LTM Limited (LTM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the LTM Limited Q1 FY '27 Earnings Call. [Operator Instructions] Please note that this call is being recorded. I now hand the conference over to Mr. Vikas Jadhav, Head of Investor Relations team. Over to you, sir.

Thanks, Ronel. Good day, everyone, and welcome to LTM's Q1 FY '17 Earnings Conference Call. Today on the call, we have with us Mr. Venu Lambu, Chief Executive Officer and Managing Director; and Mr. Vipul Chandra, Chief Financial Officer and Whole Time Director, will begin by providing a brief overview of company's Q1 FY '27 performance, after which, we'll open the floor for Q&A. During the call, we could make forward-looking statements. These statements consider the investment carry risks and uncertainties that could cause our actual results to differ materially from those expressed in today's call. We do not undertake to update any forward-looking statements made on this call. I now turn the call over to Venu for his opening remarks.

Thank you, Vikas. Hello, everyone. Firstly, thank you for joining us on a Saturday evening. Our profitable growth journey in the AI era is off to a good start. With our leading industry segments, delivering a strong quarter-over-quarter growth. Our New Horizon program continues to deliver significant progress contributing to the overall margin expansion. Our deal win momentum remains strong. I will share more details on this later in the call. Before I turn into the quarterly numbers, let me briefly recap the strategy we set out at our Investor Day 2026. We're committed to becoming an AI-centric organization, reorganizing our own building a comprehensive AI ecosystem and steadily shifting our revenue mix towards AI-led work. This quarter, we delivered many proof points with measurable business outcomes in line with our strategy. We now operate through 3 lines of business: iron, high transform and Business AI. Iron operates and secures our clients technology estates with an AI-infused approach. High transform delivers large-scale transformation, modernization and differentiated experiences through AI-led software engineering, data interactive and enterprise platforms. Business AI reimagines the core business process and clients business model through our domain, data, agent and SLM capabilities. For next our lines of business is Blue verse, our AI ecosystem. It brings together our AI-led offerings and deployment capabilities with future-ready talent, demand-specific SLM and growing library of prebuilt agents supported by a new AI native business models and expanded GDM partnerships. Through this structure, we deliver 4 distinct types of AI work: enterprise AI, which embeds intelligence into enterprise technology stack; Business AI, which reimagines core business processes and business models; Industrial AI, which infuses AI into our clients' manufacturing process and supply chains through connected products and solutions; and Creative AI, which transform our clients' creative content, design and experiences. 3 lines of business, 4 types of AI work, 1 ecosystem. This is how we outgrew. I'm happy to share that our AI revenue across creative, industrial and business AI together contributed approximately USD 150 million on a quarterly run rate basis. Let me now share the financial performance for Q1 FY '27. We reported revenues of USD 1.22 billion, delivering a 0.3% growth on a sequential basis and 6.4% growth on a year-over-year basis in constant currency terms. We are pleased to report that our EBIT margins came in at 15.5%, a 40 basis point sequential improvement despite wage hikes. This also translates into 120 basis points year-over-year improvement, reflecting strong execution. Our order book continues to be stable at USD 1.7 billion, including 2 large deal wins. Let me now turn to some of our notable deal wins this quarter. In the iron line of business, we were selected by a U.S.-based insurance company to modernize infrastructure operations through an ALX delivery model enhancing resilience, stability and operational efficiency. We expanded our relationship with a global business travel management company to transform its IT operations, application services and consolidate its infrastructure to an integrated iron model. In high Transform LOB, we were selected as a strategic vendor by a U.S.-based multinational organization as part of its effort to consolidate its IT services landscape through our iron, I transform and business AI LOB models. We will help them to reduce complexity, optimize costs. and accelerate transformation. This is the same last day we referenced during our Investor Day last month. We were chosen as a transformation partner for a leading global automotive manufacturer to consolidate and modernize its technology landscape through an AI-led model, improving operational efficiency and simplifying IT operations. We were selected as a strategic data transformation partner by a major global industrial manufacturer of climate and energy solution to consolidate its federated data ecosystem into unified enterprise data platform, enabling data monetization and building a single source of truth. We were selected by a U.S.