Ladies and gentlemen, good day, and welcome to Tata Technologies 1Q FY 'twenty six Earnings Conference Call. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. I now hand the conference over to Mr. Vijay Loia, Head of Investor Relations at Tata Technologies. Thank you, and over to you, sir.
Thank you, Reo. Hello, everyone, and welcome to Tata Technologies quarter one fiscal twenty six results call. Joining me today are Mr. Warren Harris, CEO and MD of Tata Technologies Mr. Punya Sudhashivan, COO and Ms. Savita Balachandran, our CFO. Our management team will start with an overview of the company's performance, followed by a Q and A session. As a reminder, we do not provide specific revenue or earnings guidance, and any statements made today regarding our future outlook should be reviewed in light of the risks that the Company faces. These risks are outlined in the second slide of the quarterly fact sheet available on our website. Our press release and earnings presentation has been submitted to the stock exchanges and are also available on our website, www.datatechnologies.com.
We hope you had a chance to review them. Let me now turn over the call to Warren.
Thank you, Vijay, and a warm welcome to everybody joining today. Let me begin by addressing our q one FY twenty six performance, followed by our view on the business outlook, key strategic highlights, and recent customer engagements. Savitha will then take you through the detailed financials. Before I proceed, I want to express our deepest condolences in light of the tragic crash of Air India Flight AI one seven one last month.
This devastating event has touched us all deeply. Air India is not only an important customer, but a trusted partner of Tata Technologies. We stand firmly with them and the broader aviation community during this difficult time. Our q one performance came in below expectations, shaped by several external factors that introduced unexpected complexities into the business environment. Revenue declined 3.2% sequentially and EBITDA margin contracted by 210 basis points, primarily due to operating deleverage.
However, we believe the factors that inform the softness in q one, such as delayed deal ramp ups and macro driven investment forces, are short term in nature and largely isolated to the first three months of this fiscal year. Our services business, which represents 77% of total revenue, declined 5.9% quarter on quarter in I r INR terms, impacted by delays in ramp ups of large deals and elongated decision making cycles. This was particularly pronounced among customers exposed to the North American market who paused or recalibrated product investments in light of the newly imposed US tariffs and broader geopolitical uncertainty. That said, we also saw strong performance in certain segments. Our technology solutions business grew 7.3% quarter on quarter, driven by a recovery in the education vertical as previously delayed projects came online.
Our aerospace segment delivered a standout 13% sequential revenue increase, fueled by steady demand and consistent execution across MRO, PLM, manufacturing engineering, and digital transformation engagements. The quarter also saw a healthy uptick in deal activity towards the end, including the closure of six large deals, four exceeding $10,000,000 and two in the 5 to $10,000,000 range. Whilst the quarter started slowly, sentiment improved as clients began reaffirming their long term commitment to innovation and transformation. Looking ahead, we are optimistic about a sequential recovery in q two and a stronger second half of f y twenty six. Our deal pipeline today is stronger than it was at the same time last year, and the early buildup of our order book gives us increased visibility and confidence in improved conversion rates.
Importantly, our two anchor customers, Tata Motors and JLR, recently reaffirmed their commitment to new product investment during their interactions with the investor community. Their continued focus on innovation, electrification, and digital product development positions us to intersect for the strengthening demand demand environment, creating meaningful opportunities, the deeper engagement, and accelerated value delivery. Additionally, recent progress in global trade negotiations and bilateral agreements signals that macroeconomic headwinds may be transitory. We're encouraged by a more stable client engagement and the improved quality of demand across our core industry verticals. Our performance in aerospace underscores the resilience of our of our diversified portfolio, allowing us to navigate short term volatility while capturing long cycle transformation opportunities in critical sectors.
Let me now touch upon a few important engagements and milestones from the quarter. We are partnering with an Asian airline on a transformative project to design and deploy an integrated aircraft docking system, spanning concept design, simulation, manufacturing, and installation. This initiative is crew critical for improving turnaround times and maintenance and MRO efficiency. We've been selected by a leading European luxury OEM to support body engineering, powertrain system, digital product development, and sustainability. We've also been nominated by the same OEM as their preferred strategic partner for the North Asia region, a significant expansion of our geo geographic footprint.
We've been engaged by a global commercial truck OEM as a preferred engineering partner in a multiyear program to conduct consolidate services and unlock cross brand synergies with a dedicated offshore development center focused on mechanical, electrical, and embedded systems. Volvo Cars has also recognized Tata Technologies as a top 10 strategic supplier, reinforcing our spending as a trusted engineering partner in their software defined and sustainable mobility journey. We've also forged new alliances with National Instruments and Emerson to co develop next generation validation, automation, and digital twin solutions, critical enablers in the AI driven industrial transformation. Turning to BMW. Our joint venture continues to serve as a performance benchmark.
