LTTSNSEQ1 FY24July 25, 2023

L&T Technology Services Limited

8,807words
59turns
11analyst exchanges
5executives
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
10%
ite the macro challenges and slowdown in decision making in some pockets. • Overall, we grew by 10% YoY in constant currency. The comparison on YoY is more like-to-like given the fact that H2 is al
0.6%
always higher than H1 for the Smart World & Communication (SWC) business. • Our revenue grew by 0.6% sequentially organically with Transportation leading the growth at 4%, while Medical and Industri
4%
. • Our revenue grew by 0.6% sequentially organically with Transportation leading the growth at 4%, while Medical and Industrial Products had about 0.5% to 1% growth. • Overall, organic sequential
0.5%
lly with Transportation leading the growth at 4%, while Medical and Industrial Products had about 0.5% to 1% growth. • Overall, organic sequential growth was 7.5% YoY in constant currency.
1%
Transportation leading the growth at 4%, while Medical and Industrial Products had about 0.5% to 1% growth. • Overall, organic sequential growth was 7.5% YoY in constant currency.
7.5%
cal and Industrial Products had about 0.5% to 1% growth. • Overall, organic sequential growth was 7.5% YoY in constant currency. • Operational performance was strong with EBIT margin a
17.2%
oY in constant currency. • Operational performance was strong with EBIT margin at 17.2%, which is post the addition of SWC. PAT was at ₹ 311 crores, up 13% YoY. • Our large deal engin
₹ 311 crore
l performance was strong with EBIT margin at 17.2%, which is post the addition of SWC. PAT was at ₹ 311 crores, up 13% YoY. • Our large deal engine continues to fire with a total of 6 deals above $10M, of wh
13%
strong with EBIT margin at 17.2%, which is post the addition of SWC. PAT was at ₹ 311 crores, up 13% YoY. • Our large deal engine continues to fire with a total of 6 deals above $10M, of which one
330 bps
as a Great Place to Work (GPTWTM) in India again and Poland for the first time. Attrition is down 330 bps to 18.9%. We expect this trend to continue. Moving on to segmental performance and outlook. Sta
18.9%
ace to Work (GPTWTM) in India again and Poland for the first time. Attrition is down 330 bps to 18.9%. We expect this trend to continue. Moving on to segmental performance and outlook. Starting wit
10 million
r Plant Engineering and strengthen our European presence. • This large deal, along with a few 5-10 million dollars deals that we won, gives us good growth visibility in Q2 and the coming quarters. • Acr
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
“Overall, we see a good pipeline of opportunities across all 3 sub-segments and expect the growth momentum to sustain.”
Amit Chadha
opening
“• We see a bounce back in the next quarter as the pace of decision making, regulatory and other factors have seen an improvement in June and July.”
Amit Chadha
opening
“Overall, we see a good pipeline of opportunities in the digital space and expect the growth momentum steadily to build up in Industrial Products.”
Amit Chadha
opening
“• The operational improvements will be discussed by Rajeev in his commentary.”
Amit Chadha
opening
“• In AI, our focus will be on the Auto, Manufacturing and Medical segments, and we will partner with Hyper-scaler and Semiconductor companies with joint development or readily deployable solutions.”
Amit Chadha
opening
“• We maintain our FY24 USD revenue growth guidance of 20% plus in constant currency.”
Amit Chadha
opening
“• We also reconfirm our aspiration of $1.5 Bn run rate in FY25.”
Moving to revenue metrics
opening
“We expect the margin trajectory to improve as we transform SWC business.”
Moving to revenue metrics
opening
“Before I conclude, let me give some visibility on the EBIT margin trajectory going forward.”
Risks & concerns — 4 flagged
Let me provide you key highlights on our Q1 performance: • We had a quarter of growth despite the macro challenges and slowdown in decision making in some pockets.
— Amit Chadha
Moving on to Telecom & Hitech, • Organically, we had a marginal decline, although when combined with SWC, we were up year on year.
