L&T Technology Services Limited ($LTTS)

Ladies and gentlemen, good day, and welcome to the Q4 FY '26 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. Sandesh Naik, Head of Investor Relations. Thank you, and over to you, Mr. Sandesh.

Thank you, Sagar. Hello, everyone. I'm Sandesh, and welcome to the earnings call of L&T Technology Services for the fourth quarter of FY '26. 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 will be available on our website about an hour after the call ends. With that, let me introduce the leadership team present on this call. We have with us Amit Chadha, CEO and MD; Alind Saxena, Executive Director; and President, Rajiv Gupta, CFO; and Munjay Singh COO. We will begin with Amit providing an overview of the company's performance and outlook, followed by Rajiv, who will walk you through the financial performance. I now invite Amit for his opening remarks.

Audible, clear?

Loud and clear.

Perfect. so thank you all for joining us on the call today on a very busy results day. First of all, I would like to congratulate and welcome our CFO, Rajeev Gupta; as Executive Director and Chief Financial Officer and the Board of LTTS. I would also like to extend a warm welcome to Mr. Amitabh Kant on his appointment as an independent director on the Board of LTTS. We are delighted to have him join the board. Our governance reformer and public policy change agent, can also serves on the Board of Directors of the L&T Group. Now let me share the key highlights for FY '26. In FY '26, the total revenue, including continued and discontinued operations grew 5% and to $1.321 billion as indicated in the previous quarter. The SWC business has been classified has continued -- discontinued going forward. And therefore, the revenue from continued operations delivered a higher growth of 8.3% in and 1 to 3 million. Here on, we will only talk about the continued operations. Sustainability continues to do well with 12.8% growth, while tech, including IntelliSwift, grew 19.7%. North America did well with a growth of 12%. All other geos showed positive growth. Our FY '26 large deal wins came up at $855 million, up 40% over the previous year. Now let me provide you key highlights for quarter 4 FY '26. Revenue was $306 million, grew 0.3% annually, while we grew 1.7% sequentially, reflecting a deliberate shift towards improving the quality of revenue over the last 2 quarters. with strategic portfolio rationalization leading to a more resilient business baseline. This is as we had informed you during the Q3 results call. This is reflected in our EBIT margins expanding by 40 bps sequentially to 15.2% second quarter in a row. Rajiv will share more details in his commentary. Sustainability grew sequentially, continuing with its double-digit year-on-year growth momentum and mobility remains steady. Our large deal win continued its momentum with a healthy of $182 million in the quarter, reflecting our deep client relationships and validation of our new technology investments. We finalized our Lakshya 31 plan and completed the strategic portfolio realignment exercise, resulting in pruning businesses based on regional focus and offerings and divestment of the SWC business to pivot on engineering intelligence and core AI-led digital engineering services. Let me now provide you our segment performance and outlook. Mobility. The mobility segment remained steady with revenues almost flat on a sequential basis. Over 40% of our large deal wins in Q4 were in the mobility segment, indicating a turnaround in CY and C26. We see momentum in auto subsegment, particularly North America automotive, showing good growth over the previous quarter. Aero and rail subsegment has been resilient while trucks and off-highway has been slightly subdued. We are gaining traction significantly in optimizing products and software life cycle through generative AI and Agentic AI-led delivery models, enhancing enablement of product experience for end customers. Our global premier technology group selected LTTS as a strategic engineering partner to drive digital transformation across its entities and established a high-value engineering hub with us. Second, LTTS has entered into a strategic collaboration to establish a center of excellence for next-generation recreational marine solutions leveraging its cross-domain expertise in software-defined vehicles, electrification, AI and digital engineering. Finally, LTTS has selected as a strategic partner for cargo logistics major to develop next-gen air mobility solutions, leveraging LTTS capabilities across aerospace, engineering, electrification, manufacturing to accelerate aircraft readiness. From a geo standpoint, the U.S. market, particularly automotive is seeing positive traction with increased investments in SDV technology, and we have been gaining market share. In Japan, steady wins in programs for future model launches has led to our growth in our geography. For European OEMs, cost optimization remains a priority through strategic partnerships. We are well positioned to benefit from these as we go forward with a number of deals in the pipeline. In summary, Mobility segment is showing early signs of growth. We expect sustained momentum in FY '26. Driven by a robust pipeline and stronger deal ramp-ups of the large deals. Moving on to our second segment of sustainability. Sustainability grew 11% year-on-year on the back of strong execution of deals that we have won in the previous quarters. Over 50% of large deal wins in Q4 were in a segment, ensuring strong momentum growth. This segment established its strong credentials by forging a strategic partnership with a leading global energy major to be its engineering service and technology partner for digital expertise in India with 500-plus engineers. This was filed in the stock exchanges earlier last week. The industrial subsegment is benefiting from CapEx tailwinds in AI and data center spending globally. Combined with our strong engineering capabilities in power electronics, embedded systems expertise, enabling cross-domain solutions combined with AI, which integrate digital automotive automation and AI-powered platforms across PDLC offerings. The energy automation and industrial machinery sector continued to see strong demand with