Ladies and gentlemen, good day, and welcome to LTI Q1 FY 2023 earnings conference call. As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Sunila Martis, Head Investor Relations, LTI. Thank you, and over to you, ma'am.
Thanks, Raman. Hi, everyone, and thank you all for joining us today to discuss LTI's Q1 FY 2023 earnings. The financial statement, press release, and quarterly fact sheet are all available in our filings with the stock exchanges, as well as the investor section of our website. Today on the call we have with us Mr. Sudhir Chaturvedi, President, Sales, Mr. Nachiket Deshpande, Chief Operating Officer, and Mr. Anil Rander, Chief Financial Officer. Management will give you a brief overview of the company's performance, which will be followed by our Q&A session. As a policy, LTI does not provide any specific revenue or earnings guidance, and anything said on this call which reflects our outlook for the future can be construed as a forward-looking statement, which we reviewed in conjunction with the risks the company faces. I now hand over to Sudhir to start.
Thank you, Sunila. Hello, everyone. Thank you for dialing into our Q1 results. Let me start with our headline numbers. We are happy to report 2.9% QoQ and 26.6% YoY revenue growth in constant currency. This translates to growth of 1.7% QoQ and 23.4% YoY in USD terms. Adjusted for the seasonal pass-through that we have in Q4, our revenue growth in Q1 would have been higher by about 2%. We're also happy to announce that we have closed four large deals with a net new TCV of $79 million this quarter. Two of these are with global Fortune 500 clients. These deals are spread across our portfolio as BFS, high-tech, energy and utilities, and our other verticals.
The scope of work is primarily in the space of cloud and data, and as I mentioned, two of these are with net new logos. I'm also pleased to report one additional large deal in partnership with Mindtree. We are selected by a global travel technology company based in Europe to manage and support their applications portfolio. The deal is a playbook example of how we will continue to leverage our joint capabilities to drive growth, considering Mindtree's experience in the travel vertical, their expertise in customer success, and our expertise in core modernization. When we last spoke to you in Q4, our large deal pipeline was about $2 billion. Our current large deal pipeline, despite these wins, continues to be at the same level, and we remain positive as we expect to close and share some more large deal wins with you in Q2 as well.
On the new logo front, we added 29 new logos across all our verticals during the quarter. This is the highest that we've added in the past nine quarters. I am also happy to state that we added four new global Fortune 500 logos to our list of clients, taking the global Fortune 500 customer list now to 77. This is one of the highest additions of the Fortune 500 list that we've had in the past four years in a single quarter. Now let me give you some color on demand. We currently continue to see strong demand in technology budgets across all our markets, and the business outlook for CY 2022 continues to look good.
While we're seeing no impact from macros in terms of project cancellations or deferments, we have been spending a lot of time with clients in person, and we are seeing a slight level of caution in the client environment, especially due to rising input costs, supply chain matters, and the continuing geopolitical issues. In a slightly strange way, this is actually causing some short-term acceleration in demand as most clients want to follow through with their transformation agendas with the budgets that they have currently allocated. This all bodes well for our Q2. Moving to the performance of our industry verticals, geographies, and service lines during the quarter. BFSI together now accounts for 47% of our total portfolio, and this portfolio has grown at a CAGR of 19% in the past three years. BFS grew 31% YoY.
We continue to see holistic growth here across all geos and service lines. In fact, one of our largest deal wins is from this vertical, and we remain optimistic about our sustained growth momentum here. Insurance, we saw growth of over 16% YoY. As you must have noted over the past few quarters, this vertical is on its way to returning to sustained growth. Our pipeline continues to build in this vertical. Our traction on new logos with two of our Fortune 500 logos coming from this vertical will help us grow in FY 2023. Manufacturing declined QoQ and increased by 18% YoY. Please note that this quarterly decline in revenues is only because of our seasonal pass-through in Q4.
The absence of this pass-through revenue in Q1 is also reflected in the sequential decline in our enterprise solution service line, as well as our India revenue. Manufacturing clients have a strong order backlog, and although they are watching trends for CY 2023, we see continuing growth in the business book for CY 2022. Energy and utilities grew at over 19% YoY, as is perhaps obvious, you know, because of oil prices being where they are and utilities being in the business that they are in, we are not seeing any impact of macros on this vertical. Most energy clients are continuing with investing in digital transformations, mostly focused on adopting cloud, modern data platforms, and next-generation ERP platforms.
