← Throughline · holding view Deep analysis ↗ Q4 FY26
LTTS L&T Technology Services Ltd · IT services Q4 FY26 · concall
Pattern: historical cagr composition lakshya

Refused to commit on fy27 13 15 timing.

4 deflections · 4 weak · 13 clean — pushback across 8 of 21 Q&A turns

Focused evidence 8 of 21

Nitin Padmanabhan · Investecweak

From a 13%-15% growth CAGR - you mentioned historically it's grown at twelve & a half %. Is the 12.5% excluding SWC? And is 13%-15% CAGR dollar CC?

To your first question, on 12.4%, this is actually including SWC. And second, in terms of the constant currency, it will be of course, we will peg it more constant currency. But yes, over a 5-year period, there may be some areas where we'll talk even on reported currency as well. Nitin clarified 13%-15% is dollar, yes.

Nitin Padmanabhan · Investecdeflection

Despite strong deal wins, we have had leakage in the business. Do you think this year onwards, we should start seeing the 13%-15% sort of CAGR beginning to show from this year itself? And when do we really start seeing for our scale, at least a few hundred million kind of accounts?

Number one, we are not providing any annual guidance. So, I'm not going to fish in the waters of what will be next year. All I will say is 13%-15%, and we are working towards it, various deals in play. I can assure you, we'll be faster than industry, we'll be better than industry. Second, in terms of accounts, our last Investor Meet, we had created a plan to get to $100 Mn accounts. Our aspiration is to have X number of $100 Mn accounts, Y number of $50 Mn accounts. I'm happy to share that we finally were able to deliver a $50 Mn account trailing 12 months in this quarter. This is the first one after a long time for us. And there is a path forward. The fact that we are moving - having Alind focus entirely on large deals and growth markets should signal to you that there is a lot of seriousness in the organization towards this. So please allow us some time. Most of this is organic. So, it takes a little time to build out.

Nitin Padmanabhan · Investecdeflection

From the earlier practice of annual guidance, are we moving away from that permanently, is that it? Or is this only for this year?

Again, can I take the fifth and say I don't know. See we'll see. At the end of it, there's no reason to not provide something or provide something. We're comfortable as you look at our 5-year. The company would like to deliver a CAGR sooner than later. But to be seen, to be tested.

Dipesh Mehta · Emkay Globaldeflection

Between this continued and overall combined business, the margin gap seems to be 40 basis points in FY26. Was the headwind from SWC only 40 bps or is there any one-off in the numbers?

We did talk about realignment of portfolio back in Q3. So, what you see as SWC revenues have actually come down from Q3 onwards, and it was a deliberate intent. So, while it assumes that there is only a 40-bps improvement, actually, it's much more than that. It's closer to almost 70 bps to 80 bps of improvement. Dipesh pressed: combined business reported 14.1% margin and continuing operation reported 14.5%, suggesting SWC dilution was around 40 bps. Rajeev: What we can do, Dipesh, maybe we'll have Sandesh talk to you offline, give you clarification.

Shradha Agrawal · AMSECweak

I know that you advanced the margin guidance without giving any timeline. But with two tailwinds - SWC going away and rupee depreciation - can we expect a 15% margin by as soon as second half of '26 itself?

Amit deflected playfully: Shradha, we just got the CFO promoted to the Board. You got to be nice to him at least today. He has also improved. He's also brought it forward. He said Q4 or prior. Now if you want him to say H2 or prior, I don't know if he can say that right now. We are very sure about Q4 or prior. We are working towards it. Rajeev: We maintain our intent is to deliver Q4 or prior, but we certainly have advanced it. And you have seen the results of Q4. What we talked 2 to 3 years ago in terms of margins were a lot lower. We were talking more 13.3% - 13.6%. We are now at 15.2%. So it has certainly accelerated.