reindustrialization of the U.S. supported by a healthy pipeline in asset management and backed by large deal wins. Plant engineering, a subsegment of sustainability. Our demand continues to hold steady across EPG and O&D. We were selected by a leading oil and gas operator for strategic initiative to build dental foundation across global assets, enabling engineering, operations and digital transformation. We were awarded a multiyear program by a North American energy major for data modernization and asset integrity support across onshore operations, leveraging advanced digital platforms across multiple geographies. We expect the growth momentum to continue for sustainability segment across both industrial and plant on the back of ramp-up in large deals and strong pipeline. Moving on to tech. As mentioned earlier, we have recalibrated our business in this segment to focus on profitable growth. driven by forward-looking technologies. The subdued revenues in Tech segment reflect the conscious exit from nonstrategic businesses where we have also incurred some onetime expenses on account of the same. The media and tech subsegment is rapidly evolving with strong focus on AI-led platform-centric offerings resulting in execution of more high-end and high-margin work for our clients. We do see growth in semiconductor and tech infra accounts, while media business has been steady. Deal wins we have on the previous quarters in the telecom and sub segment have been steadily ramping up. The medtech segment subsegment, the deal momentum is evolved through ramp-ups in certain new accounts, strategic programs and deeper relationships. We have secured multiple design and development mandates in human biologics and drug delivery devices from 2 leading global pharmaceutical companies. We also partnered with top 10 new based medical device manufacturer to bring camera-based AI intelligence to the operating group. This subsegment grew in line with company revenue annually. The software and platform subsegment, which includes Intelli Swift is leading our engineering intelligence framework for data-driven intelligence and automation, a large enhancement received from a leading hyperscale is expected to start ramping up Q1 onwards. Let me now cover our technology quotient. EI or Engineering Intelligence is LTTS' approach to embedding AI across products processes, next-gen manufacturing, translating deep engineering expertise into reliable real-world outcomes. Powered by multimodal identic and edge AI delivers autonomous production made systems driving differentiated high-value outcome reflected in our large deal wins. LTTS has also strengthened its partnership with MIT Media Labs to explore and incubate forward-looking technologies such as multisensory intelligence, signal kinetics and personal robotics. We have surpassed the 1,700 mark in our patent filings for FY '26. Congratulations to all our employees and technologies, including 673 patents filed by LTTS and 1,033 third with clients. Of these, patients now are in AI and GenAI alone. Finally, let me share a glimpse of our Lakshya31 plan and the way forward. After careful consideration and deep analysis all the futuristic technologies and evolving market needs. LTTS has defined its core for the next 5 years. The company is doubling down across technology, manufacturing and industrial domains. Under its 5-year strategic Lakshya plan, LTTS is sharpening its focus with 6 large technology bets, including EI, which will accelerate growth further in the 3 segments of mobility, sustainability and tech while consolidating our position as a global engineering intelligence partner for our clients, our 6 bets are software-defined mobility, plant build-out and modernization. Energy and Industrial Automation to digital manufacturing, Nexgen compute and AI infra, software platforms in EI and medtech. These are the 6 bets that we have bet. To ensure strong execution of Lakshya31 strategy, we have reorganized and promoted our leadership from within to sharper accountability, deepen segment focus and accelerate market share gains through a differentiated growth approach. To this end, I already shared with you the elevation of Rajiv on the Board. Additionally, Alind Saxena, who is currently Executive Director and President for Mobility and tech will take responsibility for strategic initiatives, large deals and growth markets. In his role, he will drive scale to deals, bringing in additional revenues and growth to the company as well as drive partnerships and complex deal wins. [ Subroth ] Tripathi who has been in the company for more than 15 years and has led our plant engineering portfolio segment head will now lead the entire sustainability segment, IT plus and is being promoted to Chief Growth Officer sustainability, strengthening our play in energy, physical AI, automation, plant and manufacturing modernization. Finally, [ Sina Magaro, ] who win the company again for 6-plus years, is being promoted to Chief Growth Officer for Mobility and Medtech, driving growth across software-defined technologies in mobility, as well as advancing remote diagnostics, robotics and agent-led solutions in the medtech space. [ Srini ] fast has worked on mobility, medical and tech all the 3 spaces and bring that risk experience. All these leaders have been part of the LTTS executive management team for between 6 to 15 years and bring the right blend of energy, experience humbleness and strong client relationships to accelerate our growth agenda. Now moving on to outlook. The last 5 years, saw LTPS grew at 12.4% CAGR, outpacing industry growth of 8% as per Reno estimates. We believe we continue to be in a position to grow faster than the industry over the medium term, supported by strong core capabilities and execution discipline on revenue and margins. We remain cautiously optimistic in the near term and as part of our 5-year Lakshya31 plan, we aspire to deliver 13% to 15% CAGR over the next 5 years with EBIT margins in the range of 16% to 17%. With that said, I would like to truly thank all of you for the support that you provided me over these last 5 years. I look forward to the next 5 and would now hand over to Rajeev to take this -- to provide his commentary and then we'll stay back for questions.

