LTTSNSEQ4 FY23May 04, 2023

L&T Technology Services Limited

9,149words

55turns

9analyst exchanges

5executives

Download PDF ↗LTTS stock page →

Management on call

Amit Chadha

CEO & MD,

Abhishek Sinha

COO & EXECUTIVE DIRECTOR,

Alind Saxena

PRESIDENT SALES & EXECUTIVE DIRECTOR

Rajeev Gupta

CFO,

Pinku Pappan

HEAD, INVESTOR RELATIONS

Key numbers — 40 extracted

2.8%

the key highlights of our Q4 performance: • In USD terms, we had a sequential revenue growth of 2.8%, with four verticals – Medical, Plant Engineering, Telecom & Hitech and Industrial Products growi

als – Medical, Plant Engineering, Telecom & Hitech and Industrial Products growing in excess of 4% sequentially. © L&T Technology Services • We sustained the EBIT margin at 18.7% a

18.7%

s of 4% sequentially. © L&T Technology Services • We sustained the EBIT margin at 18.7% as we continue to strengthen the operating model to make it sustainable. • Our large deal engin

16%

lestones we've achieved: • Growth: We crossed a Billion dollars on a run rate basis and grew by 16% in constant currency during the year. Three of our five verticals grew in double digits – Trans

22%

hree of our five verticals grew in double digits – Transportation (at an industry-leading organic 22%), Plant Engineering and Industrial Products. When we look at the geo wise split, all 3 geos, US,

18.5%

or their products and services. • Operating model: Our FY23 EBIT margin was the highest ever at 18.5%, on the back of consistent focus on strengthening the operational playbook. PAT for the year was

1,170 Crore

the back of consistent focus on strengthening the operational playbook. PAT for the year was at 1,170 Crores – again a milestone as we crossed the 1,000 Cr mark. PAT has also grown at an 18% CAGR over the

18%

s at 1,170 Crores – again a milestone as we crossed the 1,000 Cr mark. PAT has also grown at an 18% CAGR over the last 5 years, demonstrating consistency in operations. • M&A: We acquired Smart Wor

rs,

a milestone as we crossed the 1,000 Cr mark. PAT has also grown at an 18% CAGR over the last 5 years, demonstrating consistency in operations. • M&A: We acquired Smart World & Communications (SWC) – w

gy Services • • • • There is a good pipeline of opportunities for connected vehicles and V2X solution development. In Transportation, we have filed 27 patents for ourselves in the last 2 y

50%

In Transportation, we have filed 27 patents for ourselves in the last 2 years – which is nearly 50% of the overall patents that we have filed in this domain, giving you a clear indication that our p

Value Centers. • As we had indicated in previous quarter, we saw a good bounce back in Q4 with a 6% growth sequentially, which is broad-based across the three subsectors. • We have won multiple s

Advertisement

Guidance — 20 items

Pinku Pappan

opening

“The audio recording of this call will be available on our website approximately one hour after this call ends.”

Amit Chadha

opening

“PAT has also grown at an 18% CAGR over the last 5 years, demonstrating consistency in operations.”

Amit Chadha

opening

“We see a good pipeline of opportunities in the digital space and expect growth to be strong in the current fiscal too.”

Amit Chadha

opening

“So overall we had a good 4% growth in Q4 despite an overall challenging environment and this puts us in line to continue to grow as we go forward into next year Additionally, SWC capability will give us a bigger play in 5G NOC and SOC globally.”

Amit Chadha

opening

“There are a few deals in play that we expect to close in the quarter.”

Amit Chadha

opening

“The deal pipeline gives me confidence to confirm this will grow faster in FY24.”

Let's now get on to outlook

opening

“• Digital transformation spends continue and as per latest market reports will grow from $800B currently to $1.4Tr in 2026, led by Cyber Security, AI, Hyper automation, enhanced speeds of Connectivity, better and higher Computation and Cloud adoption.”

Let's now get on to outlook

opening

“Till date, like I said, we have won 3 deals and do expect to announce more shortly.”

Let's now get on to outlook

opening

“For FY24 our guidance in USD constant currency terms is 20% plus.”

Let's now get on to outlook

opening

“Within this, organic growth will be 10% plus, while the rest will come from SWC.”

Risks & concerns — 9 flagged

If I look at organic guidance at 10%, seems a bit weak, given the momentum we have seen in four of the five verticals in the 4Q numbers.

— Bhavik Mehta

So can you just throw some more light on what kind of headwinds are you expecting going into FY24, which has led you to come up with a weak guidance at 10% on an organic basis?

