Q1 21/22

Jul 16, 2021

Ladies and gentlemen, good day and welcome to Q1 FY '22 Earnings Conference Call of LCI. As a reminder, all participants and lines may be in a listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Ms. Sunila Mardis, Head, Investor Relations, LTI. Thank you, and over to you, Ms. Mardis. Thank you, Margaret. Hello, everyone, and thank you all for joining us today to discuss LTI's Q1 FY 'twenty two earnings. The financial statements, press release and quarterly fact sheet are all available in our filings with the stock exchanges and on the Investors section of our website. On the call, we have with us today Mr. Sanjay Jalona, CEO and Managing Director Mr. Sudhish Chaturvedi, President, Sales Mr. Lachiket Deshpande, Chief Operating Officer and Mr. Anil Randhar, Chief Financial Officer. Sanjay and Anil will give you a brief overview of the company's performance during the quarter, which will be followed by the Q and A session. As a policy, LTI does not provide specific revenue or earnings guidance and anything said on this call, which reflects our outlook for the future or which can be construed as a forward looking statement, must be reviewed in conjunction with the risk that the company faces. Let me now invite Sanjay to talk to you about the results. Over to you, Sanjay. All right. Thank you, Sunilah. Hello, everyone. Hope all are doing well. This is an exciting time to be in the tech industry, and it's really wonderful to speak to you again. This quarter marks the completion of 5 years since our listing. We went public in an IPO that valued us at a PE ratio of about 12 to 13x. The company has just ended FY 2016 with an annual revenue of $887,000,000 and a net profit of INR 8,365,000,000. Since then, we have delivered a revenue that a CAGR of 13.5%. Our net profit has more than doubled. And on the PE front, all of you would be tracking it much more than I am. LD has gone through a transformation in these years, creating its own unique brand and identity, built one of the strongest teams and applied focus on building capabilities and partnerships. Today, we compete and win against the world's best companies. My team and I are filled with deep gratitude for all the support, faith and trust our stakeholders have reposed in us. We will continue to do our best in the years ahead. Our Board has declared a special dividend of INR 10 per share to commemorate the completion of this 5 year January. During our call last quarter, we talked about the public health crisis and its impact, especially in India. At LPI, we have vaccinated over 14,500 employees and their family members through vaccination drives at our offices. We have and will continue to fight the pandemic with our grit and resilience. Coming to our results, we are pleased with our broad based performance in Q1 that once again brings to forward the resilience and well diversified growth engine that we have built over the years. We posted our best ever Q1 with revenues of $470,200,000 growing 5.1 quarter on quarter and 20.4 percent year on year basis. The holistic nature of our growth stands out whichever way you slice our performance. All verticals, service lines, client buckets and geographies have grown well. All our verticals have grown this quarter, but our largest vertical BFS grew an astounding 39.4% year on year. We had 2 more verticals, high-tech, media and entertainment and the others, which include some of our marquee public sector wins also grew in excess of 30% year on year. We also see ourselves move in the right direction on insurance and energy and utility, which have been a little soft in the past. On the service line front, we had superlative performance from cloud infrastructure services growing at 32% year on year with the rest of service line also growing double digits on a year on year basis. We added 23 new logos during the quarter and we are also excited to note that this strong performance is powered by growth across top 5, 6 to 10, 11 to 20 client buckets as well. This is also reflected in addition of 1 client one more client to our 50,000,000 bucket and 3 each to our 10,000,000 and 5,000,000 buckets. Let me now give you some color on the nature of demand that we see today. During the pandemic, we have seen signals we have seen digital adoption pick up strongly. We see this trend continuing and accelerating. During last quarter, we introduced this era as the great restructuring because we see restructuring around workforce, workplace, future of work and every industry need to operate in the new normal and restructure themselves. When I reflect across our customer base, we are seeing a secular demand around their digitization efforts across each of our 400 plus customers. Frankly, I have not seen this kind of opportunity in the last 10 years. The nature of demand and expectations around execution are also changing. We see discretionary spend increasing with demand for projects to be executed in our offshore based agile pods with shorter deal cycles. Pods are small self sufficient agile team ranging from 4 to 8 members responsible for a single task, cope or requirement. Work packets that got predominantly executed from on-site before the pandemic are now mostly executed from offshore as everyone is remote anyways. This manner of execution ensures speed to market, which is very much the need of the hour for our customers today. We are also scaling up supply like we have never done this never done before. We are looking at hiring 4,500 freshers for the year, which is much higher than what we have done in any year in the past. We added net of 2,000 people last quarter and net of 2,300 plus people in Q1 as well. We remain focused on building and scaling differentiated capabilities to cater to this accelerated demand. Digital engineering is a significant market opportunity, and I'm happy to announce the acquisition of QLogic Technologies, a digital engineering and outsourced product