L&T Technology Services aiming $1-bn revenue mark by Q2FY23

L&T Technology Services has posted a sound second quarter performance on the back of strong demand environment and its differentiated offerings. Given the robust deal pipeline, the L&T group company has raised its dollar revenue guidance to 19-20 per cent for this fiscal. The engineering services company is also aggressively hiring to manage the supply-side issues faced by the IT industry in the last one year. It has already hired 1,200 fresh graduates in the first half of this fiscal and will hire another 2,000 in the second half. In a conversation with

Bizz Buzz, company's Chief Executive Officer and MD, Amit Chadha said that the engineering services company is confident of reaching $1 billion revenue mark by the second quarter of FY23. He also said that given its five big bets in emerging technology areas, it is optimistic about sustaining its current growth momentum in FY23. On the average deal size, he said L&T Technology Services is seeing rising deal sizes in recent years. He also said that pricing environment is stable and is expected to improve given the cost increases seen by service providers in recent quarters. L&T Technology Services is open to acquire entities that can boost its capabilities, he added

What are the factors responsible for raising L&T Technology Services' dollar revenue guidance to 19-20 per cent for FY22?

There are two-three factors driving this optimism. Firstly, we see the demand environment stabilizing. Secondly, we have curated six areas that we will focus on. We are focusing on electric autonomous & connected vehicle (EACV), 5G, med-tech, AI & digital Products, digital manufacturing and sustainability. We have seen that these areas have put us in good stead in terms of pipeline and expansion. Thirdly, we continue to create differentiated assets- be it 5G labs, be it electric vehicles. All this have contributed what we have declared and our forward guidance.

The market is currently factoring in double digit growth for most IT firms and engineering services companies in FY22. But, will it sustain in FY23?

Our hiring plans are in sync with the demand in FY23. I don't want to quantise a number at this stage as we are still working on the numbers. In the last six months, we continue to refine our guidance depending on how we see the market. At this point of time, we are cautiously optimistic that FY23 will be a good year as well.

We have seen Indian IT industry is struggling with supply side issues with high employee attrition numbers. How do you plan to manage this talent war?

Attrition is not a good thing for any company and all companies are working on it to see how we arrest this (trend). We are trying to focus on a holistic employee experience beyond dollar and cents. We continue to hire and have hired 1,200 fresher in the first six months. We are hiring 2,000 freshers, largely focusing on third quarter and rest of this fiscal. We have established a global engineering training academy, which is part virtual and part physical. It's an ongoing process, which we continue to work on.

Will L&T Technology Services reach $1 billion annual revenue this fiscal?

We have guided to reach $1 billion revenue mark by Q2-Q3 of FY23 and we aim to make sure that we reach the mark during that period.

How is the deal pipeline and what are your expectations?

We have a robust deal pipeline, which has improved by around 18 per cent. We are fairly pleased on what we have closed (in terms of deals).

Is the average deal size in engineering services space increasing or is it specific to L&T Technology Services?

We are seeing a number of $10 million and $25 million deals. What we are also seeing is that decision-making not completely at pre-Covid level, but is stabilizing. Both these factors are positive. The whole industry is seeing this. Also, with our differentiated assets and service offerings, we are gaining some market share.

Is pricing power back in the market with the gain in market share by L&T Technology Services?

We have seen highest margin expansion so far. This is a function of taking our cost down, expand our pyramid, improved offshoring and we continue to work with our clients on rate increments given the inflation pressure and our differentiated service offerings. We continue to work with our clients.

During the second quarter, the sequential growth in telecom was a little subdued. Was there any client-specific issue?

No, we don't have any client-specific issue. We are choosy in picking deals. We don't want to pick up commodity-based transactions, which will put pressure on margins. Secondly, we will not pick up low margin deals. We will be cautious on this aspect. We want profitable, sustainable growth as we move forward.

Engineering services space has seen rapid growth in recent years. This has led to higher focus on this segment by many players including IT services firms. Has the competition intensified given the growth prospects of this segment in coming years?

We respect competition. It helps us stay agile and top of our game. We have not seen competition going up in last two-three quarters. But we have definitely seen that there are a lot many players in the market than five years ago. Also, companies have their own captive centres.

We have seen acquisition of captive centres by service providers in recent time. When clients in engineering services space are more open to outsource work to companies like L&T Technology Services, will you look at acquiring any of these assets if opportunity comes up?

We continue to look at various acquisition opportunities. Last year, we have acquired Orchestra Technology. It's just been a year. So, we continue to see various options and opportunities. Our appetite has gone up given the strong balance sheet. This is an ongoing process.

Is there any client-specific issue faced by the company?

We are not seeing any client-specific issues at this point of time.