L&T Technology Services Limited (LTTS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the L&T Technology's Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Pinku Pappan from L&T Technology Services. Thank you, and over to you, sir.

Hello, everyone, and a warm welcome to all of you from L&T Technology Services. I am Pinku from the Investor Relations team. As a practice, we don't talk about the quarter in progress, but you would all agree with me that the current times are quite exceptional. Given the uncertainty and the volatility in the environment, we thought we should provide an insight into how we have progressed in terms of coping with the COVID crisis. This call is for 45 minutes. We will try to wrap the management's remarks in 10 minutes and then open up for Q&A. The audio of this call will be available for replay on our website 1 hour after the call ends. On today's call, you will hear from Keshab Panda, CEO; and P. Ramakrishnan, CFO. We will begin with Dr. Panda providing an update. Let me now turn the call over to Dr. Panda.

Thank you, Pinku, and thank you all for joining us on the call today. I hope and pray that all of us can stay safe and healthy in these testing times. I'm happy to share with you that 100% of our employees are safe. I also want to thank all our employees for working tirelessly and seamlessly despite the challenges that come in our way and more importantly, adapting to ensure that our business can continue with the minimum disruption. As Pinku explained, reason for having this call is because we believe it is fair on our part to give you an insight on how we are managing this difficult situation. I'll start with how our delivery operations has geared up to handle business continuity, then I will touch upon how we see the demand environment in all our 5 business segments. Lastly, I will also talk about the nature of ER&D services and how in such times, the support of LTTS provides to a customer is very critical in nature. Let me begin with how we are managing our delivery operations. We have secured approval from customer to work from home in about 98% of our on-site business and 95% of our offshore business. And we are working to get the remaining approval done as soon as possible. Our customers have been willing to go the extra mile to ensure work is not impacted by providing us permission to access equipment, labs and in some cases, the servers as well. In terms of work from home and on site, most of our billable employees continue to work for the customers, either from the office or from home. In offshore, we have been able to enable more than 80% of billable employees to work from home as of today. We believe we'll be able to take this upward to 90% or so in a week's time or so. Now let me talk about our business segment, starting with Transportation. Given that a large part of our pipeline in the newer areas like autonomous, electrical, safety systems, entertainment, et cetera, which involves more of software work, we are in a better position that most of the work can be done remotely, barring a specific area where the hardware is also required. And for such areas that require hardware, we are working with our customers to get access to lab and equipment wherever possible. In March, we closed and started work on a deal with a Tier 1, and other large deal discussions are also happening even today. We are in a good situation, good position to win once the situation becomes normal. Having said that, we are seeing follows and pause requests from some of our Tier 1 auto clients, and we are assessing the impact on this -- impact of this. These are, however, going to be temporary in nature. In telecom & hi-tech, we don't see any major work disruption. We have been able to work remotely with almost all our customers. Both -- this is for telecom, semicon and these areas, all these areas. Our large deal conversations are on track. In media and entertainment, we are seeing bright spots as Internet traffic is going up due to increased work from home and operators are seeing higher demand for these -- of their services. In the first week of March, I'm happy to share with you we own a large deal with a media and entertainment customer, which we will shortly announce on the exchange. In industrial product, things are so far holding up with some minor changes that may happen in specific subsegment of machinery and power subsegment. With building and automation showing growth, which we see today, we are seeing decision on new projects being delayed, and this may create some challenges in this segment in the near term. In Plant Engineering, we are seeing softness in upstream oil and gas side, with oil price slipping to sub-$30. In the short term, we expect some cut in upstream, while downstream should be okay. In CPG and chemicals, we are likely to see some acceleration in deal activities, and the sales of essentials are seeing good uptick. Similarly, chemical companies will benefit as their raw materials costs go down. Industry 4.0, plant automation, et cetera, are top priorities for our customer where they can get value quickly. We have some discussion going on even now. Medical continues to be a bright spot, and we are seeing incremental opportunity as hospitals are likely to order more equipment in medical segment, like ventilator, hospital bed and invest in virtual solutions. Digital and compliance will continue to grow strong. Before I wrap, let me say some insight into how our customers think about ER&D, which I think will help you better appreciate this industry and how we fit in this segment. ER&D spend is core to a company and is part of its long-term strategy. So a contraction in business typically does not translate into reduction in R&D spend, especially when the contraction is temporary in nature. This is a time that customers are investing on technology to make sure that they remain relevant in the long term. Product road map and R&D investment plans are strategy decisions, and they cannot be ripped because of short-term disruption. The rapid disruption in technology has driven a change in behavior of many of our customers. They are rethinking core operations, relying more on our partners -- on partners for the newer technologies. Our focus in digital and leading-edge technologies has thus enabled us to become a strategic vendor to many of our top customers. It is in this context that many customers are choosing to opt for vendors that are scalable, stable and have competencies across both legacy engineering and the new age technologies. With that, let me sum up. It is a bit premature for us to quantify the COVID-19 impact as the situation is still fluid. We have been working to minimize the impact of the restrictions imposed, and that journey continues. We have proactively initiated a BCP conversion -- conversation with our customers to ensure business continuity. So we secured -- we -- work from home approval of 98% at on-site and 95% at offshore. That's a good news. And our work from home enablement is 80% currently, and we will take it up to 90% by next week. A few of our customers have declared follow and/or have paused work, but this is temporary. These customers are not canceling any project, but just taking a pause to tide over the difficult time looking at the cash flow situation and so on. In many of these cases, they are keeping critical areas still alive or are shifting to an on-demand model instead of shutting down completely. We have a task force that is working on high-impact, high-ROI projects short term for the customer as they look for to come out of this crisis stronger. Our view is this crisis is going to have a temporary segment -- a temporary impact. And customers are looking at how we can create more value for the high-impact projects, which we can create short-term value for them. In terms of our business segment, we expect some impact in industrial products, the oil and gas subsegment in Plant Engineering and partially in auto segment in transportation. Based on the segments like telecom & hi-tech, medical, the CPG and chemicals subsegment with Plant Engineering and Aerospace segment within Transportation are doing relatively okay. Having said this, our comments today is based on what we see on the ground today. It is still not clear when this crisis will end. If there is a silver lining in this crisis, it is the fact that we work with market customers in every industry and every geography, and we see an opportunity to support our customers in this -- their BCP activities and be a part of strategic discussion around factory, repurposing, supplies in shifting, process automation, et cetera. This is just a time for us to strengthen our relations further with our customers. In our dialogue in last 1 month, I have written personally e-mails and communications with many of our CEO customers to give them comfort about the steps we had taken as a company on the BCP. And we also talked about we are available 7/24 (sic) [ 24/7 ] any support our customers need. So we can now open the line for questions.

