We are expecting our margins to be in the range of 16 to 17%, says LTTS CEO

Engineering services sector has been witnessing a good run since last fiscal year. Companies like L&T Technology Services (LTTS) have been the major beneficiaries of this growing demand. In the first quarter, LTTS witnessed a bit of softness in revenue growth owing to seasonality in part of its business but retained its full-year guidance for FY25 on likely recovery in the second half. In a conversation with the Bizz Buzz, LTTS’ CEO, Amit Chadha said the company is gaining market share globally with its differentiated offerings. More volume and number of customers are also driving its growth, he added. According to Chadha, the company is expecting its margins to improve in the coming quarters as revenue growth accelerates. He also said that the company would continue to add to its headcount owing to its robust deal pipeline. The L&T Group firm also sees large deals coming to its kitty from Indian market. On the overall demand environment, he said it remains conducive to growth with clients willing to spend on various technology applications

We have seen a bit of softness in the Q1 numbers of L&T Technology Services. Can you provide an overview about the performance in the first quarter?

In rupee term, our revenue was up 7 per cent year-on-year and in dollar term, it was up 6.1 per cent. Now, there are two things. Firstly, the Smart World business is seasonal. Last quarter, we had seen a 5 per cent growth. So, there's one timer of seasonality of Smart World that has to be taken into account. However, if you look our pipeline is about 2X what it was, and TCV bookings are about 50 per cent higher than same time last year.

We also won multiple large deals. There were several 30 million deals, 15 million deals, and 10 million deals that we have won. Also, our whole strategy about integrating more AI into our offerings has been working out well. So, 61 patents are filed now across transportation, medical, and industrial segments. We're collaborating with NVIDIA for medical, AWS for transportation and with Google across all the segments. We have launched 6 solutions last quarter alone.

Moreover, AI is finally becoming a money generator. Two big payments came (during this quarter). We are seeing more pipeline as many such deals are happening in this area. Lastly, all segments have settled down. In fact, all the segments grew quarter on quarter, and year on year basis. Mobility actually did very well quarter on quarter as well, which was a concern last quarter. So, we have grown very well again and as far as, we are concerned, we definitely see a trajectory that is upward and onward from here.

Is it possible to share generative AI engagements in revenue term?

The revenue still has to pick up but the good news is that the number of solutions we have launched is pretty sound and the revenue generation from these solutions will happen soon.

Can you provide a brief overview about the performance of various verticals or segments in the last quarter? How is the overall demand environment as of now?

The high-tech segment has grown well. It has even shown growth on quarterly basis. Semiconductor segment has grown very well in the last quarter. Hyperscalers have grown very well. Medtech has finally shown positive growth. Smart World is the only business, which declined but again there is a seasonality to that part of the business. As far as demand environment is concerned, we see growth. If you look at it, you see more numbers of $50 million deals, more numbers of $25 million deals right now than a year ago. So, closures are happening.

Till the last quarter, we have seen sound deal pipeline of IT and engineering services companies without matching revenue conversion. Has the situation improved with more revenue conversion happening from the deal pipeline?

Situation remains broadly the same. However, our own volume and number of users have gone up, which is helping us.

Do you mean that LTTS is gaining market share as compared to its peers?

Yes, we are gaining market share. There's a particular place, we have actually taken an Indian competition out. In the second case, we have taken a local player out and in a third case, we have taken out an international player. We are continuing to grow, which is helping us in improving our market share. Market share expansion is happening in mobility and also in the semiconductor segment. Same is also happening with hyperscalers and also in the medtech segment. Plant industrial product has slowed down for us right now and we expect growth revival from next quarter onwards. So, all segments will be growing quarter on quarter soon. That's what gives us the confidence about comfortable growth.

LTTS’ headcount declined in the first quarter. How do you see headcount growth in the coming quarters?

There is no optimisation of workforce. We are looking at improvement of utilization. In the next quarter, our headcount is likely to increase. We continue to hire and train and that will go on. As far as hiring is concerned, we continue to recruit between 1,500 and 2000 (every quarter). Also, joining of graduate engineer trainee is going on as planned.

LTTS won a $100 million deal from Indian market last fiscal year. Do you think, India as a market is growing for the company? Can more deals of such sizes come to your kitty?

We expect some similar kind of deals. But, we will be cautious on the kind of deals, we are picking in the Indian market. We are being a little careful in what we pick up from margins standpoint.

What kind of margin outlook the company has in the coming quarters?

If you see our results, our gross margins have gone up. We have made investments in sales. Also, we have made investments in solutions. Additionally, we have invested in the reorganization and all that has created some pressure on operating margin in the first quarter. I do believe that as we move forward and our revenue starts to grow, we will see that accruing to margins directly and should improving our operating margin. As pointed earlier, we are expecting our margins to be in the range of 16 to 17 per cent.

If you look at the earnings report and you will see that sales and support headcount has gone up. We are hiring for sales as we have created a horizontal sales organization to go to the market and sell digital manufacturing solutions, AI and embedded solutions.