There is also a strong ESG imperative in this vertical, so we continue to see the trend of investment in this vertical in the near future. CPG, retail and pharma grew by over 17% YoY, driven by a growth in large accounts and the large deals announced last year. High-tech grew 13% YoY, but we have to keep in mind that this vertical grew at 37% YoY in FY 2022, and this is seeing some pause in QoQ, but we are confident about prospects going forward. Others had a strong growth in YoY by over 50%, primarily on account of one of our global marquee services clients growing, ramping up sequentially very, very significantly. On geographies, Northern America and European markets continue to be key growth drivers for our growth.
North America grew by over 25% YoY and Europe by 31% YoY on a constant currency basis. Excluding the impact of currency, both will continue to grow well for us. On service lines, data continues to be our largest service line. As part of our analytics, AI, and cognitive bucket, you see this in our fact sheet. Revenues from our data services have doubled in the past three years and is reflected in large deal wins recently, and we expect revenues from data to continue to grow strongly. With this outlook on demand, I would now request Nachiket to talk to you about the supply side and our outlook going forward.
Thank you, Sudhir. Over the past three to four years, what you would see is significant investments have been made in technology to build completely new digital stack for our customers from infrastructure to front-end experiences. It was only accelerated during pandemic. During this period, we have seen unprecedented cloud adoption, significant spends on data, and new age SaaS solutions disrupting traditional trends. Disproportionate increase in the spend on cybersecurity also was observed. Our latest customer satisfaction survey indicates that the modernization of technology landscape continues to be the number one strategic initiatives. The promised business case for many of these initiatives is yet to be achieved. For example, around 30% of cloud spend is estimated to be wasted through the analyst survey data, which when put in the context of $600 billion annual spend on public cloud, gives you a sense of inefficiencies involved.
As organizations start operating on this new stack, many are facing higher run cost as compared to the legacy stack that they migrated from. While we see digital transformation spends continue, there is also heightened focus on driving efficiency in this new stack and realizing accelerated business value. Given macro environment, this ask is only getting louder. Given LTI's strength in key areas of this new stack, data, cloud, and digital, we are working with our clients to help unlock efficiencies on this recently developed growth stack, and also programmatically run value realization program that can continue to fund these strategic initiatives. However, we do acknowledge that there are a lot of moving parts in the external environment. We are keeping a close watch on these trends and trajectory, and we continue to stay close to our clients across all levels to understand and align our investment plans.
Moving on to supply side, our hiring engine continues to work well. Net headcount addition of 2,100 people in Q1 has been in line with the earlier quarters as we continue to build for a strong Q2. We also remain on track with our fresher hiring plan to hire at least 6,500 freshers in FY 2023. Our onsite volumes have picked up very well in this quarter. Last quarter, we had talked about high onsite attrition resulting into near flat onsite volumes. On an attrition front, we expect this number to start to cool off considering incoming supply and slowdown in the hiring pace of startups. We still think that we have few quarters to go before attrition comes down materially. We'd also like to call out a key recognition we received this quarter.
LTI has been named GSI Global Delivery Platform Partner of the Year by Snowflake. This award demonstrates LTI's execution expertise across strategy, migration, and modernization journeys on the Snowflake Data Cloud. Last year, we were recognized as a Global Innovation Partner of the Year by Snowflake. Going forward, we will continue to break new grounds in our partnership with Snowflake. Now let's turn to our business outlook. We are building for a strong Q2 based on acceleration in demand we see across our client base. We have closed four large deals in the current quarter, and our pipeline remains healthy. We are positive about closing some large deals in Q2 as well. As explained earlier, we remain well poised to benefit from growth via both efficiency and growth stack.
Our continued proven ability to execute in challenging and changing environment gives us confidence that we will be in the leader's quadrant for growth in FY 2023, as we continue to guide stable PAT margins in the range of 14%-15% back. With that, let me hand it over to Anil.
Thanks, Nachiket. Hello, everyone. It is great to be back with you all with another quarterly earnings.
Let me take you through the financial highlights for Q1 FY 2023, starting with the revenue numbers. In the first quarter FY 2023, our revenues stood at $500.2 million, up 1.7% sequentially and 23.4% on a year-over-year basis. The corresponding constant currency growth was 2.9% QoQ and 26.6% year-over-year. Our reported INR revenue of 45,228 million was up 5.1% QoQ and 30.6% YoY. Now coming to profitability. EBIT for the quarter was INR 7,243 million, translating into an operating margin of 16% as compared to 17.3% in the previous quarter. The margin walk is as follows. Negative 300 basis points due to higher employee costs post wage hikes.