Rahul · Dolat Capitalweak

Our current 5-year objective actually increases the expected growth rate over next 5 years vs previous 4 years. And at the same time, it talks about lower margin than what we said a year back. With SWC transaction, our margin thought process should have improved while growth number should have cut down. Why is there a difference?

We've talked about our Lakshya FY31 aspiration to deliver at a CAGR of 13%-15% band on revenue growth. As for EBIT margins, I reiterate that the aspiration is to deliver mid-16% levels Q4FY27 or prior, and we are working towards it. The 16%-17% range over the course of next 5 years in line with Lakshya FY31 strategy is to keep in mind that this growth might have some tuck-in acquisitions. And as you would appreciate, any tuck-in acquisition might have some dilution impact. So, we will maintain the margins in that band. It's not reducing, but actually, it's maintaining the band over a period of 5 years.

Rahul · Dolat Capitaldeflection

Looking at the situation we are in, is it possible to share some thought process whether FY27 will be double-digit or any qualitative way to represent it?

Better than industry is what I would say.

Karan Uppal · Phillip Capital (India)weak

On the six big bets - any M&A you are planning to do in any of these 6 big bets, and what size? Would you be open to take hit on margins again because of M&A?

Amit: I've already shared the amount of revenue. We will hold an Investor Day sometime in the year. We'll walk you through the 6 bets and it will be on our website. Rajeev: We talked about tuck-in acquisitions. We are not thinking of any large acquisition at this stage. I think the acquisition that we made of Intelliswift start of last year has panned out well. We continue to build our software capability. So, at this stage, we are not talking of any large acquisition. There are more tuck-in acquisitions. And hence, I have given an EBIT range of 16%-17%. When we host the Investor and Analyst Day, we'll give you more clarity on big bets, investments and related M&A.

▸ Other Q&A (13)
Vibhor Singhal · Nuvama Equities

On the divestment of SWC business - what was the thought process behind this step? Was the consideration just the profitability of the business, or was it that the growth opportunities in other segments were much better?

When we acquired Smart World, there were three components: Smart Cities, Telco Infra and Cyber. Our whole thesis was that we would take these three international. The Telco Infra piece, we were able to take international. We have been able to deliver 2 accounts that are upwards of $20 Mn in the company and very profitable. The Cyber business, which was running at record margins, we were able to take those capabilities and infuse them within the company. Smart Cities, however, we were not able to internationalize because a lot of that work is done with local governments. So, after 3 years with different kind of management and attention, we have decided to divest. So, mostly India and slightly international operations of Smart World have been divested. We have retained some of the capabilities that we've built organically. Rajeev added: When SWC business was acquired back in the start of 2023, the rationale was to take SWC global. Infra and Cyber have shown positive results. Smart City, for particularly India business is where we could not see taking global. And that led to making a strategic decision for the purpose of disinvestment.

Vibhor Singhal · Nuvama Equities

On bookkeeping - the $1,232 Mn revenues take into account the SWC revenue not being considered for the entire FY26. And so does the P&L as well. Am I right?

That's correct. So, what you see on the Investor Report is reflecting the continued part of the business and does not have SWC in any of the prior quarters. So, it has comparability and it's like-for-like.

Vibhor Singhal · Nuvama Equities

Are we expecting any more divestment or any more modifications to the financials from Q1 onwards? And is the restructuring exercise complete?

So, from Q1 onwards, we will report the continued operations only. Yes, it is complete.

Vibhor Singhal · Nuvama Equities

On the margin guidance - 16%-17% - is that a target for the next 5 years or can it be achieved over the next 2 to 3 years? And do we expect an improvement in the DSO days immediately given SWC business will be out?

On the margin part, we continue to aspire to get to mid-16% levels by Q4FY27 of this year. And if we've got an ability, we would like to deliver that prior to Q4FY27. The 16%-17% is in line with the Lakshya FY31 strategy. On DSO metrics, you are already seeing the improvement. For Q4, we came in at 83 days. So, you're already seeing the benefit of DSO days coming down. And we will be in the band of, say, between 85 to 90 days. What used to be including SWC, if I were to recall Q3, we were closer to between 110 and 115.

