Larsen and Toubro Infotech hosted a conference call on Jan 19,2022. In the conference call the company was represented by Mr Sanjay Jalona-CEO & MD, Mr Sudhir Chaturvedi-Presidet sales, Mr Nachiketh Deshpande- COO and Mr Anil Rander-CFO.

Key takeaways of the call

The company reported revenues of US $ 553 million in Q3FY2022. A growth of 8.7% QoQ and 29.3% YoY. In Constant Currency Revenue growth of 9.2% QoQ and 30.1% YoY.

This was the best ever sequential growth since listing for the company. Q3 FY2022 performance tells the strength of the company's portfolio as the company has witnessed growth across verticals, geographies and service lines.

In spite of increased inflation, supply chain challenges, omicron spread leading to shortage of people for companies globally, the company is optimistic based on the conversations with the companies which the company is having for digital transformation.

The growth in revenues was all round as all the business verticals of the company grew in double digits compared to last year.

BFS (Banking, Financial Services) continues to be the mainstay for the company contributing 32.8% to the total revenues. It witnessed a robust YoY growth of 38.4% and 9.7% QoQ. The segment has seen holistic growth during the quarter across geographies and service line.

Insurance vertical grew 2% QoQ. This has been traditionally laggard in the last few quarters.

Contribution from manufacturing vertical was 17% to the revenues. The business grew by 30.4% on year and 18.3% sequentially. H2 is stronger for this vertical due to presence of higher pass through in one of the company's India engagements. Growth at company level of 8.7% includes 2% due to such pass through in the quarter. Pass through is seasonal and it will come in Q3& Q4.

Energy & Utilities grew 6.7% QoQ while this has been good quarter and since all prices are higher, the company expects good traction to continue in this vertical.

High-tech, media and entertainment business grew by strong 44.5% YoY and 3% QoQ while contributing 11.8% to the overall business. While other sectors grew 37% YoY.

On the service line, revenue of Analytics, AI and Cognitive services grew by 37.9% YoY while Enterprise Integration and mobility grew by 36.4% YoY. Also, rest of the service lines grew in double digits in a yearly basis.

All the geographies grew over 25% on a YoY basis. The company's Europe geography has turned around very well over the last few quarters and has grown over 30% on Year-to-date basis.

Margins: EBIT stood at Rs 742.6 cr for Q3FY2022. Ebit margin stood at 17.9% in Q3FY2022 against 17.2% in Q2FY2022. The margin walk is as follows: The tail wind of 40 bps from growth and operational efficiencies and 30 bps from currency.

PAT stood at Rs 612 cr for Q3FY2023. PAT margin stood at 14.8% in Q3FY2022 against 14.6% in Q2FY2022.

Effective tax rate was 25.6% same as last quarter.

The company expects the sales and marketing expenses to go up while SG&A cost to come down going forward.

Pricing: Pricing is more or less stable. The company is seeing some increase in prices in some pockets. The company plans to capture market as much as it can as it is a growth company.

Clients: The company added 27 new logos in the current quarter including one global fortune 500 logo, taking the total global fortune 500 logos to 72.

On Year-to-date basis this the highest number of logos the company has added since its listing.

The company also opened a new logo in pharma vertical in north America with the large deal TCV of US $ 32 million.

All client buckets whether Top 5, Top 10 or Top 20 grew by 25% on a YoY basis and the company has added one more client to the US$ 50 million bucket.

Human Resource: The company has increased the freshers intake to 5500 in FY2022 and proactively hired around 1000 laterals in Q3FY2022 (Experience of 1-2 years). The company continues to hire to capture the demand .

The company added 1818 people on a net basis. The total headcount at the end of the quarter stood at 44,200 with production associates being 95.4%.

The employee utilization during the quarter was impacted due to furloughs and was recorded at 81.4 % excluding trainees. Including the trainees, the utilization level was 80.3%.

The LTM (last twelve month) attrition for the company during the quarter jumped to 22.5% from 19.6 % in the previous quarter. There is no specific spike or pattern on freshers' attrition. However, the attrition is the highest in 3-6 years' experience bracket.

DSO: Billed DSO days stood at 66 days as against 61 days in Q2FY2022. The DSO days including Un-billed stood at 100 days compared to 98 days in the last quarter.

Expansion: The company has opened an office in Coimbatore, one in Hyderabad and is also expanding in Kolkata. The company will reach out to multiple locations once hybrid model of work commences.

The current focus of the company is to add talent and how to get them.

Acquisition: The company has made 6 acquisitions in last 7 years and the company focus is on adding capabilities than to add revenues through acquisition.

The management intends to add value to shareholders. If the acquisition adds value and is at reasonable price company is open for it.

Outlook: FY 2022 is shaping up to be one of the highest growths since listing. The company is convinced with conversation with the customers, pipe line, deal momentum and broad-based performance.

The company expects continued demand for next 3-5 years. Gartner research has estimated 6%+ growth in budgeted expenditure and the company's key verticals to grow in 6-10% range. The companies will be in search of connecting in best way with its customers as such positive spend will continue.

Pipe line is in north of company's growth. Pipe line is strong and there are large deal pipe lines as well. There is small deal and also discretionary deals.

The company guided to grow at leading industry growth rates with stable PAT margins of 14-15% band for FY2022.

Management Comment:

Commenting on the performance Mr Sanjay Jalona, Chief Executive Officer & Managing Director said “We are happy to report 9.2% QoQ revenue growth in constant currency. This is our best ever quarterly sequential growth since listing. Our ongoing revenue momentum sets us up to deliver our highest year-over-year growth as a publicly listed company. We continue to have incredible conversions with our customers on their digital transformation journeys."