted ways of working to AI-native ways of working across our value chain. We believe the combination of product realization expertise, full-vehicle development capability, and AI-native delivery creates a powerful competitive advantage for Tata Technologies. To conclude, our first half performance reinforces our positive outlook for FY '27. We remain confident in delivering strong double-digit growth for the full year, supported by strong demand, ongoing ongoing program ramp-ups, healthy pipeline conversion, continued investment in talent, and improving retention trends. More importantly, the nature of work entrusted to Tata Technologies is changing. Customers are increasingly asking us to take responsibility for larger, more strategic, and more outcome-oriented programs. As OEMs adapt to a more competitive global environment, they will increasingly seek partners capable of owning outcomes and accelerating innovation. This is the opportunity we are positioning Tata Technologies to capture. Through our leadership in product realization, growing full-vehicle development capability, expanding aerospace, and AI-native transformation, we believe Tata Technologies is becoming a highly differentiated engineering and technology partner, well positioned for sustainable long-term growth. Thank you, and I will now hand it over to Uttam to review our financial performance in more detail.
Uttam Gujrathi (Tata Technologies Ltd): Thank you, Warren, and a good evening, everyone. We delivered yet another quarter of strong growth and profitability, supported by healthy execution across our strategic programs and continued operational discipline. Revenues from operations grew 22.2% YoY in constant currency to US$178 million, while operating EBITDA remains steady at 16.1% despite absorbing the impact of annual salary increments during the quarter. With that, let me take you through the financial performance of Q2 in greater detail. Services revenue increased 4.3% QoQ in constant currency to Rs 1,356 crores, reflecting continued growth in our Services business and ramp-up of strategic programs. On a YoY basis, Services revenue were 26.2% in constant currency and 22.1% excluding ESTEC. Growth was broad-based, with automotive growing 7.6% QoQ, excluding ESTEC, while nonautomotive grew 7.5% sequentially in U.S. dollar terms. Demand at ESTEC remains subdued, particularly from its largest customer in Germany. While we anticipate some additional softness in Q3, we expect conditions to stabilize in 2027 and remain confident in the underlying strength of the business and its medium to long-term growth prospects. Technology Solutions grew 9.2% year-over-year in constant currency, while declining 6.6% sequentially to Rs 343 crore. The sequential decline was primarily driven by the timing of revenue recognition in Education business and a change in accounting treatment for certain OEM-hosted SaaS licenses within the Product business. Effective July 1, 2026, revenue from these contracts is being recognized over the license term rather than upfront at the point of sale in line with evolving accounting guidance under Ind AS 115. This change reduced Technology Solutions revenue
Uttam Gujrathi (Tata Technologies Ltd): ₹12.6 crore during the quarter. Consequently, total revenue from operations increased 2.1% sequentially to ₹1,299 crore. Excluding the impact of the revised revenue recognition policy in the products business, total revenue in Q3 would have grown 2.8% QoQ. Looking ahead, we expect the products business to recover in Q3, benefiting from seasonal demand patterns. However, the education segment is likely to face near-term pressure as project execution is impacted by slower infrastructure readiness at certain customer sites. Services continue to demonstrate strong momentum, providing resilience to our overall performance. Resultantly, we remain confident in reiterating our double-digit consolidated revenue growth outlook for the full year. Our profitability remained resilient despite an estimated 100-basis-points headwind from annual compensation revisions implemented during the quarter. Through disciplined execution, operational efficiencies, and a favorable business mix, operating EBITDA remained steady at 16.1%. EBITDA grew 2.2% QoQ and 31.5% YoY, compared with the same quarter last year, to ₹273 crore. As several large client programs gain momentum across the second half, we remain focused on balancing continued investment in growth with with initiatives aimed at enhancing operational operational efficiency. During the quarter, we invested in a new office facility in Pune to consolidate our operations and create capacity for future growth. This has led to an increase in D&A and lease-related interest cost. As revenues scale and operational leverage strengthens, we expect these investments to be increasingly absorbed within the business, supporting profitability over the over the medium term. We are also managing through a period of temporary demand softness in parts of our Germany business as customers undertake restructuring and cost-optimization measures. Against this backdrop, we expect to deliver sequential margin improvement through disciplined execution and productivity initiatives. Importantly, these