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Earnings Call Analysis
Q1-2025 Analysis
L&T Technology Services Ltd
In the first quarter of FY '25, L&T Technology Services Limited reported mixed results. The company's revenue increased by 6% year-on-year in USD terms, reaching INR 2,462 crores, though it declined 3% sequentially due to seasonality in its Smart World business. The EBIT margin stood at 15.6%, aligning closely with the company's aspiration of 16% for FY '25. Notably, the company's net income saw a marginal year-on-year increase of 0.8%, ending the quarter at INR 314 crores.
The company continued to invest in AI and technology to foster growth. It filed 61 patents in AI across various segments and collaborated with industry giants such as NVIDIA and AWS. Significant deals included two $30 million wins, two $15 million deals, and three deals worth more than $10 million. The AI sector, in particular, is becoming a strong revenue generator, exemplified by key empaneled deals with a Middle Eastern oil customer and a European automobile major. The company's investments and revenue from these AI initiatives are set to enhance both its revenue and margin trajectories.
Performance across segments varied. The Mobility segment, now a $400 million run rate business, showed the strongest growth in six quarters at over 6%, led by deals in electric vehicles, hybridization, and software-defined vehicles. The sustainability segment also performed well, particularly in plant engineering, due to new CapEx projects and the establishment of high-value engineering centers for offshoring. However, the industrial subsegment faced a dip due to high supply chain inventory levels and delays in deal decision-making. In contrast, the Hi-Tech segment witnessed growth in its semiconductor subsegment due to strong AI chip demand, while the comms and media subsegment struggled due to seasonality and one-off program completions.
Operationally, the company improved its on-site offshore mix, reaching 58.9% offshore, and aims for a 60% target. The client profile showed improvement, with an increase in million-dollar accounts, particularly in the $30 million and $5 million categories. Top 20 client contributions to revenue also improved sequentially, with targeted programs bolstering strategic client relationships. Despite a slight decline in headcount and stable attrition at 14.8%, the company remains optimistic about future growth in headcount and client engagements.
Looking forward, L&T Technology Services is optimistic about its revenue and margin growth. The company affirmed its revenue growth guidance of 8% to 10%, expecting the second half of the year to outperform the first. The pipeline is reportedly double that of the previous year, with more significant deals expected to close within the next two quarters. Furthermore, the company maintains its EBIT margin aspiration at 16% for FY '25 and is confident that growth will be observed in both top and bottom lines across future quarters.
The company is focused on growth through strategic investments in technology and expansion into high-value segments such as AI and sustainability. Despite the immediate impact of seasonal fluctuations and certain project delays, the overall outlook remains positive. Investors can expect incremental growth every quarter, with strategic client engagement and technology investments paving the way for sustained upward trajectories. The reaffirmation of guidance and aspirations signals a committed path toward achieving set financial targets.
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Ladies and gentlemen, good day, and welcome to the Q1 FY '25 Conference Call of L&T Technology Services Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Pinku Pappan, Head of Investor Relations. Thank you, and over to you, Mr. Pappan.
Thank you, Darwin. Hello, everyone, and welcome to the earnings call of L&T Technology Services for the first quarter of FY '25. I am Pinku, heading Investor Relations.
Our financial results, investor release and press release have been filed on the stock exchanges and are also available on our website, www.ltts.com. I hope you have had a chance to go through them.
This call is for 60 minutes. We will try to wrap up the management remarks in 20 minutes and then open up for Q&A. The audio recording of this call would be available on our website approximately 1 hour after this call ends.
With that, let me introduce the leadership team present on this call today. We have Amit Chadha, CEO and MD; Abhishek, Executive Director and President; Alind Saxena, Executive Director and President; and Rajeev Gupta, CFO. We will begin with Amit providing an overview of the company performance and outlook followed by Rajeev, who will walk you through the financial statements and performance.
Let me now turn the call over to you, Amit.
Sure. Thank you, Pinku, and thank you all for joining us on the call today. Let me provide you a few highlights of our Q1 performance. In USD terms, our revenue went up 6% year-on-year. Though on account of SWC seasonality, it declined by 3% quarter-on-quarter, in line with what we had guided last quarter. Large deal wins have been healthy with 2, $30 million wins; 2, $15 million wins, 3 deals that are more than $10 million in the quarter. Additionally, we also got a significant empanelment in this quarter. In order to prioritize growth, we have made investments in sales and technology under our Go Deeper to Scale strategy. Our trajectory on both revenue and margins from this quarter on will be upwards.
Before I do the segmental outlook, which I normally do, I would like to report some progress on AI because we have done some investments, and I have talked to you often about this. In AI, we have filed a record 61 patents till date across segments in transportation, medical and industrial products. We are collaborating with NVIDIA in medical, AWS for transportation and Google for multiple segments.
