Tata Technologies Limited analyst Q&A

Thank you very much. Our first question comes from the line of Chandramouli Muthiah from Goldman Sachs. Please go ahead.

My first question is just around the Q -o-Q revenue growth. I think last quarter, you had guided for 10% Q -o-Q revenue growth, understanding was that half of that roughly might be organic and the other half might be inorganic. I think you mentioned in the prepared remarks that you've done close to 8.8% Q-o-Q organic revenue growth. I just want to understand the breakdown of the upside, how durable it is? And just related to that, if you could share any color on the JLR anchor customers and how recovery has been for you in that account since the cyber issues and any build - back help that you've been able to provide in addition to what you normally do?

Well, as we commented, the growth was relatively broad - based. Against the 12%, 8% was organic, about 4% was from ES-Tec. That was in line with the expectations that we had when we completed the ES-Tec transaction in November and certainly was part of the guidance that we provided in January. Of the 8% organic growth, the improvement was relatively broad-based across sectors and certainly between our Anchor and Automotive customers. And we certainly saw JLR return to the normal run rate that we had before the cyber - attack. But we've also secure d new deals across both our Anchor accounts and our automotive non -Tata Group accounts. And so, we've seen growth on the run rate that we were maintaining before the cyber -attack in September and October. So, to answer the question about sustainability, we are very confident that what we established in Q4 represents a platform from which we can go on and deliver the double - digit organic growth that we previously committed to. And that, of course, will be complemented by the contribution that will come in from ES-Tec.

My second question is just specifically on ES -Tec. So, I think with European acquisitions, it takes some time to extract synergies out of these transactions. So, I just want to understand now that we are -- we've already sort of integrated the asset, and it's been 6 to 7 months since we started the whole process. Just want to understand from what you've seen so far in the company, where you see both revenue and cost synergies? And what sort of timeframe you would expect to start potentially extracting some of those synergies for the combined business?

The post-merger integration plans with ES-Tec are very much on track. Both Uttam and I were in Wolfsburg a couple of weeks ago to assess not only the cross -sell opportunity that we're looking to drive at VW, but also to assess the synergies that we've got within the Tata Technologies customer base. I'm delighted to say that the business plan that they've committed to is very much being supported by our teams and their teams. And business has already been won, and we are looking to kind of build upon that. So, as of right now, despite the announcements that are coming from some of the European OEMs, which could, in other circumstances, have somewhat of a headwind effect. We're seeing the business plan being delivered in a way that's consistent with the plan that underpinned the acquisition in November. So, we're very much on track. As far as the synergies are concerned, again, we're looking at that in 2 ways, our ability to be able to cross -sell into VW specifically and our ability to be able to extend our portfolio of services into our existing customer base. And we have demonstrated tangible progress and have got proof points against both of those topics.

And just my last question is just related to one of the points you just made. So, over the past 4 to 5 months, we've seen fairly large EV project-specific write-downs at Stellantis, at Ford, at GM and in some ways even at Renault. But you did mention that you continue to deliver on some of your plans. You are seeing an inflection in the business. And I think over the past 18 months, we've come to appreciate that there are other projects beyond top-tier EV spending that drove a lot of the industry's up cycle a few years back. So, if you could just share some color on what the sort of powertrains you're seeing on some of these full vehicle wins? And what are some of the other allied non-EV aspects of some of the automotive business that's giving you confidence on this being a turning point into FY27?

Our view in terms of the write -offs is that I don't think we should be too distracted by the cleaning up of balance-sheets that are going on in Europe and in North America. I think the more telling trend is the fact that most of the non -Chinese OEMs, during the period of uncertainty and during the period when many of those organizations were grappling with the impact of tariffs, new products were not getting invested in. And I think we've seen that kind of latent demand to invest in new products build. And over the second half of last fiscal year, we're seeing some of those decisions being discharged. Now the portfolio of propulsion systems is much more balanced today than it was, say, 2 years ago when everybody was all in on EVs. But the good news for Tata Technologies is that our customers are investing, and we're relatively agnostic in terms of propulsion system. So, whether it's a traditional ICE vehicle, whether it's a plug-in hybrid, whether it's a range-extender, or whether it's a full battery electric vehicle, we're engaging with our customers in all of those areas. And again, the good news is that the customers are making decisions. And I'll reinforce the importance of the full vehicle program that we've won with the Japanese OEM. Now the Japanese OEMs - they have very, very high standards and their expectations for all partners are very, very high. So, the fact that we've been entrusted to where to take on the responsibility for a full vehicle program that includes a top hat and adjustments that we need to make to an existing platform, I think is proof positive that our value proposition is resonating across the market. And I think this is one of the reasons that we have been so bullish, not just about the last 6 months, but about the prospects that this represents for the coming fiscal year. We believe because of our value proposition, we have a seat at the table with ou r customers. We're influencing decision -making, and we're intersecting with decisions before that cascade down to the extended supply chain.

