Release Date: July 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue increased by 6% year-on-year in USD terms.
- Healthy large deal wins, including two $30 million deals and two $15 million deals.
- Significant progress in AI with 61 patents filed and collaborations with NVIDIA, AWS, and Google.
- Mobility segment achieved a $400 million run rate with strong growth in auto and commercial vehicles.
- Strong growth in plant engineering within the sustainability segment, driven by new CapEx projects and digital twin technology.
Negative Points
- Quarter-on-quarter revenue declined by 3% due to seasonality in the Smart World business.
- Industrial sub-segment faced challenges with high supply chain inventory and delayed deal decision-making.
- Hitech segment experienced a decline in EBITDA margin from 15.6% to 12.6% due to seasonality and one-time program completions.
- Free cash flow was negative INR89 crores, impacted by delayed collections and reorganization.
- Overall EBIT margin for the quarter was 15.6%, slightly below the 16% aspiration for FY25.
Q & A Highlights
Q: Can you provide a sense of the hiring outlook for the year, wage hikes, and segmental margins, especially in verticals like Hitech and mobility?
A: We continue to recruit actively, both freshers and laterals. Automation is changing the headcount-to-revenue ratio slightly. We are optimizing and reducing management layers. Wage hikes will come into effect from October. Segmental margins: Mobility at 18.8%, Sustainability at 27.1%, and Hitech at 12.6%.
Q: What led to the strong growth in Europe and the decline in the US?
A: Growth in Europe is driven by deals and investments, particularly in auto OEM, industrial, and aerospace sectors. The US decline is due to seasonality in the SWC business and a one-off program that ended in March.
Q: Are you expecting any impact from the restructuring of a German OEM's software part of the business?
A: OEMs are pulling in software work in-house, which has been positive for us. We are expanding with OEMs in Europe and the US. We have won consolidation opportunities and are pursuing more deals.
Q: Are you witnessing any weakness in the European auto segment due to pullback in EV-related spending?
A: EV spending is shifting from product development to value engineering. We are also focusing on software-defined vehicles (SDV) and hybrid technologies. We are cautious but optimistic about the auto segment.
Q: How did the quarter one performance align with your expectations?
A: Q1 was broadly in line with our expectations. We anticipated the seasonality in the smart world business. The pipeline is 2x what it was last year, giving us confidence in our growth trajectory.
Q: Can you explain the seasonality impact of the SWC business and its effect on North America revenue?
A: The seasonality of the SWC business primarily affects India revenues. In North America, a one-off program ended in March, impacting Q1 revenue.
Q: What are the assumptions behind maintaining the 8% to 10% revenue growth guidance?
A: A significant part of the guidance is covered by the backlog. We have a strong pipeline, and decision-making on several large deals will happen in the next 8 to 12 weeks. We are confident in our guidance.
Q: Does the $1.5 billion run rate target for FY25 include inorganic growth?
A: Yes, the $1.5 billion target includes inorganic growth. We are actively looking for M&A opportunities in automotive in Europe, ISV hyperscalers in North America, and medical in North America.
Q: How do you see the impact of upcoming elections and potential macro improvements on your business?
A: We are closely monitoring the situation but do not expect a significant revenue impact from elections or macro changes. Our focus is on leveraging technology solutions to win more market share.
Q: Can you provide more details on the M&A focus areas and ticket size?
A: We are focusing on automotive in Europe, ISV hyperscalers in North America, and medical in North America. The ticket size for M&A targets ranges from $50 million to $150 million in revenue.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