We have launched 6 solutions in the last quarter alone in GenAI for driver experience, AnnotAI for autonomous driving, AICE and AICH for medical QARA and secure AI, which is cross segmental. Some of these have been implemented for clients in production environments. We continue to remain focused on enhancing our solutions on AI in the software-defined development life cycle as well as product development life cycle and test automation and process automation.
AI has finally become a revenue generator. We have won 2 significant empaneled deals, one with the Middle Eastern oil base -- oil customer and a second with an auto major in Europe, and both are showing a lot of interest in ramping up with us. We are also seeing increased interest and traction in this area and the pipeline is significantly higher than 2 quarters ago last quarter in this area.
With that, let me provide a segmental performance and outlook. Mobility is now a $400 million run rate segment for us, a growth of 6% plus was the strongest in the last 6 quarters, driven by auto and followed by commercial vehicles and aero. As you know, we have been investing in EV, hybridization, vehicle engineering and software-defined vehicles. Our Q1 performance was a result of deals across all these areas.
In total, we won 3 large deals in mobility; 1, $30 million; 2, $15 million across OEMs and Tier 1s. While EV opportunities continue, the shift for -- the spends are shifting to SDV. We are accelerating our SDx competencies and building a proprietary framework. Some of these components are already ready and implemented and others will be ready later this year.
The deals we have won in SDV is helping us to open new engagements and deeper collaboration with OEMs and Tier 1s. In commercial vehicles, EV continues to be a strong growth area. While in aero, we are seeing large deal opportunities in avionic equipment development. Overall, looking at the pipeline, the deals we have already won and order backlog, we expect the growth momentum in mobility to continue in the coming quarters.
Moving on to sustainability. We had strong growth in the subsegment plant engineering, which is firing on all cylinders, led by new CapEx projects, spend on plant modernization and digital twin. The growth in this subsegment, the plant engineering subsegment helped us notch a slightly -- slight growth on a year-on-year basis offsetting the decline in the industrial subsegment.
Customers are looking to do more offshoring and our model of establishing high-value engineering centers is helping us capitalize on this opportunity and win deals.
In the industrial subsegment, the supply chain inventory is at an all-time high for many of our customers, leading to a dip in spending and budgets. In addition, deal decision-making delays led to large deals getting pushed because of which we saw the quarter-on-quarter decline. We are investing in asset management solutions in variable speed motors in drives and controls. This will be the next engine of growth for industrials in addition to AI-led digital manufacturing solutions. We have won a $30 million deal in digital manufacturing with a North American OEM, which will ramp up in Q2. We believe that the worst is over for this subsegment and expect sustainability as a segment will get back to a growth part from next quarter onwards.
Finally, Hi-Tech. We had good growth in the Semcon subsegment. We see strong demand from customers for AI chip design, and we have signed up COEs of post silicon activities. In Semcon, we are building differentiated capabilities and are executing programs in next-gen advanced chipsets.
In the medical subsegment, we are seeing customer spend on sustenance engineering, QARA, value analysis and value engineering, digital manufacturing solutions for operational excellence. We're investing in building a patient experience platform and GenAI based accelerators for QARA.
In the comms and media subsegment, our performance was impacted by the seasonality in the SWC business, a few one timer programs that ended in Q4 in North America Telecom. Customers are looking for cost optimization and more software and AI-based solutions are improving network operations.
In the ISV subsegment, we are investing in an AI build-out for the software development life cycle for continuous integration, continuous development, targeting hyperscalers and software platform companies. We see multiple large deals in play across telecom, Semcon, ISV and MedTech and gives us the confidence of growth for Hi-tech rebounding from Q2 onwards.
Now a few highlights on our technology and innovation charter. Our engineers continue to innovate. We have a total of 47 patent filings in Q1 and our cumulative filings now stand at 1,343. We've been rated as a leader in the Everest connected product services assessment across product engineering, embedded engineering and design engineering.
With that, let me now discuss the outlook. I'm encouraged by our pipeline that's 2x of last year with deals across segments and more $40 million to $50 million deals than earlier are slated to close in the next 2 quarters. Customer spend is broadly focused on consolidation, cost optimization, leveraging AI and advanced technologies leading to efficiencies and faster go-to-market.
We are comfortable with our guidance of 8% to 10% revenue growth. We see growth in all the 3 quarters ahead and expect H2 to be better than H1. Our aspiration of $1.5 billion continues.
Before I end, I would like to announce that we plan to host an Investor and Analyst Day on August 29 in Bangalore. We will provide additional details in the coming days. Pinku will get in touch with you.
