We are fairly confident of our growth prospects in FY23: LTTS

L&T Technology Services (LTTS) reported sound performance in the third quarter of ongoing fiscal year. The company won $45 million deal from an US-based automotive player. Its margins also improved in a seasonally weak quarter. The engineering services company maintained its revenue guidance for FY22 at 19-20 per cent and said that it remained comfortable at 18 plus EBIT (earnings before interest and tax) margin level for now. In a conversation with the Bizz Buzz, Amit Chadha, CEO & MD, LTTS, said that attrition would stabilize in the fourth quarter. He also said that the company is hiring freshers aggressively and has added 3,000 freshers in the first nine months of FY22. It plans to hire same number of freshers this year. On the demand environment, he said it remains robust and the company is confident of winning more number of deals in the emerging technology space in coming quarters. The company is likely to achieve $1 billion revenue run rate in Q2-Q3 of next financial year.

L&T Technology Services (LTTS) posted a good set of numbers in Q3 of FY22. How is the demand environment as of now? Also, market was expecting that LTTS would raise its revenue guidance. Any comment on this aspect.

We want to grow profitably. The demand environment remains strong. If you see, we have hired 3,000 freshers in the last nine months. We plan to hire a similar number of freshers in FY23. We are maintaining a strong 19 to 20 per cent revenue guidance. Additionally, I am reconfirming that we will be a billion-dollar run rate company by Q2-Q3 of FY23. I want to make sure that we achieve what projections we give. We have done the analysis. Demand remains strong and our hiring remains strong. So, we are on target whatever we have said.

LTTS has won a $45 million deal in EV (electric vehicle) space from an US automotive player. Can you throw some light on the deal? Will project ramp up happen during this quarter?

The EV deal we have won is the third deal with the same client. We won a $25 million deal in the first quarter, another $25 million in the second quarter. Both these deals have been ramped up. Right now, for the third one which we have won, hiring has started. We have hired the head of Krakow, Poland centre. He came on board about two months ago, so we are going full steam. So, the work is on. But complete ramp up takes time.

You have a good operating margin defence in Q3 of FY22. Will it sustain?

I am comfortable at this 18 per cent plus EBIT margin. This is the second quarter in a row that we have delivered this margin. We are comfortable at this range right now. We want to stabilize at this range, make the investments, get more freshers on board and invest in more labs. And then we will grow from here.

How is the deal pipeline for LTTS? How do you see this space playing out in coming quarters?

The overall deal pipeline has improved quarter on quarter. We do expect Q4 to be on the similar lines. And we continue to refresh the pipeline on ongoing basis.

Will the wins like $50 million plus kind of deals be the regular feature in coming quarters?

In our business, client don't give the big contract upfront. They give it phases which eventually add up to a bigger deal. But, we continue to look at it.

Verticals like industrial products and medical devices have reported less growth as compared to other verticals. Can you throw some light on the performance of these verticals?

The whole quarter had lesser number of working days as compared to other quarters. That is one reality in our business. People have taken a lot of vacation in this quarter. IP (industrial products) grew about 1 per cent and medical grew about 1.5 per cent. In the fourth quarter, growth in IP will come back. And medical devices, given that some projects are ending, some projects are starting, it will take a little bit longer to come back to the growth, but it will grow. There is no problem anywhere.

Engineering services companies usually need their staffers to be in office for R&D related work. Will the ongoing Omicron wave in India lead to any operational disruption in the fourth quarter?

Our offices are open and people are still coming to office and people are working. But having said that we have activated our BCP (business continuity plan) again and work is continuing at this stage. So, there is no disruption that I can see from omicron.

All IT firms are saying that attrition level is stabilising. But, numbers are yet to reflect for most of them. What are your views on the overall attrition level going forward? Can you give some numbers with regard to LTTS' hiring plans?

Firstly, we will hire the same number of freshers as we have done in FY22. We hired about 3,000 plus freshers this year. We'll do that next year as well. Second, attrition went up by around one per cent. I do believe that it will be stabilizing in fourth quarter and beyond.

As we approach FY23, will we see the robust demand environment to continue? If you can give me some view on this aspect.

We are positive about FY23. We see demand in the EASV (electric autonomous connected vehicles), 5G, medtech, digital manufacturing, digital products and sustainability. So I'm fairly comfortable with FY23.

What are the key risks that LTTS may see in Q4 of ongoing fiscal and FY23?

We continue to pursue multiple deals and we think that EACV segment will win us more deals. We also see some deals coming up in renewable energy space. Medical devices, CPG, hitech will also continue to see deals. So, as we move forward, the growth will be broad-based.