— Amit Chadha
We saw a decline in Q3, and then we saw a sharp bounce in Q4, and we thought that the vertical has sort of recovered.
— Sulabh Govila
So that's something that I'm a little concerned about at this stage and cautious is the right word.
— Amit Chadha
Advertisement
Q&A — 11 exchanges
Q
Amit, just one question from my side. And I think – sorry about this being a recurring topic. But given the delays and push outs which you saw in the first quarter, what is giving us the confidence of delivering a 10% organic growth in FY24? What really are you seeing in terms of client visibility that such issues might not recur anytime over the next 3 quarters? Because currently, if I kind of do a rough number crunching, it looks like your compounded quarterly growth rate would be upwards of 4% for the next 3 quarters. If you could just help us walk through what really is behind this confide
Amit Chadha
Thank you, Mukul. So, a couple of things here, and I'll answer it broadly. So, we look at growth, right? Number one, some of the deals did get delayed in terms of decisions. We were expecting them to be signed end of April, early May, but they got signed towards the end of June, right? Second, if I look at Plant Engineering, it was not a deal problem. It was more a – getting inputs from customer on time problem. So, that book of business still is with us and therefore can be accelerated, executed. So, I don't have a problem there. I have an issue in Semcon, which I don't know if it will be a 1
Q
My first question is on SWC. So, on the numbers that is reported, which is 1Q FY23 and the 4Q FY23 I just wanted to understand that in this business, is there some variability involved in other expenses because they don't change much as a percentage of revenues?
Rajeev Gupta
Sulabh, this is Rajeev here. I'll take that question. So, like I said, we've had to restate financials of the previous quarter to include SWC. So, what you see in terms of other expenses is more like-to-like. And hence, there is nothing in addition. We don't expect that the other expenses will increase or decrease materially. This pretty much reflects what is the reality of that business. Sure. Understood. Maybe I'll take that offline. My second question is with respect to Plant Engineering business. So, in the past 2 to 3 quarters, we've seen some volatility in this business. We saw a decline
Q
So, when you look at the SWC business on the numbers that we have reported, is the Q4 to Q1 dip the usual sort of seasonality in the business. And typically, if you could give some color in terms of typically what's the sort of the mix between first half and second half, how does it normally look?
Amit Chadha
Rajeev, do you want to take that? Sure. So, Nitin, to your point, yes, this business is seasonal in nature. Typically, you will see H2 to be better off compared to H1. In terms of mix of business, you will see H2 to be at 60% vs H1 at 40%. So that's the reason we say that you tend to see H2 to be better off compared to H1. Sure. And the variability from Q4 to Q1 that we have seen this time, is there a common feature of this business? Or do you think as we – you spoke about, I think, one $30M and three $10M deals, as these deals keep adding up, that should sort of come off? How should we think
Q
My question on SWC has been answered. Second question is on the industry per se. We have seen a lot of influx or a lot of news on lot of global companies setting up GCCs in India. And there has been news of a lot of aggressive hiring from them. How do we participate in this particular trend? Do we partner with them in this entire process of setting up their centers? Or do we look at these GCCs as our potential competition?
Amit Chadha
Sure. Vimal, thank you. So, I'm part of the – I just joined the NASSCOM Executive Council and the only ER&D company member on the council other than gentleman who's been co-opted from the ER&D council. So here, GCCs are an opportunity. If I look back and I look at the number of STEM graduates coming out of colleges in India, it's huge. It's more than 2 million people coming out per year in STEM, right? So, they will find their ways to Global Competency Centers (GCCs) Now here's the good news and the silver lining. All the business that was potentially going up to Ukraine or going up to Russia
Q
I just want to check on the growth in North America. It looks like we've seen some good revenue addition there. It's almost as good as what we saw last year. So, what were the things that came in well this quarter.