That said, thank you so much. I'll be around for questions and hand it over to Rajeev. Rajeev?
Thank you, Amit. Good evening, and hope you all are doing well. Let me start by saying that this has been a quarter in line with what we had guided for FY '25. Also to highlight a few points on [ QY ] FY '25 revenue and margins. They had an effect of seasonality of our Smart World business, investments in strengthening leadership on account of reorganization to go deeper to scale and prioritize for growth and building specific solutions for segments and horizontals, in particular, like software-defined everything, AI, GenAI, digital manufacturing labs and asset health platform.
With that said, let me now take you through [ QY ] FY '25 financials, starting with the P&L. Our revenue for the quarter was INR 2,462 crores, a decline of 3% on a sequential basis, mainly coming from seasonality effect of our Smart World business. Our year-on-year growth came in at 7%. Our EBIT margin for the quarter came in at 15.6%, in line with the aspiration of 16% levels for FY '25.
Moving to below EBIT. Talking about other income. Other income was INR 49 crores, slightly higher on a sequential basis due to our continued efforts of consolidation of facilities. Our effective tax rate for Q1 was at 27.4%, within our expected range of 27.5%. Our net income for the quarter was up by 0.8% on a year-on-year basis and came in at INR 314 crores, which is 12.7% of revenue.
Moving to balance sheet. Let me first highlight that the reorganization was implemented by middle of the quarter and has now stabilized. This resulted in rebalancing of portfolios leading to delayed invoicing and collections moving into next quarter. In addition, we saw an impact of delayed collections in our Smart World business due to the general election. We believe this will stabilize in quarter 2.
Now let me highlight the key balance sheet items. Our quarter 1 DSO was at 102 days compared to 100 days in Q4, unbilled days at 23 in Q1 compared to 14 days in quarter 4. The combined DSO, including unbilled, stood at 125 days compared to 114 days in quarter 4, which is within our target range of 115 to 125 days for the year. Consequently, our free cash flow came in negative INR 89 crores. Our cash and investments stood at INR 2,784 crores at the end of Q1 versus INR 2,883 crores end of quarter 4.
Moving to revenue metrics. In dollar terms, we reported revenues at $295 million as compared to $305 million in Q4, which is a decline of 3.3% in reported terms and 3.1% on a constant currency basis.
Now moving to operational metrics. The on-site offshore mix improved more towards offshore compared to Q4. Offshore percentage now stands at 58.9%. Our aspiration is to improve offshore ratio to 60%. Client profile, which indicates a number of million dollar plus accounts has shown a sequential improvement in the $30 million and $5 million plus category. The client profile will continue to improve in the coming quarters. Client contribution to revenue has shown an improvement in the top 20 categories as compared to quarter 4. We expect revenue from top customers to improve going forward as we are running targeted programs with our strategic clients. Headcount came in at 23,577 in quarter 4 compared to 23,812 in quarter 4, while attrition was stable at 14.8% in quarter 1. Realized rupee for quarter 1 was around 83.4 to the dollar, a depreciation of 0.3% compared to quarter 4.
Before I conclude, let me give some visibility on EBIT margin trajectory going forward. Our operating playbook continues to provide opportunities for margin improvements through levers like quality of revenue, offshoring and pyramid optimization. With the current environment and our revenue outlook, we see EBIT margin trajectory in H2 to be better than H1. Amit already highlighted in his commentary that we are pivoting on revenue growth. I reiterate that we maintain our EBIT aspiration of 16% levels in FY '25. Thank you.
With that, now I hand it over to the moderator for questions.
[Operator Instructions] The first question is from the line of Manik Taneja from Axis Capital.
Just wanted to broadly with regards to the margin outlook. If you could, first of all, give us a sense of the hiring outlook for the year as well as the wage hikes plan for the year? And also well on the segmental margins, especially in verticals like Hi-tech and mobility.
So I will break up the question here. So you talked about hiring outlook, talked about margin outlook.
Wage hikes for the year, and also, if you could talk about the puts and takes for the segmental margin performance across different industries.
Segmental margin. So segmental margins. So what I will do is, let me provide you hiring and wage and then I'll request my colleague, Rajeev, to weigh on the margin outlook and segmental margins. So as far as we are concerned, we continue to recruit actively freshers as well as laterals. Having said that, there are 2 things that we are seeing in our business. Number one, we are seeing automation, so that straight-line impact of headcount to revenue is slightly changing, right?