The program is ahead of schedule, and we expect to surpass the four digit head count mark well before the calendar year end. Our share of profit from the JV grew 35% sequentially, underlying the demand for premium engineering services. Notably, we recorded a net benefit of 13 crore rupees from the JV in q one. This accounted for 5.6% of our pretax profits. On the EV adoption question, we believe current moderation is a temporary pause, not a structural reset.
Innovations like Cattles next generation battery offering 520 kilometer range with a five minute charging highlight the acceleration of EV viability. Our experience in EV design and development ensures we remain a strategic enabler in this shift. In closing, while q one reflected near term external challenges, the long term trajectory remains strong with a diversified portfolio, anchor relationships with Tata Motors and JLR, and a sharp focus on an engineering on an engineering on engineering a software defined intelligent industry, Kala Technologies is well positioned to deliver sustainable value and help our clients engineer a better world. With that, I'll now invite Sabita to take you through the detailed financials.
Thank you, Warren. Good morning, good evening, and a warm welcome to everyone joining us from across time zones. We appreciate you taking the time to be with us here today. Building on the strategic and business overview that Warren just shared, I'll now share with you our financial performance for the first quarter of fiscal twenty twenty six, highlighting the key metrics, trends and developments that shaped the quarter. Revenue from operations stood at INR1244 crores, marking a sequential decline of 3.2%.
On a constant currency basis, total revenues were down 4.6% during the quarter, reflecting the movement of the U. S. Dollar during the period. Revenue from our services segment, which accounted for 77% of the total revenue for the quarter, came in at INR964 crores, down 7.6% quarter on quarter in constant currency terms and 5.9% decline in Indian rupee. As Warren mentioned earlier, while we see our deal pipeline reflect continued client interest and engagement, The quarter saw a slower than expected ramp up in certain large engagements and conversion delays in key deals.
This led to a shortfall in services revenue relative to our initial expectations. Notably, recent weeks have outlined some green shoots in sentiment with customers beginning to look beyond short term policy concerns and reasserting their focus on long term product roadmap. This emerging shift was reflected towards the later half of the quarter, where we closed six significant deals, highlighting strengthened customer engagement. The Technology Solutions segment, representing the balance 23% of our revenue, saw a sequential increase of 7.3% this quarter, driven by a rebound in our education vertical, partly offset by seasonally soft performance in the product portfolio. Looking ahead, we expect momentum to improve in the second half, driven by a seasonal uplift in products and focus on infrastructure readiness across select education projects.
Our EBITDA margin for the quarter came in at 16.1%. The challenging macro conditions and policy related pressure on sentiments during the quarter weighed on revenue expectations resulting in margin compression. Let me walk you through the key factors that influenced the margin movement during the quarter. The employee benefit expenses, which remained flat quarter on quarter in absolute terms, rose by 170 basis points as a percentage of total revenue as we built the right skill mix within our resource pool in anticipation of a rebound in the following quarters. This was partially offset through an outsourcing and consultancy expenses, which declined by 13% sequentially, reflecting a deliberate alignment of our subcontracting activity to revenue during the period.
As a share of total revenue, these costs declined by 80 basis points sequentially, underscoring improved operational efficiency. Also, operating expenses fell 9% quarter on quarter with their share of revenues down 60 basis points, reflecting continued discipline in discretionary spend. Meanwhile, our collaboration with BMW in India continues to outperform expectations. In Q1, our share of profit from the joint venture increased 35% sequentially to INR4.8 crores. And as we've outlined in our previous communication, the other income includes a deferred income of INR8.3 crores, reflecting the fair value gain on the options relating to our investment in the Company.
The combined net benefits stood at INR13 crores, accounting for 5.6% of our pretax profits. We expect the current momentum to remain strong, driven by sustained demand for premium engineering solutions across key verticals. As Warren highlighted earlier, the engagement is tracking ahead of plan and we're now on course to exceed the four digit headcount threshold well before our original year end expectations, underscoring both scale and velocity of execution. Other income saw 11.4% sequential growth in the quarter to INR64 crores, mainly driven by unrealized foreign currency gain of about INR25 crores. We also had net treasury income of INR24 crores during the quarter.