Negative 70 basis points due to increased travel and visa costs. Offset by benefit of 240 basis points coming from productivity benefits, INR depreciations, and absence of pass-through license revenue. Reported profit after tax was INR 6,344 million, which translated into a PAT margin of 14%, compared with 14.8% in Q4 FY 2022. We remain comfortable with our guided PAT margin band of 14%-15% for FY 2023. Moving on to the people front. Utilization without trainees was at 81.8% as compared to 81.5% last quarter. Utilization including trainees was at 81.3% versus 80.1% in Q4. We continue to strengthen our workforce, and during Q1 we added 2,118 people on a net basis.
The total manpower stood at 48,766, of which our production associates were 95.5%. In this quarter, attrition is 23.8% versus 24% last quarter on LTM basis. Our cash flow has stood at $1,795 million as of 30th June 2022, versus $1,715 million as of 31st March 2022. While on balance sheet has stood at $108 million versus $112 million last quarter. Moving on to the DSO. In Q1, the bill DSO stood at 61 days as compared to 65 days in the last quarter. The DSO including unbilled revenue was at 100 days compared to 99 days in last quarter.
For the quarter, the net cash flow from operations was INR 2,256 million, which was a 35.6% conversion of the net income. Like every year, this was impacted by a payout of annual incentive. At the end of quarter, cash and liquid investments stood at INR 38,824 million, as compared to INR 39,139 million last quarter. The effective tax rate for the quarter was 25.5%. Earnings per share for the quarter stood at INR 36.13 as compared to INR 36.34 in Q4. Diluted earnings per share was INR 36.08 versus 36.27 last quarter. While we have taken you through all the Q1 numbers on the growth and profitability, I want to speak about our ESG goals at LTI.
Ensuring community welfare and uplift forms an integral part of our long-term strategy. We are cognizant of the fact that with the growth and expansion of business, the utilization of natural resources on our part is bound to escalate. Accordingly, we remain steadfast at reducing our environmental footprint and becoming a carbon and water neutral company by 2030. We have published ESG roadmap in place with specific targets on these goals as well as other ESG related goals and track our progress against each of these regularly. Our recently published integrated annual report for FY 2022 has all the details on this and is available on our website. I also want to update you on the progress of the amalgamation. As you must be aware, on May 6, the boards of LTI and Mindtree approved a composite scheme of amalgamation.
The transaction is subject to shareholders' and regulatory approval. We reached out to all our key stakeholders post this announcement, and the overall feedback has been positive. Sudhir, Nachiket, and I visited several of our locations across India and had in-person meets and town halls with our employees to communicate the strategic rationale for this merger. We also organized a virtual meet for all our employees to discuss and provide any clarifications required. Our employees are very excited about our next phase of growth and look forward to being a part of larger entity with increased opportunities. As Sudhir mentioned, we are already seeing the benefits of combining our complementary strengths to win in the marketplace. A steering committee has also been set up which is meeting regularly to oversee the integration plan. Our regulatory process, it remains on track.
We have received approvals from the stock exchange and filed with the NCLT. Our shareholders' and creditors' meeting has accordingly been scheduled on August 10th. Before I end my presentation, my team and I are very grateful for your generous support for LTI in the recently concluded Institutional Investor Survey. Thank you for that. With that, I would like to open the floor for questions.
Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is on the line of Sudheer Guntupalli from Kotak Mahindra AMC. Please go ahead.
Good evening, gentlemen. Thanks for giving me the opportunity. My question is around employee incentives. It has been around two months since we announced a corporate action, and Anil mentioned that you have done multiple town halls to take employees into confidence about the merger. How are you seeing the employee morale within the companies in general? What are the key anxieties that some of the critical or key employees would have brought up in their conversations with you? How are you going to take care of those anxieties and nervousness at this point in time, which is general for a large scale corporate action like this?
You know, employee sweeteners or incentives that you plan to kind of use as a retention technique at this point in time? We understand that, I think the apparent ESOP plan itself has a lot of unallocated ESOPs. Any plans to kind of reward employees to use them as effective retention sweetness at this point in time?
