Tata Technologies Limited analyst Q&A

Thank you. We will now begin the question -and-answer session. The first question comes from the line of Abhishek Kumar with JM Financial. Please go ahead.

Yes. Hi. Good evening, Warren, you sounded optimistic despite the obvious challenges facing industry. I just want to understand whether there are tangible signs that some of these global OEMs are looking at increasingly doing more offshoring, are there any deal, RFP, etc., which we are pursuing, just wanted to understand what's driving the optimism that you share?

Yes, good to hear from you, Abhishek. The positive sentiment that I shared was really informed by the interactions that we are having with our customers. I think shared in the Q3 Earnings Call that last year had really been impacted by the uncertainty around the administration in the United States given the elections in November and also the regulatory uncertainty in Europe. I think with clarity at the end of the calendar year, many of our customers that had delayed investments in new products were starting to get ready to execute and we were very encouraged by the interactions with the customers in both regions and we are anticipating a very strong start to this fiscal year. I think the tariff announcements have certainly complicated that situation and many of the customers that we are looking to launch projects and programs in the March and April timeframe have delayed the decision -making. But the commitment is there, and I think what everybody's looking for right now is just a certain ty. And I think if we can achieve that in the next month to six weeks as the trade negotiations are progressing, then I think that we will tee ourselves up for a strong finish for the half year and we'll take momentum into the second half of the year. So t hat's where the sentiment is coming from. But I would just qualify those comments with, we were surprised by the tariff announcements, we may be surprised again if the negotiations do not drive the type of consistency and clarity that I think everybody's looking for.

Okay, that's clear. In that context, what explains better than expected ramp up in BMW, right, that also is an OEM which is facing these issues, logically one would have imagined that they will also pause. So, any color on why you think that JV is scaling faster than expectations? Thank you.

Yes, I think there are two reasons. I think outside of the investment that Mercedes made in India some 20, 25 years ago, I think the German market as a whole has been slow to where to take advantage and to invest in the capabilities that we have got here in India. I think that is starting to change. And I think the commitment that BMW have made to the joint venture and to the partnership that we are building is a strategic commitment that is very central to their ambitions in both the automotive software area, the AI area and in the enterprise digital solutions. And I think one of the things that we continue to be impressed about with BMW is they like the Tatas are patient -capitalists, they are investing for the long term, and I think unlike many organizations, they seem to stay the course even during very difficult economic conditions. And so, I think the acc elerated scale of headcount and business that we are seeing with the JV is really a testament to those things.

One last comment. Could that be a precursor to other German OEMs taking advantage of India scale and cost?

The answer is very much ‘yes.’ I think one of the things that we are seeing from many of our German customers right now is that they are requiring a DCC component to the services that they procure traditionally the majority of the work that they've outsourced has been outsourced to onshore companies in Germany. And so, we are seeing opportunity both directly with the customers because of that prioritization in and around DCC. But we are also seeing those onshore engineering services companies also look for an offshore play. And so, we are seeing opportunity both directly with the customers and also with the organizations that traditionally we have competed with.

Great. Thank you and good luck in the current environment.

Thank you. Next question comes from the line of Chandramouli Muthiah with Goldman Sachs. Please go ahead.

Hi, good evening and thank you for taking my questions. My first question is just around I think a couple of quarters back you had shared that there was some postponement of demand because of the uncertain macro and the size of deals that were closing might have been smaller deals than what was originally envisioned in the pipeline. So just trying to understand based on some of the conversations you've had recently with clients that you highlighted, are you getting the impression that once there is clarity on the regulatory environment and the tariff environment globally, the trade environment globally, some of th ese deal sizes might start bouncing back up or is that something which is little more of a medium-term kind of journey based on the tone of conversations you've had?

I think that you've interpreted the comments that I've made in exactly the way that we see it. We certainly saw towards the end of the last fiscal year conversations and planning that gave us confidence that deal size would increase and that and behind th at momentum would build. Obviously, that's been somewhat tapered by the recent announcements from the United States. But again, I think after the initial shock there is growing confidence that clarity will be brought to bear in the next month or so. And those plans that we were expecting to close in March and April will likely be closed towards the end of Q1 and as we move into Q2.

That's helpful. Just to build on that, there's also been this theme of potential cost cutting-related spending which some of the Indian IT services and ER&D companies might benefit from in this sort of uncertain macro, maybe slower growth environment temporarily. So, is that also a theme which you're seeing some additional business opportunity beyond some of the traditional services that you cater to?

Yes, I think so. And I think the example that I just provided about Germany is really a testament to that. I think the fact that they are looking for a DCC component to the services that they procure is that they want to bring down the unit cost of what t hey have traditionally positioned with the German engineering service providers. So, we do not expect headcount increases within our customers. I've commented before that as the clock speed of technology change accelerates, we are expecting our customers to concentrate on what is core to the DNA of their brand and their competitive position and more and more will be outsourced to the organizations that have a nexus and a footprint in territories like India. So, we think we are incredibly well -positioned. We are obviously doing our best to navigate the short -term context in which we are operating, but we remain quite bullish for the medium term and very bullish in terms of the long term.