development company. We welcome QLogic to the LTI family. This marks the 7th acquisition by LTI since we listed. Strong capabilities and our bias for strong vertical orientation are the only way we can be better partners for our customers. Q1 is incredible as we got some of the most sought after recognitions in the marketplace. Be it LPS and Cordis getting recognized as the Partner of the Year by Temenos, LTI did not operate you'll remember LTI did not operate in the core banking space till a couple of years back. We are now the 2nd largest partner for TenaS ecosystem. Snowflake also recognized LTI as the Global Innovation Partner of the Year. It's a global recognition. Snowflake, the data cloud company, is one of the hottest technologies and this recognition represents a key milestone, which will strengthen collaboration between the companies. Our data products continue to see strong market validation and recognition from the analyst community during the quarter. 1 of our products, Lenny, was featured in Gartner's market guide for augmented analytics products as well as in the Forrester Q2 Tech Guide report for customer insights matter. Let me provide you with color on the performance of our verticals. BFS, very strong. We saw 9.6% growth here. This was driven by our existing clients as well as our large deal win announced last quarter, which involved the digital transformation banking transformation for a large Islamic bank using Temenos T24 platform. Moving to insurance, we saw 5.3% quarter on quarter growth here. This is due to some of our recently added logos ramp up of our large deals announced last quarter as well as our existing clients. We are seeing positive traction here with our refined insurance strategy, ongoing growth of our partnership ecosystem and new leadership driving opportunities in the marketplace. Manufacturing declined 6.6% quarter on quarter. Please note that our services revenue grew this quarter and this decline in quarterly revenues is only because we had pass through revenues in Q4. The absence of this pass through revenue is also reflected in the sequential decline in the Enterprise Solutions service line as well as the India revenues. Demand environment remains healthy in manufacturing with continued momentum and opening up of discretionary spend. Energy and Utility, we saw we grew 4.7% here, largely driven by good growth in the utility space. Over the past few quarters, we have seen we have been sharing our expectations on how spends in oil and gas would continue to be volatile. Our large deals announced a large deal announced in Q3 FY 2021 with a global Fortune 500 energy company is going as per schedule, and we expect to see further ramp up in the deal in the coming quarters. CTG Retail in Pharma grew 4.4% quarter on quarter on the back of some of our large deal wins announced in the previous years as well as our existing logos. Hi Tec and Media grew 13.1% quarter on quarter. Our large deal win within Jazak continues to progress well here. Others, which include professional service professional services, Government of India Ministries and other global enterprises and public services registered 0.5% growth quarter on quarter. Let me now move to the outlook. After delivering a near double digit U. S. Dollar growth in FY 2021, We have had a very strong start to FY 2022. Our pipeline remains healthy. Our client mining engine is working well and our conversations with our customers continue to give us the confidence to deliver yet another year of strong growth, positioning us to be in the leaders' quadrant in FY 2022 as well. With that, let me now hand it over to Anil Rande. Thank you, Sanjay. Hello, everyone. It is great to be back with you all with another quarter earnings. And I wish you all safe and healthy days ahead. Let me take you through the financial highlights for the Q1 of FY 2022, starting with the revenue numbers. In the Q1 of FY 2022, our revenue numbers stood at $470,200,000 up 5.1% sequentially and 20.4% on a year on year basis. The corresponding constant currency growth was 4.8% quarter on quarter and 17.8% year on year. Reported INR revenues of 34,625,000,000 was up 5.9 percent quarter on quarter and 17.4% year on year. Now coming to profitability. EBIT for the quarter was INR 5,682,000,000 translating into an operating margin of 16.4% as compared with 19.4% in the previous quarter. The margin walk is as follows: wage hike 3 40 basis points absence of PDD provisions write back 120 basis points investment in S and M for business development and marketing 60 basis points. This was offset by 140 basis points benefit from productivity improvements and 80 basis points benefit from ForEx in absence of pass through in Q1. Our SG and A is back at about 12% of the revenue as guided earlier in the last quarter. Reported profit after tax was INR 4,968,000,000 this quarter, which translated into a bad margin of 14.3% compared with 16.7% in quarter 4. Other income pertaining to Q4 FY 2021, including our included a write back of certain earnouts tabled towards an earlier acquisition amounting to INR 571,000,000. As guided earlier, our PAT margins will be in the narrowband of 14% to 15% for FY 2022. Moving on to employee metrics. On the people front, utilization without trainees was 84.1% as compared to 82.2% last quarter. And utilization including trainees was at 83.7% versus 80.8% in quarter 4. We continue to strengthen our workforce and during Q1, we added 2,307 people on a net basis. The total manpower stood at 38,298, of which our production associates were 95.1%. In this quarter, attrition is at 15.2% versus 12.3% last quarter on LTM basis. On ForEx and hedge book, our cash flow hedge book stood at $1403,000,000 as of 30th June 2021 versus $1354,000,000 as of 31st March 2021, while the on balance sheet hedges stood at $77,000,000 versus $65,000,000 last quarter. Our DSO working capital on cash flow, moving on to the DSO in Q1, the