L&T Technology Services (LTTS) kicked off FY2027 with a strong first quarter, posting an 11.5 per cent year-on-year (YoY) increase in revenue to Rs 2,940 crore and a 13 per cent rise in net profit to Rs 357 crore. The engineering services company delivered broad-based growth led by its Sustainability segment, which grew nearly 24 per cent YoY to become its largest business, while Mobility continued to expand steadily and the Tech segment remained largely flat. Despite higher employee costs, which rose about 9 per cent YoY, LTTS improved profitability as operational efficiencies and the absence of one-time restructuring charges supported margins. As artificial intelligence (AI) increasingly becomes central to engineering services, the company says AI is now embedded in virtually every client engagement and remains a key driver of its growth strategy.
In an interview with BW Businessworld, Alind Saxena, Executive Director & President – Strategic Initiatives & Growth Markets, L&T Technology Services, discusses the company’s Q1 FY2027 performance, segment-wise growth trends, AI’s growing footprint in the deal pipeline, and the margin outlook for the rest of the year. Excerpts:
11.5 per cent revenue growth seems to be a good number to kick off FY27 on. Give us a view on what you’re seeing on the ground, and do you see this kind of performance being sustainable through FY27?
The best thing is to take a step back and look at what’s happening. It’s been a very happening quarter, so to speak. The way we look at our world, Rohit, is in terms of mobility, sustainability, and tech, that’s how we stack it up, both internally in terms of leadership and externally in terms of how we go to market.
Especially around engineering intelligence, now that AI has made its way into software and is getting into physical AI, that’s where the fundamental shift is going to happen, because that’s when reality meets the road. If you look at all our customers today, they are in the business of getting products out and getting smarter products out and that’s the play we have within this. The fact that we have a diversified portfolio and are able to take learnings from one part of the business and feed it to another, managing our business in a distributed way, is really helping us.
"We remain bullish about what’s coming down the road. We think this is the beginning of the performance we’ve shown, and we’ll look at sustaining that both in terms of top-line growth and margins"
We did ‘Lakshya 31’ a few quarters back, and we talked to you about that. We reemphasised that the six bets we have are very relevant to what we’re doing now, and we mapped that to the whole AI world. All of that, put together with the diversification and portfolio rationalisation we did, is now driving us in a direction where we’re very focused as a team on the areas that matter to us and to our customers. What you’re seeing in the results is a reflection of that.
Mobility grew for us by about 2.3 per cent, and given where we are and where our peers are, I think that’s healthy growth. Sustainability is an area we’ve been growing in as well, and that’s grown for us too. Our Tech segment — other than a one-time issue with a medical customer, where there was a lag between one ramp-down and the next ramp-up (which happens sometimes), the tech segment overall performed well.
Can you give us an idea of what’s been driving client focus? Are they looking to increase their engineering R&D budgets, or are you benefiting from vendor consolidation and market share gains overall?
The answer lies in segments. That’s the way to look at it. If you think about mobility, the OEMs we work with, and 60 per cent of our business now comes from OEMs, are very clear on the path they’ve chosen: which models they’re bringing out over the next three to four years, how much hybrid versus EV, and how much spend will go toward SDV.
So mobility is a mixed picture. In Europe, we’re dealing with vendor consolidation strategies and aggregation. But in North America and Japan, that thought process is already settled, so we’re actually participating in their growth in engineering budgets in those two geographies. And that’s just automotive. Mobility for us goes beyond automotive. We also have trucks and off-highway, and aero and rail. Aero and rail keeps growing for us at a healthy rate, and trucks/off-highway, which was a bit soft because of how the agriculture market was, is now turning around too.
North America and Japan is a growth strategy, and aero and rail, and trucks/off-highway, are also on a growth path overall, not to say there isn’t consolidation happening there too.
Clearly, Sustainability segment is doing well for you. What’s driving this?
Sustainability is on a growth path. You know what’s happening in data centres and the AI stack, the six layers we talk about. Two of the most important layers are infrastructure and energy. When we say energy, we mean both power and the HVAC or cooling side, which is a very important component of what we do, our industrial products are built around that; power electronics is what we do. We work with HVAC companies, big and small, and we’re also getting into some of the newer players in the market, especially on the liquid cooling side. So there’s a fair amount of movement there, and it’s a growth path — they have orders they need to fulfil.
On the plant side, what’s happening is modernization of existing refineries to accommodate new products, and the volatility we’re seeing across the world is pushing companies to look at alternate ways of doing things. That’s served us well. We grew about 4.3 per cent in sustainability in Q1 and we are fairly confident that clip will continue.
You addressed the Tech segment performance briefly. When do you see a recovery coming?
We will turn this around next quarter. Like I said, it was a one-off thing that happened because of one specific issue. We are actually very close to declaring one, possibly two, deals in this quarter in this sector, so we’re fairly confident it’s going to turn around. It’s a good growth strategy for us.
While it’s not very visible, this is a sector where a lot of AI implementation has happened. When we picked up this part of the business, we opened up retail and pharma — two sectors we didn’t have before — and both are seeing fair traction. The solutioning we’ve done there is going to help us. We also did two partnerships in this sector, one with Anthropic and the other with Databricks. It’s one of the first partnerships in the physical AI space done by a company like us, so it’s huge in terms of implications. All these things coming together will show up in the results going forward.
Tell us a bit about the AI component in your current deal pipeline, and how different is it from a year ago.
Today, there’s no deal you can win if it doesn’t have an AI component. I was telling the board recently that there are two fundamentally important things in deals today that are helping us and shaping different conversations with customers.
Firstly, none of these deals are what we’d call time-and-material in nature anymore. They’re fixed-price, outcome-based deals or packages to be delivered, which gives us more freedom in how we manage, run, and staff them.
Secondly, these are transformative deals. With enterprise customers, the first thing on the table is: how do you change what’s being done today? If that flavour isn’t part of the solutioning, there’s no way we can build it and the transformation has to happen on the back of AI, or similar technologies. AI has many flavours, and we could spend hours on that, but that’s the fundamental change. So, short answer: every deal has AI, and every deal has an outcome component, which works in our favour.
On margins: you’ve improved despite rising employee costs. What’s driving this — utilisation, offshore mix, anything else?
All of the above, plus prudence and our ability to effectively move and re-educate people into new technologies so they can work across different segments. If you take a step back, the fundamental question is: how ready are your people to pick up incoming programs and projects? We’re fairly unique in having set up our own institute, an academy that focuses on training people across different areas.
That, combined with increased utilisation, and the shift I mentioned earlier toward fixed-price, outcome-based deals, gives us a better way of managing our people. That will continue to change the metrics, you’ll see the onsite-offshore ratio changing dramatically, and the T&M mix changing as well. Those are factuals reflected in our release too.
Do you see margins holding/improving through the rest of FY27, or are you comfortable where you are?
We’ve given guidance that we want to get to around 16 per cent by Q4 FY27. So we’re on that track. But we can’t rest on our laurels. |