As a result, the profit before tax declined 10% sequentially to crores. On a year on year basis, PBT was up 6%. Our effective tax rate during the quarter came in flat at 26.8%. As a result, profit after tax was down 9.8% quarter on quarter to INR170 crores, while on year on year basis, it was up 5.1%. Preserving financial strength and ample liquidity remains central
And as of end of the quarter, we continued to operate debt free with net cash of $159,000,000 which was down from $175,000,000 of the previous quarter, primarily reflecting the dividend of $65,000,000 that we paid out towards the June. Our collection processes continue to remain resilient and well governed with the total DSO coming in at 87%, eighty seven days at the end of the quarter, reflecting a marginal increase from the eighty one days of March. Importantly, underlying collection efficiency continues to hold firm, reinforcing the strength of our credit and receivables management. Cash flow front, Q1 saw a notable improvement in both working capital as well as the cash conversion metrics. Free cash flow for the quarter stood at INR190 crores, supported by a net working capital release of INR121 crores.
We remain focused on sustaining strong collection efficiency as well as conversion discipline going forward. Moving on to operational metrics. The total headcount at the end of the quarter stood at INR12407 crores, reflecting a net reduction of approximately two thirty seven associates or 2% compared to the previous quarter. The reduction was not fully backfilled during the quarter, in line with our calculated hiring approach. That said, we continue to invest in strategic talent acquisition across high priority areas, including digital engineering, embedded systems and AI led transformation to support differentiated delivery and our long term growth ambition.
This focused hiring underscores our commitment to building a future ready workforce, while ensuring optimal resource alignment with evolving business needs. Our trailing twelve month attrition rate ticked up modestly this quarter, rising to 13.8% from 13.2% of the prior period, in line with industry trends. While attrition levels remain within manageable bounds, we continue to prioritize talent retention and capability building through structured development initiatives. Investments in skill enhancement and upskilling have been stepped up, especially in strategic domains such as SBV, AI and cybersecurity. These efforts are designed to deepen technical bench strength, enhance employee engagement and future proof our talent pool in alignment with evolving customer needs.
In conclusion, while Q1 reflected profit softness in top line performance, our operational execution remains disciplined and aligned with long term strategy. We continued to invest in priority areas, maintained financial strength and grow efficiency across value chain while navigating a dynamic demand environment. Our customer conversations remain constructive and we see encouraging signs in key growth areas. As we have walked through the year, our focus remains on strengthening customer relationships and executing with agility and delivering value to our stakeholders. Thank you. With that, let's open the floor for questions.
Thank you very much.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touch tone telephone. An operator will take your name, and then I'll return the question queue. Participants are requested to only use handsets while asking a question. Also, participants are requested to limit their number of questions to two per participant and rejoin the queue for any additional questions.
Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from Ruchi Makita from ICHI Securities. Please go ahead.
Thank you for the opportunity. Well, my first question is regarding the growth. We expect a sequential growth recovery in q two. Is this on back of the six structured lease that we have won or we see a pick in business beyond these six deals as well?
Well, thanks for the question, Ruchi. We we entered the the fiscal year with with a fair amount of of momentum. There was there was deals that were were closed in in q four. And and certainly towards the end of of the third quarter, we've added the six deals that that we've we've just announced. So it's really the the order book that we're taking into to q two and and also the improved sentiment.
I think the the tariff concerns and the macroeconomic concerns that that informed the softness at the beginning of of the fiscal, they haven't fully dissipated, but but we are seeing increased confidence that common sense will will prevail and the trade negotiations will will provide a a an environment that will will provide the the sort of basis and and confidence around which decisions can be made. So our confidence in in improvement in q two and the second half of the year are are informed by order book and and also the engagement and sentiment that we're picking up from customers.
Got it. Secondly, in our non auto segment, the revenue declined almost on same pace as auto on sequential basis. Can you break up for us which segments are dragged here? We understood aerospace is doing well. So which are the other sub segment where we see challenge?
Well, we we saw aerospace pick up and and demand continued to to grow in in aerospace. So we're we're very bullish about the the ongoing momentum that we've established there. You know, we've seen a little bit of softness in in industrial heavy machinery, but that's on on account of of one project that was we saw closed in in the fourth quarter. We're not seeing the the type of softness that's that's informing the the slowdown that we've grappled within in automotive over the last twelve months.
Thank you and all the best.
Thank you.
Thank you. Next question is from Manik Taneja from Axis Capital. Please go ahead.
I had a couple of questions. The first question was with regards to the expectation that we should start to see recovery from Q2 onwards. If you could talk about how you're seeing the demand within your anchor customers and outside of that? And if the sequential rebound essentially is largely led by anchor or the external customers? That question was.