build DSO improved by one day and stood at 60 days as compared to 61 days last quarter. The DSO including unbilled revenue was at 98 days, increasing by 4 days quarter on quarter. For the quarter, the net cash flow from operations was INR 943,000,000 which was 19% conversion of the net income. This was impacted by 3 factors: 1st, payout of our annual incentive 2nd, increase in DSO including unbilled revenue 3rd, the pass through license revenue that we book in H2. We had negotiated favorable payment terms. Hence, the cash outflow to the license vendor was booked in Q1. If you look on a LTM basis, OCF to PAT conversion remained healthy at 92.1%. At the end of the quarter, cash and liquid investments stood at INR43,314,000,000 as compared to INR43,877,000,000 last quarter. The effective tax rate for the quarter was 26.1%. On EPS and dividend, the Board of Directors at the meeting held yesterday have declared a special dividend of INR 10 per equity share to commemorate 5th anniversary of LTI's IPO. Earnings per share for the quarter stood at INR28.4 and diluted earnings per share was INR28.27. Before I end my presentation, I wanted to highlight that we have published our maiden integrated annual report for the year FY 2021. We have so far been publishing a comprehensive sustainability report on our key non financial pillars, such as our people and our impact on the planet since our listing. We have embraced an elevated level of reporting and disclosure with publication of an integrated report to meet the evolving expectation of our stakeholders. Other than our financials, the report will provide in-depth insights on our environmental, social and governance performance. For example, we are committed to becoming carbon neutral for our India operations by 2030. Embarking on the integrated reporting journey, we hope to amplify the value we create for our stakeholders. With that, I would like to open the floor for questions. Thank you very much. We will now begin the question and answer session. The first question is from the line of Sudhir Goondupalli from ICICI Securities. Please go ahead. Yes. Good evening, gentlemen. Thanks for giving me this opportunity and congrats on a good quarter. Sanjay, my first question is on data products. Yes, my first question is on data products. Can you kindly throw some color on how the go to market and monetization work here? Are we selling them as standalone products or are these cross sold along with the services that they are offering to customers? Secondly, we have noticed these 4, 5 products like Lenny, etcetera, on marketplaces like Microsoft AppSource. So how does the monetization work on these platforms? Yes. Can I request Sudhir and Anachiket to comment? Sudhir, your lead. Sudhir, you're on mute. Sorry. Yes. Thanks, Anjay. So the Lenny, in fact, the data products, Mozeq and Lenny team, they have there is a separate sales team for this at the company level. We also have a separate pre sales and solution team. So it has an independent go to market and it works along with obviously the LTI sales organization, but various other channel stakeholders, as you've noticed, along with our hyperscaler channel stakeholders to go to market. So, the pipeline is built independently. As you know, this is a product which has seen the selection process is against products of a similar nature. This is where Sanjay has also highlighted the Gartner mentioned that we've called, etcetera. This all plays a part into this. So the sales and marketing engine for this is separate, but works together with the NCI account teams as well. Yes. And how is the yes, yes. And just a follow-up, how is the initial traction given that historically we have not been very active into the product side? How has been the initial traction? And how are we seeing, let's say, if at all, there is any scope for some synergies between our services account management teams and the new go to market team for products? Yes. In fact, the synergies that we are currently seeing is that the sales the current license customers as well as the customers that we have in our pipeline currently are with our existing clients and we have some good traction underway in this space. Clients see the benefit. Essentially, this is augmented analytics for data. As I'm talking about Lenny, Mosaic has a very comprehensive data ecosystem. So depending clients' data needs are constantly evolving, as you know. There is along with cloud, the biggest area of investment and spend for clients. So we are seeing this as part of both where clients are looking to select products for data related activities as well as where they're looking for solutions where we can bundle our products along with our service. And Sanjay, last question, given that we are religiously spending or investing on the data products this year, so let's say by FY 2023, do you have some target in mind as to let's say some percentage of our revenue should be coming from this segment or some share of growth should be contributed from other data products kind of a business line? Sudhir, I think obviously there is something in mind, which is definitely going to stay in mind. But the important thing to note here is that we are in the business of reducing the cycle of our customers' journey from data to decisions, right? And typically, when you look at product vendors, this they tend to be just a products company, right, a horizontal company. Our entire business and thesis is built on. We have the capability of a product, but we can actually shrink the time and create a fit for purpose analytics for different businesses because we know the verticals that we operate in. So lot of growth that you see is also driven based on using our products to actually do this. So yes, we will continue this journey of investing, great traction in the marketplace, still early days. But you we are seeing some incredible conversations that we are not having in our previous lives that we see in data products right now. And I mean one last question if I may. You mentioned that rate hikes had an impact of 3.40 basis points. So between direct costs and SG and A expenses line item, how is this 3.40 basis points wage hike accounted for? I think this will be roughly in the range of 3.20 basis points and 20 basis points. 