— Bhavik Mehta

The two areas which are a little bit of a concern to provide a balanced view here or Semcon and hyperscalers.

— Amit Chadha

Semcon, of course we had a decline in the current quarter, but we overcame that.

— Amit Chadha

Would you expect that process to be a headwind on revenues as we transition?

— Akshay Ramnani

Akshay, as far as margins, in the previous quarter, I did guide that we'll see an impact of about 180-200 bps on EBIT levels.

— Rajeev Gupta

We've always basically considered the ER&D spend as more discretionary in nature, given the overall weakness and slowdown in the US and European economies.

— Vibhor Singhal

So Hitech, Semcon, there's a little bit of stress in the system for sure.

— Amit Chadha

And that's again more as an impact of consolidation than anything else.

— Rajeev Gupta

Advertisement

Q&A — 9 exchanges

Thank you. A couple of questions. Firstly, on the guidance. If I look at organic guidance at 10%, seems a bit weak, given the momentum we have seen in four of the five verticals in the 4Q numbers. So can you just throw some more light on what kind of headwinds are you expecting going into FY24, which has led you to come up with a weak guidance at 10% on an organic basis? Secondly, on SWC, it seems like the revenues were just $100M in FY23, while the FY22 number, what you had shared, it led to revenues of around $140-150M. So, has SWC seen revenues contract over the last year? Just a clarificat

Amit Chadha

Yes, hi. Thank you so much. Number one, I believe that what we've guided is 20% plus with the focus on the word ‘plus’, right? And we are just starting the year. We are not declaring FY24 results yet. I do believe and I have a lot of optimism as I enter the year. If you look at it, there are three clear areas where we're seeing money is being spent, Energy Transition & Electrification, Digital – which includes Cyber, AI, Automation, Connectivity, Computation and Cloud adoption. And finally, a lot more outsourcing and offshoring. So at this stage, given where the world is right now, I do believ

Hi, thanks for taking my question. So, first question was on SWC. So, you mentioned about getting into asset-light deals. Would you expect that process to be a headwind on revenues as we transition? And if yes, how long do you expect the transition period to continue? And also you had earlier mentioned that some of these Government contracts have come up for renewal over the next 18 months and in most likelihood you may not go ahead with renewing those contracts. So are we on track? And what percentage of revenues can those contracts be?

Amit Chadha

Okay. Thank you so much, Akshay. Number one, as we have said, SWC is three parts. There is Telecom which now we have integrated completely into our Comms, and we are calling it Next Gen Comms. In fact, you see our website, may have either been changed or will get changed from 5G to Next Gen Comms. There, we are seeing 2 areas of spend. 1) We are © L&T Technology Services seeing a lot more 5G trials going on. And therefore our business in that area has picked up with a couple of old Telecom Operators that were our customers in North America. 2) There are customers that are coming out with devic

Hi. Thank you for taking my question. And congrats, sir, on a very good strong growth on a broad-based level. So, sir I think, Amit, I think I would just maybe touch upon this. I think after many quarters, we have seen such a broad-based growth almost across all the segments. You spoke about, a bit about the Transportation vertical. So maybe a bit more on that, if you can just maybe give some light as to the reasons that we had QoQ dip in this quarter? And do you think basically this could reverse in the coming quarters or the weakness might continue for a couple of them? And a broader, larger

Amit Chadha

So thank you so much, Vibhor. Number one, I'd like to confirm, we don't provide QoQ guidance, but I always think of the investor community as part of the family and employee community of the company. So, I'm going to dispel this fear and tell you that our growth in Q1 as projected today for Transportation is above 4% sequentially. So I want to just dispel that notion that there was a problem. What happened was that we had a jump in Q3 because some of our contracts started and we requested our clients and they agreed that they wanted some work to be done quickly, so we ramped up extra there. An

Thank you for the opportunity. I just want to understand what happened in other segments. We see a good drop in the other segment line item around 190 bps QoQ?

Rajeev Gupta

Rajiv, could you clarify your question, what do you mean by other segments? Other expenses. So, in the other expenses segment, if I see, in the line item other expenses, I see a 190 bps drop on a sequential basis. So I think, Rajiv, what you're referring to are really the common costs that get allocated across segments. So, there was certainly a drop in terms of those common costs and largely, this is because we had strong collections in the quarter which led to lower provision for doubtful debts. So that's what you see, Rajiv. Okay. And similarly, in the employee cost, I see a 180 bps kind of