Rajeev Gupta
Ravi, Rajeev here, I'll take this one. So, it's more relative in terms of when you look at the growth for North America, and that's probably because we have restated the SWC financials in Q1 as well as in Q4. And because SWC is a cyclical business, you're seeing, of course, Q1 to be lower relative to Q4. And consequently, the proportion of business that you see shows a growth in North America when compared, right? So, it's just relative. That's what I would say, Ravi. And Amit, on the semiconductor, we are starting to see the decision cycle get better. So, I want to check, but you also said th
Q
My first question is, last time in the Q4 earnings call, we said that more than 20% constant currency growth and the organic growth would be more than 10%. Whether that assumption changed? Or do you expect that growth could be slightly higher in the case of SWC calculation because the first quarter run rate for SWC on YoY has been healthy. So, whether the 10% plus organic growth guidance still stand?
Amit Chadha
Sandeep, thank you. So, the way we look at it is, number one, as you've seen in the numbers, we have reported SWC mostly in the Telecom segment, right? Because operationally, we have integrated. I mean there are leaders from our SWC family that today are responsible for 2 of our centers in India, execution centers. There are leaders, senior leaders from the LTTS heritage side, that are responsible for the nexGen communication business, which has been integrated between both of them. So, we do commit to that 20% plus constant currency, and we are watchful that we won't sign lower margin deals a
Q
Just one question from my side. Just going back to the guidance, how should we look at the mix of growth within your portfolio? Do you expect all verticals to show strong growth going forward, or do you think that some verticals will do better than the others and hence they will do the heavy lifting to offset weakness in maybe some other verticals. Just a color on that would be helpful.
Amit Chadha
Sure. In fact, I'm going to answer this in 2 ways if I may. One, I'm going to give you an industry view and then I'm going to ask my colleague here, Abhishek, to talk to you about what we are doing in SDV and AI because that's a huge path forward for us. So, from an industry standpoint and growth standpoint, I do believe that Transportation will continue the strong growth we've had because of the differentiated story of EV that we have created and the early investments in SDV that we are doing. When it comes to Industrial Products, given the fact that we are seeing deal closures happening for
Q
One quick question on your India business, notice that there is a significant reduction in the -- there's about a $10M reduction in your India business. Is it just on account of SWC seasonality or what is going on here?
Amit Chadha
Yes, that's largely SWC. I don't see it another way. Okay. And then one of the things you mentioned was the deals that you've signed have already gone in for execution, they’re fairly swift. Could you provide some color on the timeline of deals in terms of what is the typical timeline from signing to execution? And some color on the pipeline that you're currently seeing? Sure. When it comes to the deals that we signed, the $50M deal was something that we had been pursuing for more than about 4 months. And it took time and, we were waiting, we were investing and waiting, right? And it took a lo
Q
Sir, largely wanted to understand on the synergy, which is the SWC acquisition. So, which are the internal KPIs that we are tracking? And how are we progressing on those KPIs -- that internal KPIs, that will be really helpful. My second question was on the deal pipeline. I mean, you mentioned the deal pipeline is quite strong, has improved materially. So, if you can quantify what is the QoQ or a YoY improvement in deal pipeline that will be really helpful. And specifically, which are the areas where you are seeing good deal pipeline in that context? And my last question was just on the externa
Rajeev Gupta
So, this is Rajeev here. Let me take the part on the synergies from SWC acquisition. So, we've, of course, briefed this earlier as well – 3 areas that we are working towards. The integration did conclude as of April 1, 2023, so both the companies are now together. And we are reporting SWC under our Telecom & Hitech segment. In terms of synergies, 3 areas: First, internationalization of revenue. Amit did talk about that we've beefed up our sales leaders in U.S., in Europe, in Middle East. And clearly, the idea is to build pipeline. Some of that progress indeed has happened. Second is in terms o
Q
Yes. So just a small question from my side. It is regarding the ROE number which you are doing right now. So, are we comfortable at these numbers? Or is there any specific bracket where we want to be going forward?
