Release Date: January 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Tata Technologies Ltd (BOM:544028, Financial) recorded a sequential revenue growth of 1.6% and an annualized growth of 14.7% in Q3 FY24.
- Operating EBITDA margin improved to 18.3% from 16.9% in the previous quarter.
- The company secured five large deals in Q3, including a $50 million deal in the automotive vertical and a $25 million deal in aerospace.
- Tata Technologies Ltd (BOM:544028) has been recognized as the number one automotive engineering service provider in India for the sixth consecutive year by Zinnov.
- Employee engagement initiatives have led to a reduction in voluntary attrition to 15.4% in Q3 from 17.2% in Q2.
Negative Points
- Q3 is a seasonally soft quarter due to reduced billing days from festivals and holidays.
- Revenues from VinFast materially dropped in Q3, with further reductions expected in the current quarter.
- The total DSO increased to 95 days at the end of December from 92 days at the end of Q2.
- The services segment, which forms about 78% of revenues, was impacted by holidays and the ramp-down in a mega full vehicle program.
- The effective tax rate increased to 27.6% due to a higher percentage of profits coming from India and the UK.
Q & A Highlights
Highlights from Tata Technologies Ltd (BOM:544028) Q3 2024 Earnings Call
Q: What is the outlook for VinFast, given the expected drop in Q4?
A: Warren Harris, CEO & MD: The transition from engineering to launch support for VinFast began in Q2, accelerated in Q3, and will largely be completed by the end of Q4. We expect a slight tapering of growth in Q4, but we are bullish about our prospects for FY25.
Q: Will VinFast's entry into India expand the relationship and lead to growth?
A: Warren Harris, CEO & MD: The timing for VinFast's entry into India and new product investments is still uncertain. However, we are proud of our relationship with VinFast and excited about their market impact.
Q: Can you explain the $50 million deal involving the rebalancing of engineering resources from the US to India?
A: Warren Harris, CEO & MD: Despite the trend towards insourcing, the need for new skills and capacity is driving OEMs to offshore locations like India. This deal focuses on satisfying new demand through offshoring.
Q: What are you seeing in terms of demand for functions that complement PLM, such as simulation and ALM?
A: Warren Harris, CEO & MD: We are increasingly involved in comprehensive digital twin and digital thread initiatives that extend beyond PLM into ALM, MES, and ERP systems. Simulation and analysis are key components of these initiatives.
Q: How do the partnerships with Intel and ARM fit into your strategy?
A: Warren Harris, CEO & MD: These partnerships are crucial as the industry transitions to a horizontal ecosystem. We are excited about forming meaningful relationships with major players like Intel and ARM to leverage cutting-edge technologies in software-defined vehicles.
Q: How is the pipeline for large deals shaping up?
A: Warren Harris, CEO & MD: We are targeting large deals both through new customer engagements and existing relationships. Our proactive approach in architecting large propositions is driving progress in securing significant deals.
Q: Will the slowdown in EV adoption in the US and Europe impact your business?
A: Warren Harris, CEO & MD: Despite some market-specific concerns, the overall investment in new product development, especially in electrification and connected vehicles, remains strong. We do not foresee a slowdown in demand for our services.
Q: What is the expected growth in the services segment for FY25, considering the drag from VinFast?
A: Warren Harris, CEO & MD: We anticipate a solid base going into FY25, with growth continuing on the trajectory we've seen over the last three years. The impact from VinFast has been planned for, and we remain bullish about next year.
Q: What are your medium-term margin expansion goals?
A: Savitha Balachandran, CFO: We aim to consistently deliver margins between 18% to 18.5%. In the medium to long term, we target an additional 200 to 250 basis points of margin expansion through operational efficiencies and business scaling.
Q: How will the partnership with Agratas impact Tata Technologies?
A: Warren Harris, CEO & MD: The partnership with Agratas will allow us to expand our capabilities in battery pack design and smart manufacturing solutions. This extends our expertise upstream and opens opportunities in both automotive and non-mobility sectors.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