Yeah. Always good to talk to another Sudheer. Sudheer, you know, what we did in the town halls, let me just give you some color of what Anil and Nachiket and I were doing, you know, along with Manoj, who's our HR head in these town halls. In these town halls, we actually presented to them the same presentation that we made to the board. We explained the merger rationale. It was exactly the same slides that we used. The merger rationale that we presented to both companies is essentially a revenue synergy-based merger rationale. The entire business case is around the two companies getting together to jointly grow faster in the market.
We were able to show this clearly where we see the market opportunity, what we see as the essentially what is gonna be a large cross-sell, up-sell opportunity between the two companies. Between the two companies, we have 700 clients, and now we have, you know, both companies have the ability to take many more service lines to these clients. That gives it, you know, the benefit of that is that almost every person in the organization will have an opportunity to explore new service lines or new verticals or new geographies in their future career path.
The key thing was to explain, you know, that we shared with them was how do we plan to actually realize this revenue synergies, and that's where a lot of the planning had gone on pre-deciding, you know, before we decided to proceed with the merger. Therefore, as Anil also mentioned in his remarks, you know, there's a lot of excitement around how we can do things together. This is reflected even in the deals that we are working on currently. We announced one deal very jointly, and we're working on several deals currently. There's also an integration, you know, efforts that are kind of underway between the organizations that are being led by L&T Corporate.
Frankly, you know, we're not spending that much time on it, but we are seeing that there is good collaboration happening between the teams on that front as we see there, again, good synergy benefits between them.
If I add Sudhir, one of the other things that, you know, as we look at the merger between LTI and Mindtree and look at the complementary nature of both the organizations, right? I mean, you would have seen the merger deck on our website as well. You'll see whether it looks at industry segment, whether you look at geographies or whether you look at service lines. There is a significant complementarity between the two. The 700 customers that Sudhir talked about, there's hardly single-digit customers where we both have meaningful presence. Which means that for most of the organization, the resultant org is going to be an additive org. There is no redundancy in their role. They'll continue to serve the client. They'll continue to be the delivery manager, project manager, account manager that they are doing today.
On top of that, they actually get additional opportunities to work for different segments, different geographies and different service lines. Actually based on that explanation, we don't see any anxiety with our employees. We actually see excitement because they are now seeing that there is no redundancy, there is no risk on their role, but in future, they have much better opportunities to grow together in the bigger organization.
As far as incentives are concerned, I think you also answered the question. There is ample headroom in both the ESOP schemes of both companies and, you know, that's so in LTI, as you're aware that, you know, we've had an ESOP scheme running, right, you know, so we've had a 2016 ESOP scheme that is currently valid, which people have been part of. So we will continue with the same five-year, you know, or the multi-year ESOP projects, you know, plans that we continue to have for our leadership teams. That's something that we will continue to have in the future as well.
Thanks, Sudhir. My second question, of late we have been seeing a lot of negative news flow from some of the large U.S. banks. Our top client also happens to be in that particular segment. Any feedback or any concerns that you have been receiving from our top clients at this point in time about this whole macro issue because they typically operate in a segment which reacts quite quicker compared to other verticals.
Yeah. I mean, BFS for us is growing at 31.5%. I think the good thing about U.S. BFS is that, I mean, the BFS globally for us is that, you know, we actually have BFS clients now in every geography that we operate in. So, you know, it's a broad-based BFS growth that we see. Now, what we see, including, you know, the client that you were referring to, what we are seeing is that they are in a multi-year technology modernization cycle. The stage that they're at, there's actually no going back on that. They have to complete the modernization of the technology stack. If anything, they're looking to accelerate some of that, as they have budgets available in this calendar year.
That is why we are talking about perhaps even if anything, we'll see a slight uptick in demand, you know, in the coming quarter. BFSI actually we're very confident about, and we're also pleased to see that insurance has actually bounced back in terms of growth terms. We are seeing both on the back of our existing logos as well as some very exciting new logos, especially Fortune 500 logos that we've signed that we plan to scale up. On BFSI, we actually see in fact, even if I were to look into, you know, the conversations we've been having with our clients, even if we look into calendar year 2023, we see that, you know, there is a good growth prospect even in the coming quarter.
Sure. Thanks, Sudhir. Thanks, Nachiket. That's very helpful. All the very best.
Thank you. The next question is from the line of Vikas Ahuja from Antique Stock Broking. Please go ahead.