So as you see mobility increase, you saw quarter-on-quarter, year-on-year, you saw the others increase, but plant engineering is expanded as a subsegment quarter-on-quarter itself rather than -- some medical expanded as a subsegment quarter-on-quarter. But the headcount went down about 300 people. I would not worry about it because we are leveraging more from the same team, A. B, we are continuing to optimize and reduce management layers with this new segmentization that we have done, number two. Number three, there is the performance appraisal that we have done, and we will be for every year where we do some kind of HR action on the performance, lower performers, we are doing that.
Having said that, you will see positive headcount coming in next quarter onwards. And for the entire year, you will see an increase in headcount that will happen across the company as we move forward. We don't give exact numbers on laterals, but I want to confirm to you that about 1,800 offer to freshers have been made and people will continue to join, and we will honor those letters just like last year.
Now in terms of wage hike, we have -- we are concluding the appraisal process. It's still not done. We expect to complete that in the next week or so. And then we will go ahead and provide increments for the year. For the purpose of your calculation, you can assume that these will come into effect from October. Rajeev?
I can take the question on the margin or rather the EBITDA by segment. So Mobility as a segment, EBITDA is at 18.8%. Sustainability segment has an EBITDA of 27.1% and Hi-Tech has an EBITDA of 12.6%. That's how we are now reporting into our new segments.
Rajeev bhai, I looked at the headline numbers, I was just trying to understand the puts and takes on the margins on each of these industry verticals.
Could you clarify when you mean by puts and takes?
So if you could talk about the different factors that have impacted margins for each of the industry segments?
So I will give you broad highlights. So in terms of mobility, of course, directionally, we saw a large deal beginning in quarter 1. So when I compare our EBITDA margin in Q1 for Mobility at 18.8%, it came off slightly largely because of the new deal that started off in Q1. When we look at sustainability, 27.1% compared to 28.8% in previous quarter -- Amit, did talk about the fact that look, plant engineering continues to grow whereas we saw a challenge in industrial products, but that's largely for a quarter, we should see it coming back. That's the major reason why you saw margin on sustainability come down. .
On the Hi-tech side, 12.6% in Q1 compared to 15.6% EBITDA in quarter 4. This was largely because of the seasonality of SWC business. We'll always mention that our SWC business has better traction in terms of revenue and margin in H2 compared to H1.
The next question comes from the line of Ravi Menon from Macquarie.
Could you talk a bit about what led to really good growth in Europe and similarly in the U.S. I mean I wasn't aware that SWC has much exposure to Americas. But it looks like Americas had a sharp decline. So what's caused that?
So Europe growth has been based on the deals they have been winning and the investments we have made in Europe. As you are aware, we announced a deal with a Tier 1 and that helped us there and has helped us expand Europe not just that one deal, we've been seeing expansion in our auto OEM as well as our industrial and plant engineering relationships, aerospace relationships that we have announced in the past.
So all that combined, Europe has done very well for us, and we continue to be excited about the geography as it holds promise for the company and continues to accelerate. I do want to confirm that Europe this year will grow faster than company outlook that we have provided.
Now in terms of SWC, yes, there was a seasonality we spoke about. And there was a one-off program that ended in March for the same segment in the U.S. And therefore, you see that decline quarter-on-quarter and year-to-year we have said. Having said that, we are pleased with the performance of Semcon that has finally turned around and the capabilities that we have built in VLSI, Semcon design, RTL, [ PD ], all of that is working out for us, including establishing based on empanelments we had announced in the past on Semcon companies, we have ramped up for us. So that has worked out in our favor.
I had also talked to you, if you remember about 2 years ago that we will make targeted efforts to get into hyperscalers. So I'm happy to share with you that a couple of these hyperscalers now are either almost $10 million or past $10 million run rate for us as accounts. And we are truly looking at seeing as they continue to spend money on how we can expand that.
Just a follow-up on the EV side. We've heard about the Tier 1 German OEM restructuring that the software part of their business, with about [ 1,300, 1,400 ] layoffs. So are you expecting that there will be an impact due to that? Or you are even a beneficiary of this?
So again, not getting into specifics because I don't know which Tier 1 you are talking about, there's a lot of Tier 1 action going on. But -- so not getting into specifics. All I will say is that there are 2 or 3 things that is definitely happening in the auto industry. Number one, OEMs are pulling in software work in-house and that means that instead of just integrating stuff, they're building larger teams. Now knock on wood, that's been positive for us, and we have expanded -- we are expanding with the OEMs in Europe and the U.S. as well as the new age ones in California. So we continue to ramp up with them.
Now as far as Tier 1s are concerned, there is restructuring. There is a lot of these consolidation deals that are floating out there. Last quarter, we had won a deal in Europe from a Tier 1, where we won a consolidation opportunity and gain market share over competition. And this quarter, again, there are opportunities that we are looking at. We have won one of them. There are others we are pursuing. And we'll see how we get up there. And therefore, I had mentioned that there are deals in Q2 and Q3 for closure, up for closure that we are working closely on right now.