The second question was with regards to our on-site offshore revenue mix. It appears that metric is also got impacted with the ratio that we saw in terms of revenue. Is that the only reason for the change in terms of metrics or there is also a change in terms of type of conditions that you're winning, which is impacting this metrics? Those are the two questions.
Two great questions. You know, certainly, we've we've been very encouraged by the the sustained strong demand from the the anchor customers, both Tata Motors and and JLR. And and as I commented in in my opening remarks, we see that continuing to to to be very much a part of the demand environment that we we look to intersect with. I think the the confidence, however, in in q two and the second half of the year is is much more informed by the overall sentiment in in the automotive market. One of the things that that we continue to be reminded of is that the automotive industry is a product led industry.
And I think that the the uncertainty that has defined the space over the last twelve months as as the election cycles have played out in North America and as the the EV incentives in in Europe have run off, there's been a lot of of latent product investment decisions that have been building up. And and I think that that that the the sort of anticipation that that we had at the beginning of fiscal that that latent investment demand would convert into new products was was somewhat undermined or compromised by the tariff announcements. But we've seen that largely play out in the first three months, and a lot of the the decisions that we were anticipating are now starting to get to get made. And so, you know, our confidence in q two and the rest of the year is really about broad market sentiment and not just about specifically what's going on with JLR and CMO.
Sure. Yeah. Makes sense. I can question on the rest of the on-site offshore and the next thing.
The on the onshore of of of offshore, the the the change in in mix is largely driven by what's happening in in aerospace. Aerospace is is, for us, an area of of growth. It's been it's been driven largely by what's going on in in Airbus. But the the reputation that we're building in Airbus and the differentiated opportunity that we're getting within their supply chain, particularly in and around the propulsion players, is is is giving us opportunity that is beginning first onshore, and then we are leveraging the relationships and the credibility that we're building to drive business offshore. So it's part of the the sort of life cycle of of engagement that we're seeing with with a number of our aerospace customers.
Sure. Thank you. All the best for the future.
Thank you.
Thank you.
Next question is from Darshil Zawari from Crown Capital. Please go ahead.
Hello. Good evening, sir. Thank you so much for taking my question. Hope I'm hopefully I'm audible. Hello?
Yeah. You're very clear. Very clear.
Yeah. Yeah. Hi. Sir, I just wanted to know, like, we've referred that our order book looks good. If we could quantify what's our current order book, that would be really helpful, sir.
Well, we we don't we don't provide specific details in terms of order book. But as I said in my opening remarks, the order book at the end of the first quarter is better than the order book this time last year. So, again, our confidence in the in the rest of the year is is driven in part by by that data point.
Okay. Fair enough, sir. So if you could just, you know, maybe help with what kind of percentage growth is there in the order book that could, you know, just indicate, like, what kind of, you know, win that we had better, sir, if that's possible?
We've seen a material improvement, but we don't we don't quantify the the the improvement in order book in in specific terms or in percentage terms.
Okay. Fair fair enough, sir. I also just want to know any kind of new areas from other than our existing areas are we targeting to grow at or, you know, looking for it, sir?
Yeah. I I think there's a number of of areas that that is informing not just the the order book, but also the the pipeline. I've I've referenced aerospace. You know, typically, our our business in the past has been in the aerostructures and the MRO space. We are now extending that into into propulsion systems, and and that's enabling us to to build relationships, again, outside of of the work that we've done in the last three years with with Airbus.
In in both automotive, aerospace, and industrial heavy machinery, there's a lot of work that we are undertaking in and around smart manufacturing. And that relates, one, to the to the deployment of digital solutions, particularly BLM, ERP, and and and the edge solutions, and the integration of of the technology stack that that informs and and deploys the the ability to be able to fully integrate the the digital definition of the of the product with the the manufacturing process and and the the way in which products are are built. We're also seeing a a a lot of uptick in and around the deployment of AI solutions in manufacturing. In the in the fourth quarter, we announced a very large deal with a tier one North American automotive company where we are deploying our proprietary AI framework at Chromosome AI into that organization across a 100 quests. We are deploying sensors, collecting data, and using that platform to to enable the the organization to accelerate manufacturing throughput and and increase manufacturing uptime of assets, legacy assets within those plants.
So we're seeing a lot of of opportunity in and around that space, and that and that's a a reputation that we we believe that we will be able to capitalize not just in the in the short term, but in the medium to long term.
Oh, okay. That helps me a lot. I'll join back the queue for further questions. Thank you so much, sir.
Thank you.
Thank you. Next question is from Sudhir from Kotak Mahindra Asset Management. Please go ahead.
Yeah. Hi, madam.