320 in direct costs and 20 in SG and A. Correct, right. Thanks. That's it from my side. All the best. Thank you, Sudhir. Thank you. The next question is from the line of Sandeep Agarwal from EDWWEISS. Please go ahead. Hi, good evening, Sanjay and team. I wish you good help and congratulations on excellent strategy. I have a very simple question and I can you hear me? Hello? Yes, yes, yes. These simple questions are the most dangerous ones, but go ahead. Please don't dodge the question by saying that I will keep it in mind, but please try to answer. So 2 years back, Sanjay, you took very bold decisions and sacrificed near term gains to get your business future ready and it reflects in your outstanding performance of business in last 2 years. Now when I study your business in detail, I think last 2 quarters, again, you have taken very bold calls. One, you have pulled all the most best resources from different business units to build your cloud unit and you have brought in good resources as well. And this quarter I'm surprised and very happy to see that you have not got carried away by managing growth, margin and everything like most of the other companies have done. You have in fact taken another bold decision of allowing your margin to slide down to retain your key talent. The question which I want to understand is how are you able to convince, first of all, your son, then your board, your management to take such bold decisions? And if you are able to take this decision, how much of this decision is data driven, hunch driven or client interaction driven or it is a combination of all? And will it be fair to assume that this whole decisions which you are taking and which are showing little bit of pain on your financials right now are getting your future ready for next 2 to 3 year again the way you did in last 2 years? Is it a fair reading? Thanks. That's all from my side. Best of luck for Nexford. Wow. This is I should ask how much time do you have kind of a question. But let me try to answer that simple as I can. We always have to be honest to who we are. We have to be honest to our customers and keep talking to them, keep ideating with them, keep discussing with them on how their spend patterns are, where are they spending, what is their need, where is what is hurting them. And that's what leads to the strategies that we deploy. I have always maintained, you would have heard me many times, revenue is actually a lagging indicator. The leading indicators are how you invest in the conversations and the right conversations with the customers and how do you build capabilities. The salary hikes, if I reflect back, it seems a little bizarre at times that you give 2 salary hikes in 2 subsequent quarters. But it is also a reflection of what we saw in the marketplace. We saw the marketplace heating up. We saw attrition climbing up for everyone. And we having gone through COVID and performing well, it felt like the right thing to do. That's why we do this. L and T as a predominant shareholder has been very supportive and everything. Otherwise, it would have been very difficult. So in summary, if I were to reflect back, these are never easy decisions, but we do this as a unit together. The entire leadership gets on a call and we don't agree. We fight like crazy, but we have a simple purpose. When you put client in the middle, when you put employees in the middle, you'll never go wrong. And I think that's what is working. I hope in times to come, this will work as well. This is the purpose and an existential question for an organization to exist. And that's what we hope that we are doing right moves and it's probably reflecting on that. As Sameeb, I hope I have answered this question. 75% of my question, but I will leave it at that. Thanks a lot. Okay. I'm never happy. Thank you. The next question is from the line of Abhishek Kundari from Macquarie. Please go ahead. Yes, gentlemen, good morning and good evening. Sanjay, this question is for you. In the past, you've indicated your revenue growth depends on new plant addition, mining the existing client and largely. So while the first two are doing well, somehow the momentum on largely seems to have slowed down for us in last two quarters. And you've also said in the past that, that might to do with the lead to the timelines, which are getting longer because of virtual networks. But if you could share some thoughts over there, how do you see the pipeline, how do you see the convergence happening? Because that is one of the key parameter on which your demise of doing better than industry growth rate of the quarter end one depends on? Why don't I request Sudhir to give you the details. Sudhir, please unmute. Yes. Thanks, Anjeet. So overall, we have a strong pipeline, including a strong large deal pipeline. We are seeing demand across all verticals, all geos and this mix is actually reflected in our large deal pipeline as well. So we are very confident about the large deals that we are currently working on. We are very comfortable as to where we are on those deals at this point in time from a large deal perspective. I think another element that I also want to draw on your attention to is that, as we see this strong all ground growth, this growth is coming across all deals of all types and all sizes. And what we are seeing is also a model change in the industry to a pod based, pod teams based delivery model. And this is where I think the way the best way to understand this is to see how this is reflected in our all time growth as well as in our people addition. So we've hired 2,300 people net this quarter. We're