Thank you, Amit. Before getting into the commentary, I'd like to thank our Chairperson, the Board for reposing trust in me and having me on the Board and to Amit for its continued support. With that, let me begin by giving you an overall picture for the year FY '26. FY '26 total revenue included continuing and discontinued operations came in at $1.321 million, an year-on-year growth of 4.9%, EBIT margins for FY '26 came to 14.1%. Net income margin for FY '26 came in at 11.3%. Now talking about this investment of SWC business. In March of 2026, we announced the disinvestment of SWC business. Accordingly, SWC business has now been classified as discontinued operations beginning quarter 4 FY '26. With that context, my commentary herein after will address the continuing operations. Starting with the key highlights for quarter 4 FY '26, we had consistent deal momentum, resulting in average large real TC wins of $200 million across 6 consecutive quarters, our focus on improving the quality of revenue and operational efficiencies has further boosted the gross margins in Q4 FY '26 with 150 basis points increase on a sequential basis. All 3 segments have shown sequential improvement in gross margins. Further, our collection efforts have led to improvement in DSO metrics during the quarter. Moving to both quarter 4 FY '26 and FY '26 financials, starting with P&L. Our revenue for the quarter came in at INR 2,858 crores, a growth of 2.5% on a sequential basis, while year-on-year grew at 8.3%. Revenue for FY '26 was at INR 10,996 crores, a growth of 14% over FY '25. EBIT margin for the quarter came to 15.2%, an improvement of 40 bps over the previous quarter. EBIT margin for FY '26 was at 14.5% of revenue. Effective tax rate for the quarter came in at 26.6%. For the year, effective tax rate was at 26.5%, showing an improvement of 90 bps over previous year. Going ahead, we expect this to be in the range of 26.5% to 27%. Net income for the quarter stood at INR 346 crores which is 12.1% of revenue, showing an improvement of 70 bps over previous quarter. For FY '26, net income was INR 1,282 crores at 11% -- 11.7% of revenue. EPS from continuing operations stood at INR 30.14 for the quarter. translating to an annualized EPS of INR 120.56. This represents an improvement over the reported FY '25 EPS of INR 119.7 million underscoring the success of our portfolio rationalization strategy and the strengthened performance of our continuing business. Other income for the quarter was INR 38 crores higher compared to previous quarter. Now moving to the balance sheet, highlighting a few key line items. The combined DSO was at 83 days compared to 93 days in Q3, an improvement of 10 days. Bill DSO also improved from 68 days as compared to 77 days in quarter 3. The combined DSO is expected to be in the range of 85 to 90 days going forward. In FY '26, free cash flow came in at INR 1,280 crores. Our FY '26 FCF as a percentage of net income stood at 100%. Our cash and investments improved to INR 3,555 crores end of FY '26 versus INR 2,981 crores end of FY '25. On capital results, sorry, on capital return. The Board today recommended a final dividend of INR 40 per share, taking the total dividend for FY '26 to INR 5 per share. This translates to a dividend payout ratio of 48% for FY '26. Our return on equity stands at 20.4% for FY '26. With respect to revenue metrics, in dollar terms, we reported revenue of $305.9 million, growth of 0.3% on a year-on-year basis, while a decline of 1.7% on a sequential basis. The sequential decline reflects the [ function ] exit from low-margin and nonstrategic portfolio in addition to the disinvestment of SWC business. FY '26 revenue came in at in year-on-year growth of 8.3%. Talking about segment margin performance for quarter 4 FY '26 Mobility segment margins for quarter 4 came in at 16.1%, a sequential improvement of 130 bps over previous quarter. healthy deal wins in mobility in the previous quarters and sign of improvement in the automotive sector should lead to revenue growth in FY '27, leading to further improvement of margins in this segment. Sustainability segment margins for quarter 4 remained steady on a sequential basis at 28.7%. Strong execution of the deal wins in recent quarters led to improvement in quality of revenue and will continue to add revenue growth and margins in FY '27 for sustainability. Tech segment margin for the quarter came in at 12.6%, sequential improvement of 210 bps over previous quarter. This is due to continued improvement in intelligence margins and restructuring efforts in this segment to focus on sustainable and profitable growth. On operational metrics, the offshore mix was 53.5%, slightly better compared to Q3. We do see improvement opportunities in this mix in the coming future quarters. The T&M revenue mix was at 66.1% in Q4, higher compared to quarter 3. Client profile. We have the first $50 million plus account in sustained segment and have formally reported in the IR report and also an increase in number of clients across 5 million, 1 million accounts compared to previous quarters. With our deep relationships with clients and new edge offerings, we expect this profile to improve further. Client contribution to revenue improved as compared to Q3 across categories. Head count improved sequentially by 522 to 23,830 at year-end as we onboarded freshers during the quarter. Attrition remained range bound at 14.7% levels. realized rupee for quarter 4 was around 93.43% to the dollar, a depreciation of 4.3% versus Q3. As I conclude, let me provide visibility on margin trajectory going forward. We did refer in our Q3 commentary that margins will continue to improve and indeed have seen Q4 margins improved to 15.2%. We expect margins to continue to improve further based on capital allocation towards high-growth segments and newer technologies in line with our Lakshya31 strategy. Also, we will see improved segment mix with now so sustainability segment contributing 36% of overall revenues in FY '26. The recent deal wins will allow to continue this trend in FY '27, leading to improvement in overall margins. Further operational efficiency parameters around AI-led delivery initiatives to improve operational levers, nonlinearity of revenue and rationalization of SG&A costs in line with continuing business are further opportunities to improve margins. With this, we now advance our aspiration to achieve mid-16% EBIT margin levels on or before quarter 4 FY '27. And as part of our 5-year Lakshya31 plan, we aspire to deliver 13% to 15% CAGR over the next 5 years, with EBIT margins in the range of 16% to 17%. I thank everyone for their support. And with that, I hand it over to the moderator for any questions.