Thanks for the opportunity. Couple of questions. Firstly, for the last few quarters, at least, we have been quite optimistic about the demand recovery. And when the revenue growth number comes in, that doesn't seem to be happening. So where exactly is the split between the lip and the cup?
Is it is it primarily because of the macro across all these quarters or because of the high client concentration? Or is there anything to worry about the execution on ground?
I think it's a good question, Sofia. But if if you look at the situation at the at the end of of the last fiscal year, you know, we we were very optimistic about a strong start to f y twenty six, And and we had positioned capacity and capability to to discharge that opportunity. Unfortunately, on on April, the announcement was made about Paris. And and I think the the uncertainty that that generated prompted a number of of our customers and and a number of of the projects that they were looking to to launch to be paused and and delayed. And and so, you know, whilst we entered the the quarter with confidence and and with high expectations, we've had to recalibrate the the the expectations for the three months that have started the fiscal year as a result of that macro issue.
You know, we continue to invest in capability. As you've seen through the margins, we protected capacity primarily because we expect the the situation to be short term, and and we are very confident about q two and continue to believe that the second half of the year will be better than the first. So we we see the the challenges, the headwinds that we faced as being tactical short term, and and we expect to bounce back very soon.
Sure, sir. My second question is, I think in the media interaction, mentioned probably you will do double digit growth in f I twenty six. Now with a very sharp decline in the first quarter itself, So how do we think about the full year outlook in terms of revenue growth? That would be from me. Thank you so much.
Yeah. I I think we we we certainly have have had our expectations, you know, somewhat challenged by the the events of the first three months. But but double digit will continue to be on North Star. We'll see how we do in the in the second quarter, and I think we'll have a a much more informed perspective as we as we move into into September and October.
So as of right now, we will continue to to push the organization as hard as we can to achieve the the the type of of growth that we had planned for at the beginning of of the year. But I think the the next three months will will really determine whether or not that's realistic.
Thank you, sir. All the very best.
Thank you.
Thank you. Next question is from Kunal from Bank of America. Please go ahead.
Sure. Thank you. A couple of questions from my side. The first one is on margins.
As you think about that 200 basis points EBIT margin decline in the quarter, I just wanted to understand how much of it of of this could be lost to operating leverage versus the on-site bump up that you've seen. And is it is it fair enough for us to assume that what's been lost to operating leverage should be sort of recouped in the next two or three quarters?
Yes. Hi. Thanks for the question, Kunal. I would say that at this point of time, we would attribute a large proportion of the drop in margin to the operating leverage given that we've not really affected any kind of a structural shift as far as overall capacities are concerned. We did obviously have a shift as far as onshore related revenues are concerned, but from a capacity perspective, it didn't really change much between on-site and offshore capacities.
Therefore, this point of time, I think it's fair to assume that most of it is really more of an operating leverage effect.
Understand. And the second question is Varun, your comment around aerospace and the great progress you're making with Airbus as an account. So just towards better understanding that, is this progress more in terms of the newer kind of work opportunities that are opening up within Airbus for the company? Or is this more to do with the fact that, you know, as you're working with one of the key companies here, you're starting to get work with other companies in the ecosystem, let's say, the airlines itself?
I I think the the the demand and the confidence that we have in aerospace is is is largely driven by the growing confidence that that Airbus has in in our execution and and capabilities. I think we've we've been through a a learning curve over the last three years. We've we've invested in infrastructure. We've we've built an access in in Toulouse and Hamburg, and we've we've delivered services to Airbus in in the aerostructures area. We've deployed digital solutions that have been focused upon accelerating manufacturing throughput.
We've we've engaged in in delivering robotic solutions as far as the assembly process is concerned. And I think the the confidence and the and the capabilities that we've deployed have have afforded us more and more opportunities in in new domains inside of Airbus. Airbus have also been struggling as Boeing has in in terms of building enough aircraft. The the demand continues to to grow, and and they are not just challenged in terms of their own capabilities, but they are challenged in terms of the capabilities of their supply chain. So we've been leveraging the the endorsement of Airbus and the recommendations that they've been providing to their suppliers to initiate opportunities with with their their key suppliers.
And these are large organizations. These are the the engine manufacturers and the the aircraft fleet manufacturers. And so our confidence and and the momentum that we're building is largely driven by that. Obviously, the the investment that the Tata Group makes or is continuing to make is providing tailwinds that that we're also intersecting with. But I think the the major driver of of demand and and opportunity for the book and pipeline is really the the great work that we've done with Airbus over the last three years.
Okay. Right. Thank you so much.
Thank you. Next question is from Abhishek Kumar from GM Financial. Please go ahead.
Yeah.