[Operator Instructions] The next question is from the line of Karan Uppal from PhillipCapital India.
So Amit, firstly, I want to check on the auto business. So one of the large -- one of your larger peers has mentioned about significant weakness in the European auto segment due to a pullback in the EV-related spends. Are you witnessing something like that?
Is that your only question? Or you have other?
I have 2 more. So I'll ask. Second is on the Maharashtra government deal, the cybersecurity deal, which you had won. So when is that expected to ramp up? And the third question is on that $1.5 billion aspirational target. Is it still targeted for FY '25? Or are you pushing this to next year?
So let me start last question first as it's close to our heart. Our $1.5 billion aspirational run rate is a FY '25 goal and aspiration and various things in play, we will see as to where we end up. Number two, on Maha cyber, so Maha cyber has ramped up. However, there are other deals that closed, right? And therefore, that seasonality of Smart World comes in. And you will see Maha cyber ramping up over the next couple of quarters as well. But we have been judicious on the kind of deals that we pursue and we win plus there was an election cycle impact also on not just collection like Rajeev mentioned, but also on our order inflow. So we are working on that and seeing where we can work on.
Now in terms of auto. In EV space, the move -- the work has changed from product development to value engineering. In fact, we are doing a teardown of various vehicles without naming them to see as to what can we learn on components, what can we learn on production techniques, manufacturing techniques, assembly techniques and operation techniques, right? We can then offer suggestions and service offerings to our other customers.
Having said that, some of these EV spends are getting replaced with extension of programs on ICE software-defined vehicles on -- for ICE vehicles as well as for EV and hybridization, plus there is a significant amount of discussion that we are doing now on model year 2029 for alternate fuel technologies as well.
So am I worried about auto and EV at this stage? What I will say is that we saw this about 3 -- 2 quarters ago, 2.5, 3 quarters ago. And we've been investing in the SDV area, in the hybrid technologies area. In fact, the deals that we took over with the Tier 1 in Europe was in that direction to fortify our position. I'm happy to share it's got certified. The center where we took over has got certified by other OEMs as well as by actually now aerospace customers who use the same skills.
So I do believe that we have a positive path forward, though we are cautious and watching as things develop. But most importantly, and I'm sorry, I'm going to say this, I said this last quarter as well. See, I do believe we have to invest because what was current today or yesterday will not be current tomorrow and that is something that we'll continue to do on an ongoing basis.
The next question is from the line of Dipesh from Emkay Global.
Two questions. First about the quarter 1 performance. Whether quarter 1 performance was in line with your expectation or weaker or better than expected? And if you can highlight factors driving that difference? Second question is on slightly medium term. Now if I look at your segment, the way we now club 3 segments, there is a big variance in margin profile of all 3 segments. Can you help us understand how one should look from a medium-term perspective, whether they get to sustain or it will narrow down? And what factors likely to lead to the trajectory change?
So look, the company is pivoting to revenue growth, right? And we had again shared this with you. We took your feedback, actually and others feedback and said we will see revenue growth. .
So Q1 was broadly in line with what we expected, and that's what we had said to you last quarter, it will be muted. But having said that, if we would have got more, we would have done more. But having said that, it's in line with what we had said. But it is upward and onward -- onward and upward from here. Rajeev?
So to answer your question on the medium-term outlook for the margins in each of the segments. So like you said, mobility and sustainability, they are on the higher side of the margin and will continue to hold up well. On the Hi-tech side, like we said, Hi-tech includes as subsegments, Smart World, MedTech and comms, media and tech. Smart World, there is an impact of seasonality. We believe you will see that normalize as we go forward.
Next up is a subsegment with high margins, right? Typically, that's been at about 50% levels of margin. So we feel that the gap between mobility, sustainability and Hi-tech will narrow down. We will continue to run programs to also improve margins in the Hi-tech segment, and we will see that going forward.
Understand. So whether with this mix change now because you have a different -- at least in near term, you're indicating different growth prospects for each segment. And medium term, considering mobility showing a better trajectory at least for near-term perspective. Do you think this can have implication on a blended margin? Or do you think broadly trajectory expected improvement kind of trajectory across segments will not have any material impact because of mix change?
So let me answer it this way. See, we've already shared the aspiration for FY '25 for overall EBIT margins to be at 16% levels. And in terms of the mix, I mean, we did see strong growth coming in mobility. We are seeing good growth in plant engineering. Of course, medical had -- I mean, has shown growth in this quarter, we believe that we'll continue to show growth in the future quarters also. .
