L&T Tech CFO Rajeev Gupta By: Vartika Choudhary
Demand prospects for L&T Tech continue to be robust in the new financial year 2021-22, and the company is set for a US dollar revenue growth of 13-15%, said its CFO Rajeev Gupta as he discussed his business outlook and key risks in an exclusive interview with ETCFO. Edited excerpts:
Q: What will be the impact of Covid-second wave on June quarter earnings and overall FY22 business outlook?
Rajeev Gupta: Demand continues to be robust, and we are seeing many global customers engage with us for new programs.
We have announced our FY ‘22 guidance, which is for a US dollar revenue growth of 13-15%. While uncertainty persists, we are hopeful of a quick recovery.
Our pipeline now is even better than the pre-COVID times and continues to be stronger. Over the last one year, there have been many positives in terms of how clients are engaging with us, and we are seeing a sustained rise in offshoring.L&T Tech CFO Rajeev Gupta
Q: The US contributes above 60% of your revenue. What is your FY22 outlook for this geography?
Rajeev Gupta: There is a strong demand outlook in the U.S. market. The large deals traction in Electric & Autonomous Vehicles, Digital Manufacturing, Digital Products, and Medical Technology is quite robust, and we are engaging in several conversations across the digital engineering space with multiple customers in North America.
Q: Do you think the growth momentum from the US is sustainable in the coming quarters under the shadow of new virus mutants?
Rajeev Gupta: At the moment there are a lot of positives that are emerging from the U.S. economy, with the country’s GDP growing 6.4% in the first quarter of 2021, boosted by the U.S. stimulus package. Almost 50% of their citizens have been vaccinated, which points to a greater ability to fight off the new strains.
The US Administration’s stimulus proposal of $2 trillion over the next 8 years is quite a boost and would create millions of new jobs. The proposal spans transportation, manufacturing, and new technologies like electric vehicles, all of them domains where LTTS is active.
The US Administration’s stimulus proposal of $2 trillion over the next 8 years is quite a boost and would create millions of new jobs. The proposal spans transportation, manufacturing, and new technologies like electric vehicles, all of them domains where LTTS is active.L&T Tech CFO Rajeev Gupta
Q: What is the road ahead for transportation and industrial products as 50% of revenue is generated by them combined?
Rajeev Gupta: We are seeing quite a few discussions around transportation, especially on electric and autonomous vehicles.
Customers continue to look at ways to optimize R&D costs and invest in the transition to electric technology and autonomous driving which involves a higher level of digital engineering.
We are having conversations with OEMs beyond the product and into services like connected car platforms, telematics and AR/VR support. We are also executing some large deals in this space and remain bullish in our outlook, especially for markets like the U.S. and Europe.
Industrial Products have seen reasonably strong growth over the last two quarters, and we are optimistic about sustained momentum, particularly around Digital Manufacturing and Industry 4.0.L&T Tech CFO Rajeev Gupta
With the pickup in manufacturing activity in the U.S. and Germany, customer spends are likely to rise in smart and connected plants and sustainability programs around energy optimization and storage.
Q: What has been the dividend policy of the company?
Rajeev Gupta: We have maintained 30-40% dividend payout over the last several years.
This year we paid about 35% dividend, and we expect to maintain the dividend payout in this band.
Our capital allocation policy is focused on three clear measures, namely dividend payout, funding for organic growth and a war chest for potential acquisitions.
Q: What are the key risks you foresee in this financial year?
Rajeev Gupta: The magnitude of the second wave in India has been high and it has impacted the general health and wellbeing of employees and their families. We are hopeful of a quick emergence from this scenario, possibly by July.
The levels of anxiety on this remain and as mentioned, we have rolled out several measures which have supported all our employees.
Given that demand continues to be high, we may see a small rise in attrition. While this continues to be manageable, we are watching it very closely..
Q: Your revenue contribution from top 20 clients saw a reduction to 44% in Q4 FY21 from 48% in Q4 FY20. Is that worry heading into this financial year?
Rajeev Gupta: The contribution from our top 20 customers has in fact grown in the fourth quarter as compared to the third quarter. The reason we have seen a decline is because the measure is on a 12-month (LTM) basis. If you look at Q1 and Q2 FY ‘21, those were the quarters where we saw the major impact from the pandemic, which dragged down the average.
As we look ahead at Q1 FY ’22 and beyond, we are confident that we will continue to register growth on an LTM basis.
Q: What were key learnings from the first wave of last year which you’d like to use going ahead?
Rajeev Gupta: The first quarter of FY21 witnessed some impact as the overall business ecosystem was disrupted because of the onslaught of the pandemic.
However, as WFX became the norm and businesses embraced digital engineering to migrate to the new normal world, we saw an uptick in business from the second quarter onwards. Our recently announced numbers in Q4 reflect that the impact is done away with and in-fact the revenues and profitability have surpassed pre-COVID levels.
During the last year, we set up the Global Engineering Academy (GEA) at LTTS to reskill employees, both freshers and laterals. Our WFX approach allowed 100% of our workforce to work from home at will.
Further, LTTS has leveraged virtualization in a big way. We have set up several digital clones of our labs, and helped customers visit them virtually for a better experience in this pandemic scenario.
Our sales team has been able to build a more robust pipeline than in pre-COVID times, striking a healthy balance between new and increased scope of deal making.
Cost optimization measures have also been undertaken to increase profitability as we cut back on some discretionary spends.