[Operator Instructions]. Our first question comes from the line of Vibhor Singhal from Nuvama Equities.

Congrats to Alind and Rajeev for their elevation. Amit, a couple of questions from my side. a very bold decision indeed in terms of divestment of the SWC business, something that we had acquired just 3 years ago. Just wanted to understand the thought process behind this step. I think we had earlier talked about this business offering us opportunities in the Middle East and some other places as well. So was the consideration here, just the profitability of the business that we were looking at -- or was it also that basically the growth opportunities that we saw in other segments or better, and that is where we basically decided to allocate our capital to -- any basically color on what the purpose was behind this decision would be really helpful.

Sure. I'll start, and then I'll request Rajeev to add to it. So see, when we acquired Smart World, there were 3 components in Smart World. There was the smart cities part, which had which was there. The second part was the telco infra piece. And the third was the cyber piece SP692674629 So what we did was at our whole thesis was that we will take the and we will immediately work on taking them international, right? That was our whole employee that we had done. Now as we have moved forward, what has happened is the telco infra piece, we were able to take in international. We have been able to deliver 2 accounts that are upwards of $20 million in the company and very profitable at that. and growing and gaining market share over competition with differentiated offerings. The cyber business, which was running actually at record margins. Again, we were able to take those capabilities and be able to infuse them within the company and take those forward. Smart cities, however, we were not able to internationalize because a lot of that work is done by local governments and is done for creating local jobs. So after we have run it for 3 years with different kind of management as well as attention. What we have done is we have therefore decided to divest. So the entire mostly India and slightly international operations of Smart World has been divested. And at the same time, we have retained some of the capabilities that we've built organically being disassociated. Those have continued on in the company and continue to provide leverage to us as we move forward. So that's broadly where it is right now. Would you like to add anything at this stage, Rajeev?

No, I think, Amit, you've covered broadly. Vibhor, the only thing I would add to is that, look, when SWC business was acquired back in the start of 2023, the rationale was to take SC Global right? And much like Amit said, there were 3 areas of business. There were smart cities, smart city. There was infra and cyber. I think Infra, cyber have shown positive results. Smart City for particularly India business, is where we could not see it taking global. And that led to making a strategic decision for the purpose of disinvestment. So largely, that's where it is Vibhor. Hopefully, that answers your question.

Yes, it definitely and since you are at Rajeev, may I just ask a couple of more questions. bookkeeping questions on the basically accounting of that. So we have basically the 1 million, 2 million revenues that we have mentioned, that basically takes into account the SWC revenue being not being considered for the entire FY -- and so does the P&L even, Am I right?

That's correct. So what you see on the investor report is reflecting the continued part of the business and does not have SWC in any of the prior quarters. So it has competitive again. It's like-for-like.

And we are not expecting any more divestment or any more basically modifications to the financials from Q1 onwards.

So from Q1 onwards, we will report the continued operations only.

Only. Got it, got it -- and the reseatings complete? No, nothing is left in the resale part of that.

Yes, it is complete.

Got it. And just one last question, and then I'll probably switch back to Amit for another question. Now that we have divested AWC business, and we know that basically the margins and the working capital days of the business were significantly inferior to our core business. Do we expect -- I mean you mentioned the margin guidance we're looking at a I mean, is that a kind of a target for the next 5 years? Or do you believe it can be achieved over the next 2 to 3 years? And also, do we expect improvement in the DSO days immediately in the near term given that SWC business will be out of the above.