adding, as Sanjay already mentioned, 4,500 freshers in the coming quarter. So when we look at all verticals, all geos, all in fact, all categories of clients in the pyramid, whether it's 1 to 10, 10 to 20, 20 to 50, 50 to 100, 100 and beyond, all have actually grown. So we are seeing all around growth. We've got a very strong order book. We've got strong open positions, strong last deal pipeline. So I think we're very confident as to where we are at this stage regarding the business. Sure. Thank you. Just to summarize, all four drivers of growth continue to be important. We are confident on large deals. Just to clarify, 4,500 is for the year, not for the next quarter, Freshers for the year, okay, which is 1.5 times what we did last year, by the way. Got it. Thanks. Pankaj, my second question is, I think in the Analyst Day sometime in December, you mentioned your ambition to touch $1,000,000,000 revenue on the cloud and data products in next 3 to 4 years' time. Can you share some markets over there? How are you progressing on that number? And how is your competitive positioning in that particular segment given that it's a growth driver for the entire industry? And most of the deals seem to be predicated on cloud for everyone. I think cloud is all pervasive. And as I keep saying, cloud is don't look at cloud as just moving from on premise to something on the cloud. It's business transformation on steroids, as we call it. And frankly, what you got and it's everywhere. It's all pervasive. As Sudhir keeps telling us and reminding us, if we were to do a organization restructure today, you predominantly will have actually 3 units on. You will have a data unit, you will have cloud infrastructure support unit and you probably will have digital engineering. There's nothing else that you would have. And that is the change that is actually happening in the marketplace and that's why we have structured that's why we are investing like this. And it's getting as difficult to call out the cloud revenue as it used to be in digital as well because it becomes all pervasive. But it's moving very, very fast in every discussion, no discussion either starts or finishes without discussions on how do we use cloud to help the customer drive the business transformation that they are doing. Sure. Thanks, Anja, and thanks to everyone and all the best. Thank you. Thank you. The next question is from the line of Sandeep Shah from Equinor Securities. Please go ahead. Yes. Thanks for the opportunity and congrats on solid growth in terms of the revenue despite the pass through sales declining annual code. Sanjay, the question is in terms of last three quarters, the revenue growth momentum has been really great. But if you look at the core earnings at EBIT on EBITDA level, there is a decline. So it shows the incremental revenue is not coming at good margins as a whole. So here, if you look at utilization, it's at all time high for you. Your offshoring revenue is also at an all time high. Also, if you look at going forward, if the lockdown are being removed, then there could be an adjustment and discretionary spend may come back. So at this scenario, you believe pricing is the requirement where you can maintain and improve your margin? Or you believe you have enough levers for you to pull out your margins going forward? So some color on this will help. Sandeep, good to speak to you again. Folks, please look at us as a growth company, right, with stable margins. The big picture takeaway from this quarter's financial performance is that despite headwinds from 2 successive wage hikes, we have delivered a pack of 14.3. In a normal year, we get a few quarters to absorb the impact of wage hikes, which, of course, is not the case in FY 2022 for us right now. I don't think there is any other element but the timing and transient nature of how rate hikes take time to get absorbed in E and Our margin performance is in line with our expectations and what we have shared in our with you on last quarter. Look at us again, again I reiterate, look at us as a growth company with stable margins. We are determined to be industry growth leaders with a PAT margin of stable band of 14% to 15%. That's the only guidance that we give. And we are determined to make sure that we definitely meet or beat that. Yes. But Sandeep, any discussion with the clients where they are slightly open for a pricing renegotiations? All kinds of discussions are asking. But frankly, Sandeep, the discussions are more as supply and demand varies, supply is in short and demand is very high, the pricing pressure is always you can always go back and increase. But the conversation is more. Bulk of the conversation is why does it take 10 people? Why can't you do it 4 people using technology, AI, ML, ops and all the good stuff that we keep talking about, all the investments that we have made? Pricing has not been a factor of pro and con for a while now. It's how do you use technology, how do you execute it well in these times. So I'm confident where we stand today that we will be able to do 14% to 15% net margin in this year as well. Okay. And just the last question, it's good to see that despite no major large deal wins, our growth is not getting impacted. That implies that we are participating and getting growth through small and medium sized deals as well. But chasing so many small and medium sized deals, Sanjay, you believe that the spend and the feet on the ground has to be higher, which may lead to sales and marketing spend maybe slightly higher going forward? I'll let Sudhir give more details on what he feels. I think we will continue and not shy away from making investments in order to do the right thing. Revenues will come if you make investments, if you have the right conversations. We are very comfortable with where we are. We'll keep doing the right things and confident on the only guidance that we give. Sudhir, if you want to add, Amit? Yes. I