Clients will relook 2023 tech budgets, we remain cautious: LTI Management

With ongoing macro-economic concerns, uncertainty in Europe and cross currency headwinds, senior management of Larsen & Toubro Infotech (LTI) on July 14 said that the company will remain cautious as clients will likely revisit their technology spend for the calendar year 2023.

“We see that technology budgets in our sector are secure for calendar year 2022. In fact, some clients are asking us to advance execution of certain projects in calendar year 2022 as they have the budgets to do so,” Sudhir Chaturvedi, President Sales and Executive Board Member, LTI said at the earnings press conference for quarter ended June 30, 2022 (Q1FY23).

Chaturvedi added, “We are not seeing any immediate impact in terms of project cancellations or deferments on account of the macro situation, but we are sensing a level of caution in the client environment especially when it comes to spending in calendar year 2023. We are remaining close to our clients to understand their plans for the same. We are focussed on the short-term accelerations we are seeing in demand for most clients. This puts us in a favourable position for a strong Q2.”

This also reiterates the concerns of Tata Consultancy Services (TCS), as CEO Rajesh Gopinathan highlighted during the company’s earnings call last week. Gopinathan said that the company will continue to remain vigilant despite a strong deal pipeline expected in the upcoming quarters.

LTI too remains optimistic of its deal wins in the second and third quarter of FY23.

Deal wins

LTI witnessed a net new deal TCV of $79 million in Q1FY23, which remains flat as in Q4FY22, where the company reported $80 million worth of new deal TCV. The IT services company also won a large deal together with Mindtree with a global travel technology company based in Europe.

“LTI had a 2.9 percent QoQ constant currency growth, YoY was 26.6 percent. We had a seasonal pass through in Q4 and our revenue adjusted for that seasonal pass through of license revenue. It would have been 5.1 percent in constant currency terms. We closed 4 large deals with a net new TCV of $79 million this quarter, two of which are with Fortune 500 clients and this is spread across verticals and geography perspective,” Chaturvedi said.

“Our current large deal pipeline continues to remain same as Q4 and we remain positive as we have a large deal pipeline of over $2 billion at this point. We have added 29 new logos across verticals this quarter, the highest we have added in past nine quarters. Four of them are Fortune 500 companies, taking the total to 77,” he added.

Across verticals, geographies and service lines, BFSI alone is about 47 percent of LTI’s total revenue, growing at CAGR of 19 percent over the last three years. LTI’s insurance vertical remained soft for the last two years, but is now showing strong signs of growth - growing 18 percent YoY.

“North America and Europe remain strong geographies for us. Despite macro concerns in Europe, we are growing at 32 percent YoY,” he said.

Hiring plans remain on track

Interestingly, LTI’s attrition rate went down by around 20 bps to 23.8 percent on an LTM basis in Q1 as compared to 24 percent in Q4FY22. This is the first time it started stabilising after a steady increase over the past six-seven quarters.

LTI added over 2,100 freshers in Q1, and remains on track to add a total of at least 6,500 freshers this fiscal.

“Hiring continues to work well for us. Our net headcount addition has been 2,100 in Q1, in line with our previous quarter as we continue to build for strong Q2. We remain on track with our fresher hiring plans of adding at least 6,500 freshers in FY23,” Nachiket Deshpande, Chief Operating Officer and Executive Board Member, LTI said.

LTI reported consolidated profit after tax (PAT) of Rs 633.50 crore for Q1, up by 27.64 percent from Rs 496.30 crore in the same quarter last fiscal.

On a sequential basis, profit for the remained nearly flat compared to Rs 637 crore in the March quarter.

Consolidated revenue from operations grew 30.62 percent YoY to Rs 4,522.8 crore, up from Rs 3,462.5 crore in the year-ago period.