So on the margin part, Vibhor, I did clarify. So we continue to aspire to get to mid-16% levels by quarter 4 FY '27 of this year. And if you've got an ability, we would like to deliver that prior to quarter 4 FY '27. -- that has remained. Correct. And the 7% is in line with the Luxe strategy. So over the period of 5 years, we would like to maintain EBIT margin in that band. Third, on DSO metrics, you're already seeing the improvement. I talked about the improvement in DSO metrics. And I highlighted it, what was the DSO metric, excluding the SWC business. So for quarter 4, we came in at 83 days. So you're already seeing the benefit of DSO days coming down. And we will be in the band of, say, between 85 to 90 days. What used to be including WC, if I were to recall, quarter 3, we were closer to between $110 million and $150.

Got it. Got it. Amit, just one more question from my side. Your commentary alluded to some very positive signals on the auto segment. Now this is a very positive sign because this vertical has been under pressure for point of while for almost all of the players, you mentioned that the North American auto specifically is looking positive. So any color on basically how we are looking at are there any more -- are there good frequencies that we're looking at in North American auto? And also Will European auto is also expected to follow soon or will there be some time before that kind of recover?

Sure. So thanks, Vibhor, I just want to make 1 more point on your previous question on this is the continued business. So if you look at the quarter 4 results, the quarter 4 numbers that we published a continued business, that does have the business that we stopped doing also. So Q1 onwards, it's all clean as you see it. moving forward. So it's not just SWC, it's also the other part that we divested, we are talking about $19 million annualized that we are taking out. That has been taken out in quarter 4. So quarter 1 onwards, it is all of ours. And that's why you see the revenues and margins in Q4, gross margin itself going up in the business, right? Now counting on to automotive. Number one, on automotive, seeing U.S. automotive, what has happened is that our customers as well as overall as you've seen, they have taken a chunk of whatever hits they had on EV last year. And they are all sure footed moving ahead with hybrid and gas vehicles. This is a good thing because it provides a clear decision now that is pro clear of the path for design cycles to start yet again. And we are seeing some of that positive impact in NBV coming to us. That's number one. In Europe, they are still between moving market share in Asia, et cetera. But in Europe, there is a number of deals that we are fighting right now and competing for consolidation against European majors as well as other Indian companies. So there is a lot of that pipeline. So both have got slightly different shall I say, context and controls to it, but we are seeing positive momentum in automotive coming back.

Your next question comes from the line of Sandeep Shah from Equirus Securities.

Amit sir, just wanted to understand within mobility and sustainability, 1 can assume the worst is behind sustainability, we were anyway doing better, so mobility, you expect you can start growing Q-on-Q starting from the first quarter. And even in tech, when do you expect the worst to get over.

So thank you, Sandeep. So one, sustainability will continue to grow as we move forward, right? Mobility has stabilized this quarter, you will start seeing growth from next quarter. And in tech, there are 3 components. There's medtech and there's MMT-mediatech include [indiscernible] then there is software. And we do believe that next quarter onwards, we should start seeing net growth here. So we should see growth on all 3 as we move forward. The quantum of that of first will depend on as the quarter closes. As you know, we are still in the quarter now new quarter. so we'll come back at the end of the quarter.

Yes, yes. And just in terms of Lakshya outlook, is it fair to assume whatever we are targeting, which is 12% to 15% growth CAGR is largely organic? Or it also incorporate some inorganic?

So what we have stated right now is -- will largely be -- it's 13% to 15%, not 12% to 15%, then again, there will be a new comment question will come, is it 12% or 13%. So I'm being very clear, 13 and largely organic with some tuck-in acquisitions as opportunities arise.

Your next question comes from the line of Nitin Padmanabhan from Investec.

First question is that from a 13% to 15% growth CAGR you mentioned that historically, it's grown at 12.5%. So these numbers, the 12.5% is excluding the SWC bid, how should we understand that? And Second, this 13% to 15% CAGR is where basically the the dollar CC. Is that how you're thinking about it?

I'm actually looking at Rajeev to clarify on the dollar CC part and Rajeev, you want to take this?

So Nitin, to your first question, on 12.4%, this is actually excluding. And second, in terms of the constant currency, it will be -- of course, we will be it more constant currency. But yes, over a 5-year period, there may be some areas where we'll talk even on reported currency as well.

So this 13% to 15% is rupee or dollar. It's dollar.

It's dollar, yes.

It is dollar. Okay. Okay. Okay. Okay. And see, so far, despite we see very strong deal wins Obviously, we have had leakage in the business, and that's been sort of a drag. Do you think this year onwards, we should start seeing the 13% to 15% sort of CAGR beginning to show from this year itself? Or you think it will be a little beyond that was the question. The -- only other thing is from a growth perspective, do you believe that at least from an automotive perspective or in terms of the large accounts that you have, the largest account is $50 million plus. When do we really start seeing for our scale, at least a few hundred million kind of accounts that will be second it.