Yeah. Hi. Thank you for the opportunity. My first question is, and I'm sorry to harp on, a macro question again. I understand in the opening comments you alluded to not witnessing any macro headwinds so far. Do you sense any change in client decision-making pattern or if clients are preparing for a recession on their end? Maybe some early indication like reluctant to negotiate on pricing. Any color around that would be great.
Yeah. As I said, you know, the first thing we watch out for is there are gonna be project cancellations or project deferments or delays in decision-making on programs that are currently underway or, you know, proposals that are currently underway. We're not seeing any. In fact, no cancellations, no deferments. On project decisions, again, you know, nothing material from that front. But in our conversations, do we sense that clients are a bit hesitant about the macro or, you know, the continuing macro environment and the impact that it'll have going forward? Yes, that is the case, which is why we are saying that in calendar year 2023, we might begin to see that, you know, clients are a bit more.
I think the way they look at tech spending might be a bit different. Having said that's the point that Nachiket Deshpande was talking about. Even if clients are looking to gain more efficiencies from their technology spend, there are actually several areas where especially in cloud, data, DaaS, you know, these are the areas where there's been significant spend in the last three or four years. These and a lot of this spend has happened with global majors. This area of spend is actually ripe for, you know, efficiency programs. For us, we are, you know, working as we, as Nachiket Deshpande talked about, a completely new solution to, you know, offering to actually provide efficiency on this stack. That's something that we, you know.
If we reflect, right, you know, on our large deal performance to date, you know, we've had, what, 30, 35 large deal wins + 4, so 39 large deal wins. The majority of these large deal wins have come from what we call our operate to transform service offerings for large deals. That's essentially around how do we bring more efficiency to a stack as well as modernize it at the same time. We think that that muscle is quite strong. We are good at that business, and we'll be able to bring that to bear even as the environment turns to one where clients are looking to cut costs or for more efficiency-led programs. In terms, just to answer that question in terms of pricing and cuts, we're not seeing any conversations on that.
In fact, right now, just to cover the point in pricing, we are still able to get some pricing increase in pockets because there is still a gap between demand and supply, especially on new technology talent. Clients are open to increases where, you know, for hot skills.
This is very helpful. I just have one more question. This is regarding the cloud infra and security service line. You know, barring few Asian companies, the growth outlook there remain very strong. We have been seeing some weakness there. So what is the disconnect there? That would be all. Thanks.
Because for us in Q1, the software CIS you see was largely because we had a few large SI deals that had a project kind of spend that got over in Q4. That's really why. These are India-based large deals, end-to-end SI deals that we really participated in. It's more of that seasonality is why you see from Q4 to Q1. We continue to see good pipeline. As Sudheer said, you know, some of the large deals are in that space, and we feel confident that we'll be able to sustain great momentum in cloud and infra. Also, if you see, this only includes infra part of the cloud, right? As you can imagine, cloud is there in every service line. We don't separately report holistically cloud revenue because it's all pervasive.
This is only data center exit type deals on infrastructure and cloud together.
Sure, sir. Thanks a lot.
Thank you. The next question is from the line of Sandip Agarwal from Edelweiss. Please go ahead.
Yeah, good evening and congratulations on a decent integration. I have one simple question that, you know, the way we are seeing the gap between demand and supply, and it reflects in the attrition number also. Hypothetically, if for a moment we assume that, you know, there will be a deep recession or a very strong recession in the U.S. which will lead to, you know, budget cut by clients and all, then in that case, will it be fair to assume that then our attrition numbers will also fall sharply the way we are seeing startups recruiting less now or pressure from startups going down?
Similarly, you know, recruitment from banks and other companies which indirectly hired us will also go down and resultantly we will see lower pressure on subcontracting costs and lower attrition related costs. In a way that, you know, if demand really falls, then there will be at least a positive impact on the margins. Is it a fair assumption or you think the operating leverage will always overwhelm on the overall cost? What is your sense on that?
There are two, three components to your question, Sandip. Number one, I mean, as Sudhir alluded, I think we're not seeing sharp drop in demand as yet, right? Because as we said that the technology transformation spend will continue even when the customers go into the recessionary period, because some of this is going to be needed for them to continue their core modernization program. Of course, a different kind of spend and a different muscle from our perspective will get engaged. We don't see demand kind of falling off the cliff, at least where we sit today. Second, you know, the issues that are.