-based financial payments company to advance its technology transformation agenda through an AI insight platform, cloud migration and modernization initiatives. In business AI, we were selected by a European consumer company to reimagine existing sales excellence process and deploy an AI-powered data and decision intelligence platform to improve pricing, promotions and sales effectiveness. We were selected by a global industrial conglomerate to deploy an air-driven platform that automates end-to-end proposal management improving speed, quality and consistency of client responses. Our Blue verse voicing SLM continues to gain momentum with our clients. We completed 17 unique implementation in the past 12 months including 2 key wins this quarter. The first one, a leading U.S. leisure travel company selected Blueworks voicing to automate member verification and resolve routine inquiries autonomously. The second one, a global financial administration company adopted Blue verse voicing to migrate this customer service operation to an agent AI-driven voice and intent automation solution. These engagements follow the outcome-based commercial construct. Let me now share updates on our industry segment. Starting Q1 FY '27, we have consolidated our reporting under 4 industry segment, namely financial services, consumer, technology and services and production. All numbers referenced next represent growth in constant currency terms. As I had indicated about financial services returning to sequential growth, I'm pleased to share that the segment delivered a strong 3.2% sequential expansion on a year-over basis the segment declined by 2.5%. Tech & Services segment also reported a strong growth of 3.4% sequentially and a 10% on a year-over-year basis. Production segment reported a decline of 5.7%, mainly on account of falloff in seasonal pass-through. Over a year over basis, it delivered a very strong growth of 5.3%. Consumer segment declined by 0.7% sequentially and grew significantly by 18.2% on a year-over-year basis. The quarterly decline was due to the delayed ramp-ups and delayed projects in India and Middle East. With our large industry segments reporting strong sequential growth, it sets a strong foundation for the year ahead. We have also increased to see the growth momentum broadening across client categories. With our top 5 and top 10 customers recording sequential growth of 4.5% and 4.3%, respectively. I'm pleased to share that all our client categories expanded both sequentially and year-over-year. Year-over-year basis, we added 1 client in the USD 50 million-plus category, taking the total to 5 and 11 clients in USD 20 million plus category, bringing the total to 52. We continue to see consistent external validation of our capabilities by industry analysts and partners. This quarter, with recognition, I will call out a few of them. We received a golden pickoff covered for excellence in artificial intelligence 2026, recognizing our leadership in enterprise scale AI adoption and innovation through our Blue versus ecosystem. We were recognized as a market leader in the HFR horizons, NextGen IT Infrastructure Services 2026 report. We were recognized as a leader in the ISG Provider Lens SAP ecosystem 2026 report. We received the Google Cloud Partner of the year 2026 awards for media entertainment and infrastructure modernization in North America. We won the 2026 Databricks global COE Partner of the Year award. We won the Talent Acquisition Innovation Award and the Financial Express HR Awards 2026. Please refer to the fact sheet for the complete list of recognition. This quarter, we continue to strengthen our Blue vers ecosystem. I would like to share with you some of the key highlights. We launched Bluebird iron for integrated ops, Breves data bricks for data transformation and blue vest right logic for cybersecurity remediation. We launched BlueWorcurrency , our new commercial construct that offers outcome-based pricing for AI services. We expanded our Blue worst studio footprint with a new facility in Bangalore. We launched AI, our strategic workforce transformation initiative with the goal of developing a pool of 1,000 forward-deployed engineers. To accelerate our SLM development and deployment to clients across key verticals, we participated in a strategic investment round in Unifor, the business AI company. Unifor unlocks the attic enterprise with a complete composable AI platform, spanning agents, models, knowledge and data. This investment will strengthen our previously announced partnership with Unifor in delivering industry and domain-specific SLL. We signed partnership with OVH Cloud in France to accelerate the deployment of sovereign AI cloud in Europe. I would like to now share a few proof points on 4 types of AI work that we are delivering. In Business AI, on a global specialty chemical leader, we built an AI-led growth insight engine that unifies how team asks, analyze and act on insights across brand, pricing and market share to form a centralized agent intelligence layer. For a U.S.-based multinational organization, we built an end-to-end generative engine optimization strategy and grew impressions, clicks, AI mentions and improved LLM driven traffic by 33%. In creative AI, for a leading real estate company, we generated 2 million plus views across 10 video assets by scaling marketing campaigns and creative through AI-led content generation, cutting time to market by 75%, reducing asset production cost by 50%. For our global beauty brand, we produced organizational change management content through an AI-led content generation approach, accelerating consistent enterprise communication to 4,000-plus researchers and scientists in the research and innovation division. In Enterprise AI for a global energy major, we consolidated a fragmented monitoring landscape into a single Agentic Corporation intelligence platform, cutting operations cost by up to 40%, reducing alert noise by 85% and auto remediating over 1/3 of recurring incidents. For a global hospitality leader, we modernized a mission-critical revenue platform by pricing rooms across 10,000-plus hotels, our agent-led human-in-loop model eliminated 400-plus vulnerabilities per application with 0 downtime. In industrial AI, for a global power management leader, we created a digital twin and closed-loop robotic correction through our iNEXT physical AI platform. This delivered 97.4% defect detection accuracy and 67% less downtime with clients realizing ROI in the first titration. For a global automotive leader, we deployed an ML-driven productive solution on their laser banking line that detects process instability before it causes downtime, enabling 70% accurate early alerts with actionable operator recommendation. With this, I would now like to hand it over to Vipul for an update on financials.