Vibhor Singhal · Nuvama Equities

Your commentary alluded to positive signals on the Auto segment, particularly North America. How are we looking at North America auto deals, and will European Auto also follow suit?

Just one more point on your previous question on just the continued business. If you look at the Q4 results, the Q4 numbers that we have published for continued business, that does have the business that we stopped doing also. So Q1 onwards, it's all clean as you see it moving forward. So, it's not just SWC, it's also the other part that we divested, we are talking about $19 Mn annualized that we are taking out. That has been taken out in Q4. So, quarter 1 onwards, it will be all upward. Now moving on to Automotive: In US Automotive, our customers have taken a chunk of whatever hits they had on EV last year, and they are all surefootedly moving ahead with hybrid and gas vehicles. This is a good thing because it provides clear decision now that it will clear up the path for design cycles to start yet again. And we are seeing some of that positive impact in SDV coming to us. In Europe, there is a number of deals that we are fighting right now and competing for consolidation against European majors as well as other India Inc. companies. So, there is a lot of that pipeline. So, both have got slightly different context and contours to it, but we are seeing positive momentum in Automotive coming back.

Sandeep Shah · Equirus Securities

Within Mobility and Sustainability, can one assume the worst is behind? Mobility - can we start growing QoQ from Q1? And in Tech, when do you expect the worst to get over?

So one, Sustainability will continue to grow as we move forward. Mobility has stabilized this quarter. You will start seeing growth from next quarter. And in Tech, there are three components - MedTech, Media and Tech (which includes Semcon) and Software. And we do believe that next quarter onwards, we should start seeing that growth again. So, we should see growth in all 3 as we move forward. The quantum will depend on as the quarter closes.

Sandeep Shah · Equirus Securities

In terms of Lakshya outlook, is it fair to assume whatever we are targeting - 12%-15% growth CAGR - is largely organic or it also incorporates some inorganic?

So, what we have stated right now is - it's 13%-15%, not 12%-15%. I'm being very clear, 13%-15% and largely organic with some tuck-in acquisitions as opportunities arise.

Dipesh Mehta · Emkay Global

On the 6-Technology Bets and 5 focus areas - can you provide current mix of business around those? How big are those businesses currently and what kind of growth and investment do you intend to make?

Right now, less than 50% of the revenue today comes from these bets. In 5 years' time, we expect more than 70% of business to be coming from these 6 bets. Alind added on investments: When you look at it broadly the space that we have to ourselves, given the customers that we work with is around the whole physical AI. That includes the collaborations that we are doing. By segments, we have talked about the investment in SDV. We are actually doubling down to increase more on Connectivity and SDV solutions. Extending to Sustainability, we are in a very unique position where we work with bringing AI in construction-related areas as well as the investments in AI and Data Centers. In Tech, we have talked about working with hyperscalers closely. Munjay added on EI: We are looking at EI in 3 distinct buckets. One is to help improve our productivity - 10% to 30%, 40% productivity. The second part of the EI is to embed this in the processes for client end process. And the last bit is to embed AI in the products, which will go to my customers' customers.

Shradha Agrawal · AMSEC

Apart from SWC restructuring, there were some other restructurings as well with an impact of $19 Mn. What does that relate to? And have we seen a smart headcount addition of almost 3% to our base - is it in anticipation of large deal ramp-up?