Hi, thanks for the opportunity. I might want to revisit that employee benefit expense again. So, if I reconcile the expense line item and the cost of sales in your presentation, it appears, which you also alluded, that there was a higher subcontractor expense. So, could you just elaborate, one, was it for any particular vertical, if you can? And the second is a broader question for Amit. So historically, one of the key strengths of LTTS was to kind of mine accounts and transition them from the lower buckets to higher buckets. If I see the recent presentation, it seems that we only have 1 $30M

Rajeev Gupta

Abhishek, let me address your first question. And I already talked about the fact that, look, on employee cost, we continue to optimize pyramid. And the other expenses, this is as a result of increase in third-party contractors and software costs related to projects. We can certainly take this offline, Abhishek, so that we can provide more colour and details. And to whoever else would like to understand, we can certainly talk about it offline. With that, I'll hand it over to Amit to clarify on the top account. Yes. So Abhishek, thank you so much for asking that question. Like I think Rajeev sa

Thanks for taking my question. So, Amit Sir, first question is on the $10M plus TCV wins, even from a full year point, it looks a lot lower versus where it was the previous year. So, is it any part within the strategic bet or big spend areas as you highlighted earlier, which you don't see playing out as envisaged?

Amit Chadha

So, Apurva, thank you so much for that. See, if you look at it, the last year, so if I compare FY22 to I compare FY23, I can confirm to you that the total TCV that the company has generated is at similar levels or slightly higher because, you know, the base is higher, so slightly higher than FY22. Having said that, you're absolutely right that the number of $10M plus, the double-digit deals, as we call them, is a tad bit lower. Right. So, I admit it. But the number of $5M plus deals and the number of $2M plus deals that we have had, where there's a greater amount of ACV impact rather than TCV

Hi. Good evening. So, my question was around SWC. I think you mentioned that when the Capex kind of revenue comes off, there will be continuity on the Opex kind of revenue. Well, one would sort of imagine that this would mean that the revenue goes off for a bit, but margins do improve. Could you shed a little light on that dynamic, please? So that's the first one. And the second one, in terms of the three, how do we think about the globalization of these contracts, internationalization rather? So for that, typically, what would be the margins of the international contract versus the 8-10% kind

Amit Chadha

Yes. Hi. Thank you so much, Nitin. Good evening. Number one, as Capex contracts, we look at very hard and seriously and only pick up ones that are adding value to our technology quotient and journey. We are taking that all into account as we have given you the guidance for next year. © L&T Technology Services So we have taken all that, what will ramp down, what will ramp up. We have done that math, and that's how we have provided the guidance, right? Number one. Number two is that the Opex spends that are there, those contracts are at our constant margins, so not to be worried. Now, in terms o

Yes, hi, thanks for giving the opportunity and congratulations on the broad set of growth. I think I largely wanted to understand on the offshoring side of things. I mean, you made an initial comment that you are seeing more offshoring happening in the coming years. So, if you can throw some examples, what is giving you the confidence that there is increasing offshoring happening? So, that was my first question. My second question was on the $40M contract that we have won. So, if you could throw some more light as to what is this contract exactly and then what the ramp-up happens for this © L&

Amit Chadha

So Abhishek, you have to cover the offshoring, then I'll take the next one. Yes. So, on the offshoring front, like Rajeev had mentioned in his commentary, our mid-term aspiration is to go to about 60%. We are currently at 57%. Do we have the confidence? We definitely are taking steps internally with our delivery leaders as well as sales leaders, putting more processes in place and engaging the customers to increase this. We believe that this is definitely possible given where the world has moved from a hybrid perspective. Amit, you're up. Yes, sure. So, in terms of, I'll address SWC and then I

Thank you everyone for being with us on this call today. We hope we have been able to answer most of your questions. If there are follow-ups, happy to engage with you through the course of this quarter. With that, on behalf of the entire management team here at LTTS, we would like to wish you a very good day and hope to see you soon. Thank you so much. Bye-bye.

Management

Speaking time

Amit Chadha

Rajeev Gupta

Moderator

Rajiv Berlia

Apurva Prasad

Pinku Pappan

Akshay Ramnani

Mihir

Let's now get on to outlook

Now let me comment on operational metrics

Advertisement

Opening remarks

Pinku Pappan

Hello everyone, and welcome to the earnings call of L&T Technology Services for the Fourth Quarter and Full Year FY23. I am Pinku, Head of Investor Relations. Our financial results, investor release and press release have been filed on the Stock Exchanges and is 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 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 approximately one hour after this call ends. With that, let me introduce the leadership team present on this call. We have Amit Chadha - CEO and MD, Abhishek - COO and Executive Director, Alind Saxena - President Sales and Executive Director, Rajeev Gupta - CFO. We will begin with Amit providing an overview of the company’s performance and outlook, followed by Rajeev, who will walk you through the financial performance. Let me now turn the call over to Amit.