Rajeev Gupta
Aniket, this is Rajeev here. So of course, you may be looking at ROE at a quarter level, but we certainly try to aspire for an annualized number. At this stage, we are comfortable in terms of the ROE, where we are or rather where we ended for FY23. The aspiration certainly is to improve at the back of 18% EBIT margins by Q1 FY26. So, we believe over the period of these next 5-6 quarters, we should be able to improve the ROE. But at this stage, we are comfortable with where it is.
Q
Thank you all for joining us on the call today. We hope we were able to answer most of your queries and happy to do follow-ups with you through the quarter. With that, we're signing off from this quarter's call and have a good day and wish you all a great day ahead. Thanks.
Management
Speaking time
Amit Chadha
15
Moderator
13
Rajeev Gupta
8
Ravi Menon
3
Pinku Pappan
2
Mukul Garg
2
Sulabh Govila
2
Nitin Padmanabhan
2
Vimal Gohil
2
Sandeep Shah
2
Advertisement
Opening remarks
Pinku Pappan
Hello everyone, and welcome to the Earnings Call of L&T Technology Services for the First Quarter of FY24. I'm Pinku, Head of Investor Relations. Our financial results, investor release and press release have been filed in 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 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 today on the call. Trust all of you are doing well. Let me provide you key highlights on our Q1 performance: • We had a quarter of growth despite the macro challenges and slowdown in decision making in some pockets. • Overall, we grew by 10% YoY in constant currency. The comparison on YoY is more like-to-like given the fact that H2 is always higher than H1 for the Smart World & Communication (SWC) business. • Our revenue grew by 0.6% sequentially organically with Transportation leading the growth at 4%, while Medical and Industrial Products had about 0.5% to 1% growth. • Overall, organic sequential growth was 7.5% YoY in constant currency. • Operational performance was strong with EBIT margin at 17.2%, which is post the addition of SWC. PAT was at ₹ 311 crores, up 13% YoY. • Our large deal engine continues to fire with a total of 6 deals above $10M, of which one is a $50M TCV deal that we signed this quarter. All deals have moved to exec
Rajeev Gupta
Thank you, Amit. Good evening to all of you, and I hope you're keeping safe and healthy. I'm pleased to share our Q1 FY24 performance – It has been another quarter of good results with healthy addition of deals and operationally strong performance. This is our first quarter of reporting financials after completion of the SWC acquisition. In compliance with Ind AS requirements applicable to common control transaction, we have restated our past financials to include SWC from 1st April 2022. As a result, all figures in the Investor release including the comparisons reflect this restatement. Let me take you through the Q1 FY24 financials. Through the commentary, I will elaborate on the restated combined financials that includes SWC in all the comparable quarters, as well as organic numbers excluding SWC. Starting with the P&L First, to address Revenue Organically, Revenue for the quarter grew 0.6% on a sequential basis and 12.6% on YoY basis in INR terms. On the combined financials, Revenu
Moving to revenue metrics
On the combined financials, $ revenue was up 9.1% in reported terms and up 10.0% in constant currency terms on a YoY basis. Organically, $ revenue saw a 0.6% sequential growth in both reported and in constant currency terms, led by the Transportation segment. The segmental margin performance was better in 2 out of 5 segments on a sequential basis. Our Telecom & Hitech margins came in at 8.8% in Q1 vs the then reported 12% margin in Q4 FY23. This is on account of lower margin profile of SWC business, and investment made on large deal win. We expect the margin trajectory to improve as we transform SWC business. Moving on to operational metrics To begin with onsite:offshore mix, Offshore percentage now stands at 59.3%, compared to around 57% then reported in Q4 FY23. This increase reflects the fact that currently SWC business is completely offshore based. Talking about T&M revenue mix, Fixed price percentage is at 35.6% compared to around 29% then reported in Q4 FY23. SWC business is larg
Advertisement
← All transcriptsLTTS stock page →