Okay. So I'll take part of that [indiscernible] number one, we're not providing any annual guidance. So I'm not going to fish in the waters of what will be next year. All I will say is 13% to 15%, and we are working towards various deals in place. Let's see what closes first or closes second. I can assure you we will be faster than the industry, will be better than the industry. and engineering industry and IT industry. Of our size, right? That's one. SP692674629 Second, is that in terms of accounts? Our last investor meet, which we think we did last year to the year are you prior Investor meet?

Yes, 2 years ago.

Yes, 2 years ago. We had created a plan to get to 100 million accounts. Our aspiration, if I may then, is to have x number of 100 million accounts, why number of 50 million accounts. I'm happy to share that we finally were able to deliver a $50 million account trailing 12 months in this quarter is the first one after a long time for us. And there is a path forward. In fact, the fact that we are moving having Alind, the focus entirely very senior member of the Board of the company, been with us for as long as I've been there in the company, to focus only on large deals and growth markets should signal to you that there is a lot of seriousness in the organization towards this. So please allow us some time to what is most of this is organic -- so it takes a little time to build out, we see at [indiscernible] price.

Perfect. Just one last clarification. From an earlier practice of this annual guidance, we are moving away from that permanently, is that it? Or is this only for this year?

Again, can I take the fifth and say I don't know. See, we'll see. At the end of it, there's no reason to not provide something or provide something. We're comfortable as you look at our 5 years, if I go back and look at the thesis of the company. See, we are here to build and stay and grow, right? We are not -- that's a long-term objective of the company. That comes from the L&T parent days, right? So the whole idea is to take longer-term decisions and deliberative steps to move. Thematically, if you look at it, the company would like to deliver a CAGR sooner than later. But to be seen, to be tested.

Your next question comes from the line of Dipesh Mehta from Emkay Global.

Just first on clarification, right? Between this continued and overall combined business, I think margin gap seems to be 40 basis points in FY '26. So headwinds from SWC used to be only 40 bps? Or there are any one-offs in the numbers?

Dipesh I can take it. So what -- I mean, we did talk about realignment of portfolio back in quarter 3. So what you see as AWC revenues have actually come down from Q3 onwards, and it was a deliberate intent. So while it assumes that there is only a 40 bps improvement, actually, it's much more than that. It's closer to almost 70 to 80 bps of improvement.

Rajeev, my question was FY '26 combined business, you reported 14.1% margin and continuing operation, you reported 14.5% margin for the full year. which in a impression SC dilution was around 40 basis points. That is what I just want to understand.

What we can do Dipesh, maybe we'll have Sandesh talk offline.

Like Second question. Second question is about the debt which we have indicated, let's say, about the 6 technocrat and obviously, 5 focus areas. Can you provide some, let's say, current mix of the business around those? How big are those businesses currently in overall scheme of? And what kind of growth and investment you intend to make in each of them?

Sure. So right now, as we look at it for these beds that we have got, if you give me a minute, I will be exactly this contributes to approximately about maybe -- on just open. So investments, as we do this, Alind talk about the investments, while I bring up the exact data. Like to talk about some of the investments that we're making here.

Yes, so when you look at it broadly, the space that we have to ourselves, given the customers that we work with is around the on physical AI. And where we have very consciously looked at making vacant and we can walk you through the all the different segments that we have, is to continue to deepen our buses in this area, that includes the collaboration that we are doing, which you may have seen on our posting as well earlier. But that's where we are investing and ensuring that we bring those solutions back to our customers in the physical AI space, which is very unique to us and I too. So that's one. Two, the -- if I were to go by segment. We have talked about the investment that we have made in solutions in LTV that continues to be there for us. And anything we are actually building down to increase more on connectivity and SCV solutions. So that's there on the ovulating side. Similarly, extending to sustainability, we are in a very unique position where we work with bringing AI in construction-related areas as well as the investments in data center AI and data centers. So those 2 again become very formidable for us. In tech, we have talked about there earlier, they'll be working with hyperscalers closely and working on the solutions that we have in building their own solutions to bring in back to our customers across the industry that we work with. That's the philosophy, and that's what we are very clear that will give us the edge to be close to our customers and continue to grow with them. I'll take a pause and if you have a follow-on question on this.

Yes. And then Munjay you want to take a minute and talk about the EI work and the software work that we're doing -- and then I'll give the numbers.