Hi. Good evening, and thanks for taking my question. Very good to hear you're still being optimistic given the dynamic environment. My question was on the deal pipeline or the environment from these.
Last quarter, we spoke about potentially some of the German OEMs looking at more out offshoring. Have you seen any progress on that front? Do you think they are still looking at higher offshoring or given, you know, the uncertainty, there has been a pause around large deal decision making of that?
Yeah. We certainly are seeing continued traction from from the German OEMs. I think all three of of the big OEMs in in Germany are now requiring BCC components to their sourcing of of engineering services that not only providing opportunity for organizations like ourselves, but it's also providing opportunity for organizations like ourselves to partner with with their incumbent engineering service providers onshore. And so we're seeing a number of of deals and a number of partnership opportunities progress over the last three months. So that that push of Germany into not just India, but also places like Eastern Europe and and Morocco is is continuing at pace.
Okay. Second question is on OEMs versus tier one. One of your peers recently said that the pain is higher in tier one. How do you see that? You know, do you think, you know, for us also tier one decline is higher? And if if we can get some idea of what would be our share of OEM versus tier one in the auto vertical? Thank you, Tom.
Yeah. I think that's a that's a great question, and I would certainly endorse the fact that that the supply chain is is feeling the pain in a somewhat more acutely than than the OEMs. But somewhat counterintuitively, that is providing opportunity. I referenced the the work that we're doing with with one of the North American tier one automotive suppliers in and around smart manufacturing. You know, when when a supplier looks at the unit economics of their business, you know, one of the levers that they they look to apply is optimization of of their manufacturing process because that's where the majority of their value outside of e r and d is is delivered.
And so we are seeing a significant amount of of opportunity in terms of deploying technology and and and and taking legacy assets and interjecting capability that will will drive optimization and and productivity improvement. And and the the reputation that we've established at places like JLR and and and Tata Motors, you know, places that we can we can take our customers to gives us real credibility in that particular space. You know, the fact that we really not only understand the technology, but understand the domain challenges and can go toe to toe with the manufacturing engineers and demonstrate how capabilities like AI can make a difference. I think that represents not only significant opportunity in the in the short term, but certainly something that we expect to build upon in the future.
Sure. I mean, can we get some sense of what would be our exposure to tier one?
I don't have a specific number for you, but that's something that we can get back to you through Vijay and and his team. So let me come back to you with with those numbers.
Sure. Sure. Thank you, and all the best.
Thank you. Next question is from Shanda Gargwal from Amsec. Please go ahead.
Yeah. Hi, Warren.
Sir, you're not audible. Can you speak up?
Yeah. Is it better now?
Yeah. That's better. Alright.
Yeah. Yeah. Hi, Warren. So in terms of German, did indicate that they are looking at the higher sourcing to India or Eastern Europe countries. So how are we looking at demand trends from UWIC auto OEs?
The the demand trends with with the North American OEMs have have been strongly impacted by the the tariff decisions. And and and and not just the tariff decisions, but also the the the bill that's just gone through congress that has taken away some of the the components of the inflation reduction act that that have positioned investments for for EVs. And so what we've seen with with Stellantis, with with Ford, and to a lesser extent with GM, is that if those organizations revisit their product plan from a propulsion systems perspective and and also from a a manufacturing perspective. And that and that's prompted somewhat of a pause in in the last three months. We are starting to see some clarity come through from from those three companies, and we expect that clarity to to precipitate into into product decisions in the in the next couple of of months.
Right. And in terms of our clients, visibility or any improvement in outlook that we see from our anchors?
As said before, the the demand from from our anchors has been strong. I think their financial performance has been very strong, and and we do not see in the short term any change to that. So we're very, very excited about the work that we're doing and the and the opportunities that we we currently have visibility of.
Sure. Thanks. Thanks, Noreen.
Thank you. Next question is from Ankur Pant from IIFL. Please go ahead.
Hi, Warren. Good good evening. Couple of questions from my side. First one is, is the recovery that you're speaking of, is that also coming from an improvement in the challenges that the OEMs have been grappling with over the last year? Has the situation there improved?
Or is it more of a latent demand or delayed ramp up which are finally starting to come through, which may also make the the the the demand more volatile from here? How do you see that?
I I I think it's a it's a bit of a bug. You know, I think if if we look at the last twelve months, you know, you look at the at the policy positions of of the Republicans and the Democrats that were competing for for the White House last year, you know, there there were stark differences in in their approach to to alternative propulsion systems and particularly EV. So that prompted a delay in decision making within our customers. And and, you know, that impact was not only felt in North America, but it was also felt with those OEMs that have a great exposure to the North American market. I think the the clarity that we saw in November, you know, certainly precipitated in in much better engagement that we had with our customers in January, February, and and March.
