With regards to the strong pipeline that you spoke about and continuous pressure on the European OEM players, do you think probably not FY26, but sometime in FY27, we see a repeat of the kind of growth that we saw in FY22 and FY23 in the Mobility segment?
We are getting into conjunctures here. We are reading tea leaves too much. My humble request to you, dear friend, is to allow us a quarter to come back to you because there is a lot of play here on Auto like I said, and I am confident that the stack that we have built is there. I am also confident that this is going to come back. In fact, I said that Auto should come back after a couple of quarters. And Mobility will come back because of T&OH and Aero, it will come back from Q3 onwards. And maybe Q2, if we win the deals in the ramp-up happens. So, we are not giving up. What I'm saying is I would like to make sure that I deliver whatever I commit to you all in a call. So, a little bit of caution there, please.
Outside of SWC, you mentioned the company has grown. If you can quantify how much is the growth there?
We do not do that, Karan, but I can confirm to you that the swing of SWC in Q4 was there. And we hope that as we go through the year and we start getting Middle East revenues, some of that will go away. But that is work to be done as we move forward into FY26 and beyond.
Just wanted to check on the Tech segment where you said that you accelerated some support to customers. Is this in Semiconductors? And it looks like there's a little bit more of that this quarter compared to last because QoQ, despite SWC seasonality, margins have gone down in the Tech segment. Is it more customers or a larger extent of support?
Can I request, Ravi, let us leave it at Tech and let us do it. It's not wider customers. There are two specific customers. And like we told you last quarter, this was Q4, Q1 and potentially a little bit in Q2 support that will be done, and that is the end of it. There are various other measures being taken in the company that we are taking, and that is why Rajeev confirmed to you that from an EBIT trajectory H2 will be better than H1. Also, please keep in mind that with the new age solutions that we are launching, etc., we have got a robust pipeline in all the three segments, Mobility, Sustainability and Tech. If some of these deals that we are expecting closure on get closed quickly in the quarter earlier, before the summer holidays, it will help us as well.
Directionally, one can assume this growth would be more back-ended rather than second quarter may pick up significantly?
Need to be worked. I mean internal goals are much higher. You say Man proposes God disposes, right? So, I led out with my friend. See, you will see growth in revenue from here on. No second doubts about it. How much can we grow in Q2 and then take to Q3 and then to Q4 is to be worked on.
Some of your other peers seem to be slightly more positive with regard to the Automotive passenger vehicle demand while your commentary seems to be slightly more somber. Could you talk about this customer-specific impact because of which you've seen a more muted performance?
On a lighter note, we don't do Automotive only. We do a lot more. We are a diversified player, which is good news here. U.S. automakers are in a flux because they were investing in EV till two quarters ago and now are not sure whether to continue to invest in EV or should they go back to ICE. European players are facing competition from China and the Chinese stack and the EV stack, the China EV players are selling cars at 1/3 and 1/4 of the price of the same cars available from the European OEMs. SDV features that were being rolled out by U.S. OEMs and European OEMs are being pushed out because of the dynamics in the market. Now the positives are that traditional European ER&D players and the small amount of U.S. players are unable to service the later gen offerings that are required by the OEMs. That is creating an opportunity for companies like LTTS and our peer group. I am being cautious on grounds of prudence in the Auto sector. The deals are robust, the pipeline that we have got is robust. We have not paused any investment. PLxAI tool came out of Mobility, we have actually taken it forward. LTTS iDrive 1.0 was launched last year. LTTS iDrive 2.0, will be launched in the next two months.
On the margin outlook - while we continue to retain the mid-16% EBIT margin target by Q4 FY27 or Q1 FY28, just wanted to understand if you could broadly talk about how we should be thinking about the scope for recovery across gross margins and SG&A on a go-forward basis?