Thank you, Venu. Hello, everyone, and thank you once again for joining us on a weekend. We hope you have reviewed our integrated annual report for FY '26, which provides detailed disclosures on both financial and nonfinancial metrics and highlights our ongoing commitment to ESG principles. Let me now walk you through the financial highlights for the first quarter of FY '27, starting with our revenue performance. Our Q1 revenue stood at USD 1,224 million reflecting a growth of 0.3% quarter-on-quarter and 6.4% year-on-year in constant currency. The corresponding dollar growth was 0.1% quarter-on-quarter and 6.1% year-on-year. . Revenue in INR stood at INR 11,608 crores, up 2.8% quarter-on-quarter and 18% year-on-year. Our EBIT margin expanded by 40 basis points sequentially to 15.5%, primarily driven by operational efficiencies from the new Verizon program in addition to ForEx benefits. The EBIT margin also shows an expansion of 120 basis points year-on-year from 14.3% in Q1 FY '26. This expansion has been possible due to the concerted focus on margin improvement initiatives under the Fit for Future program last year and continuing under the new Horizon program this year. Profit after tax for the quarter stood at INR 1,469 crores as compared to INR 1,341 crores in the previous quarter. an increase of 9.5% quarter-on-quarter and 17.1% year-on-year. The PAT margin came in at 12.7%, up from 11.9% last quarter. The movement from EBIT to PAT includes the impact of higher investment income, losses on cash flow hedges and a onetime gain on the recognition of the value of our investment in voicing. The effective tax rate for the quarter was 25.8% compared with 26.3% in Q4. Basic EPS was INR 49.5 for the quarter as compared to INR 45.4 in Q4 FY '26. Our total DSO for Q1 stood at 85 days versus 84 days last quarter. The OCF to PAT ratio stood at 79%, down from 96% in Q4. while FCF to PAT was 63% versus 75% in Q4. Normalized for the onetime gain, these ratios would have been 88% and 70%, respectively. Cash and investment balances stood at around USD 1.5 billion or INR 15,021 crores post the payout of the final dividend for FY '26 compared to INR 15,445 crores in Q4 FY '26. Return on capital employed for the quarter was 29.8% versus 29.2% last quarter. As of June 30, 2026, our cash flow hedges stood at USD 4.71 billion, and hedges on the balance sheet were $3.18 million. Utilization, excluding trainees, stood at 86.4% for the quarter compared to 85.7% in Q4. The head count at the end of Q1 was 87,886. Fresher addition stood at 1,308. For the quarter, our TTM attrition remained stable at 13.3%. As an update on our previously announced intention to acquire Randstad Technology and Consulting Services business in Europe and Australia , we have submitted the required applications to regulators across various countries for approvals and the process remains on track with our planned schedule. I'm pleased to share that this reaffirmed LTM's long-term and short-term credit ratings at AAA stable and even plus respectively. . While the company received CRISIL ESG score of 77 and a core ESG score of 83 in FY '26, placing it in the leadership category, presents highest ESG recognition peer. I'm also happy to share that at the business world CFO World Awards 2026, LTM has received 2 prestigious honors excellence in financial reporting and excellence in crisis management. These recognitions reflect the strength of our governance framework and our focus on risk management. I now hand it back to Venu for the business outlook.

