In Conversation With, Rajeev Gupta CFO, L&T Technology Services Limited
Excerpts from an interview with Rajeev Gupta, CFO, L&T Technology Services Ltd.
LTTS reported a 24.1 per cent YoY growth in its rupee revenue to ₹1,995 crore in Q2FY23. The company’s net profit rose 22.8 per cent YoY to ₹282.4 crore. What factors have contributed the most to help you outperform?
Our robust growth trajectory is being driven by a combination of factors across key geographies. We have achieved a USD 1 billion annualised revenue run-rate in Q2FY23 on constant currency basis due to continuing healthy deal bookings, especially in Europe, with some of the world’s largest OEMs. Building on its multi-industry momentum, LTTS has won a USD 60 million plus deal in the transportation segment, marking the third consecutive quarter of wins in the USD 50 to 100 million TCV range. We already have visibility of higher deal wins this fiscal and remain confident that our customers will continue to repose their trust in India’s largest pure-play ER&D services’ company.
The early focus on ‘big bets’ – EACV, 5G, AI and digital products, digital manufacturing, medical technology and sustainability – is helping us reap the dividends of continuing investments undertaken over the last fiscal. We are especially witnessing robust customer demand for digital manufacturing services with multiple programs being initiated around Industry 4.0 and digital twins, enabling us to deliver quick ROI to our industrial products and plant engineering customers. In sustainability, there are several early conversations around clean energy and carbon footprint reduction, and we are building solutions to capture the next global wave of enhanced spendings.
How does LTTS plan to leverage the strong deal wins witnessed during H1FY23? According to you, which niche segments are gaining traction and will be key growth drivers in the coming quarters?
Our deal pipeline continues to remain robust, and we are in the middle of several advanced stage discussions with global customers across key geographies. LTTS’ Europe deal wins are expected to double this fiscal, and our differentiated offerings will help us stay ahead of the competitors in the space. Our innovation-led engineering and technology offerings make us remain cautiously optimistic in the medium term. We have improved our guidance basis better revenue visibility from deal wins in the past few quarters, and hence upgraded our constantcurrency annual dollar revenue guidance from the earlier set 14.5-16.5 per cent to 15.5-16.5 per cent.
LTTS is also undertaking deep investments across its six big bets, helping develop state-of-the-art infrastructure across its global locations. We have recently inaugurated new centres in Poland (Krakow), France (Toulouse), Canada (Toronto), and have expanded our footprint in the US (Peoria) with the launch of two new centres to cater to customers in the digital manufacturing and electrification and prototyping domains. This growing combination of talent with the best-in-class technology and engineering will play a decisive role in driving the momentum witnessed in H1FY23.
What is your segment-wise revenue mix and how do you expect it to evolve over the next 2-3 years?
As of Q2FY23, our transportation vertical accounted for 34.5 per cent of the revenue mix. This was followed by telecom and hi-tech at 19.4 per cent, industrial products at 18.9 per cent, plant engineering at 16.3 per cent and medical devices at 10.9 per cent. Backed by reliable demand patterns from Europe and the US, we are witnessing growth across all these segments with transportation and plant engineering registering 25.2 per cent and 20.8 per cent YoY growth, respectively. Visibility into a robust deal pipeline and the various advanced stage customer discussions have helped us revise our constant currency USD revenue growth guidance, while maintaining an industryleading 18 per cent plus operating margin. I remain reasonably confident that our growth pattern will be broad-based across our verticals and will be representative of the evolving global demand patterns.
For Q2FY23, LTTS saw a record in deals booked in Europe. Do you expect this momentum to continue? Do you have a geography-wise revenue mix target in the long-run?
Europe accounted for about 16 per cent of our Q2FY23 revenue mix, registering an over 8 per cent growth YoY. Our recent centre launches in Toulouse and Krakow are a testament of our belief in this momentum, which I am sure will continue to expand over the coming years. Current indications suggest that the deal bookings for the Europe geography are set to double this fiscal, with several new engagements in the pipeline. Our onsite-offshore revenue mix is at about 45-55 per cent respectively. With a close eye on the worldwide macroeconomic trends, we feel that this would continue to stay in the range.
What is your earnings outlook for H2FY23?
With three successive quarters of deal wins in the USD 50-100 million TCV, we have continued to redefine the ER&D success story among all India-based global ER&D companies active in the domain. Our operating margins of over 18 per cent are setting new benchmarks, and our constant currency USD revenue growth guidance has been revised upwards to 15.5-16.5 per cent. Even as global macroeconomic uncertainties pose a cause of concern in some segments, we are witnessing customer investments continuing across our six big bet areas. Due to its innovation led engineering and technology offerings, LTTS remains confident in meeting the aspirations of all stakeholders and delivering profitable, inclusive and sustainable growth.