Demand for digital products & services remains high globally: L&T Tech CEO

At a time when IT services companies are forecasting for a year of slow growth, engineering services companies are confident of good demand in FY24. After posting a good set of numbers in the fourth quarter, L&T Technology Services has guided the market for 20 per cent revenue growth in the current financial year. Post SWC acquisition, the company now expects to bag new outsourcing contracts leveraging SWC’s capabilities. The L&T Group company has already bagged two deals in recent months leveraging SWC’s strengths. In a conversation with the Bizz Buzz, the company’s CEO & MD of L&T Technology Services, Amit Chadha said demand for its digital products and services remains strong as market size continues to grow in these spaces. He, however, added that there is certain delay in decision-making by clients for which it has added people to its sales team for ramping up new projects. As far as hiring is concerned, he said LTTS will add around 2,000 people in the current financial year given the demand projections. LTTS is not facing any problem with regard to high bench strength and it remains at a comfortable position with regard to employee utilization.

How is the demand environment? What factors are responsible for such optimism given the 20 per cent revenue growth guidance for FY24?

This is a land mark year for us. We delivered in three counts. Firstly, we delivered $1 billion of revenue run rate. We achieved a net profit of Rs 1,170 crore, which is above the Rs 1,000 crore mark. Three out of our five verticals grew more than double digits. More importantly, four out of five segments grew well. Both telecom and medical equipment, which were not performing well, have come back strongly. SWC (Smart World & Communication) acquisition is done and as a result, we have signed two deals- one in 5G, another in telecom. Overall in three years, we have signed 20 double-digit deals. Given that the spend in electrification, digital and others continuing, we are fairly comfortable in the guidance, we have given, which is 10 per cent organic and 10 per cent from SWC.

If you look at the margin, we used to post 16 per cent EBIT margin during pre-Covid period. It dropped to 14 per cent EBIT during the Covid period. And in the first year (after normalization), we came back to 18 per cent margin level. In FY23, we again posted 18 per cent plus EBIT mark. So, operationally, we are really able to deliver on margins. Now with SWC coming in and growth happening, we are confident of maintaining our growth. Globally, the whole digital market is going to expand to around $1.4 trillion by 2026 from $800 billion. Areas we see a lot of spend happening is cybersecurity, artificial intelligence (AI), automation, connectivity, and computation among others. Due to SWC acquisition, we have already bagged two large deals- one is in 5G and the other is in telecom infra. So, we continue to see an uptick in the demand.

So, the market fears about margin falling below 18 per cent owing to SWC acquisitions will not happen. Can you give some sense on this aspect?

So, we had said that margin might fall by 1.8 to 2 per cent owing to the SWC acquisitions. But now we have given a guidance is we will be in the 17 per cent range. So, it is not as bad as we thought before. We are very comfortable in operational term. In terms of DSO (Days Sales Outstanding), it has fallen from 102 days to 90 days now. In terms of our revenue milestone guidance, we are confident of achieving $1.5 billion revenue mark by FY25.

Management of most IT services firms have talked about slowdown in hi-tech, telecom and digital space. What is your insight into this matter as an engineering services provider?

What is happening is there is slowdown in semcon and hyperscalers. Other than that, in other sub-segments like telecom infra companies, operators and others are doing very well. That is helping us in terms of where we are. As far as growth in transportation is concerned, we did very well in Q1 and Q2. Then, the base effect played out. We are fairly confident that it will come back strongly from first quarter of this fiscal onwards. We have also made some investment recently, which will play out.

There is a wide-spread anticipation of delay in ramping up of large deals. How is the scene in LTTS deal pipeline?

Of course, there are questions being asked (before ramping up projects). That is the new normal. What we have done is we have increased the number of sales headcount so that we can provide the comfort to the customer. We will make sure there is good closure to the deal. Our ears are to the ground and our face is towards the customer, that’s how we have been agile and taking it forward.

Can you give us some view on growth expectations in key markets like the US and Europe given the slowdown? Are you concerned about any specific geography?

All our geographies have grown well. As far as growth in the US is concerned, growth will be sound given the spend by brick and mortar companies. In Europe, Germany and Nordic regions are in our focus. Japan should also grow. With SWC capabilities, Middle East and Asian regions should start picking up.

Have you undertaken in change in the organisational structure of SWC post its acquisition? Can you throw some light on this aspect?

We have elevated Alind Saxena as the President, Sales & Executive Director along with a board seat at L&T Technology Services (LTTS). Secondly, we have rejigged some people and also have integrated the services of SWC with LTTS. As far as large deal team is concerned, it is already operational. This is definitely helping us. Despite competition, LTTS has been able to create the differentiators around electric autonomous vehicles, digital manufacturing, digital products. These differentiators are helping us to serve our customers better and faster.

What are LTTS’ plans for hiring for FY24 given the revenue growth projections? Can you provide some view on the aspect of bench strength that has emerged as a problem for the industry in recent months?

We are going to add around 2,000 staffers at least in FY24. In the first quarter itself, we are likely to add around 500 people.

In the utilisation front, we are comfortable. We have only around 1,400 people in FY23 because we worked on our utilisation. We don’t have any problem with regard to high bench strength. Rather, we are actively hiring in FY24.­