Amit Chadha

Thank you Pinku and thank you all for joining us on this call today. I trust and hope all of us are doing well. I would like to start by welcoming my colleague of more than 12 years at LTTS – Alind Saxena to the Board of LTTS. He was elevated earlier today to President Sales and Executive Director. Alind is a graduate from IIT Kanpur, has lived in the US and Europe for more than 2 decades, been with LTTS since 2009 and a member of the executive leadership team for the past few years. Prior to this appointment, he was the Chief Sales Officer responsible for North America and Asia. With that, let me provide the key highlights of our Q4 performance: • In USD terms, we had a sequential revenue growth of 2.8%, with four verticals – Medical, Plant Engineering, Telecom & Hitech and Industrial Products growing in excess of 4% sequentially. © L&T Technology Services • We sustained the EBIT margin at 18.7% as we continue to strengthen the operating model to make it sustainable. • Our large deal

Let's now get on to outlook

Even as the global GDP normalizes to pre-COVID levels, there are 3 clear areas that will attract ER&D investments and increase the total addressable market pie for people in our segment. These three are around 1. Energy Transition and Electrification, 2. Digital and new-age technologies for a variety of use cases that cover User experience, Automation, Communication etc. 3. Business transformation to optimize costs and increase returns thereby increasing outsourcing and offshoring. There are some data points we will take. • Digital transformation spends continue and as per latest market reports will grow from $800B currently to $1.4Tr in 2026, led by Cyber Security, AI, Hyper automation, enhanced speeds of Connectivity, better and higher Computation and Cloud adoption. • The global AI market itself is expected to grow from $400B to $900B in 2026, with spends towards hardware, software and services. Industry specific models will need to be created which will create a great amount of opp

Rajeev Gupta

Thank you, Amit. Good evening to all of you, and I hope you're keeping safe and healthy. As you may have seen from the results filing, FY23 has been a landmark year for us – crossing the milestone on $1B in revenue run-rate with growth across segments, achieving consistency in operating margins through the quarters to touch 18.5% for the year, which is the highest we have reported and PAT for the year crossing the ₹ 1,000 Cr mark. We are also happy about the consistency in FCF and cash generation, which has helped end the year with nearly ₹ 3,000 crores of cash. We also did our largest acquisition till date, which will be effective from 1st of April 2023. I shall now take you through the details of our Q4FY23 and full year financials, starting with the P&L. For the Quarter, Our revenue was at ₹ 2,096 crores, a growth of 2.3% on sequential basis. Our double-digit YoY growth trajectory continues with Q4 revenue up 19% on YoY basis. We sustained EBIT margin at 18.7% – flat when compared t

Now let me comment on operational metrics

The onsite:offshore mix came in line with our expectations. Offshore percentage now stands at 57% for the quarter. Our aspiration is to improve this ratio to 60% levels in the medium term. The T&M revenue mix increased to 71% in Q4 and is likely to maintain at these levels. On client profile – which indicates the number of Million dollar plus accounts – has shown a sequential improvement in the $5M and $1M plus categories. The client profile numbers have seen an improvement over the past few quarters, this trend will continue in the coming quarters. A key highlight that I would like to share here is that our top account crossed the $40M mark in FY23. Client contribution to revenue – All three categories – Top 5, Top 10 & Top 20 continues to be in the same range as Q3. Headcount increased sequentially by 584 employees, while attrition moved down to 22.2%. Our aspiration is to get below 20% levels of attrition. This will be achieved through various employee engagement measures. © L&T Tec

Let me now provide an update on our SWC acquisition

We have successfully closed the transaction effective 1 April 2023 and integrated around 800 employees of SWC into LTTS. An Integration office was set up to focus on Day 1 readiness and Operating model – which helped us manage the transition smoothly. We continue to run the synergy program over the next 180 days, and we'll focus across 3 tracks: • Revenue – priorities being internationalization of customer base, expansion of services portfolio and creating large deals opportunities. As Amit mentioned, we are seeing a good pipeline of opportunities – with 3 international deal wins so far leveraging the SWC offerings. • Margins – expanding margins through internationalization, business mix optimization and G&A optimization. • DSO and Working Capital – improving collections and transforming into a solutions and services play to get into more asset-light deals. Before I conclude, let me give some visibility on the margin trajectory going forward. • Our EBIT margin stands at 18.7% for Q4 an

Advertisement

← All transcripts LTTS stock page →

L&T Technology Services Limited

Market Movers