Got it. That's helpful, and just last question is around your anchor versus non -anchor customers. So, you have done a great job of reducing dependency on your anchor customers over the past four to five years. So, just trying to understand in this sort of macro environment, some of our anchor customers have more domestic exposure which might not be as impacted as maybe the globally exposed business. So, if you could just share some color on anchor versus non -anchor, what sort of growth opportunities that could be on a relative basis, that will also be helpful?

Again, I think you have understood the circumstance extremely well. We are seeing Tata Motors continue to invest and accelerate their commitment to expanding their product portfolio, that is providing tailwinds which we are intersecting with. JLR sits out side of India and is exposed like everybody else to the uncertainties in Europe and the United States, which is their largest market. So, they are impacted in the same way that everybody else is, but Tata Motors has demonstrated resilience th rough the uncertainties that we have been grappling with over the last six to nine months.

Got it. That's helpful. Thank you very much and all the best.

Thank you.

Thank you. Next question comes from the line of Rajiv Berlia with Citigroup. Please go ahead.

Yes. Thank you for the opportunity. Can you discuss the thoughts on demand from the aerospace vertical and is it fair to assume that the aerospace vertical will do well versus automotive in FY26? Also, you talked about three large deals in 4Q. Can you tel l from which verticals are these large deals and when will they ramp up and will that help 1Q?

Sure. If we look at aerospace, I mentioned in my opening comments that we had almost doubled the aerospace business in FY25. That reflects the growing momentum around the partnership that we have got with Airbus, but it also reflects the investments that we are making in growing the aerospace business outside of that. In North America, we have secured business with two large propulsion manufacturing players and that business has grown at a very healthy clip over the course of the last 12 months and we expect momentum to continue. So, our aerospace business today has certainly not been impacted as automotive has by the issues that relate to regulatory uncertainty and the policies from various governments in different parts of the world. One of th e things that we are seeing in aerospace is that the sponsorship and the credibility that we are building with the organizations like Airbus is now precipitating in terms of introductions to organizations within their supply chain. One of the big challenges within certainly Airbus and Boeing is that they cannot satisfy the demand at the moment, and manufacturing throughput is a major issue, and we are addressing that through the work that we are doing directly with Airbus. But we are also now starting to leverage again the credibility, the understanding and the capability that we are building within the supply chain, and we won a couple of large deals in FY24 that are directly related to the sponsorship that we have received from Airbus. As far as the large deals that we have won and I cited in my opening comments, we are deploying an AI -solution for a tier one automotive company that has the potential to extend to more than 100 plants for that tier one automotive supplier. We are at the moment going through the discovery exercise to identify the opportunities for improvement where we can deploy sensors, how we can leverage our AI framework to identify insights that will improve manufacturing uptime, again improve and accelerate manufacturing throughput, and also address things like scrap rate. So that engagement is right at the initial stages, and we expect that to scale. We won a complete package here in Asia for in terior and exterior trims. It's a mid-cycle refresh activity. Again, that business was won at the end of Q4. We are just in the initial stages and so we are expecting that to ramp. And we also have made a number of comments about the challenges that we hav e had in the education sector given the readiness that we have had with regard to labs and the infrastructure that's required for our digital proposition. But we are continuing to win large deals, and our order book continues to expand. And so, these infrastructure issues that we expect to be addressed in the next couple of months should see the Education business scale as we move through the year.

Last question from my side. The 50 million deal which you announced in 4Q, is it in the education sector?

Sorry, could you repeat that?

The 50 million deal which you had announced in 4Q, is it in the education vertical?

Okay. Thank you.

Thank you. Next question comes from the line of Chirag Kachhadiya with Ashika Institutional Equities. Please go ahead.

Hello. Yes, I have a couple of questions. So, one of our top clients yesterday in their earnings call mentioned that they are focusing on Asian market and considering India and Indonesia for their assembly plants and also news articles referring that from June this year, where India plant is going to start the production. So how will this benefit us in terms of margin and getting the business like getting more volume from this account, let's say they are actually considering Asia for their volume target which they have mentioned yesterday in their earnings call?

We continue to work hard to protect and evolve the relationship with that organization. We are very proud of the work that we have done for them. We are very proud of the impact that the products that we have developed have had with the markets that they are selling that product into. We are continuing to explore new ways of being able to help them execute their strategy, that includes new products, it also includes the investments that they expect to make in adding to manufacturing capacity. I think at this stage there is no definitive plan that they have as far as manufacturing capacity is concerned. I think there's a number of things that are teed up, but I think they will be waiting for market conditions to improve before commitments in capital are made.

Okay. And second is on our parent, Tata Motors also that they are facing some competition from other players in the category and they're considering more this ICE-based cars. So does that anyway impact our volume with them also?

I think if you look at the Tata Motors strategy, I think it will obviously be a strategy that will flex and adjust to market conditions and the evolving regulatory framework in which they operate. Having said that, if you pick up on the public statements that Tata Motors have made, they are continuing to commit themselves to maintaining a market leadership position in EVs, they are looking to expand their portfolio, they are looking to go up market in terms of some of the segments that they support. All of those things will provide opportunity for Tata Technologies, both in terms of product engineering, in terms of helping them bring on additional manufacturing capacity and in terms of helping them digitize their entire enterprise. So, we are very proud to be a partner of Tata Motors and very proud of the performance that we have delivered in support of the breakout performance that we have seen from that organization over the last three to five years.