[Operator Instructions] The first question is from the line of Mukul Garg from Haitong Securities.

And Dr. Panda, good to hear that the management and the workforce are all safe. Hopefully, it continues to remain the same. Just wanted to start with a clarification. What percentage of your work requires client hardware versus the whole end-to-end process being on software?

As I said, 90% of the work, I think we are good. Next week, we're going to be 90% work from home. The other 10%, I think I would say 10% completely on the hardware side, partly hardware, partly required a sensitive -- data sensitivity and so on. We are working with the customer. 90% of them non-issue, which can be done work from home, which we have already implemented more or less.

Okay. So the remaining 10% would require employees to be in office locations for them to continue? Or have you already started some of these going into a pause during this whole coronavirus phase?

Dialogue is on with them. Some of the cases, I think, still, we have not got approval for them to go ahead. You can see on-site, option of approval is there. Even they've agreed, 98% on-site and 95% offshore to do work from home. But what happens is now when you go into detail, if I do work from home, this is what I need. That dialogue is on still with the customer. It is not very -- today, that 10%, can we do 5% of that 10%? Can we do that? Maybe possible. And that dialogue is going on. The 90% is very clear now. It's implemented. It's going to be there. It is nothing stopped there, like the people are doing work. Are they productive working from home without having [indiscernible] access to them? Are the product tools not having access to the server in that particular data for that particular product line, that is the question mark there. That is the question we are debating, discussing with the customer. And you also have appreciate most of the customers are also working from home. That's where they are right now. So this uncertainty of 10%, I'm not sure 100% [indiscernible] 100% possible. But more or less, we'll get close to that. It's not that bad as we think at this time.

Understood. And the second question was, while we understand and appreciate that, I think most of the work is still on, is this visibility the same if you kind of assume a worst scenario of coronavirus extending beyond April? And client, basically, or factories remains closed, do you think there will be some cutback in the R&D spending, which might impact us?