There are various levers that we are continuing to work on. First, the growth and quality of revenue. We have been talking about large deal wins. Particularly, we are seeing good traction of large deal wins in the Sustainability segment, which is, of course, going to improve the mix of revenue within high margin segments, leading to improvement in margin. Second, we have talked about productivity levers - operational efficiency, be it in terms of pyramids, fresher intake, offshoring looking at automation, AI, etc. Third, from an SG&A standpoint, I would guide that you should model between 10.5% - 11.5% of SG&A cost. Fourth, we have talked about Intelliswift integration plan. This is an integration plan that we have built for the next eight quarters where you will see incrementally margin improving. Largely, what we have talked about is H2 will see better margins compared to H1 because some of the strategic support that we called out for in Q4 continues to be there in Q1 and may extend even in Q2. But thereafter, we expect that some of these strategic supports that we are calling out should turn into either billing or phasing out, beginning Q3. Hence, H2 margins will be better compared to H1. Those are a few things which gives us the confidence to get to mid-16% levels by Q4FY27 or Q1FY28.
On the revenue conversion, the last three quarters were pretty strong from the deal signings perspective. How are you seeing that revenue conversion - is the revenue conversion on track or are you seeing some delay due to the macro uncertainty? And should we expect this $200 Mn deal win number to be a new base for LTTS?
First, our aspiration is to stay at this $200 Mn LDTCV every quarter. And I in fact want to start inching upward. Once we have gone to these segments, the three segments externally and seven segments internally, we kind of now have seven sales organizations in the company. The $200 Mn LDTCV should be considered as something that we will continue to try and deliver as you go forward. With the segment approach, we have got LD teams in every segment. In terms of pipeline, we have a robust pipeline. It has grown QoQ and YoY. Not just that order backlog because of this TCV closures have increased YoY for us and QoQ as well. In terms of execution, we are more or less on target in execution. You can see that in the Sustainability growth that you are seeing. Outside of Smart World, the company QoQ has grown sequentially as well, and that is a result of the pipeline getting converted. In the Automotive segment, there were pauses and some delays that our clients wanted in specific cases and some program cancellations. But that is a one-off from just Automotive. Other than that, the rest of it is all in line and growing.
On the top clients, there has been a decline across the top 5, top 6 to 10 and 11 to 20 client buckets. Could you clarify what happened there and what is the outlook on top 20?
That was largely driven by the Automotive decline that you saw in revenues. If I look at it, Mobility, if you take the percentages out, the degrowth was what, about $2 Mn. So, 1.x was a decline in Mobility that we had. So, T&OH and Aero grew to make up and Automotive came down. Overall, we want it to be nice, kind of flattish, but yes, a little bit of decline. That has what has impacted some of these accounts. But I would not be worried about this. Kindly give us a quarter or so. You will start by seeing some of these improvements. In fact, part of my commentary, I announced that we will in Q2 hit our first $50 million ARR account yet again, and it will start reflecting, you see, we report trailing 12-months to you, but we see ARR ourselves. So, I would like to provide you with confidence that you will see this improvement. I would not be too worried about it at this stage.
I just want to understand the SWC part a bit more here. As you mentioned, outside of SWC, the business grew. We just have two data points. I think in both years in FY25 and FY26, in Q1, our revenue fell by around $10 million sequentially. Assuming that is all attributable to SWC, is this a seasonality that we are going to continue to see going forward as well or do you think this is going to come down over a period of time as we sign more deals?
SWC swing this year from Q4 to Q1 was greater than $10 million. And it was made up by the growth of LTTS heritage business and IS organic growth as well because IS also came into a certain base, we have had to grow IS. So, IS grew, LTTS heritage grew. SWC, the swing was greater from Q4 to Q1. So, we have been able to manage it a little better now. Had Automotive not given us a surprise, you would have seen a much smaller swing in terms of the decline. We are working hard to stabilize this. We are very choosy in the contracts that we are bidding for in SWC. We are trying to even it out by getting more work from the Middle East right now. We believe that when you come to Q1FY27, the decline should be lower or not there. Our intent is to not be there.
Could you elaborate on Smart World solutions and what we are doing - particularly the computer vision platform?