Okay. Thank you.

Thank you. Next question comes from the line of Bhavik Mehta with J.P. Morgan. Please go ahead.

Thank you. Warren, can you talk about how the demand headwinds are playing out across different geographies in terms of US, Europe and Asia, how is it different and based on client conversations right now, where do you expect the recovery to be the fastest over the next six to nine months?

I think if we take the US first, I think that there was a fair amount of positivity in the US at the beginning of the calendar year and the distraction that organizations like Stellantis had given the change of chief exec last year, that was starting to settle down and we were starting to see clarity in and around a renewed commitment to a regional approach to growing their business. That has obviously been shaken by the tariff announcements, not just in the context of the response of the markets outside of the United States to the tariffs that have been announced by the US government. But also, there's a lot of concern in and around the impact of tariffs across the global supply chains of those organizations and particularly the impact of NAFTA. So, there's a pent -up demand for investment. There was a lot of uncertainty last year during the election process. So, these organizations are ready to deploy capital in support of new products. But they need some level of certainty. And so we expect that the United States to take another month, six weeks, eight weeks before we really start to understand the full impact of the announcements that have been made. I think Europe is a little different; I think Europe is starting to recognize that they have to build resilience into their supply chain and so we are seeing some repatriation of manufacturing suppo rt within supply chains as far as Europe is concerned, and we are also seeing some progress as far as incentives and the regulatory response to a threat from China and the tariffs from the United States. And so, we are starting to see some green shoots of improvement there. But it is again tempered by the fact that everybody's still waiting for the tariff situation to play out. I was in China at the beginning of this week for the first day of the auto show and the Chinese market seems to be immune to what's happening in the rest of the world. Everybody's pressing ahead and investing as if there is no uncertainty about the future. I think if there's a topic is top of mind for Chinese OEMs, it's how do they internationalize both their products and their IP given the constraints as far as regulations are concerned. So different sentiments in different parts of the world. But everybody right now is waiting for clarity on the tariff front and for all of us, the sooner that comes, the better.

Okay. Got it. Thank you.

Thank you. Next question comes on the line of Kunal with Bank of America. Please go ahead.

Great. Thank you. Hi, Warren. A couple of questions from me. The first one is in one of the scenarios you're considering that the uncertainty comes to an end in about six to eight weeks, what would be your thought process or the eventual shape of demand -- do you think it will essentially be a case of one last quarter and then things go back to how they were at start of the year or could they end in being net new demand creation in the meanwhile or net negative?

I think if I had to call it today and the fact that I am kind of qualifying that statement I think speaks to the genuine uncertainty that is out there. But if I have to call it today, I would suggest that we will get clarity in the next six to eight weeks and we would return to the type of environment that we anticipated at the beginning of the fiscal year. So, we expect improvement from Q2 to Q3 and Q4. We are still optimistic about our prospects for this fiscal year. Now, we were surprised by the tariff announcements and surprised by the magnitude of the announcements that were confirmed and it wouldn't be too much of a shock if we were surprised again, but I think given the reaction of the financial markets, given the balance that we are now starting to see from multiple stakeholders, my view would be that co mmon sense would prevail and we'll see some certainty at the end of the first quarter.

Right. And meanwhile on your large deal pipeline, do you still have enough in the late stages where we could sort of see more conversions like the one you got towards within Q4 or do you think that further closures of deal sizes like that would be contingent on more clarity or certainty returning to the market?

We have a lot of big deals lined up, a lot of large deals that we anticipated that we would close at the beginning of the calendar year. We have seen those decisions get pushed out. We would anticipate if there's clarity that those deals would get closed. Now with any type of deals, time is always something that you worry about when deals get pushed out, there is always the opportunity that the customer has to go in a different direction. So, again, we are hoping that we will get clarity in the short term that those deals that were teed up, will get converted.

Got it. And then the final one for me. Are you okay to be flexible on pricing till you have demand uncertainty or that's something that you would rather want to hold at the level you already are at?

I am sitting next to my CFO and so I'll qualify my comments, but I think one of the reasons that we have managed to maintain margins throughout the choppiness and the volatility of FY25 is the fact that we have been very disciplined on the pricing front. And whilst there are situations where we have used pricing as an entry strategy into different customers, I think for the most part, the discipline and the rigor that has surrounded our pricing approach is something that we are committed to and something that we expect to maintain.

Great. That's good to know. Thanks, Warren.

Thank you. Ladies and gentlemen, we have reached the end of question-and-answer session. I would now like to hand the conference over to Vijay Lohia for closing comments.

Thank you all for joining us on today's call. We hope we have addressed most of your questions. If you have any additional queries, please feel free to reach out to our Investor Relations team and we'll be glad to assist you. Wishing you all the best and good bye here from all of us. Thank you.

Thank you. On behalf of Tata Technologies, that concludes this conference. Thank you for joining us. You may now disconnect your lines.