So why we've given aspiration for FY '25 to be at 16%? Amit talked about the IAD to happen end of August. We will come back and clarify to you our medium-term aspirations on EBIT. We definitely aspire to do better. Our aspirations for FY '25 are more short term and near term. But I will certainly come back and clarify on the IAD on the medium-term outlook on EBIT margin.
The next question is from the line of Mihir Manohar from Carnelian Asset Management.
Sir, I wanted to understand what is the seasonality impact of SWC, if you can quantify both at the company level and second also in the North America region. Because I just wanted to understand what is the underlying growth after removing the seasonality impact over SWC.
Second question was just on the SDV. I mean, you mentioned that you are signing a couple of SDVs. If you can provide some details as to what -- I mean, what kind of OEMs are this? And what size of contracts are this? That will be helpful.
So why don't we answer the seasonality? Rajeev, I request you as the President of Mobility and CMT to answer the SWC.
So let me take the first one in terms of the SWC margins and the impact on the overall that you mentioned about. Look, we don't provide specific margins in terms of Smart World. We've mentioned that in the past as well. But what I can definitely let you understand is that, look, this is a project-based business, and it's fixed-price in nature. So what happens is typically when these projects get executed, they are milestone based, right? As the milestones get achieved, there are contingencies as part of the margins that get released, right? Because we tend to bake that as part of our contingency. And that's how usually the projects get executed. .
We feel that given the seasonality of Smart World business and more of revenue and margin in H2, this will normalize, right? So we wouldn't want to call that to be an effect that's more worrisome, it's more of just a quarter 1, quarter 2 phenomena. We saw very similar to the same phenomena in FY '24 as well.
I'll hand it over to Alind in terms of the SDV part.
So SDV is getting increased traction from our customers across the board. We have recently signed some deals with North American OEMs. We also have signed deals with Tier 1s in Europe. In fact, we had partly executed some of these solutions in CES as well earlier in the year. And we are working on solutions in the SDV space, which are AI based, and we would be talking more about that in the forthcoming investor meets that we have [ going ] along. But it's a very broad-based concept that is touching. And outside of auto, we are also seeing tractions in some of our trucks and off-highway customers as well, which are in the earlier life cycle of implementation and those are the ones that are increasing for us as well.
Sir, I mean on the SWC side, I wanted to understand more on the -- your revenue rather than the margins. I mean because when we -- let me rephrase my question. So without considering the SWC seasonality, what would have been the growth at the company level and at North America level?
So to respond to that, if you look at the SWC seasonality, that's what you see largely in India, okay? And the India revenues. On the U.S. part, I mentioned that there was one program that was a one-off program that ended in March, and that is the impact we are seeing in North America.
Okay, sure. And just last question was on the guidance side. Guidance of 8% to 10% still implies like 4% to 6% kind of a growth depending on the quarter that appears to be quite steep. So just wanted to understand the assumptions and the logic that we are building behind of maintaining the guidance at 8% to 10%.
Okay. So 3 components here. A certain part of the guidance that we have will get covered based on the backlog, a significant part gets covered based on the backlog that we have. There is a part of the guidance that will get covered by the deals that we will win, okay? So that's where we are on that. Having said that, like I said, our pipeline is about 2x to what it was same time last year. Our TCV wins have been higher than what they were earlier. And given the fact that it's a much bigger pipeline, and we know decision-making of a number of our $50 million deals, $25 million deals, $40 million deals will happen in the next, say, 8 to 12 weeks will swing us in a direction.
Having said that, I'm confirming that we are fairly comfortable with where -- what we have stated as guidance. If you remember, we also had an uphill task in quarter 4 of last year, and we did deliver. So we are cognizant of that and working towards it as a team.
The next question is from the line of Abhishek Bhandari from Nomura.
[Technical Difficulty]
Sorry to interrupt Abhishek, but the line for you is not clear.
So Rajeev and Amit, just one small clarification. When you say $1.5 billion run rate in some quarter of FY '25, does it include any inorganic numbers [indiscernible] because otherwise, from a [indiscernible] from $300 million what we started in Q1, $297 million, the growth numbers are actually out of sync of your 8% to 10% guidance for FY '25.
Very valid question. Of course, it does bake in inorganic means. If you remember, we had shared with you earlier that also that we've created a separate M&A section in the company, and there are various prospects that we continue to look at and continue to engage with. So we are -- you should assume that there will be an inorganic action between now and end of the year. And we are working hard to see diligently as to what is reasonable for us to pick up at a reasonable valuation. And that actually lines up with our strategy of automotive Europe, ISV hyperscalers in North America, and medical in North America. These are the only 3 areas we are looking at.