If you look at the skill set gap, especially around newer areas of technology around data, digital and cloud, I think it will still take a few years before that gap is genuinely bridged between the skill set availability and skill set needed. Because every business today around the world is technology business. That gap in terms of, the demand of those skill sets versus what's available across the globe, I think there is still, we believe there is at least a year or two before that, supply demand gap is filled. Now, of course, the attrition rates are a function of a lot of things. Supply demand gap is one aspect.
What we see is that with the startup ecosystem challenges that they are going through right now, we would see that the inflation around the replacement cost that we typically get into because of attrition, that tends to cool off a little. That is really the first sign where the impact is felt. Will it translate into an overall attrition rate going down? I think remains to be seen. As I said in my remarks, we are seeing two quarters where it has stabilized. Based on what we see from a Q2 perspective, we believe it will also remain in the same stable range. If this trend continues, then yes, we'll see the downward trend on attrition. I think two quarters is, you know, too little a data point to call it a trend.
You know, I would not venture into guessing on that, but there are multiple factors that we need to look at.
See, folks, this is very fundamentally different from the GFC, right? Where we actually saw a very different behavior from our clients. Today, they're watching the space to see what happens because, you know, ultimately they will react based on the localized, you know, how they individually get affected, right? So, you know, just to give you an example, our industrial manufacturing clients are actually dealing with record order backlogs, right? For example, one of our clients is in the HVAC business, and they have the highest order backlog they've ever had in their history because, you know, buildings of all types all over the world are looking to modernize their HVAC systems, partly driven by COVID, but also now looking at healthy buildings, ESG initiatives, all of that.
That cycle of modernization of the product stack, which essentially by the way is a tech modernization. It is not, you know, a modernization. As much a modernization of parts and equipment, but it's actually about software being put into an HVAC so that it operates optimally in a hybrid work environment, right? For two days a week, if you don't have people, then it should operate differently than when the people are there for three days a week. These kind of operational, the way people are looking to deploy technology in all aspects of their business, irrespective of the vertical they're in, that's a fundamentally different construct that we see today versus what we saw, you know, back in 2008.
Thanks. That's very helpful. Thank you and best of luck for the current quarter.
Thank you.
Thank you. The next question is from the line of Nitin Padmanabhan from Investec. Please go ahead.
Yeah. Hi, good evening. Sudhir, the question was for you. So you mentioned that you are seeing a slight level of caution with clients, and this is causing some short-term acceleration. One, if you could throw some color on what exactly are clients saying? Are they suggesting that they believe that budgets could get constrained in the latter half of the year or next year, and thereby this is more like a budget flush wherein they can sort of try and complete as much work as possible before there's some clampdown? So that's the first question. The second is, where all are you seeing this behavior? Is it just BFSI or BFS or is it across the board? So if you can just give some color across verticals.
Is it broad-based or how things are? These are the two questions.
Yeah. I think, you know, I wouldn't call it a budget flush. I would say that, you know, what we're saying is calendar year 2022 budgets are available to them. You know, they know that these budgets are available. What they're looking to do is to ensure that they optimally utilize these budgets, you know. Now, partly because of resourcing challenges that the entire industry has faced, you know, there are some of these programs that they are looking to. But what they're looking to accelerate because they want to complete this, right? What they're asking us is, "I've got milestones that I need to achieve. Can I accelerate those milestones?" Again, just to, you know, I'll answer this question in two ways.
You know, 47% of our business is BFSI. Frankly, as I said, they are in a secular technology modernization cycle. I actually don't see that decreasing even in calendar year 2023. Because if they don't modernize their tech stack, they actually will not have a business to run in the areas, given the kind of competitive environment that they face, not just from fintech, but also from other banks all over the world, right? Every banking business now essentially calls itself a technology business, and I think that is there. Insurance, if you see what the pandemic did is, if you look at the direct distribution of insurance or the way it is straight through processing in insurance is at a scale that has never been seen before.
You know, it's leading to very significant investments in the insurance stack as well. The third area is our energy business, right? Our energy and utilities business, which is 11% of our business. They are seeing record oil prices, so they are actually again continuing to invest in technology, more focused on ESG. 14% of our business is industrial manufacturing. That's seven, you know, which I mentioned has a record order backlog. They're actually dealing more with supply chain challenges and chip shortages and those kind of things, rather than the macro environment, because they have to fulfill the backlog and they're not seeing any reduction in terms of the backlog going away. We see 72% of our business being...