Thank you. Our next question comes from the line of Bhavik Mehta from JPMorgan. Please go ahead.

So, my first question is around -- just curious to know how the client conversations have evolved over the past couple of months since the Middle East crisis. There have been concerns around supply disruption for the Auto OEMs, right? So how are clients thinking in this environment? Are they still willing to continue with the R&D spend? Or is there some pause they are thinking about given the current situation?

Yes, that's a great question. I think one of the things that is not being talked about as far as the Middle East is concerned is the likely impact that what's going on there is going to have on commodity supply chains and particularly the supply of aluminium and plastics. And I think that is likely to impact pricing for our customers, and it's likely to impact supply and their ability to be able to build. And so, I fully expect discretionary spend amongst our customers to tighten if the Middle East crisis continues to extend. Now having said that, I don't expect that to impact capex or indeed the commitments that are being made to new products. As I said before, most of our customers, whilst they've been grappling with the impact of tariffs, have been pausing and delaying decision-making and, in some cases, programs. That demand and need to invest in what will define their competitive position in the future is really defining the type of conversations that we're having with our customers. And again, we've modelled the impact of the Middle East. We think we factored it into our guidance, and we're fully confident that the indirect impact of what's going on there will not undermine or, in any way, challenge the double -digit expectations that we have for this year.

Okay, got it. And second question is on the BMW JV. If I look at the share of profit from that JV was increasing every quarter. But this time, we have seen a blip, it's come down from INR7 crores to INR6.5 crores. So any particular reason for that? And how should we think about it going forward?

Yes, sure. So, our growth in the BMW JV continues to expand, as we have said. This was more of a 1 quarter phenomenon, whereas in quarter 4, there was certain true -up of the whole year expenses. So, it's an anomaly. I would not guide to any degrowth that we see in the margins or the share of profit from there. So, we continue to be bullish about the way our contributions with BMW JV would grow.

And just to reinforce that, the headcount and the revenue from the JV continues to point in a very positive direction as far as growth is concerned. So, to Uttam's point, we fully expect after the 1 quarter impact of the true -up, we expect to get back to the run-rate that we were previously at before that.

Okay. And just lastly on the margins, can you explain the bridge to go from 16% EBITDA currently to 18% over the next 4 quarters? Obviously, operating leverage will be one of the big levers. But outside of that, in terms of SG&A or in terms of gross margins, anything you would expect?

So, Warren, let me take that up. Largely, the operating -margin improvement in the year will be driven first by the robust growth that we expect in our Services business. As already outlined, we retained some of the capacity, and we have been investing in growing the talent, which will support towards the new business that we anticipate to win and close in this year. So therefore, volumes are something that we will continue to drive. Over and above that, our standard levers around offshore, the mix improvement, the pyramid will continue to support the efficiency that volumes will bring to us. So clearly, while the rout ine operating levers are in place, but volume growth together with them will help us drive coming back to an exit of 18% by the time we end the year.

I think the other thing that I would reinforce is the growing impact of AI. We are deploying AI across all of our delivery LOBs and across the enabling functions and have fairly aggressive targets in terms of the unit-cost of delivery in each of those areas. And as part of our margin walk over the next 12 months, that's very much factored in.

Thank you. Our next question comes from Karan Uppal from Phillip Capital India. Please go ahead.

Congrats on a good set of numbers. Warren, first question is for you. You mentioned about four multi-year deals which you have won and two are also in the pipeline. So, is there any geographic trend to it? Is it that North American OEMs are spending more than European OEMs? You also mentioned about Japanese OEMs management. So, any particular trend to highlight in North America versus EU OEMs, how they are thinking about that trend? And second question is in terms of European OEMs, offshoring was a major part of their spend, which was benefiting most of the Indian ER&D vendors. So, is that trend accelerating now? Yes, that's the second question.