We, again, have reiterated in the past, and I will say it again. If we don't have anything in this area, we will not acquire, A. B, we will not acquire at unreasonable sums and multiples. C, we will acquire for capability, not for market because we have the market reach. So we'll do it for a combination of factors that are strategic to us. And yes, I'm confirming that there is inorganic action that is in play in the company. And we will see what happens, but these are ongoing discussions at any given time.
Got it, Amit, Amit, one follow-up to previous Mihir's questions. On the breakdown you gave around the elements -- the building elements to 8% to 10% guidance for FY '25, basis the deals what you've already won at the end of Q1, would you say 60% to 70% or whatever number that is of the growth number is already in pocket? And the remaining would be the work in progress for the remaining 9 months?
So see, like I said, a considerable part of the guidance is already backlogged into the company. But there are deals that we have to work on. We have just started quarter 1. I'm confirming one thing that you should take away. We will grow every quarter here on top line and bottom line. Allow me a little leeway, if you can. I hope that given our credibility with you and what we delivered to you in quarter 4 and met what we had told you, allow me some time, and we will come back and we will keep on updating you.
In fact, one of the things we are working on now, which we haven't done in the past, and I will admit that as our learning, we don't do a lot of these press releases on what we win. We do -- a lot of them are done on stealth mode. You will see more press releases coming out on our wins as well as our partnerships as we go forward in the next few weeks. And that should give you an indication of progression in the company and the pivot that we are doing on a growth trajectory.
Got it. Last question, Amit. There are chatters around a possible macro improvement maybe after the rate cut cycle begins in U.S. and U.S. election ending sometime in November. The question on that is how much of our business is discretionary or dependent on sales wins from these kind of things? Do you think there could be a meaningful lift both in terms of client [ transitions ] leading to higher deals and certain growth improvement because of that.
Okay. So see, what we are definitely seeing is that, like I said, pipeline at 2x, a significant part of that is actually equally divided as proactive deals and reactive deals. [ Reactive ] over the client issues on RFP, [ we work to actively ] what we pitch, right?
The one predominant thing people are interested in is cost conservation, reducing their costs as well as cash conservation if they can. And third is around getting to market faster. When we go to people with AI technology, et cetera, they come back and say, tell us the value this will create. Will it reduce headcount? Will it increase market reach? Will it improve my customer experience and therefore, improve my sales, what will it do? Right? And that's where we are right now.
Any cycle to turn takes time. If you ask me reasonably speaking, the guidance we have given you is baking in a little bit of everything. But if there is a lift of like you're talking about in a complete change in segment and people start spending money in big numbers, of course, the guidance will improve and change.
But at this stage, we are not factoring in big lift-offs. I think by the time it has an impact into engineering, you will see -- I mean, if something changes immediately, you will see an impact in our calendar year or next year. But the good part is that a number of programs that we work on are actually model years and work done for future years. So that's where we are.
Look forward to catching up on the Analyst Day.
The next question is from the line of Rahul Jain from Dolat Capital.
I'm sure this was asked in a different way already. But just trying to understand that generally the conference that you are emanating is coming from the deals you have won what you see in the pipeline and stuff like that.
So in general view, in terms of how timely are you seeing these deals ramping up from signing period? Are these back to the way it used to be historically? And do you think the guidance range should be more [ seen in Q2 to the ] lower end at this point? Or you think it is equal possibility through the range?
I'm so sorry, can you repeat your question because there's a problem on...
Yes. Okay. So what I was saying is that if you could say that what is the general ramp up that we are seeing in our deal? Is it from signing to ramping up? Is it normalized the way it used to be? Or you're seeing some bit of changes in that? And secondly, at this point, you think guidance range is equally skewed to the entire band? Or whether it's more towards the lower end at this point?
So look, if I look at, say, take the example on deals where everything is -- everyone is different, right? If I take the example of Maha cyber, right, that ramped up early on and is right, as we had talked about and started off immediately for which we announced, right, also ramped up immediately in 2 parts. First, Bangalore and then Germany. If you remember, we announced OEM deals in SDV, those have taken a little bit longer to ramp up and are ramping up right now as we speak. So it is not one size fits all. Deals are being signed and then they are being ramped up. It depends on the specific situation of that customer, right? It's not even a segmental thing I should tell you, right? It's on the health of that customer and the need of our customer.
But clearly, if we are not able to show, how will it address in our top line or bottom line or market access point, they are not interested in doing the deal, okay?
Now in terms of guidance, look, I will maintain that 8% to 10% band right now, and leave it there for now, and we'll continue to update you as we move forward. But there is work to be done in the year, for sure. Otherwise, we would consider the year close and we will be in April.
