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Weak Q1; double digit growth guidance retained

LTTS reported softer than expected operating performance in Q1. Revenue declined 2.9% QoQ to USD335.3mn (down 4.2% in CC terms), impacted by SWC seasonality, macro headwinds, and softness in Auto, and missed our estimate. EBITM recovered by a marginal 10bps QoQ to 13.3%, a tad lower than our expectations. LTTS continued to steer the large deal momentum in Q1, registering a 3rd consecutive quarter of large-deals TCV of over USD200mn, including one win worth USD50mn, three deals worth USD20-30mn, and six worth over USD10mn each. Clients are being cautious about decision-making due to the macro uncertainty, although H2 is likely to see some stability. The mgmt expects gradual improvement in the revenue and margin trajectories, with H2 being better than H1. It reiterated double-digit CC revenue growth guidance for FY26, implying 2.8% CQGR over Q2-Q4. It retained guidance of ~16.5% EBITM by Q1FY28. We cut FY26E-28E EPS by 3%-1%, factoring in the Q1 performance. We retain ADD on LTTS with TP of Rs4,750 at 28x Jun-27E EPS.

Results Summary

LTTS’s revenue fell 2.9% QoQ (down 4.2% CC) to USD335.3mn – below our estimate. The revenue drop was steep in the Tech (down 8.5 % QoQ) and Mobility (down 1.5% QoQ) segments, while Sustainability saw healthy growth (4.1% QoQ). Except India (down 16.4% QoQ), all geographies posted growth – North America up 1.3%, Europe up 0.5%, and RoW up 5.5%. Revenue fell 2.8%/5.5% across the top-5/-10 clients, resp. EBITM rose slightly by 10bps QoQ to 13.3% due to continued investments in strategic client support programs and with some programs paused in Auto. Headcount fell 2.6% QoQ to 23,626. Attrition inched up to 14.8% from 14.3% in Q4FY24. What we liked: Strong deal intake, Sustainability growth momentum. What we did not like: Revenue and margin miss, weakness in Mobility.

Earning Call KTAs

1) Clients are cautious about decision making due to the macro uncertainty, though stability is likely to return in H2. 2) Mobility fell 1.5% QoQ due to weakness in Auto. Auto witnessed short-term pauses, delayed starts in some programs, and some pricing pressure as customers seek discounts. The auto subsegment is facing challenges due to disruptions from low-cost Chinese innovation and high ER&D costs in Europe, and uncertainty among US OEMs regarding investments in EVs versus ICE. However, trucks & off-highway, aerospace, and rail continue to perform well, and the overall deal pipeline for Mobility remains robust. Mobility is expected to be muted in the near term, with a turnaround anticipated in H2. 3) Sustainability grew 4.1% QoQ in Q1, on the back of deal ramp up. More than half of the large deals won in Q1 were in Sustainability. Plant engineering continues to see strong demand in oil & gas and CPG, led by greenfield and brownfield capex projects. Industrial continues to see large deal ramp ups and a robust deal pipeline. Sustainability is likely to maintain growth momentum 4) Tech declined 8.5% QoQ on account of SWC seasonality. Medtech is seeing some delay in decision making in the US. The company is making good progress on the SWC business expansion into the Middle East, and expects revenue to kick in from this by endFY26. LTTS is pursuing some large deals in Tech which are in the advanced stage of negotiations; it targets closing these deals in coming months which will drive growth from Q2. 5) Mobility segment margin declined by 360bps QoQ due to delayed decision making on large deals, pauses in existing programs, and customers on the lookout for discounts. Sustainability margin expanded by 420bps QoQ on the back of large deals-led revenue growth. Tech segment margin declined by 120bps QoQ due to continued strategic support for select customers. The company expects strategic support programs for select customers to phase out from Q3. 6) The management expects margins to improve in H2 on the back of revenue growth, improved quality of revenue with higher-margin segments driving growth, operational efficiencies including AI-led automation, and phasing out of strategic client support programs. 7) The company aims to maintain large deal TCV of USD200mn on a quarterly basis as the baseline, and to potentially increase it ahead. 8) SWC seasonality headwinds exceeded USD10mn in Q1, from the QoQ growth perspective. 9) SG&A is likely to be 10.5-11.5% of revenue; the current spike in SG&A is attributed to Intelliswift’s higher level of SG&A costs. 10) The Intelliswift integration plan is on track, showing improvement in revenue growth and margin.

Update on AI/Gen AI

1) With AI and automation advancing rapidly, client engagements and deal wins are increasing, making AI central to client conversations and programs. The company has deployed multiple programs in AI for clients, and has so far filed 206 patents in the domain. 2) The company also introduced PLxAI—a proprietary AI framework aimed at accelerating the product development lifecycle (PDLC) for global customers. PLxAI combines smart prompting, contextual intelligence, and agentic workflows to significantly reduce the product lifecycle. PLxAI was originally incubated in the Mobility segment, but has now been scaled up and propagated to other segments. 3) LTTS is actively leveraging AI and automation to drive both, customer outcomes and internal operational efficiencies. It highlighted the emerging trend of decoupling between revenue growth and headcount addition. 4) It has launched aro

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