think the only thing I'll add, Sandeep, is we're seeing deals of all sizes, right? There isn't a or of between smaller deal sizes and large deals. It's an and. So we're seeing deals of all sizes across the spectrum, including large deals. And as Sanjay said, we are very confident about where we are on deals of all sizes. Okay. Okay. Actually, just lastly, the analyst group, you said the large deal pipeline is robust, but the decision making is slightly postponed through second half of this calendar year. So we have entered the second half of this calendar year. So you believe the decisions are now started happening? Or you still believe clients are taking longer time to make decisions on the larger deals? So there are 2 parts to this. There is traction in the market where clients are looking to, specifically from a transformation perspective, right? So when we are seeing from a transformation deals perspective, there is a lot of our clients are going through a fundamental business model transformation, right, which is where the whole digital transformation and the cloud, which is all on the cloud, so the journey cloud transformation. We are also beginning to now see decent traction from an ERP perspective also beginning to pick up. So these are the drivers of spend. Now what some of the paperwork elements are taking a little longer because getting contracts and legal work, etcetera, signed does take longer. But I think the cycle of demand is actually accelerated. It's so as I will reiterate again, right, we are seeing deals of all sizes, including large deals, and we are very comfortable as to where we are and how they will all contribute to our growth in the coming quarters. Okay. Thanks and all the best. Thank you. Thank you. The next question is from the line of Vibhor Singhal from Philip Capital. Please go ahead. Hi, Vibhor. Thanks for taking my question. Rego, your line is very bad. I'm so sorry. You're asking about India business. Is that am I receiving it right? Yes. I'll just repeat the question. I hope 100 times better now. No, it's okay. Much, much 100 times better. I think India business, so I will answer this. This is absolutely because of COVID. You've seen government and rightfully so has been investing and making sure that the country moves forward, vaccination, oxygen and so on and so forth. Lots of all the funding is diverted towards that. In due course of time, this will come up. We have good business going there. We execute some really critical programs. We also finished a few programs in these times. It's nothing else as the government spend starts to open up more. We will see I'm not worried about India at all. We are just being selective as always. We'll continue to be selective with the kinds of programs. We'll typically do only data and ERP led programs there. It's just the pipeline on government expenditure, which is not there, which we reflected in the business. I mean, you had another question about Yes. So the next question is actually again, I think we have the concept of it. I forgot one more thing, which I should say, I simply remember. There's also absence of the pass through that we typically had. As I mentioned in my speech, Manufacturing, Enterprise Solutions and India, all three cuts are impacted by absence of license revenue in Q1 for us every year. So that is why also India is shown as down. Okay? Yes. Sure. Great, Sanjay. The next question that I wanted to have, Siobhan, is again on the supply side issues. So just wanted to get your perspective on how good or bad the supply side is at this point of time. I mean, we've had competitors giving tremendous salary hikes. I mean, the MSC competitors in India, we have given 2 consecutive quarters of salary hikes. I mean, I know LTI is a very concentrated company, but just more much to be more like driven out of the need to retain talent. And even then, we had our attrition subject to around 15% in this quarter. So as of now, post the salary hike that we have given, how do you see the supply side issue playing out? I mean, do you think that this CrunchStar talent is going to continue? And not just us, the industry will have to probably come to terms with the higher incentives and salaries overall for the industry? Or do you think it's maybe a passing phase and as we think the supply comes through, we could leave it out. I mean, I'm not not necessarily asking you for a margin impact. I'm just asking you from an industry perspective. Where are we heading in those terms? Sure. Matsheket, you would like to take this? Sure, sure. So what we are doing, I think attrition is definitely has gone up and it's a cause of concern for everybody in the industry. But how we are trying to manage from a supply side perspective is, I think it's important for the talent creation engine also to kick in for all of us and not just LTI, but across the industry. And that is where I think we are also investing. Sanjay talked about us significantly increasing our fresh graduate intake. We are also running the programs where we are hiring people between 1 to 2 years experience and upscaling them on cloud data and digital. We will hire close to about 1500 through that channel as well. So from a medium to long term perspective, I think investing in creating the talent supply is the only way to solve for this, and we are, I think, all the companies are investing in that, and that's how we would we feel confident that we should be able to manage. And in the short term, we have enough measures taken as well as the supply side created for us to be able to also deal with our demand situation in the short term. Right. And if I were to just maybe summarize that or extrapolate that, would it be correct to say that in the short term, there would still be supply side challenges, not just for us, for the entire industry? Yes. In the short term, there will be challenges, of course. But we are ensuring that we do enough so that it does