Headcount has gone up. We've added about 500 people net in the company QoQ. We do expect to add another 500 sometime in Q1FY27, Q2 FY27, Q3 FY27 as well. Because we believe that there's this new skill set around the forward deployment engineers that is required. So, we are bringing people on as we speak, and this is for billable headcount. And it is in anticipation of ramp-up of wins that we have had. Now in terms of the $19 Mn that I talked about annualized, that you can see that impact coming out in shrinkage of Q4FY26 over Q3FY26 in continuing business. There has been some work that we were doing in a certain geography in the Middle East, which we shut down. There is a little bit in Europe that we've shut down. There was in Telecom Infra, there was a couple of low-margin, non-value-add businesses that we were on. We have returned the lab equipment and shut that down very respectfully for the client. As far as I'm concerned, this completes the entire restructuring and cleanup that we had to do.

Bhavik Mehta · JP Morgan

On AI, how are the client conversations progressing across your 3 different segments? On the IT services side, we hear a lot of ask from clients for productivity pass-through and pricing discounts. How have ER&D conversations progressed?

There are three parts to what we are seeing. Number one is efficiencies in PDLC and SDLC. So that is being asked for by clients. But second, we are ourselves implementing our own tools to bring it about to almost all our programs. 65% of the company/60% of the company has been trained on AI tools. Another 40% is being done to be completed in the next 6 months. The second part is all about the agentic AI IQ platform that we have launched for engineering and manufacturing. Third is physical AI, which can be broken up into Industrial AI and Device AI. We are definitely seeing a lot more conversations on AI, a lot more what can be done, usability improvement, etcetera. People are wanting to put more money in AI. It's actually a bold question that is coming down to the engineering head as opposed to engineering head taking it ground up. In Engineering and Manufacturing, AI will come in, but it will take over the course of this year and next 18 months to expand. And I do believe still, Bhavik, we are about 6 months, 8 months ahead of competition in the cycle.

Rahul · Dolat Capital

On the charge of exceptional cost in the quarter - which business was this done for? And is there anything more to happen on this plan going into next year?

Amit did talk about $19 Mn of annualized business, particularly in Europe and in Israel and parts of UK. This restructuring cost actually entails towards those businesses and, of course, adjoining people and facilities that have been recorded in Q4. And like Amit said, we reconfirm that there are no more restructuring costs to continue from here on.

Rahul · Dolat Capital

From a revenue point of view, is there some part of the revenue from this business still in Q4, which may not happen in Q1?

There is no revenue in Q4 because we took quite a few of these actions at the end of Q3 or start of Q4, and hence, you see no revenues for these businesses in Q4.

Karan Uppal · Phillip Capital (India)

Any impact of the Middle East war, price volatility you are seeing in Plant Engineering business, especially in some of the subsegments like Oil and Gas, CPG, chemicals - any impact in greenfield or that could have an impact on the overall Sustainability vertical?

Middle East is a very small piece of our operations. Of course, we can look at growth there. We hopefully believe that over a 5-year period, we do believe that Plant in Middle East will grow for us but let this situation get resolved. Will it have an impact on our current quarter or next quarter? The answer is no. I think it's a very small part of our operations. In normal course of time, no.