That's what informed confidence going into the fiscal year, but that that confidence was somewhat undermined by the the tariff decisions or the tariff announcement on April. Now we have seen some of that play out. I think the the agreement between The UK and the and The US is hopefully a an indicator of what's likely to happen with with other countries. And and I think that, you know, there is a a a an increasing view that common sense will prevail. And and as a result, we are starting to see the decisions that we expected at the beginning of the fiscal year come through.
So I I think that there was a delay and a buildup of of demand for new product investment that was as a that was driven by the sort of the geopolitical things that played out last year. I think the tariffs have compounded that, but we are confident that we're through most of of the distraction that that represents, and our customers are now starting to make decisions.
Alright. That's helpful. But just prior to the the tariff situation, the the European OEMs were undergoing significant stress in terms of profitability competition. Has that situation improved or is that pretty much working?
Yeah. I I think that I think that the industry is is going through the typical cycles from a demand perspective that define the automotive industry. It's been somewhat compounded by the the rapid shift to EVs in in China, but it's been largely taken up by eVENGI vehicle companies in in China. So our our customers, in terms of their financial performance, will, I think, continue to create some headwinds in the in the next twelve to eighteen months. But I think one thing that that we all have to remember is that the automotive industry is a product driven industry, And the one thing that that is typically protected is the investment in in new products.
And I think the the investment has not been there in the way in which we expected over the last twelve months because of the things that I've cited before. And that and that, I think, reinforces the priority that that most of our customers are having to position in in deploying the investments that are long overdue.
Okay.
And secondly, on margins, now we've seen a sharp decline in margins this quarter. How do we see the margin trajectory from here on in? And any decision in the meantime, when would they do it out?
So I think I think I'll try earlier part of the call today, the impact on the fixed cost that we've done within the system has largely explained the job as far as margins are concerned. That being said, from our perspective, I think we continue to maintain that our goal post is to move towards the 20% margin band as we scale up our operations. That being said, we will continue to, of course, start looking at optimizing cost on delivery and efficient labor that we have at our disposal, be it improving offshore and sequentially looking at rationalization of our people service. And, of course, going ahead, we will also continue to see improvements gradually as we see a lot of productivity improvements come through to use of AI and and other tools. But these, of course, will, like I said, reflect more gradually over a period of time.
And to the point that Warren had made earlier in the call, as we see Q2 play out, we'll be in a much better position to assess what the rest of the year is going to look like. But our ambition will continue to try and see how we can actually ensure margin preservation for the year as we exit. But he's in a better position to assess the situation.
Thanks, Abita. Just on the rate hike, are you are you going to do something on that?
On the rate hike, yes, so that is something that the management will discuss internally and take appropriate discussions with the organization.
Perfect. Thanks for the time. Thanks, Lauren. All the best.
Thank you. Next question is from Chandramodi Mutaya from Goldman Sachs. Please go ahead.
Hi, good evening, and thank you for taking my questions. My first question is just around the sequential recovery we expect through the rest of the year.
So does that assume that the current standoff on tariffs gets resolved at some point in the next couple of months? So I just wanna understand what needs to happen for for more visible sequential recovery in the back half.
Yeah. I I think our confidence in in q two is really not informed by any expectation in terms of the trade negotiations that are going on between various countries. It's it's largely informed by the the order book and and the qualified pipeline that we're we're taking into the period. I think the the trade negotiations will likely inform the the environment in which we operate in the in the second half of of the year. So there there will be an influence clearly that that the trade negotiations between Europe and and and The US specifically will have on the on the environment.
But I I think, certainly, q two, our confidence is driven by deals that we've we've closed. And and and sentiment from our customers is is is really giving us a a level of confidence that they are seeing past the the tariffs announcements that were made at the beginning of of the fiscal year. And that and that latent need to invest in products is is starting to get prioritized and and will give us the the deals that will ultimately continue to allow us to to drive momentum and growth throughout the the subsequent quarters of of this fiscal year.
Alright. That's helpful. And just related to that, you did mention that you have seen a pickup in the order book at the end of q one versus last year at the same time. So just trying to understand, we did have these disruptive announcements on tariffs towards the March. So through the quarter, have you seen things pick up since then?
Just trying to understand q four this year versus q four last year, how the order book looked? Just just trying to sort of understand what happened to the quarter and and help your order book q one end of quarter was q one end of quarter last year.