I think perhaps we are, if I look at us, right, we are more of a B2B business than many of our competitors in the space, you know, who may have a slightly different mix in terms of our, you know, in terms of their clients. Therefore, when we see, talk to these clients, that's why we are saying these clients are looking to accelerate programs and utilize budgets that are currently available to them. You know, the boardrooms are reading the same news articles that everybody reads. Even if they're not physically seeing a reduction in demand, they are going to react to the noise in the system because nobody wants to be caught out in case things turn south dramatically, right? I think it's, you know, I just spent two and a half weeks in the U.S.
There is a little bit of a disconnect between Main Street and Wall Street in terms of what you see. You know, everything is at record prices, right? Flying in the U.S. or trying to get into service in the U.S., you know, I've never paid more for anything ever. But yet, you know, I would say actually the supply side crisis or, you know, the lack of resources and the other supply side challenges are a bigger challenge for our clients today than perhaps the macro as I speak today. I guess if inflation continues to be high, you know, for a longer period, if interest rates continue to rise, then it's natural that consumer spending will come under pressure. That will eventually have an impact on B2B clients as well.
As we said, right, we are in the cost cutting business as well. You know, we will reprioritize to making sure that, you know, there is other service lines that we can deploy to actually help clients with that side of the house as well. We are well poised, whether clients invest in the growth stack or the efficiency stack, I think we have something good to offer to them on both areas.
Sure, Sudhir. That's very helpful. Just one last question, if I may. How is attrition at the senior levels within LTI? Is there any increase or it is still at whatever levels we have seen historically?
No increase in the attrition, actually. Absolutely no impact on the attrition at senior levels at LTI. Yeah. See, what the senior levels in LTI are also aware of what is going to happen, you know, post merger. You know, they see that all of us will have a larger playing field. In fact, folks, I've said this during some of our analyst interactions that we will actually need more leadership bandwidth as we go ahead. You know, you can imagine two companies growing at the speed, pace that we are currently, and with the ambitions of growing even faster in the future, we're actually gonna need more talent as we go forward. I think that sees an exciting platform, right?
If you think of together we are $3.5 billion as of the last financial year, you can only imagine what we'll be by the time we get together. If that business can grow at industry-leading growth rates for the next few years, that kind of platform is available. There are not many companies that can provide that kind of platform for growth in the industry. We're nice people to work with, yeah. We're a fun organization. You know, I think people are looking forward to it.
Yes, sure. Thanks, Sudhir, and all the best.
Yeah.
Thank you. The next question is from the line of Sandeep Shah from Equirus Securities. Please go ahead.
Yeah. Thanks for the opportunity and congrats on a good execution. Sudhir, just had a question, as you guys are not witnessing any impact on the macro on demand as a whole. Is it the picture similar within Europe? Because in Europe you are very spread out outside U.K. as well. Your commentary also suggests that the supply side challenges is impacting the clients more than the macro challenges, which is actually more intense in the Europe as a whole.
Well, you know, Sandeep, we grew 31% year-on-year in Europe and, you know, my European chief business officers I think, Sunish, their biggest concern is the currency impact on the currency side of the house. Again, if you look at our business in Europe, it is also predicated on our core verticals, right? BFSI, manufacturing, energy utilities, they continue to be the strongest parts of our European business as well. Actually, in Europe, the other advantage we've had is our alliance-led deals, especially in data. You know, our deals with our partners, our product partners in the data space, we've done some very significant number of deals together with them in that space together. That's really helping us.
Europe still has a strong ERP footprint. That's you know and that ERP footprint is modernizing. If you put that together, you know, we are in the right verticals. You know, data is a good growth driver, and ERP continues to be a strong service line across the board for us. That's kind of holding Europe in good stead for us. You know, our markets there, as you know, we are strong, mostly strong in France, you know, and Nordics. Now U.K. and Germany and you know, of course, our Luxembourg market with our Syncordis offering business unit, they're all also showing good signs of growth. That's why we're now seeing multi-geo growth in the region. I just do wanna say that
Just a question.
I don't wanna give a picture that, you know, I keep talking about calendar year 2022 because that's what we can see, that's what we are having conversations about as we speak to clients. Are clients going to be cautious about calendar year 2023? Yes. The answer is yes. We'll see what materializes, you know, as we'll probably come to know more of that in Q3 and Q4. We, as we said, right, we're in sectors where we think that, you know, there will be a good level of demand even in the next calendar year.