See, there are lot of question mark here. Today, U.S. government announced $2 trillion package yesterday, which industry is going to get and the news what we see from some of the companies that could be the reason they are saying this because they want to get the pie from this $2 trillion. Lot of dynamics there. Number two, one thing we know for sure is that, you see, if I took an engineering business as a whole, 75% or 70% business which we do or which has to continue because it's lights on business, right? The other 25% to 30% where we said discretionary spending work when you talk about, that is, again, different component. What our task force, right, looking at it -- right now looking at it, a project when I go to customers today and say, this project is a high-impact customer project for you, for ROI point of view in a short term, where everybody is looking at a quarter or 2 quarters impact, temporary impact going to be there, how is benefit can be derived so that they don't reduce the employee cost. They're going to be competitive in the market, geography they operate. So I think our priority has been, number one, is to -- for the employee safety. Number two, working on the high priority project with the ROI, quick ROI. This is where it is now. And whether there's going to be impact, and there are 2 things. There are digital part of it when we talk about. There are some part of digital maybe, gets delayed, but some part of digital is going to be much more -- they're going to focus on those areas, which are going to create more value for them. So I think, it's a very, very dynamic situation at this time. I can only tell you that what response we get from the customers so far, we have all the executive team in touch with the major customer, all the main customers, it has been very encouraging. But I think the business model, which is going to come out after the coronavirus goes away, is going to be a little different. It is not business as usual what we think, it is not going to be. It's also an opportunity for companies like ours. When you are working on engineering, can I think about doing different business model than I was thinking a month ago or 2 months ago, can I do that? Of course, that's what it is going to be. So I think we are doing everything possible to see that situations, I think, we are going to maintain.

The next question is from the line of Vibhor Singhal from PhillipCapital.

Sir, my question -- I just have two questions from our side. One is because of this entire work from home thing that we are doing and that all of our partners do, do you see any significant change in the onsite-offshore mix for our business that maybe we start doing more on offshore and, hence, the on-site businesses reduced to some extent?

Time only would say now. I think this is a great opportunity for the offshore companies to, I think, demonstrate we are looking at multiple parameters. One is making sure the employee is safe and then we work from home. And then we are also measuring productivity from work from home. If we are able to -- those metrics as we -- and then the data security. When the employees are working from home, how much secure is data? Are we able to do that? So we have a platform, a security platform, which we use for many of our projects, what we do. So if these parameters, we prove it by that time in the next 2 months' time, and to 6 weeks or 8 weeks, whatever time it goes through, this is a great opportunity for -- to demonstrate that a lot of work can be done offshore. If you can do from home, you do from any of development center. So there are a lot of points we are trying to test here and clear. It's an opportunity for companies like us to demonstrate that what can be done, critical engineering design work or technology work can be done outside from India.

Sure, sir. But as of now, at least in the next couple of quarters, we don't see any sizable or a significant shift. It should be business as usual as it was before.

I think, as I know today, yes. And the COVID-19, you see what is happening in New York City, California and New Jersey, see where I live, it's terrible, okay. That fact is that, and I'm grateful to my employees, who are willing to go extra mile to do, and I'm also grateful to my customers. It's not easy. Do you know what's going on last few weeks, a few -- every day we go through making sure employees are safe every location and talk to customers to see continuity and work done out of India, it is a factory, all the executive team working day and night to make that happen. So I think, as I see today, I think it's quite encouraging. Is anything going to change tomorrow? We don't know. Because I think let me not give you a hope because the world is very difficult at this stage what we are going through. But to me, I think if you are able to deliver, and we have been able to do that, there should not be any problem unless a customer sees, in particular segments, some segments, because the sales going down, is there any different models, they want to do it? And how does this $2 trillion package is going to come? Is there going to be one more $2 trillion is going to come 1 month from today, 2 months from today? Is U.S. going to do that? India announced this now. So I think, we'll have to watch. This is not every day watching the news or being your model, refine your model. It's every hour you have to refine your model, continue to do that, how dynamic it was, how well we look at 360-degree and think about it. We have no time to relax. So we think about -- we are doing that. Every day, we talk, at least, all executive teams 6 times a day to go through what has changed from last hour to this hour and how differently our model should be while communicate to the customer, and we are doing that.