Thank you, Vipul. Let me now turn to our outlook for the year ahead. Our order book remains strong and broad-based. The pipeline continues to build across our segments, and we are converting that into sustained daily momentum. Our ARP vote is now delivering tangible proof points for our clients. Our 3 lines of business, 4 types of AI work and 1 Blue vers ecosystem are helping us deliver AI impact to our customers. And this is reflected in the nature and the size of deals we are winning. The productivity linked pricing conversation we have had with some of our large clients are now behind us. That transition is complete. And we see this as a source of strength going forward rather than a headwind as it has strengthened our strategic positioning with these accounts. . Taken together, the order book, the AI proof points and the completion of this client transition gives us confidence that our growth will accelerate through Q2 and into the second half alongside further expansion of the margins. Thank you. The floor is now open for Q&A.

[Operator Instructions] We have our first question coming in from Sulabh Govila of Morgan Stanley.

Congrats on the growth seen in the top line buckets. My first question is on the outlook. Just trying to better understand -- so in the first quarter, on a Q-on-Q basis, there was a underlying business momentum that you saw. If you adjust for the seasonal pass-through element and the macro-related headwind that was there in the Middle East, so is it fair to assume that, that sort of a business momentum should reflect from 2Q onwards, especially with the deal win sustaining? Or are there any additional moving parts which can change that trajectory, partially for 2Q.

Sulabh, firstly, thanks for the question. Look, I think the positive news is that some of our biggest segments are in the growth trajectory, and I expect that to continue as we go into the next quarter. barista seasonal movement, the aspect that I called out on the Middle East and the India ramp-up unless there is no escalation, which is beyond our control on the geopolitical situation, the rest of the market segment, which has got a great start to the year should continue even for Q2. So I don't see any issue with any of our global industry segments.

Understood. Understood. And then secondly, with respect to the sales headcount, so there has been some moderation over the last 1 year of about 8% to 9%. Just wanted to understand, it's just more on the support side due to efficiencies? Or have there been some actions in a particular geography that has led to that?

Yes. It is related to the enabling functions, the support function. -- if you recall our strategy, we did articulate that we want to grow faster and also embrace AI within our own internal usage, and we are seeing the benefits of it. how do we run our internal IT, how do we run our finance, HR, support functions, operations functions and so on. So those productivity benefits are visible when you see those changes.

We are taking a next question from Ashwin Mehta of Ambit Capital.

Just 1 question. So what is the nature of demand that is being served by subcontractors instead of our own employees because -- that's 1 element that's gone up by 130 bps Q-o-Q and almost 320 bps Y-o-Y. .