A couple of points. I truly believe that our growth in the International segments, U.S. and Middle East and the kind of deals we are seeing there, U.S., especially in the data center side and Middle East led by platforms and fusion and another platform that we are building on computer vision. These are the kinds of deals which will be more service-heavy and that should reduce the swing that you are seeing. The pipeline is good, but till it converts, it is not converted. So, let's hope that in the coming quarters, we are able to do much better. The computer vision platform we are building - the last seven years of work, we have done smart cities. We have more than 50 use cases of various smart city solutions. We are building a platform where we intend to have a model studio where not just our models, but even customers can try out their models, their data. This is work-in progress. We should be able to release the MVP shortly. And from there on, a sandbox where customers can play on. Something ambitious. Based on what we have uniquely achieved in industry and this platform is what we intend to take to the market in the coming quarters.
SWC business has traditionally been a lower-margin business. Shouldn't Q1 automatically have a margin tailwind if SWC business ramps down in that quarter? Could you take me through the math as to why, despite lower SWC revenue, we see basically flattish margins in this quarter?
Spot on Vibhor, I was expecting a question like this. SWC business though you call to be relatively lower margin, still has an impact on the overall margin. So, there is a decline on account of SWC seasonality impacting the margins. But what you are also seeing is the strategic support that we have called out continues in Q1. There are other programs that Amit highlighted in terms of Auto that also faced some headwinds. You had some program pauses. So, there is more than what we have had to deal in Q1 compared to Q4. And that's essentially where you see that despite these headwinds through the LTTS heritage business, particularly wins in Sustainability and growth in Sustainability segment, we have been able to marginally improve EBIT margins. Now if you really bake this out and play forward Q2 and Q3, we are anticipating some of these headwinds will phase out, leading to improvement in margins, Vibhor.
The cash flow in this quarter - anything to worry about or just basically a quarterly thing and some of the cash flows may be spilled over to the next quarter?
I think it might sound like a similar response. Actually, this is a SWC seasonality effect. Much like revenue, you kind of see an uptick because we are in projects kind of business. Of course, with milestones being delivered, that follows through with higher cash payment so you will see the uptick, you will see cash improving from here on, you would have seen a similar pattern in Q1 last year where we had negative cash flows, but we recovered to deliver almost 109% of free cash flow all of FY25. I mean, hoping to get there, if not 100%, at least do 90%-plus free cash flows.
Once you are past the Intelliswift acquisition, how should we think about the seasonality of margins in our business here overall, considering SWC - should Q1 be the low point or Q4 be the lowest for margins, how should we think about seasonality for margins?
Tempted to almost say that, look, Q1 is the bottom in terms of margins. What probably we are a little vary about is, is there any further shocks to absorb in Q2. Having said that, I think we have got enough and more to be able to improve margins from here on. So, you will see gradually margins improve. The reason we are calling out Q2 is because you are still seeing some of the dynamics being played out from a macro standpoint. But we are hoping Q2 is the last quarter and then we will see margins improving thereafter.
We are reiterating the guidance which we have given for double-digit growth in this year. But the last time in the earnings call and the press release, we have mentioned about constant currency versus this time, the press release does not mention a constant currency. So, is it any assumption change in terms of a full year's guidance this time?
No. Q4FY25 Absolutely. Yes, sir.
This quarter, we had 11.9% in terms of SG&A, which I agree because of the lower revenue base. But you are saying one can model 10.5% - 11.5%. So, what are the extra things which we are doing beyond growth as a lever which will decline into SG&A as a cost?
Part of this, and if you do go back a few quarters, we have been running at that 10.5% - 11% SG&A clip. The increase in SG&A from Q4 was largely because of Intelliswift, right? Intelliswift being a smaller company at higher levels of SG&A. As part of the integration plan, we are continuing to look at opportunities on optimizing and also efficiently managing some of the SG&A costs. So, what you will naturally see is that it will come in between this 10.5% - 11.5% range, and that is the reason I am guiding to model in that range.