Dipesh, good to meet you here. Let me explain what we are doing on the year because that's where the bulk of ever shift is going to happen. We are looking at in 3 distinct pockets. One is to help improve our productivity. So we have a bunch of products we have created. We're going to make them robust enough so that they can deliver anything between 10% to 30%, 40% productivity in the work that we do. So that's 1 part of the AI that we are building. The second part of the year is to embed this in the processes for client any processes. So for example, if somebody is running a supply chain, I can optimize that. inventory, I can optimize that. You have a maintenance cost, I can probably do preventive maintenance and optimize that. And the last bit is to embed AI in the products, which will go to by customers' customers. So some of the physical AI that Alind was referring to are like products that will go into my customers product. These 3 pivots will require us to do a lot of solutioning do a quick prototyping, delivering solutions on an AI stack. And as you know, as TAC is constantly going to keep you away. So we are going to invest heavily in uplifting not just talent also building tools, bringing alliances, which can actually help us deliver this. So there's a significant shift happening in our business due to AI across the board processes for the client, processes of our SDLC, DLC and the products that will go out to the customers.

So Dipesh, to answer your question here, less than 50% of the revenue today comes from these debts. In 5 years' time, we expect more than 70% of business will be coming from these 6 mets.

Your next question comes from the line of Shradha Agarwal from Amsec.

So 2 questions, Amit. I think in 1 of the comments you indicated that apart from LWC restructuring, -- there were some other restructuring as well in which there was an impact of $19 million. So what does that relate to?

What is the second question?

Second question is, we've seen a smart headcount addition of almost 3% to our base. So is it in anticipation of some large deal ramp-ups that we can expect? And also in terms of restructuring, are we done with all low-margin businesses realignment? Or are there any other businesses that we need to think about going ahead.

So let me answer the happy question first. Headcount has gone up. You added about 500 people net in the company, 400 net in the company. quarter-on-quarter. We do expect to add another 500 sometime in quarter 2 -- quarter 1, quarter 2, quarter 3 as well because we believe that there's this new sense around the forward deployment engineer that is required. It requires a lot more and a slightly different skill set. So we are bringing people on as we speak, and this is for billable headcount. And it is in anticipation of ramp-up of wins that we have had, so this is not future business we are asking current business, we are amping up for business that is already on. So therefore, there is some sure footedness around the reason why we have added. So when we -- right. So that's that answer. Now in terms of the $19 million that I talked about, annualized, that you can see that impact coming out in shrinkage of Q3 to Q4 or Q4 over Q3 in continuing business. And that has been a deliberate attempt. There has been some work that we were doing in a certain geography in the Middle East, which we shut down and we had talked about it in the last quarter. There is a little bit in Europe that we've shut down there was in telecom, Infra. There was a couple of low-margin non-value-add businesses that we were on. We've returned the lab equipment and shut that down very respectfully for the client. As far as I'm concerned, this completes the entire restructuring and cleanup that we had to do. We do believe going forward, you will see growth in the continuing portfolio as we move forward.

And Amit if I can squeeze in 1 more question. I know that you advanced the margin guidance, but without giving any time line to it. But now we have 2 tailwinds: 1 coming from SWC going away, the second from rupee depreciation. So can we expect a percent margin by as soon as second half of its [indiscernible] .

Shradhha, We just got the CFO promoted to the Board. You got to be nice [indiscernible] at least today, right? And he has also improved. He also brought it forward. This is what he said. He said is it Q4 or prior. I want them to say H2 or prior, I don't know if we can say that right now. But look, at the end of it, we want to see what we can deliver. And we are very sure about Q4 or prior, working towards it. So Raj, if you want to add anything?

No. I think that has been nice to me. You already said it. Intended to deliver quarter 4 or prior, but we certainly have advanced it. And you have seen the results of quarter 4. I mean what we talked 2 to 3 years ago in terms of margins were a lot lower, right? We were talking more 13.3%, 13.6%. We are now at 15.2%. So it has certainly accelerated. I've talked about the time lines and that -- I mean, we'll continue to work around it.

The only other thing -- I'd like to add so the only thing I would like to add there is, please, again, look at continuing business and look at the gross margins there. I think we are in a good state now, knock on wood. As I look forward with the the differentiated service offerings that we have got and the deep client relationships, I do believe and hope that you will see improvement in growth in margins both.

Your next question comes from the line of Bhavik Mehta from JP Morgan.

Just 1 question, Amit. On AI, how are the client conversations progressing across your 3 different segments? Because on the IT services side, you do you have a lot of ask from clients for product pass through the pricing discounts. But certain how the formations have gone over the past few months, [indiscernible] on the AI kind of things in February, March?