Yes. So Vipul, I will take this 1 and you please add to it further to it. So Ashwin, it is essentially related to a vendor consolidation exercise that's happening with some of our customers, especially the customers where we have a deep relationship across a couple of verticals where the clients are asking us to transition the tailwind to be part of a leading vendor in the vendor consolidation exercise -- as a part of that, the approach is usually transition it from the tail vendors and then you convert that into our end step model over a period of time. So I see this as spike due to those kind of engagements, but not an indicative of any specific trend. Over a period of time, you should see a decrease in that and when it moves into our end-state model. .

And a follow-up to what Sulabh asked. On the SG&A side, what you seem to have indicated that there seems to have been G&A efficiencies that have come in. Earlier, our expectation was that SG&A would go more closer to the 11%, 11.5% of sales level -- do you see that happening now? Or given the efficiencies on the other side, the SG&A should be kind of stable at these levels? .

We would expect it to remain stable at these levels. I think 1 of the things that we're doing is we are not touching the sales. In fact, we are investing a lot on sales, especially on the enablement side, One of the things that we've initiated is the training of our sales organization on the new AI way of selling, as an example. There's a new competencies that we are enabling them. So the productivity of our sales people are actually moving in a positive direction. So I would -- I'm really encouraged with those responses, the way we are voting there. And all the efficiency that you see is to build an AI-driven organization for our internal operations. And that seems that would remain steady for times to come. I don't expect any variation of time. . Yes. Vipul, you want to add something on to this, please? .

Yes. I'll just add 1 thing, Vinta the SG&A will not -- or is not likely to go up to the 11%, 11.5% range, -- but yes, quarter-on-quarter, some amount of variation from the current levels can happen because we are continuing to invest in our sales build up. And to that extent, there could be some minor movements up and down. from time to time. But overall, the 11% to 11.5% range, I think we have kind of been able to achieve efficiencies, which have caused this change to be more, I would say, sustainable.

We are taking our next question from the line of Rohit Tora of Access Capital. Rod, please go ahead. .

So you saw good growth in BFSI, high-tech, North America and even in top 5 customers. Client mining data was also good in higher client peers. However, there was a drag in consumer. So do you expect Back to continue like in further quarters? Or is it expected to worsen saw some qualitative commentary on that verticals would be helpful.

Yes. Look, I think if you look at it, I proactively called out the reason why the consumer I mean, firstly, you look at consumer, it has grown 18.2% year-on-year basis. That's it. That's huge, right? And the quarterly decline is pretty much related to the some of the large deal that, as you are aware, we are dealing with in India with the tax department. And during the wart situation, the shipments of certain hardware delivery and also the challenges are on the memory chips and everything to build a e-centric model that got delayed. And that's -- that 1 -- I'm assuming now that the shipments will get accelerated. So I don't expect that trend to continue. And the decline is very marginal with the kind of growth we have year-on-year. So I'm positive and optimistic about consumers' growth momentum.

Okay. The next question is on growth From North America. Do you feel that the growth was broad based during the quarter and you are comfortable that things are bottom out and growth momentum will be sustained going forward? .

Absolutely. I mean, look, our tech services, which is usually North America entry, grew 3.4% sequentially and double digit on a year-on-year basis. So I'm confident of that continuing that momentum. And the financial services also is back to a sequential growth, and it's showing a great demand traction in the financial services. So yes, I'm optimistic about the continued momentum in North America, absolutely.

Okay. Last question is on the utilization front. Do you believe that you are already at an optimal level and you would need to step up hiring going forward? And also what are your hiring plans for pressures in this year versus last year? .

Vipul, do you want to take this, please?

Sure. I think in terms of the utilization, we have previously articulated that we are targeting to stay somewhere in the region of 6% to 7%. We are currently in the middle of that range. Again, quarter-on-quarter, you may see some variations up or down, but it's a comfortable range for us to be in. Coming to the fresher hiring, I think we have been continuing with our fresher hiring and deployment. In this quarter itself, we have deployed -- or we have taken freshers about 1,308 freshers have been added. And we'll continue to add freshers as we go along. I think from our strategic point of view, it is important to continue to build the AI-ready talent. And to that extent, this initiative will continue. -- though, as we have called out in our strategy that the shape of the pyramid, et cetera, over a period of time, will change from the traditional pyramid to a more diamond-shaped structure. But I hope that answers the question that you're asking.