The next question is from the line of Manik Taneja from Axis Capital.
Just wanted to check back on your comments a few months back when you've spoken about spring and then summer coming in. In that context, how should one be assessing our Q1 performance? And have you had some negative surprises in that backdrop?
So in the same backdrop, my comment now is upward -- onward and upward if that helps you.
Okay. So did the Q1 performance come as a negative surprise to you?
No, it did not. Like I said, I answered this question earlier, I'll repeat myself. Look, listen, we knew the seasonality that was going to come in Smart World. If you look at our restated results of FY '24...
'23.
So FY '23, please look at the restated results and look at FY '24. And you will see that there was a seasonality from Q4 to Q1 that time as well, it is same one. The only difference this time is that the pipeline is 2x to what it was last time. And -- because the pipeline is 2x, there's a lot more decision to be made and taken in the next 12 weeks, which was not the case, the pipeline was half at that time. As you remember, we ran the G45 program. We continuously run the large deals program, and that has helped us in terms of showing up the pipeline in discussions.
In addition to that, the play in AI, we are having to put in AI in a lot of bids that we are making right now there is some consolidation. So with all that, it is a different time. And like one of your colleagues earlier said as well that with the market easing up, we do believe that we are in a much better place.
Sorry to trouble you further. With regards to the India domestic deal that you won with one of the PSU departments, if you could help us understand the typical trajectory for that business? And should we probably be seeing a significant bump up in the second quarter given Q1 also had impact of elections in India?
So, yes, we said that H2 for Smart World is better than H1, and that's how they operate, and we operate in a Smart World. And you will see that lift-off happening in H2 in that business as opposed to H1. The rest of the heritage business will continue to see increase in Q2 onwards, as it did in Q1.
The next question is from the line of Mayank Babla from Enam Asset Management Company.
I just wanted your view on one aspect. So given the upcoming election, I remember that the last time there were certain curbs on China. There was certain revenue impact in our clients. So given that there are a lot of news articles about this upcoming curbs. Can this be a potential sort of risk for us?
So at this stage, we are monitoring -- we are closely monitoring the situation. But I -- to my mind, don't think there will be a revenue impact from the elections or plus/minus from China. I think what you will see is as consumption patterns change and as different opportunities come up, you will see that the deployment of the technology solutions we have built will help us in winning more market share. And that is what I would take as a positive approach to a negative.
The next question is from the line of Dipesh from Emkay Global.
Just one clarification. I think in earlier question's answer, you mentioned about M&A is part of the guidance working. Whether it is for the $1.5 billion aspiration or even for 8% to 10%, we consider some of the contribution from M&A? Because last time you indicated for $1.5 billion, not for 8% to 10%. So I just want to get that clarified.
No, no, absolutely. You're absolutely right, 8% to 10% constant currency is organic growth guidance and the $1.5 billion aspiration includes M&A, the 8% to 10% organic does not.
Understood. And the focus area, which you said for M&A, if you can provide some more color and more detail in terms of what specific area you are looking for? Because auto in Europe is a very wide similarly ISV, if you can provide some more detail around it?
Sure. Rajeev?
So let me take that. While Amit did provide color on that. See, there are 3 areas we want to build our M&A capability into. One is, of course, on the auto side in Europe. Now particularly this is in the newest technologies, like SDV, all of these factors, right? And the reason Europe is, of course, it gives us a lot more market breadth within that region. I see hyperscalers in North America and rightfully so because we see a lot of spend pattern developing in those companies. And third, MedTech because we feel there's a good opportunity, right? Medical has been a strong forte for us. We are looking to build more solutioning on the health care side and hence, on the MedTech side, right? And we will continue to look for the right level of targets to help us scale these capabilities.
Any sense on comfort range or something around there?
So see, in terms of the ticket size, I mean, we are open to look at anything that could range from $50 million to about $150 million. That's the range. Of course, we do have thresholds. They should be at right levels of margin so that we do not dilute the overall company level margins. And of course, we need to come at right levels of valuation so that we are going to be able to make it value accretive for our stakeholders.
The range you said is for consideration, right, rather than revenue?
For revenue.
Revenue. Okay.
Thank you. That would be our last question for today, ladies and gentlemen. I would now like to hand the conference over to Mr. Pinku Pappan for closing comments. Over to you, sir.
Thank you all for joining us on the call today. We hope we were able to answer most of your questions. And if there are any follow-ups, I'd be happy to address them. With that, we are signing off, and I look forward to meeting some of you through the quarter. Have a good day, and good evening. Thank you.
Thank you. On behalf of L&T Technology Services Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.