L&T Infotech hosted a conference call on July14,2022. In the conference call the company was represented by Mr Sudhir Chaturvedi-Presidet sales and Mr Nachiketh Deshpande- COO.

Key takeaways of the call

Revenue:

Revenue in US $ terms stood at US $ 580.2 million a growth of 1.7% QoQ and 23.4% YoY. In constant currency revenue growth was 2.9% QoQ and 26.6% YoY.

Revenue in rupee terms was Rs 4522.8 cr up 5.1% QoQ and 30.6% YoY.

From vertical perspective:BFSI which constitutes around 47% of the total revenue grew 31.5% YoY; Insurance which has started recovering grew 16.1%; Manufacturing declined by 12.6% QoQ due to pass through benefit in Q4FY2022 (however the vertical has strong backlog in FY2022), Energy and utilities grew 19.7% YoY(The company is not seeing any impact in energy and utilities segment. Most of the customers are investing in cloud and digital), CPG, retail and pharma grew 17% YoY; High-tech, media and entertainment grew 12.8% YoY and Others grew 15.8% QOQ and 50.8% YoY (This was on account of one of the marquee clients ramping up substantially).

From a service offering perspective, the largest business line of ADM and testing grew 28.1% over the year. Enterprise solutions and cloud infrastructure and security offerings were both down around 4% sequentially. The sequential dip was from a pass-through benefit seen in Q4 FY22.

Among geographies, North America grew 25.5% YoY while Europe grew 31.2% YoY and India grew 56% YoY. On a sequential constant currency basis, the rest of the world and India were down due to cross currency headwinds and license revenue impact.

Margin:

EBIT margin was down 40 bps to 16% over 16.4% last year and 130 bps over last quarter.

Margin walk on QoQ basis is as follows: Margins were impacted to the tune of 300 bps due to higher employee cost on account of wage hike rolled out during April -june quarter. Further, 70 bps impact was on account of increase in travel and visa related cost which was offset to the extent of 240 bps on account of improved productivity and depreciation of rupee.

Almost 85% of the employee force is covered in April salary hike cycle and the balance 10-12% in June cycle. The company expects that the impact of wage hike on margin will be absorbed in coming quarters due to pyramid benefits and efficiency benefits. Margins are likely to improve from here in the coming quarters.

Human Resource:

The net additions during Q1FY2023 were 2118 employees and plans to hire 6500 freshers in FY2023.

Attrition: LTM attrition stood at 23.8% in Q1FY23 when compared to 24% in Q4FY2022. The company expects that the LTM attrition to remain at similar levels in Q2FY2023. The company is witnessing the stabilization of attrition in the last 2 quarters and expects the attrition to decline in next two quarters.

The company does not expect any impact on attrition due to merger.

Utilization: Utilization including trainees stood at 81.3% in Q1 FY2023 as against 80.1% in Q4FY2022 and excluding trainees stood at 81.8% in Q1FY2023.

Order book: The company signed 4 large deal wins with net new TCV (total Contract value) of US$ 79 million in Q1FY2023.

Of the 4 large deal wins 2 was from US, 1 from Europe and the other from Rest of the World.

The company added 4 global Fortune 500 logos in Q1FY2023 taking the total to 77.

The company has won one deal jointly with Mindtree.

Merger Update:

The company has reached out to all of its key stakeholders, post the merger announcement and the overall feedback has been positive. The company's employees are also excited about the next stage of growth and the opportunities the merged entity will provide.

The company has obtained the permission from exchanges and the company has scheduled a shareholder and creditor meeting on August 10, 2022 for approval.

Outlook:

BFSI segment is in a secular multiyear technology up-gradation cycle as such the company is seeing good demand. Due to macro issues the company expects the demand to accelerate in the near future as the companies already have CY2022 budget in place.

Energy and utilities segment is not witnessing any slow down and the clients are making investment in digital and cloud.

Manufacturing vertical is witnessing more of a supply side and inflationary issue than macro issues.

The company expects CY2023 to be bit different with respect to budget spends.

The company is well placed to benefit from the clients spend with respect to investment in growth or help the clients in efficiency to reduce cost.

The company is not witnessing any cancellations or delays in project execution.

The company has a healthy deal pipe line which ensures the company to maintain large deal momentum. The company expects to sign few large deals in Q2FY2023.

Pricing: The company is not witnessing any impact on pricing due to macro factors. The company is able to get some price increases as there is gap between demand and supply and the company expects that it will take few years for the gap to reduce between demand and supply.

Guidance: The company has guided stable net profit of 14-15% n FY2023.

Management Commentary:

Commenting on the performance Sudhir Chaturvedi, President sales and Executive Board member said: “We are pleased to report 26.6% YoY revenue growth in constant currency. We added 4 Global Fortune 500 logos to our client list in Q1, taking our total Global Fortune 500 customers to 77. We are also happy to announce 4 large deal wins during the quarter with net new TCV of US$ 79mn.”

Nachiket Deshpande, Chief Operating Officer & Executive Board Member said: “Our healthy pipeline will ensure that we maintain our large deal momentum. Our sustained net headcount addition reflects our confidence and continued focus to deliver strong growth in FY23”