We are taking our next question from Sandeep Shah of Equirus Securities.

Yes. Just wanted to understand what percentage of revenue comes from Middle East. And when you have given our outlook of growth to accelerate in the coming quarters? Are we expecting even the geopolitical issues are largely behind or may have some impact in the coming quarter as.

Look, firstly, the Middle East numbers is less than 3% for us. That's -- so that's on the first part of the question. The second part of the thing is that, as I mentioned in the outlook commentary, we are reasonably confident about growing in the subsequent quarter. and continuing that momentum for the second half of the year. And geopolitically, is what it is, right? So I mean I can't say that it is end of the situation of geopolitical thing. You never know what arises next week and so on. But keeping that aside, the fact that some of our big businesses are growing. -- our North America has got a great traction build up. And the productivity topic is behind us. The transition is complete in our top clients. Our top 10 clients have got a great momentum, not just for this quarter in terms of the pipeline that they have built up for the next quarter. We will deal with anything that comes about in the quarter with regard to the geopolitical, which none of us can predict what it is. But what is most important is that our growth verticals, our growth businesses, our big-sized businesses are in the right position.

Yes, yes. And when you say go to improve in your outlook coming, are you talking organically and that Q-on-Q, CC term.

Yes. It's -- my commentary was on organic because whatever is inorganic, as Vipul mentioned, that is expected to close some time probably at the beginning of Q3. So my commentary was all organic .

Okay. And out of many large deals which we have won, the income tax deal has got delayed, would you expect may start ramping up from , right? .

Yes. Whatever is the delay ramp-up. I'm expecting it to start ramping up but the larger issue about hardware shipment time lines and the memory prices is something that still need to see how it navigates over the next 1 or 2 months. But whatever has got delayed from a Q1 perspective, I expect that to appear in Q2.

We'll go to our next participant. We have Dipesh Mehta of Emkay Global.

A couple of questions. First, I just want to continue on this income tax-related deal. How to understand ramp-up in that part -- do you expect it to be very gradual or it would be very short ramp-up as and when, let's say, it starts -- you source the hardware and some of the issues related to supply chain get addressed. Second question is about free edition plant. We added around 1,300-odd employees prices in quarter 1, how to understand for full year plan perspective, Third question is data related on noncontrolling interest, we reported this quarter gain. Can you help us understand what played out there? .

Why don't we start from the third one, people, do you want to pick up that up when I'll pick up the first 2 ones. Yes. So on the noncontrolling interest gain, I think we did speak about it very briefly when I was giving the financials. There is a valuation gain Okay. So there is an increase in the noncontrolling interest participation because of the Saudi JV that has that has been ramping up in its business and also there was a valuation gain valuation gain that we experienced in our investment in voicing.ai, which also has been done through 1 of our subsidiaries in U.S. And as a result of which, the contribution from the subsidiaries has gone up in this quarter.

All right. Thank you, Vipul. Let me take the question with regard to the ramp-up Look, as I mentioned, the Q2 will be higher than Q1 when it comes to that particular project in India that you referred. And now in terms of the speed of ramp-up, I don't know how you define gradual fast and so on. There is a project time lines, which we have to deliver. So we -- and that's in the common interest of us and the client, and we're working towards delivering to that schedule. And there are some element of shipment visibility we have of the hardware that is needed to make our software services work on that. And we expect that delivery to happen in the beginning of Q2. So that will make us realize a lot of milestones that we have. We have a commitment towards our customer. So that's how I see -- so the whole idea is that if we can come back to our original project schedule between Q2 and Q3, which is a common interest for both us and the client, then we are back on the project.

And the last part, if you can address sir. And in this -- any on sorry. Any risk because of the, let's say, pricing fluctuation, any risk we carry in this deal? From a margin perspective? .