On Intelliswift - can you provide how the integration is playing out and the growth rate momentum playing out pipeline and other things? Because when we acquired, we had a very ambitious target to scale the business in three years.
We have created a five-year plan for Intelliswift. Intelliswift, you can divide up into Hyperscalers in ISV business, which was two-third of the business or half of the business. And half of the business is in retail, fintech nonbanking institutions, which include private equity and providers and pet care. Immediately, what we have done is we have taken the Hyperscalers, combined it with our hyperscalers and going full hog at that. And we have actually now launched about 40 AI agents and about six Agentic AI tools that can be leveraged for Hyperscalers. In the other three subsegments, which is retail, fintech nonbanking, which includes private equity and in providers and pet care. We have engaged in doing a strategic plan or how can we make each of these three subsegments to $100 Mn each in six years. And that is in play right now. We remain comfortable and confident, right, that the growth will be there and is there right now with a pipeline.
Last quarter, we said organic growth to be better in FY26 compared to FY25. Are we maintaining or we think because of weakness in some of the segments that might be tough?
I am reiterating two statements. Number one is that we will have double-digit growth. Number two, we continue to work on making sure FY26 will be a better year than FY25. Sustainability is already helping us to deliver that. We are choosing whereas do we get the other stuff to be able to deliver but year to be played out, my friend.
You talked new client addition in the quarter. Is it led by Intelliswift and if yes, then what is the contribution of this unit in the quarter? This must be smaller deals because larger deals cumulatively account for other bulk - are these coming as smaller deal versus what we used to own the accounts earlier versus now scaling some smaller-sized accounts?
No, the new clients that we added to Intelliswift must have been added in Q4. So, this is a new client in addition. There have been teams that have been working hard, my friend. So, Rahul, of I look at it, our Q1FY26 has 200 clients that are $1 Mn+. The last quarter was 194, and one year ago was 177. See, this 194 is the new base with Intelliswift. So, from there, we have added six more into Q1 that are $1 Mn+. Some of these accounts will move up. There will be addition that we will see, we look at, there are specific clients that we are wanting to acquire because we have a must-have logos need to have logos list that we have got, plus existing clients will grow. So, both will happen. Our whole strategy of wanting accounts that are $1 Mn+. In fact, we try and say that if a client is not a $1 Mn client, annually for us in about four to six quarters, we do not want to be able to continue unless we are working on a specific technology area because it is not a viable thing for us to do. So, it is a stated policy within the company respectfully to clients as well.
The net active client addition is 38 vs it was very static prior to this transaction. So, that is why I was just thinking that most of it might have come in the nature of this business.
Rahul, in fact, I would like to confirm to you that 194 is including Intelliswift. So, the jump between 177 and 194, which is because of Intelliswift, correct? And 194 to 200 is there. Now you must be also referring to the total number of active clients. That is from 421 to 459. See, because there are seven sales teams in the company now rather than one unified sales team. So, there will be more action that you will see. And as you see the pyramid will grow up and our whole goal is to go deeper to scale, build larger relationships so you will see more progress.
On the aspiration of Q4FY27. I know there is some time for that. Given the way macro is shaping, very strong deal win that you are having, we are not seeing the revenue ramp up. So, would it be prudent to have a different timeline for that goal or do you think the growth in the subsequent year would be much better and that is why it is fair to stay with that number?
I think a good point. I mean we still would like to stay with that timeline. Like I mentioned earlier, I think there are parts to this timeline. One, of course, is the Intelliswift integration, which is indeed panning out well, which, of course, gives us the comfort. The second, like we talked about, we are seeing a lot of large deal wins in Sustainability segment. Along with Plant Engineering, we are seeing a turnaround in Industrial Products also, which gives us the comfort. We believe that some of the strategic support is more short-term, if I were to call out. And beyond Q1, Q2, it should phase out. So, we will continue to hold the timeline. If there is any, let's say, worsening of the global environment, then we will call it out. At this stage, the basis remains the current global environment.