Okay. In terms of the large deals that I celebrated, I think the good news for us is that, again, it's broad -based. And that is not just sectorial, that is not just from a client perspective, it's also from a geography perspective. One of the PLM deals was in the United States, the other was in Europe. We've celebrated the Full-Vehicle deal in Japan, and we are developing traction across, I think, almost every country that we have a presence at the moment. One of the things that we shared with our Board today was the improvement that we're almost seeing in every geography. And so, for us, that's very encouraging, and it's something that we expect to continue. We've factored that into our budget for this year. And certainly, the forecast that we have for the first half of the year is very much consistent with that. As far as European OEMs are concerned, and I'll specifically point to Germany, I think one of the things that we are seeing as somewhat of a macro-trend is that the German OEMs have traditionally surrounded themselves with local engineering and IT-service providers and have been somewhat reticent to embrace the contribution from organizations like ourselves that have a significant presence here in India. And we're certainly seeing that change. I think the announcement that we made 18 months ago with BMW is very much a signal to everybody else. And so, we are in advanced discussions with a number of OEMs and also Tier 1s in the German -market about helping them diversify and balance their topology of delivery to include a significant presence here in India. So that macro -trend is something that is tangible and something that we are building a response to. And I think, again, given the proof points that we've got in and around engagements like the BMW Joint Venture, we have a very strong story to tell as far as that is concerned.

Karan Uppal: Okay. Another question was on the Aero business. You

mentioned that Aero business is now at $40 million annualized run-rate. Could you also mention about the segments which we are contributing to this? And what's the outlook for FY27? And a related question is that would Airbus have a lion's share in this $40 million run-rate? Or is it broad-based?

I think if we look at where it's coming from, Airbus is certainly a flagship account for us as far as the Aerospace business is concerned. But we're also working with the propulsion and engine manufacturers in North America, and we have a strong and growing relationship here in India with Air India as it builds its MRO footprint out in Bangalore and as it looks to increase the number of aircraft that it's got that is flightworthy. And so, the Aerospace business is certainly being propelled by our involvement in the EMES3 program at Airbus. But we've leveraged that endorsement and the tailwinds from the influence that the Group is now starting to drive into Aerospace to grow our business in a relatively balanced way. There are pockets of opportunity that we expect to further pursue in the next couple of years. But I'm very, very pleased with the consistent growth and the improvement in capability that we've been driving for the last 4 years. And in the same way that I'm bullish about the entire organization. I'm super excited about what we're doing in Aerospace.

Okay. Just the last question on the guidance of double -digit growth -- organic growth for next year. So, is it going to be double digits across both non -Anchor as well as Anchor clients within Automotive?

Yes, it is growth that we expect to drive both inside of the Group and outside of the Group. I think one of the things that I think we shared with you about 12 months ago was the work that we've done to really reinforce the commitment that we're making to our strategic customers. And our top 20 customers now make up almost 88% of our business. And what we're seeing through the investments that we've made and with the type of business that we are securing is real influence at the C-suite level. And that manifests itself in terms of some of the large outsourcing projects that we've referred to, pa rticularly full vehicle. But because of the nature of decision-making around those things, it affords us influence across the entire requirement of the manufacturing customers that we are working with. And so, our confidence in double -digit growth is really informed by the knowledge of things like cycle plans, the knowledge of priorities, and the influence that we are extending in terms of the decision -making that's going on within those accounts.

Thank you. The next question comes from the line of Puneet Lineswala from Winvestments. Please go ahead.

Yes. Hi, Warren. it's Puneet here. First of all, great numbers, good hats off to all the team. And my question is that in the past 1 - 1.5 years, there's been a lot of turbulence in the journey, like with the trade deal, with the war situation with the supply- chain issues globally, like there are a lot of global factors that have been affecting. But moving ahead, how much time do you see that like we could navigate through all this in a very smooth way and move ahead to a clear growth without any turbulence ahead? Or like do you find a little more time required? Or is it like things are pretty much gone and done?