Sure, sir. I can barely imagine how difficult it could be in work life. If I could just ask one more question, sir, which is probably not related to the COVID scenario right now. So on the Process Design segment, as you mentioned that the upstream oil and gas companies might be showing some signs of weakness, and that might impact some of our business, so just basically wanted to understand how -- I mean, how bad or how, basically, negative could it be? Because if you remember 2015/'16 season when the crude was at lower levels, those couple of years were quite -- the process design segment had remained quite weak for them. So do you envisage a similar kind of a thing? Or have we come a little bit ahead of those times, and now our business is more insulated in terms of basically dependence on the crude prices per se?

See, unfortunately or fortunately for us, the oil price, $120 came to $50 and around $50. Then it opened up a lot of oil and gas companies started dialogue with companies like us to do engineering from offshore, where it was $100 plus. They didn't even talk to us about -- they have a lot of money and they didn't care about it. Now today, it has come to a worst situation, it is $30 per barrel. And that situation, these oil and gas companies are also -- if you see all the top 5 oil and gas companies, if you exclude China, don't include China, outside of China, if you try to look at it, look at their market cap, come down to 1/2, 1/3. So in this situation, now they are evolving right now how much employees they are going to keep it, how much they are going to do from customer like us -- supplier like us or partner like us. So this is an evolving process. Is that going to be a great opportunity for us? We are always looking at it at there what else we can do, and how many companies are like we sell gas in America, right? Are they going to -- how many of them are surviving? How much money they're going to get, government bailout package they're going to get. So a lot of questions have to be -- we need to watch and see. But as we see, what we see today, we communicated. We have -- $30 oil price is a disaster situation where we are. And then we'll also look at subsequent industry, right? Now oil and gas price is going down, the suppliers, the [indiscernible] to oil and gas company, there are a lot of ecosystem, if you see who are all impacted because oil price remains at $30. So I think those part, we are looking opportunity and threat. Both we are looking at it very, very carefully and very closely.

The next question is from the line of Nitin Padmanabhan from Investec.

Sir, the first is, if you look at the Transportation vertical, it's been the largest, strongest kind of vertical for us in terms of share growth and scale. When you mentioned furloughs and so on and so forth, just wanted to hear your thoughts in terms of how large are we in terms of the context of the vertical? What proportion of the vertical would be sort of impacted by furloughs? How would you think about it?

See, one, the good product is the customers have not canceled, and they are looking at right now saying that can we -- next 2 weeks, can your employees work 50% productivity? They work there, but I can only afford only 50% of this now, 2 weeks. And some customers say can we do for 1 week, in auto side, Tier 1, which I talked about. So that -- there's no cancellation happening there. And we can understand when we have a dialogue with them and say, why are we delaying this, you can see Tier 1, some of the Tier 1s who are not into, more into software side, they go through a difficult time. It's not easy for them. And some of the Tier 1s, who are into more into software side, they are quite stable. So the delay which is happening, there is one deal when I talked about auto Tier 1, we own a deal, and March onwards, I think this is going to -- we already started some part of it. We'll continue to start. But there are some other Tier 1s, where we thought this is going to be -- we're going to scale up big and they put a follow on that, and they slowed down. So what is that going to be an impact after a month from today, 3 weeks from today? We don't know at this time. But in other segment if you see are doing, in Transportation, if you see, other side is doing reasonably okay. In the Aerospace side, the type of work we do in the Aerospace side, we don't see any impact there so far. We have not seen anything. So overall, I think it looks okay.

Sure. Sir, the second question was around I'm sure this month would have been extremely strenuous with trying to move people to work from home and so on and so forth. Just wanted your thoughts on what do you -- do you think there'd be the impact of potentially lower ability to work in terms of the number of days and so on so forth. Going forward maybe into next quarter, do you think that's something that would worry you at least for a quarter or so going forward? Or do you think things should actually -- this month is over and things should actually start normalizing in terms of employee productivity and overall total days that you have in the quarter for work?