Bhavik, just like Munjay was mentioning, there are 3 parts to what we are seeing. Number 1 is efficiencies in PDLC and SDLC. So that is being -- 1 is being asked for by clients. But second, we are ourselves implementing our own tools to bring it about to almost all our programs. This is a work in progress right now, 65% of the company or 60% of the company has been trained on AI tools -- another 40% is being done to be completed in the next 6 months, right? So that is SDLC, PDFD. In fact, website also shows a couple of tools that we have developed that are already industrialized and being improvement. Muji taking control of that, taking it forward. The second part is all about the genetic AI, IQ platform that we have launched or engineering and manufacturing, there are specific engineering work processes, we are doubling to change in that. We are actually partnering with industry majors to see we can bring their tools in to take it forward. So that's the second area that we are doubling, playing with. Third is physical AI, which can be broken up into industrial AI and device AI. And that, again, is a new area that we are trying to implement and add on. So we are definitely seeing a lot more conversations on AI, a lot more what can be done usability improvement, et cetera. And of course, spends are also changing. People are wanting to put more money in AI. It's actually a Board question that is coming down to the engineering head as opposed to engineering head taking it ground up. So some work to be done in engineering and manufacturing, AI will come in, but it will take over the course of this year and next 18 months to expand. And I do believe still, Bhavik, we are about 6 months, 8 months ahead of competition in the cycle. So we continue to keep our head up and continue to work hard, I do believe that we will become a net positive and tailwind for all of us.

Your next question comes from the line of Rahul from Dolat Capital.

I just wanted to clarify on this charge of exceptional costs that we have done in the quarter. Can you let me know what -- for what business this was done? And is there anything more to happen on this going into next year.

Rahul, I can take this question. This is Rajeev here. So Amit Dick talked about $19 million of annualized business, right, particularly in Europe and Israel and parts of U.K. This restructuring cost actually entails towards those businesses and, of course, adjoining people and facilities that have been recorded in Q4. And like Amit said, we reconfirm that there are no more restructuring costs to continue from here on.

And from a revenue point of view, is there some part of the revenue from this business still in Q4, which may not happen in Q1?

There is no revenue in Q4 because we took quite a few of these actions at the -- probably the end of Q3 or start of Q4, and hence, you see no revenues for these businesses in Q4.

Right. And just one last thing. If I take the outlook that we shared in the previous analyst meet. Our current this 5-year objective actually increases the expected growth rate over the next 5 years and 4 years, and at the same time, it talks about lower margin than what we said a year back. With SWC transaction, I think our margin thought process should have improved while growth numbers should have put down given the $90 million exit. So why there is a difference between what we were thinking then versus now?

Rahul, again, this is Rajeev, I can take that because, of course, we've talked about our Lakshya31 lighten aspiration to deliver at a CAGR of 13% to 15% band on revenue growth. As for EBIT margins, I reiterate that the aspiration is to deliver mid-16% levels, quarter 4 FY '27 or prior, and we are working towards it. The 16% to 17% range over the course of the next 5 years in line with Lakshay FY '21 strategies to keep in mind that this growth might have some tuck-in acquisitions. And as you would appreciate, that any tuck-in acquisition might have some dilution impact. So we will maintain the margins in that bank. It's not reducing, but actually, it's maintaining the band over a period of 5 years.

And just lastly from my side, I think this has been said earlier that sharing the outlook for this particular fiscal, but looking at the situation that we are in, is it possible to share some thought process whether it will be double digit? Or any qualitative way to represent.

Better than industry, that's what I would say.

Your next question comes from the line of Karan Uppal from PhillipCapital India.

I make 2 questions from my side. Firstly, any impact of the Middle East or let price volatility you are seeing in, let's say, the printing business especially in some of the subsegments like on 3 meters. Any impact [indiscernible] policies that could have an impact on the overall sustainability vertical. That is one. Second is the 6 big bag, which is the bulk any M&A you are planning to do in any of these 6 weeks breaks, if you can also share the size of it? And to that question is will you be bel to take fixed margins again because of M&A.

Okay. So one Middle East plant. The Middle East is a very small piece of our operations. Of course, we can look at growth there, we'll see we hopefully believe that we be a 5-year period, we do believe that plant in Middle East will grow for us. But let this situation get resolved. Will it have an impact on our current quarter or next quarter? There is no. Is a very small part of our operations unless something testing happens in that very small piles. So normal course of time no. 6 vets have already shared the amount of revenue. My request will be that we will hold an Investor Day sometime in the year. We'll walk you through the 6 vetss and will be on our website. So at that point, we'll spend a lot more color and time on it for you. What was your third question?

I mean, are we open to take return margins again because of.

Yes. So Rajeev.

Rajeev, we talked about tuck-in acquisitions. We are not thinking of any large acquisition at this stage. I think the acquisition that we made of IntelliSite start of last year has panned out well. We continue to build our software capability. In fact, Munjay is leading the entire effort of building the software and AI horizontal for the company. So at this stage, we are not talking of any large acquisition. There are more tuck-in acquisitions and hence, have given an EBIT range of 16% to 17%. But much like Amit mentioned, when we host the Investor and Analyst Day, we'll give you more clarity on big bet investments and related M&A.

We will take that as our last question for today. I now hand the conference over to Mr. Sandesh Naik for closing comments.

Thank you. Thank you all for joining us on the call today. We hope we were able to answer your queries. We look forward to interacting with you throughout the quarter. Wish you all a very good evening and a good day. Thank you.

Thank you. On behalf of L&T Technology Services Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.