not affect our demand pipeline. Great, guys. Thank you so much for answering my questions and wish you all the best. Thank you, Vikram. Thank you. The next question is from the line of Mohit Jain from Anand Rati. Please go ahead. Hi. This question is for Anil specifically. So I was looking at the cash flow and you spoke about the incentives, etcetera, being paid out in Q1. So this is from a Y o Y comparison perspective. The cash flow appeared particularly weak and most on account of working capital. So was there some change in payment terms or any other place where this would have resulted into lower cash flow for the quarter? Or do you think it is pretty normal from a YOB perspective? Thanks, Mohit. I think the lower cash flow doesn't worry us. And this is basically pertaining to this particular quarter only, and this is not there from a trajectory perspective. So I think 3 events have happened in this quarter. There has been an annual incentive payout, which has happened in this quarter. Then there are pass through revenues, which actually we book in H2, which were booked in last year H2. And we negotiated favorable terms where we have to make the payment to the vendor in the Q1 this year. So that has taken an outflow. And there is an element of DSO increase by 4 days. And obviously, going forward, this will improve. And this has been higher on account of COVID challenges as we were not able to open one of our branch offices. And as Sudhir mentioned, I mean, the demand is quite robust. And there is a paperwork, which we are on the course of completion, which has actually resulted in that increase in days. So, these are the three factors, which are more pertinent from a this quarter perspective. Okay. And second one was for Suneet. Did I hear it right that you are saying deal sizes in general have become smaller over the last few quarters? Or are you saying that the large deal thing will continue to be the way it was till FY 2020 most year because we saw some lack of activity in 2021? Yes. I think what I said was we are seeing deals of all sizes. But what we what I think will reiterate is and folks, again, on the large eave front, we have a strong pipeline, stronger than it was a couple of quarters ago. So very confident about that. But the nature of the demand is also changing. These board based models are of deployment of people for transformation programs. Digital programs essentially are run-in these 3 months, 6 months, I mean 3 months print cycles, right? So each of these print cycles has port teams of 8 to 10 members, multiple ports. So essentially that is the nature of the demand. And we are very keen that this demand is something that we capture significantly. That's why I said deals of all sizes across all verticals and across all regions, including large teams. So it's and it's not or. Okay. And anything that you can share on the proposal? I want to just maybe summarize and maybe reiterate something. We are confident on all the 4 levers that we talk of for our growth, right? So there is we see more and more everywhere. But please understand when we speak about an era of rate restructuring, there is fundamental change that and restructuring that we are seeing across with every vertical where and this is why in my speech I reiterated that across 400 plus customers we see a secular demand across in their digitization efforts for them to deal with you and I working from home and not how we worked all our lives. That's leading to a lot of demand of different kinds that also needs to be captured, which comes in all shapes and sizes, some small, some large, some medium and so on and so forth. So we are confident of that. And at this point, I think Nachik has done a fantastic job and as People Supply team has done us a fantastic job of hiring the talent that we've been able to hire. If he could find some good quality trespassers, he will hire them even more and we can put that in the number. We are not worried about the demand right now, right. Very, very strong demand all across including large deals. Understood, Sanjay. That was clear. Anything that you can share on total TCV growth or something that we can look at from a 1Q versus 1Q perspective? In December 2021. All right. Thank you. Good luck to you. Thank you. The next question is from the line of Mayur Patel from IIFL AMC. Please go ahead. Hi, Sanjay and the team. Congratulations for a very good set of numbers. So, first of all, compliments for taking a bold step in these times when everyone is expecting a very strong demand outlook. So it's a real entrepreneur kind of approach, it's by a growth company. So I appreciate that. Just one simple question. Thank you. You have defined the current demand outlook as a year of reconstruction, right, restructuring. Restructuring. Yes. So Sandeep, how long do you think, is it a short term trend of 6 months, a very strong demand momentum over a year or is it going to be couple of years kind of secular era of with restructuring, any comments more directionally? Mayur, I'm not the one to crystal gaze. There are more people who do that. But given what we have been seeing for the last many years and where we stand today, the conversations we are having, I don't think this is going to subside at least for 4 to 5 years, right? It's a bold statement to make because spending patterns are very different than what were there for the last 30 years. But the demand is so high and the change that is required in the market place is so big that we expect it to be there for a while. Thanks, Sanjay. That's it for my side. All the best for the team. Thank you, Mehta. Thank you. The next question is from the line of Manik Taneja from JM Financial. Please go ahead. Hi. Thank you for the opportunity. Sanjay, basically just wanted to get your thoughts around the fact that over the last 3 years, we have seen significant changes around our revenue productivity metrics. And from an offshore standpoint, FY 