Actually, if you see the productivity in terms of employees working the number of days and number of hours, if you are able to establish the team managers talking to the employees every day, a couple of times every day, they have team meetings, different [indiscernible] have team meetings. If this continues, productivity and number of day working should not be an issue, I think. I don't see any issue in terms of what they can do from office or what they can do there. And a lot of tools available for the meeting. But one more thing I can tell you because we are proving this now. This is being -- this is not that had done in the past, thousands of people working from home, doing a design work in engineering. This is something never done before. And we are attempting to do that, and we have been successfully delivering it. And our customers supported that. So I believe it's a 5 days -- whether monthly, we get 23 days billing or we get 21 days billing, I don't think that is going to be -- work from home should have a problem in that. And one more thing, the most of the world customers, they do ask for this -- the percentage of sustenance engineering is going to increase. The customers are saying, my employees are not available now working from my site. Can your people take over and control that sustenance engineering from home? Can they deliver it? So I think there's more opportunity in these areas as well. But I think to give you an answer, do I know that exactly what is that going to be next month? Don't know yet. But we believe once we prove this model, and this will continue for coming months as well. That's what I look at it. We don't know when this is going to be over. At least till April 14, India is closed. We can't do it. And here, U.S. is closed. Whether it's April 14 again in the U.S., are they going to open? Is this going to grow? It still is increasing, even today in New York, New Jersey, California area, and it's gone to Louisiana now. They're the same problem. They're going to start in Texas, I think the Georgia, these states again started growing. So I think -- I would think at least until end of April, this will continue. It's not going to be over in the next 2 weeks' or 3 weeks' time.

Sure. Sir, just one final question from my side. Whatever you're seeing in the market in terms of, let's say, the way captives out of India engineering captives have been able to manage this situation versus outsourcing vendors, do you have any sense about whether outsourcing vendors have been able to manage this situation far better than captives? Or do you think that it's been pretty much the same?

It's very -- I didn't have time to look into what captives are doing right now, frankly. Right now, I'm looking at how do I protect my employees' safety and the customers, what we should do, we deliver. And I'm sure they're doing what the part they are doing it. At least at the end of it, how well we execute -- all the new ideas is good, everybody's ideas to do that, how well we execute from home, how set your data -- you maintain the data when a lot of engineers work from outside, from their respective locations, how do you manage that. I think it's going on what footing, I have no comment to how captives are doing it, where they are. I don't have much comment to make.

The next question is from the line of Ashish Chopra from Kotak Mutual Fund.

I just had a couple of questions. So firstly, you mentioned that some customers in Transportation have already paused some work and/or gone into furloughs. So if you could just help us understand, would it be a big portion of the Transportation segment? Or would be a sporadic 1 or 2 projects? What would be the magnitude at this point of time?

Right now, 1 or 2 projects, not a big portion of the Transportation as a whole. But once you started, we are always -- is that going to -- something will come today, is something going to come tomorrow, we are always open about it. And we also have own assessment about which customer is going through the financial difficulty, which customer could ask for it and what should be our response to that, is there something that then follow in offshore, how we manage compared to following on site, follows on site, this is not too many numbers. There are, 2 of them have asked for it, okay, in the short period of a week to 2 weeks. So it's not a long-term furlough. So I think we are -- it's very dynamic now at this time.

Fair enough. And when you mentioned that roughly around 10% of the business is where there is a difficulty in working from home because of maybe client approvals or hardware or data sensitivity, et cetera, so currently in those projects, is the work at a pause because of the lockdown? Or are those employees continuing to travel to office to continue on the delivery side? What's the situation there?

Yes, some employees are working from office. They go to lab now. I don't want to -- I think safety point of view, we are providing all the support required. And now the India's shutdown will again create a little more problem for us how well we do it. But yes, I think they are working. Nobody's -- nothing is canceled so far, and that people now -- the only thing we are negotiating with the customers saying that, how do we take this? What access we need to have to this, their lab or our lab, how well we manage that discussion is on. And it may so happen that a week from today, we'll come back and say 90% has gone to 95% as we agreed to. And there are other 5%, which cannot be done. It cannot be done that the employees are going to go to office to work on this. How set they are and what -- how legally are they -- can we allow them to go there? So those aspects are there that high percent uncertainty will always be there. We are confident that some part of it will be out of 10%, part of this will be taken care of. And that's a positive thing at this time.

Got it. And just lastly from my side, as far as these trends go that you are witnessing on the ground, are the regional dynamics any different? Given that you have almost 1/4 of your revenues is from APAC, would that stand to be worse off than maybe the North America or Europe?