▸ Prepared remarks (5 blocks)
Perfect. So, thank you all for joining us on the call today on a very busy results day. First of all, I would like to congratulate and welcome our CFO, Rajeev Gupta, as Executive Director and Chief Financial Officer on the Board of LTTS. I would also like to extend a warm welcome to Mr. Amitabh Kant on his appointment as an Independent Director on the Board of LTTS. We are delighted to have him join the Board. A governance reformer and public policy change agent, Mr. Kant also serves on the Board of Directors of the L&T Group. Now let me share the key highlights for FY26: - In FY26, the total revenue, including continued and discontinued operations, grew 5% to $1,321 Mn as indicated in the previous quarter - The SWC business has been classified as discontinued going forward, and therefore, the revenue from continued operations delivered a higher growth of 8.3% at $1,233 Mn. Here on, we will only talk about the continued operations - Sustainability continued to do well with 12.8% growth, while Tech, including Intelliswift, grew 19.7% - North America did well with a growth of 12%.
All other geos showed positive growth - Our FY26 total large deal wins came up at <strong>$855 Mn</strong>, up 40% over the previous year Now let me provide you key highlights for Q4FY26: - Revenue was $306 Mn, grew 0.3% annually, while we de-grew 1.7% sequentially, reflecting a deliberate shift towards improving the quality of revenue over the last 2 quarters with strategic portfolio rationalization leading to a more resilient business baseline. - This is reflected in our EBIT margins expanding by 40 bps sequentially to 15.2%, second quarter in a row. - Sustainability grew sequentially, continuing with its double-digit YoY growth momentum and Mobility remained steady. - Our large deal win continued its momentum with a healthy TCV of $182 Mn in the quarter, reflecting our deep client relationships and validation of our new technology investments - We finalized our Lakshya 31-Plan and completed the strategic portfolio realignment exercise, resulting in pruning businesses based on regional focus and offerings and divestment of the SWC business to pivot on Engineering Intelligence and core AI-led digital engineering services. The Mobility segment remained steady with revenues almost flat on a sequential basis. Over 40% of our large deal wins in Q4 were in the Mobility segment, indicating a turnaround for CY26. We see momentum in Auto subsegment, particularly North America Automotive, showing good growth over the previous quarter. Aerospace and Rail subsegment has been resilient, while Trucks and Off Highway has been slightly subdued. We are gaining traction significantly in optimizing products and software life cycle through Generative AI and Agentic AI-led delivery models, enhancing enablement of product experience for end customers. In summary, the Mobility segment is showing early signs of growth. We expect sustained momentum in CY26, driven by a robust pipeline and stronger deal ramp-ups of the large deals.
Sustainability grew 11% YoY on the back of strong execution of deals that we have won in the previous quarters. Over 50% of large deal wins in Q4 were in the segment ensuring strong momentum growth. The Industrial subsegment is benefiting from capex tailwinds in AI-led Datacenter spending globally. The Energy and Automation and Industrial Machinery sector continue to see strong demand with reindustrialization of the US, supported by a healthy pipeline in asset management and backed by large deal wins. Plant Engineering, a subsegment of Sustainability, demand continues to hold steady across CPG and O&G.
We expect the growth momentum to continue for Sustainability segment across both Industrial and Plant on the back of ramp-up in large deals and strong pipeline. We have recalibrated our business in this segment to focus on profitable growth, driven by forward-looking technologies. The subdued revenues in Tech segment reflect the conscious exit from nonstrategic businesses where we have also incurred some one-time expenses on account of the same. The Media & Tech subsegment is rapidly evolving with strong focus on AI-led platform-centric offerings. The MedTech subsegment, the deal momentum has evolved through ramp-ups in certain new accounts. The Software and Platform subsegment, which includes Intelliswift, is leading our engineering intelligence framework.
EI, or Engineering Intelligence, is LTTS' approach to embedding AI across products, processes, and next-gen manufacturing - translating deep engineering expertise into reliable real-world outcomes. Powered by multimodal, agentic, and edge AI, EI delivers autonomous, production-grade systems. LTTS has also strengthened its partnership with MIT Media Lab to explore and incubate forward-looking technologies such as Multisensory Intelligence, Signal Kinetics and Personal Robotics. We have surpassed the 1,700-mark in our patent filings for FY26, including 673 patents filed by LTTS and 1,033 co-authored with clients. Of these, 237 patents now are in AI and GenAI domain alone. Lakshya 31-Plan: Under its 5-year strategic Lakshya plan, LTTS is sharpening its focus with 6 large technology bets, including EI, which will accelerate growth further in the 3 segments of Mobility, Sustainability and Tech. Our 6 bets include: Software-Defined Mobility; Plant Build-Out and Modernization; Energy and Industrial Automation to Digital Manufacturing; Next-Gen Compute and AI Infra; Software Platforms in EI; and MedTech. Leadership Reorganization: Alind Saxena will take responsibility for strategic initiatives, large deals and growth markets.
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