2021 marked the 1st year that we saw an increase there. If you could help us understand what's driven that? And how should we be thinking about this from a group hour standpoint? Thank you. I lost the question in the middle. Anil, did you Sudhir, did you understand the question? If you have Yes, Sanjay. So revenue productivity, the question is related to our revenue productivity, which has gone up in FY 2021. In fact, it has gone up over the last 3 years. So I'll repeat that question for Subhita. Yes, go ahead, Manik. Yes. So what I was saying was that what we've seen is that our onshore revenue productivity, that metric has seen a sharp increase over the last 3 years, while our offshore revenue productivity increased by about 3.7% in FY 2021. Just wanted to understand what's driving some of those changes there? And how should we be thinking about these metrics from a go forward standpoint? I hope I was clear this time around. Yes, yes, yes. Sudhir, Shiket, you guys want to take a punt? Yes. So the first thing is, if you see the mix of the business, right, the mix of the business has changed significantly. You've seen that over the last 3 years, data has been our fastest growing business. So and now as we see some of the more cloud and trans productivity has gone up because the nature of that consulting work that is done or program management work that's done on-site is different. But we are our offshore percentages are high, right? So higher than our peer group. And I think and I'll hand over to Medjuke here, because our offshore productivity has really been driven by a lot of tool based automation. Najik, if you want to add to that on the offshore? Yes, yes. So as I said, I think offshore revenue productivity is largely a function of automation and the other productivity levers that we are applying. And of course, along with the mix of the business that we are seeing as well. So we and we continue to focus on that continuous improvement cycle from our overall delivery productivity on an ongoing basis. Sure. Thank you and all the best for the future. Thank you. Thank you. We'll take the last question from the line of Dipesh Mehta from MK Global. Please go ahead. Yes. Thanks for the opportunity. Couple of questions. First about the Q1. Sorry to interrupt you, Mr. Mehta. We cannot hear you very clearly, sir. Is it better now? I would just like you to speak a bit louder. It should work. You may go ahead, please. Yes. Awesome. First question is about QLogic acquisition. Can you just focus on that's my overall rationale beyond the acquisition and how big is our digital engineering objectives currently? And how you expect it to play out over, let's say, momentum? 2nd question is about the margin headwind. What if you can help us understand what are the headwinds and tailwinds over next 3 quarters, what you foresee from margin perspective? Thank you. So I'll take on the margin and then, Machiget, you answer the QLogic question and the rationale. Look, margin, we have your our utilization has gone up with the demand that we have seen and what we have to do now. As we articulated, we are going to pump in a significant number of talent in the subsequent quarters as well. So utilization, we will see where it ends up. But obviously, we want to bring it down a little bit by bringing the thing by bringing more talent because we see growth opportunities significantly in front of us. But for the years, again, I reiterate growth company with a stable margin on 14% to 15% net margin. That is what we target and we invest back into business as quickly as we possibly could. And Nachiket, if you could answer that, you're largely rational. Sure. So as Sudhir mentioned on the nature of the demand shifting, so one of the things that we also see with most of our clients as they look at their transformation agenda, as they look at their digitization efforts. One of the other things that they are going through a change is that instead of looking at traditional application development type of approach, they are also transforming themselves to become more productized IT approach, right, where they are looking at key platforms and develop them as products and focus on that methodology to continue to bring agility and speed to the features they bring into the market for their consumers. So as that change happen, one of the things is that your conventional IT is also transforming to more productized IT for us as well as service provider. So what CoreLogic brings to the table for us is that experience of delivering outsourced product development largely in the digital space. And we had also been going through that transformation ourselves, but what we what happens with QLogic is that we get access to 350 people who have very well versed in delivering in that model and have delivered in that sort of team configuration for a while, which allows us to use that as a base and scale that disproportionately. So how that will play out is it will become integral part of the digital engineering transformation at LTI. And we will use this core team and their best practices along with the scale we have built to scale even further as most of our clients move to this productized IT we are delivering. Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Sanjay Jalona for closing comments. Folks, thank you for your time and following the company so closely. You, as always, you have kept us on our toes in this start of session. But frankly, this is truly an amazing time to be in the tech industry, LTI in the recent institutional investor survey as well. Thank you, for LTI in the recent institutional investor survey as well. Thank you for that. Till we talk again, we hope that you and your loved ones stay safe and healthy, and we'll see you on the other side. Take care, guys. Good luck. God bless. Thank you. On behalf of LTI, that concludes this conference. Thank you for joining us and you may now disconnect your lines.