I won't say geography point of view. I think it so happened that, as you know, I think coronavirus thing started in Japan, first, China and Japan. Fortunately for us, we have no exposure to China. That's a very positive part of it. And then next is Japan and Korea. Korea, we have very little exposure locally. And Japan, we have a big team. Japan is a big market for us. Temporarily, we had some impact on that, and things are coming back to normal. India, there so far, we have a small portion of these people working in the capital centers. We only support capital centers where the customers will support them globally in Western world. Those cases also has not been any cancellation or any changes follow, and that has not happened so far. So I see whatever we -- whether we like a nutshell, America is 50% of our business, 50-, 50-plus percent of our business and the big share for us. And the growth, what we expected in Western world when we saw before this COVID-19, when we are planning for the -- our future, growth was much more [indiscernible]. And this is slowing down some of the -- getting delayed, some of these decision making delayed, not -- customers not come to office, I think that's the big thing. And again, every day morning, first thing I do is make sure that employees are safe globally, wherever location they are there. So I think that's where we are -- Ram -- PR, would you like to add anything?

So thank you, Dr. Panda. So maybe I think as a company, the way we are looking at this that we have a set of established practices. We work with a set of good clients across select domains, across the 5 domains, which we talked about. And today, I think what we would -- probably are doing or thinking, I mean, we are going in the ways that employee safety is paramount. Compliance to regulations is also paramount. And also engaging with the client, all our key clients on a day-to-day basis in terms of how do we enable work from home faster, which we have already done, and how do we engage with them whereas -- in their course of disruption, how do we engage with them proactively to ensure that the engagement momentum is maintained. And once this whole COVID situation obviously fades off, then probably we get into the next growth momentum because we have stayed with the client, along with our employees, and that's how I guess it's the right thing to do given the situation.

The next question is from the line of Sandeep Shah from PGS (sic) [ CGS ] India.

I actually had a problem in terms of connecting to a contactless dial-in numbers. So excuse me if I repeat the question, which might have been asked earlier. Dr. Panda, I think just to understand your business, I think, quite different than the enterprise IT business. So what -- if I am -- correct me if I'm wrong, there would be some significant portion of your business which may require high computing kind of work. So working from home may not be optimally possible each project or many significant part of the projects. So what percentage of your business where you require a high computing kind of environment, which may not give you optimal productivity to work from home? So is it the answer to that question is 10%, which you have said earlier? Or that 10% is only for the environment like center of excellence, where the employees are working from the client's network? Is it fair to say that the risk is beyond that? And it's also for the work where the high computing kind of a task cannot be worked from home.

I think when engineering design, when you see conceptually look at it, I'm doing a product design and conceptualize the product to the prototyping, if I do that process completely go through, high computing is very minimum. When the -- what happens is when you do -- either you are doing a software that has to be integrated with some other pieces to run this, that happens later. But the only thing is, when we are building the blocks there for engineering final product coming out of it, so there's no -- in the whole supply system when you look at it, high computing is very less. But what happens is accessing the data. If I'm designing, sitting at home, server is sitting somewhere else, speed at which I access data, speed at which I upload data, if the speed is slow, my 8 hours of work when I do it, if it takes a long time to get the data from server for me to design a product or get an engineer drawing or I look at it software component I want to get it, so that is the only issue. Speed at which the data. And you can see world over, billions of people all at home, schools, colleges, everybody's sitting at home, working from home. And with all these together, the speed at which you get, that's the only bottleneck. Okay. We are trying to work around that to see what employees, how do we distribute in a way, the productivity remains there. It is a non issue about computing data. Today, you can use server around the world and sitting at somewhere and you can do the complete computation. It is not a -- there much more for the compute system when you talk about, I'm familiar with that when you talk -- do a fluid analysis and that type of analysis we do, quite high computational. Now let's say you do a simulation work, and that simulation work, running, going to office and getting run that, server is not non-issue. Today, thousands of people are working from home accessing data, how speed they can do, that's the only issue, which we are working on. Productivity based on only that than anything else.

Okay. Okay. And just last question. Any discussion happened in terms of managing margin in this kind of an environment? Because there would be additional costs, but at the same time, there could be additional savings through lesser travel and maybe in the initial part, we can keep the currency benefits as here.

See I would -- PR would you like to take that question, please?