Yeah. I think if we if we look at the the quarter in terms of deal signings, March April was a was a a month that that was was very muted in terms of deal signings. The the announcement on tariffs was made on the second of of April, and and that prompted many of our customers to pause and and to delay decision making. I think the the review that that the customer base undertook in in April and have played out into the sort of early part of of May. And since then, we've seen decisions being made, and and the improvement that we've seen in the order book is is largely through deals that we signed in the latter part of of the quarter.
So the momentum is built as as confidence has has built and and as, you know, our customers have have have become, from a scenario perspective, somewhat confident that that they can work through the uncertainty that that is out there.
Got it. That's helpful. My second question is just around the other income run rate. So we have seen a pickup in other income quarter on quarter. I think in previous quarters, you have broken out that bridge in terms of what the fair value investment gains are, what hedging costs could have been, and what the treasury gains have been.
So 57 crores of other income last quarter versus 64 crores of other income this quarter. Just wanna understand what part of that is sustainable to extract going forward and if there's a bridge that you're able to provide as well?
Most of the incremental effect that you see quarter on quarter sequentially, as I had outlined in my opening comments, reflects actually the unrealized foreign exchange movement on some of the assets that we have on our balance sheet. The treasury income out of the total income is about INR24 crores, both interest as well as what we realized through sale of some of our mutual fund investments. And as we build up cash balances, I would like to believe that some of that would reflect, of course, the yield curve that we see in the world, across the world. But you should have some part of it that is sustainable. And we also continue to have the INR 8 crores plus effect from the BMW JV investment that we had outlined in the past.
Got it. That's helpful. And just last question is around technology solutions. So this has been a lumpy business on a quarter quarterly basis in the past. But but usually, I think this business picks up towards sort of the end of the year, the second half of the year.
First first quarter is usually sequentially slow. Just wanna understand what the positive lumpiness has been and and and how you're looking at technology solutions growth through FY '26 this quarter and for the full year?
Yeah. Technology solutions is is made up of of education and and products. We have sustained and until the the third and fourth quarter last year over the course of of the last kind of two years, sustainable improvement in in education. And and that's a business that we're work working hard to ensure that we we manage out the lumpiness. We had some infrastructure challenges in in q four specifically that that related to the readiness of of the labs that we were deploying our solution to, And and that's largely been been resolved, and and you've seen that in the improved performance of education in the in the first quarter.
Products, however, is a seasonal business. Most of of our customers in that area discharge budgets at the end of the calendar year, particularly in North America. And the lot of maintenance contracts are typically renewed at the beginning of of the new calendar year. And so q three and q four are the are the big quarters for for the products business. And so there is some lumpiness and some some seasonality that we have to factor into our plans because of that.
Okay. That's helpful. And just lastly around headcount, just wanna understand as you see sequential improvement to the where we are at presently in terms of utilization rates and and when will we potentially trigger a pickup in headcount if that's the plan for the rest of the year?
You know, think we'll we'll continue to to monitor the demand environment. I think that there is a capacity that that we have that we can look to to put to work to to satisfy the growth that we are expecting in the in the second quarter. But then I think we'll we'll recalibrate our head count plans at the end of of August, September as it pertains to the second half of the year.
Got it. Thank you very much and all the best.
Thank you. The next question is from Rajiv Beria from Citi. Please go ahead.
Thank you for the opportunity. Just one clarification. You mentioned that 1Q got impacted due to delayed ramp up and elongated decision making. Did you see any delay cancellation in one q? And also, how did the pricing play out in one q? Did you see any pressure in terms of pricing?
We've not seen any significant deals getting getting we've not seen any deals being canceled. There was a a deal in the IHM space in the fourth quarter that got short closed. That was a project that we were engaged with. And because of macroeconomic uncertainty, the the customer decided not to progress with that particular project. But that's the only project that that we've seen being closed.
Most of the the issues associated with the softness in q one were related to delays of decision making and not cancellation of of programs. And that's one of the reasons that we, again, are confident about the rest of the year because that that need is still very much there. On pricing, the the current environment is is is prompting most of our customers to to challenges on pricing. But I think so far, we've resisted that challenge quite well, and that's something that we'll we'll continue to to work hard to do.
Thank you. That's all from my side.
Thank you very much. We'll take that as the last question. I would now like to hand the conference over to Mr. Vijay Loia for closing comments.
Thank you all for joining us on today's call. We hope we've addressed most of your questions. If you have any additional queries, feel feel feel free to reach out to our investor relations team, and we'll be happy to assist you. Wishing you all the best, and goodbye from all of us here. Thank you.
Thank you very much. On behalf of Tata Technologies, that concludes this conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.