factors are transient in nature and do not alter our confidence in the long-term opportunities ahead. Our operating profit, or EBIT, increased 25.3% YoY, reaching ₹239 crore. Our joint venture with BMW continues to perform strongly and remains ahead of our expectations. In Quarter 2, our share of profit from BMW TechWorks increased 20% sequentially and 115% YoY to ₹11.4 crore. Including deferred income of ₹8.3 crore, the venture contributed a total of ₹19.7 crore during the quarter, underscoring the strength of the partnership and its and its growing contribution to our profitability. Other income dropped 35% YoY to ₹31 crore, driven by non-cash items like foreign exchange gain losses. Profit before tax rose 7% year-on-year to ₹242 crore. Adjusting for non-cash foreign exchange movements, underlying PBT grew 16.4% YoY, highlighting healthy growth in the core business. Net income for the quarter was at ₹171 crore compared with ₹166 crore in the same period last year. Excluding the non-cash items which I just pointed out, profit after tax would have increased 13% YoY. Maintaining a strong balance sheet and healthy liquidity remains a key priority for us. At the end of Q2, our net cash position stood at approximately ₹330 crore, compared to ₹880 crore at the end of Q1. The sequential reduction was primarily driven by the dividend payout of nearly ₹475 crore during the quarter.
Uttam Gujrathi (Tata Technologies Ltd): Our DSO stood at 102 days at the end of Q2 compared with 97 days in the previous quarter. Our billed DSO came in at 63 days compared with 65 days in Q1, an improvement, while the unbilled DSO were at 39 days compared to 32 days. While we saw a modest sequential increase in the unbilled DSO, collections remained healthy, and the movement in unbilled was largely timing-related with no change in the underlying quality of our receivables. Moving on to the operational metrics, the highlights are as follows. Our total head count stood at 12,895 associates at the end of the quarter, representing a net increase of 316 employees, or 2.5% sequentially. This increase was primarily driven by the ramp-up of several large programs secured over the past quarters. While we are investing to support growth opportunities and ensure successful program execution, we continue to maintain a disciplined approach to workforce management, aligning capacity expansion with client demand and operational efficiency. Our talent metrics remains broadly stable during the quarter, with trailing 12-month voluntary attrition improving modestly to 15.6% on a sequential basis, while continuing to remain with a manageable range. We continue to see strong engagement across our workforce, supported by meaningful investments in learning, career development, leadership programs, and opportuni- and opportunities to work on large-scale engineering and digital transformation programs for our global customers. Building a future-ready workforce remains a strategic priority as we continue to scale capabilities across areas such as embedded software, software-defined vehicles, AI, cybersecurity, digital engineering, and advanced manufacturing. During the quarter, we delivered over 27,000 learning hours and trained more than 5,000 associates across technical and professional skill areas. We also expanded AI readiness across the organization through focused enablement programs covering over 1,000 employees. In parallel, we strengthened our engineering talent pipeline through targeted hiring in strategic domains and continued to invest in leadership development programs aimed at preparing the next generation of business and technical leaders. These investments position us well to support the ramp-up of recently won programs and capture well for future growth opportunities. Overall, we are pleased with the performance in the quarter, which reflects the strength of our diversified portfolio, improving deal momentum, and disciplined execution. While we continue to navigate some short-term challenges, particularly within certain customer segments and geographies, the underlying demand- to underlying demand environment remains encouraging and our strategic programs continue to scale well. Supported by a strong order pipeline, a healthy balance sheet, continued investment in talent, and growing contribution from strategic investments- strategic strategic initiatives such as BMW TechWorks India, we remained well-positioned to capitalize on the significant opportunities ahead. Accordingly, we reiterate our expectation of delivering double-digit consolidated growth for the full year, while continue to drive sustainable margin improvements and long-term value creation for our stakeholders. Thank you, and we can now open the floor for questions.
Moderator: Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to please use handsets while asking a question. We also request that you restrict your questions to two at a time. Should you have any follow-up questions, you may rejoin the queue by pressing star and one. Ladies and gentlemen, we will now wait for a moment while the question queue assembles. Our first question comes from the line of Ravi Menon from Axis Capital. Please go ahead.
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