Okay. I mean you yourself give partly the answer. I guess at this stage, the fact is the positive from a cost stack perspective is, obviously, the currency and also a lower travel cost. But also, we have to see that there are other implications like we have to ensure, in case of whatever Dr. Panda talked about temporary furloughs, wherever it is an on site, we'll have to still keep few people. But having said this, it would be a little premature for me to talk about where the market stack will go and that, too, especially when we talk about the quarter, the subsequent quarter starting April, I guess, but yes, there are positive levers, and there are some things which we need to factor. But it's too early to aggregate all of this and give some sort of guidance on the margins.

Listen, I think the way I look at right now, how do I keep morale of my employees high at this time? How do I continuously innovate? This is technology, engineering, they are not doing IT. When they're engineering design, technology and the innovation of new ideas, how do I talk to my employees to innovate more in this situation where customer's business model itself is changing. They are looking into ROI in the short term, how innovative we are going to be in that situation? I think that's where we are going through. If that's going to be temporary -- if your business model is strong, it can have an impact on the margin for a short time. But you are going to come back to that parameters if you understand those parameters will come back again. So I think the priority is employee morale at this time. I would continue to do whatever it takes for them to remain wherever they are, not only in India, there are thousands of employees everywhere in the world, so how do we maintain that, how do we communicate with them? Yesterday, I sent a mail to all 17,000 employees, telling them about what we are doing as a company. And we have sent 130-plus customers' e-mail to them, talking to them about not selling them, but telling them about what we as a company stand for and what we do for our employees. And I think all those parameters, in this difficult time, we believe that the challenges they go through how they are doing it. So I think those things are going on right this time. And of course, I think when you are running a business, we should know the impact of margin. We are working on that apparently. We'll have more clarity maybe in a few weeks' time.

[Operator Instructions] The next question is from the line of Ritesh Rathod from Nippon India.

Yes, sir. Since you have done your studies on your client base, can you help us understand what proportion of client is very leverage of -- the leverage levels are very high in that if they don't get funding from their central government or they may be under existential risk?

See, our segment if you see, all the 5 segments, does the industrial customer does -- do they need government? I don't think so. Do they -- some of the customers in telecom & hi-tech, do they need government support? I don't think so. The telecom & hi-tech is doing reasonably okay. If you go to the medial customers, do they need the government support? I don't think so. So I think majority of customers, they are not waiting for the bailout package. What happens when the money is on the table, consumer -- we are not into retail segment. We are not into logistics segment, right? Those segments, we are not there. So impact on that on us, only thing is there are customers like, I think the -- some of the customers we go through, the oil and gas customers, the oil price, sell gas, some of the engineering, let's say, we are doing it for them or some of the oil and gas upstream areas, government, I think oil price going down, is there any package they're going to get, money they're going to get from them? Is that going to be? We don't know yet. But I think as far as we're concerned, impact of that to our segmental business, we don't see -- if I look at top, let's say, top 80 customer last year -- last quarter, contributes almost 84% of our business. In the top 80 customers, do they need a government bailout to survive? There are some of them. Out of 84, maybe 2 or 3 of them may have problems, their survival issue, customers, we have small. If you see top 80 customers, many of them are few billion and plus. So many of them are different geographies. So I don't see a major customer waiting for government package to survive, I don't think so. They're all in strong financial position. If I -- the first thing we do is, one thing, I do and CFO does, my CFO does, we all -- every time we look at the balance sheet of these people, all the customer, if I see the balance sheet and look at it, what challenges anybody can go, do I have a debt which is not going to recover, that's also a parameter we should look at it. What is the final cash flow situation of these customers, all that we see one by one. So I don't think there is something to worry about that major part of our customer will go out of business and they don't have a cash flow problem unless they get from government. But whole ecosystem and still good factor in the economy as a whole is going to change, will have some impact in terms of -- and we don't want anybody to lose their job. And one more thing you will see what is going to happen is this is an opportunity for some of the customers to be more efficient. They might reduce the number of staff they have. They might, depending on which geography, which product line, prioritizing. There are customers who will think that this is a product, I think, with companies like LTTS can do better, and I think much cheaper, better and faster than what we've been doing it. There are -- multiple business models are going to come in play. There is no doubt about that.