Okay. This is helpful. Just a question in terms of margins. With wage inflation largely behind and supply side challenges, though it's not coming down, but it's not going up, as well on the attrition side, is it fair to say with growth likely to be stronger in 2Q and 3Q, 4Q seasonally better, for us, the margin at EBIT level will also have an upward bias from 2Q to 4Q?
Traditionally, yes, we are. Our margins quarter-on-quarter as the year progresses, we will definitely recover some bit of our wage hikes related costs. Hence, you know, with the growth momentum that we are seeing, we're confident to stay in our past guidance of 14%-15%.
Okay. Just last two questions for the CFO. Generally in a rupee depreciation scenario, our Forex gain and the other income as a percentage to the revenue comes down. This time it's slightly different. Is there any change in our Forex hedge policy? Second, in terms of annual report, if I look at the FY 2022 cash balances is actually higher than INR 378 crore versus what you mentioned. That 378 is a non-current cash equivalent. I think you are not counting that when you give the figure for the cash and cash equivalent.
I think when you're talking about, you know, Forex gains, it also includes not only your gains due to hedges but also your debtors revaluation. Obviously it will cover all INR depreciation against the dollar and, you know, dollar appreciation against, you know, other currencies. That will be the net of the amount which is gone in gains due to, you know, foreign exchange. There is no change in the policy. I think we have been consistent in terms of reporting and in terms of the policy for what we have for the purpose of Forex. Also, in terms of classification of cash. We'll come back to you because I think technically we need to just understand the numbers where you're quoting from.
Okay. Because I was talking about the corporate deposit and the corporate bonds which were there in the FY 2022 annual report and you have not counted as a part of cash equivalent.
We will revert to you.
Yeah.
Sudhir, Sunila and I will come back to you shortly.
Okay. Thanks and all the best.
Thank you. The next question is from the line of Mohit Jain from Anand Rathi. Please go ahead.
Yeah. Sir, two things. One was related to the deal pipeline. When you have accelerated over the last three quarters in terms of large deal wins, so how is the impact on pipeline at your end? That was one. Second, if you could give some color on the deals won during the quarter, this $80 million, like which region, which country has it come from?
Right. I think, you know, they came across verticals actually, these four large deal wins, BFS, high tech, energy and utilities, and others. In terms of regions, there are two from the U.S., one from Europe, and one from the emerging markets regions. It's a good spread, you know, across verticals and across regions. In terms of deal pipeline, actually looking quite good. We hope to announce, you know, we have some deals currently in their final stages, so we will announce them in due course. Next quarter expect some more deal announcements from us.
We are, as we said, you know, in fact if I look at the overall pipeline and, you know, though we don't sort of share order intake numbers, but, you know, all of those indicators looking quite strong for us right now.
The other one was on wage hike. Like, are we completely done with it, or is there some spillover which may happen in 2Q from wage hike perspective?
Almost 80% of our organization, actually 85% of our organization gets covered in our April cycle. Only senior level rating, which is less than, I don't know, 10% or 12% gets covered in July. If you look at our impact perspective, you know, almost all the impact has now come in already into this quarter.
Okay. From 2Q onwards, we can sort of assume steady improvement because wage hike is behind, as you mentioned, and some of the revenue ramp-up happening.
That impact would not be material. I think it would be somewhere around, you know, about 10 basis points.
From a positive distinct perspective, Sanjay said, we tend to recover our wage hike related dilution over the three quarters through productivity and pyramid rationalization, so that program continues from two to onwards.
Perfect, sir. Thank you. That's all from my side.
Thank you. Ladies and gentlemen, that would be our last question for today. I now hand the conference over to Mr. Sudhir Chaturvedi for closing comments. Thank you, and over to you, sir.
Thank you very much for taking the time to join us today. I know it's a little late, but you know, I love Bombay in the rain, so I hope you are, you know, enjoying it safely. Again, once again, thank you very much for your time, and look forward to interacting with you in next quarter, where you know, we've got a lot of good prospects ahead of us. We look forward to our interaction in the coming, you know, in the next quarter. Meanwhile, if there is any other questions or any other information that you need, please do not hesitate to reach out to us at any time. Thanks once again.
Thank you very much. Ladies and gentlemen, on behalf of LTI, that concludes this conference. Thank you all for joining us.