It's a great question, Puneet. And I was in Beijing at the Auto Show 10 days ago. And the innovation and the speed at which the Chinese OEMs are operating is remarkable. And I think that is driving a lot of competitive concerns in Europe and in North America. And so clearly, we will all need to be sensitive and cognizant to the geopolitical situation and the impact that has on various economies and consumer demand. But I'll remind everybody that our business is a business that invests today for the competitive position that will define the organizations that we work with in 3 and 4 years' time. And I think the fact that our customers have not been investing in the recent past because of what's gone on, particularly with tariffs, I think there's a catch -up that the Europeans and the North American OEMs are going to have to undertake. And I think that is informing the type of discussions that we are having. So, we will be very mindful of what is going on in different parts of the world. We'll certainly be sensitive to any regulation change. But our view, and I think increasingly, this is the view of our customers, is that they have to invest in order to be able to resist the competition that is absolutely going to come from the Chinese. And so, we are involved in the Chinese market. We have an understanding of what's going on there. We're working with Chinese companies. We think we're ideally positioned to be able to support our customers in Europe and in North America and in Japan to resist the competition that clearly will come from Japanese OEMs and their associated supply chains.

Thank you. Thank you for replying to that in such a good detail. And it gives more clarity on the path ahead. And I think I'm done. That was my last question. Thank you.

Thank you. The next question comes from the line of Sameer Pardikar from Elara Capital. Please go ahead.

Congrats for a good set of numbers. Can you tell us about the ES-Tec contribution for FY26 in terms of dollar?

You want to take that?

So, ES-Tec contribution in quarter 4 has been about $9 million. And in previous month, it was 1/3. So roughly $11 million to $12 million has been the contribution from ES-Tec.

And when you are referring to the target for FY27 as a double- digit, are you referring to dollar revenue or a constant currency or INR? Which way we have to look at it?

Constant currency.

Thank you. The next question comes from the line of Satish from FMA Services. Please go ahead.

First of all, congratulations on a strong setup number. My question is, are there any plans by the Board to start new business verticals in the high sector growth against hybrid sector?

Yes. This is a topic that we revisit in all of our strategy discussions. And the consistent response that we've had to the challenges that we presented to ourselves is that there's more than enough headroom in Automotive, Industrial Heavy Machinery, and A erospace for us to satisfy our growth aspirations. And so, in the short-term, we are going to stay very focused, laser-sharp in terms of our focus upon those industry verticals. Somewhat counterintuitively, the more focus that we can be, the more relevant that we can be to our customers, the faster we think that we can grow and achieve the type of influence over the market that we have the ambition to achieve. And for us right now, we're not looking to diversify into other industry verticals.

Okay. And my second question, historically, there was a vision to reach $1 billion revenue during the Ramadorai period. What is the realistic timeline now to achieve $1 billion in revenue?

Our North Star from a revenue perspective has been $1 billion, and it continues to be that. I think we are looking to get back to double-digit revenue growth this year. If we can do that and we can sustain that next year, we can complement that with 1 or 2 inorganic transactions. I think within the next 2 to 3 years, we have the opportunity to get to where we need to get to. And so that's the North Star for us, and that's what we're looking to achieve.

Okay. And can we expect the sustainability of this performance moving into the financial year '27, this growth?

I think that is what Warren outlined. We are looking at a double- digit constant -currency growth as we move into the next financial year.

Thank you. The next question comes from the line of Ankur Pant from IIFL. Please go ahead.

Congrats on a good set of numbers. I have just one question. In terms of the double -digit growth that you're targeting, organic growth that you're targeting next year, how do you see it timing through the year in terms of the cadence that we expect? Would it be more of a 2H phenomena that you would see a pickup in growth? Or how would -- how are you looking at the entire year?

I think we're looking at consistency across the quarters. But I will say that we have had a very strong signings period. We expect, as I signalled before, to close more deals in the next 4 to 6 weeks. And so, I think it's likely that the second half of the year will grow faster than the first half of the year. But we expect consistency across all 4 quarters. And so, the confidence that we have is very much based on that.

And just one follow -up on that. What kind of demand environment are you baking in for that growth? Are you also expecting some improvement or recovery in the demand environment? Or a status quo in terms of that?

Now the guidance that we've provided is very much driven by the order book that we have and the probability -adjusted pipeline that includes deals that we are very much in the process of trying to close. So, it's not factoring in any improvement to the demand environment that will be required to deliver against those numbers.

Thank you. Ladies and gentlemen, as there are no further questions from the participants, I now hand the conference over to the management for closing comments.

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

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