L&T Infotech hosted a conference call on Oct 18,2021. In the conference call the company was represented by Mr Sanjay Jalona-CEO & MD, Mr Sudhir Chaturvedi-President Sales, Mr Nachiketh Deshpande-COO and Mr Anil Rander-CFO.

Key takeaways of the call

Revenues in Q2 stood at US$ 509 million, a growth of 8.3% QoQ and 25.8% YoY. In constant currency revenue grew by 8.9% QoQ and 25.5% YoY. In rupee terms revenue stood at Rs 3767.0 crore, a growth of 8.8% sequentially and 25.6% YoY. This was the strongest sequential revenue growth and with revenue of US $ 509 million, the companies annualized revenue crosses US $ 2 billion annual revenue run rate. The growth is holistic across verticals, service lines, client buckets and geographies.

The company's largest vertical BFS grew 9.6% QoQ and 36.8% YoY due to bank modernization projects. BFS has grown strongly across the geographies.

Insurance was a laggard for last several quarters and is witnessing some pick up in Quarter. It grew 5.6% QoQ and 11.4% YoY. The company has seen positive movement with new leadership.

Manufacturing witnessed double digit growth with 12.4% QoQ and 20.8% YoY. The company has strong pipeline as the company sees demand in industrial manufacturing, capital goods continuing to add digital solutions.

Energy and utility grew 6.3% QoQ and 6.0% YoY. Spends on oil and gas has been volatile over last few quarters, energy continues to be choppy while utilities are seeing good traction.

CPG, Retail and pharma grew by 1.9% QoQ and 15.3% YoY. Growth in this vertical will be driven by data driven projects.

High-tech, media and entertainment grew by 6.9% and strong 48.5% YoY growth and others grew by 38.4% YoY.

By Service line all the service line growing at 20% while Analytics, AI, Cognitive, enterprise and mobility grew at 40%.

EBIT for the quarter was Rs 648.2 crore. EBIT margin stood at 17.2% as against 16.4% in Q1FY2021. EBIT margins were positively impacted by 70 bps by SGA and was offset by 70 bps due to margin drop in utilization levels. Tail winds of effort mix and higher working days were partially offset by higher employee cost.

PAT stood at Rs 551.7 crore with a margin of 14.6% when compared to 14.3% in QFY2022.

Billed DSO stood at 61 days when compared to 60 days in Q1FY2022 and cash flow from operations stood at Rs 504.1 cr which is 91.3% of Net profit. Cash and liquid investment stood at Rs 3840.3 crore.

Effective tax rate for the quarter was 25.6%.

The company had 25 new logos in Q2FY2022. The company also registered 1 new logo in Europe with a TCV of US$ 30 million for a 5 year deal.

The company had a consistent upward movement across client buckets. The company added 1 client in US$ 50 million +category, 3 in US$ 20 million+ ,5 clients each in US $ 5 and 10 million + category and 11 clients in US$ 1 million+ category.

The superior performance is due to broad-based demand which the company is seeing in the market.

There are 3 key demand drivers for secular growth

One- The clients are working on new business models and want partners who can co create with them and deliver at speed. This demand is primarily coming from discretionary spend on projects that are driving business transformation. The transformation at this scale happens once in a century and the management calls it the great restructuring. Great restructuring is comprehensive and every enterprise has to adapt to sustain. These journeys are multiple small-scale projects which are continuous and the company is part of several such transformation journeys.

Second-The new spend areas, changing customer expectation on all new technologies are not only enabling the demand but the company is seeing emergence of new areas of spend. For example, ESG has started playing a key role in business decision and strategy. Cloud security s also seeing lot of opportunity. In these and many more emerging segments the company has barely scratched the surface and there is lot of opportunities for growth.

Third-There is a fundamental shift which the company is experiencing on the supply side as well. It is not only tech companies who are hiring tech talent, but companies across sectors including NGO's are tapping the same talent pool. There are 10.5 million job openings in the US but only 7.7 million unemployed people. There is sharp increase in wages severe labor crunch globally and increase in attrition across all industry. This is for the first time the clients of the company are facing attrition of such magnitude. This is providing opportunity for the companies to scale up IT services and tech services like automation.

Human Resource:

On a net basis the company has added 2000 people in Q4FY2021, 2300 people in Q1FY2022 and 4000+ people in Q2FY2022. The company will be increasing the fresher intake to 5500 in FY2022 to fulfill the demand. In addition, the company will be hiring 1000 people in 1-2 years' experience category and will also hire non tech streams and train them.

Attrition: The industry is facing sharp increase in attrition. Most of the attrition is 3-6 years' experience category. Attrition stood at 19.6% (LTM) in Q2FY2022 for the company.

Utilization without trainees stood at 83.7% when compared to 84.1% in Q1FY2022 and with trainees stood at 81.6% when compared to 83.7% in Q1FY2022. The company's leadership team is back in office across the globe. The company has planned a gradual and calibrated effort of hybrid model of return to office. The new model emphasis on duality of working from office and home effectively. The company has seen an encouraging result based on the voluntary roll out of the model. The model focuses on seamless governance, consistent productivity and better employee engagement. The company will be completing the roll out the new model across most of the customers by end of the year.

Guidance: The company is in strong position to achieve US $ 2 billion revenues in FY2022 with stable PAT margins of 14-15% band. The management expects the demand to be good for next 3 years.

Dividend: The board of directors have announced an interim dividend of Rs 15 per share.

Management Commentary:

Commenting on the performance Mr Sanjay Jalona -CEO and MD said “We are happy to report the strongest sequential revenue growth and best ever Q2 of 8.9% in constant currency terms. As we cross the $ 2 billion annual revenue run rate, we continue to remain committed to growth in the future. We are witnessing strong demand and are rapidly scaling up on the supply-side with our headcount up 31% year on year.”