Okay, sir. Maybe one more question. Since you spoke about there could be a higher probability of offshoring, but how about the existing contracts? And how the pricing will behave once there is a new normal in the coming months? Would customers take this opportunity and ask for a price or productivity gain or price cuts from you?

One thing I -- last 10 years, I've been doing this, the engineering business last 10 years, many difficulties we have gone through. What happened to currency, dollar-rupee goes through, is that going to be issue? Is there going to be an issue in terms of customers going to come back difficult time reduce. Say, engineering, usually, when you talk about engineering services or technology services, what we do, product engineering or process engineering, procurement plays a very small role in that. Mostly, decision-making engineers, because this is their bread and butter, if the company doesn't do this product, that is what the business they are in and how are they going to do it. And unlike IT, engineering have, too many suppliers are there. If you see all my customer, if I look at it, many customers, either 1 supplier or maximum 2 suppliers. If the 1 or 2 suppliers are there, then in that case, your dependency on the customer on you, they are not worried about that $1 per hour I'm going to reduce, they're worried about how well you can deliver, how stable you are, what technology, tomorrow new technology coming in, are you in a position to get in? Do you have muscle power to make an investment and create a team of, I want 1,000 people, can you do that? Do you have a brand value, which I can count on to create something? If I want to create in India, Europe or anywhere in the world, can you do that? So those questions, I think, comes more than price reducing for our rate or cost, we have not seen in last 10 years, not even once. And there are times where difficult time going through, earlier, a few years ago, industry was going through, and in some cases, customers are willing to give a rate increase also. It is all depends on value we create in this segment, more value we create than I think the price war, price gains are going to be played.

And sir, have you called out -- you said 2 customers have taken a pause. Have you called out the percentage of revenue, what proportion, would it be less than 1%? Would it be fair to assume?

Today, yes, I think I assume that -- yes, it will be less than even 1%, yes.

Okay. But this situation is very dynamic. There could be more customers who can take a pause and this can evolve, and it can also -- like they can come back also.

Listen what happens is I would be worried if customer says I'm not going to do that. But I can only tell you that the way it's going now and if you see the news, it is quite scary and because the number is increasing, this is going on, anything could happen. I cannot tell you right now that everything is fine. Now percentage is -- nothing's going to increase. But it's important for us. Only thing I can give you comfort that we are looking at every hour, what changes happening in the world and how our model should be refined, [indiscernible] on which you [indiscernible] you must refine every hour to make sure that it's relevant in that situation. So I think this is very, very dynamic. And percentage point of view, today, I think that's too much worry about it this time. But still every day today, it's just 9:00, not even 9:00 in the morning here and whole day together and every day there, and there are opportunities. We are winning orders also. Even in difficult times, we are winning orders also. So I think both is on -- both are on, sorry.

The next question is from the line of Yogesh Aggarwal from HSBC.

Just 2, 3 quick questions. Firstly, just taking forward from what Ritesh was asking around pricing. Will there be a case for higher DSOs in the near term? And will you have some limiting around accounting, whether the days go up by 20, 30 days and you give a little better deal to the customer on payment terms, at least?

PR, would you take that question, please?

Okay. So Yogesh, there is -- there are some inquiries which are coming up wherein customers are seeking for extended payment terms. All of such kind of situations are being addressed by myself and my colleague, Amit. And what we are typically doing is, it all depends on the extent of engagement we have with the client and what is the strategic purpose we have and also the client's financial position. So we believe that there could be, if this could -- crisis goes into predominantly beyond April, there are expectations, especially on the computation side, where customers may come up for extended credit periods. But that I would believe -- we will have to optimize that in a way that it does not impact significantly the working capital position and the cash flow position for a services company like ours. So I would say that we will have to dynamically play between a combination of maybe extension of credit periods or some sort of temporary cost reductions. So that's the way, I guess, probably we will work on.

Okay. Okay, fair enough. And secondly, any of you may answer. How -- what percentage of the business will be new customers in any particular year or quarter? Like usually for IT services, it's around 4%. But for you guys, how much will it be in percent?

See, I think a new business could be from an existing customer, new business from new customers. So new business from new customers is very, very small for us, okay. And because as you saw -- see, we say [ T-30, N20 and X30, AQ ] customers I talked about, this customer itself, if you see number of the ER&D spend is up in the big numbers, okay, $275 billion, $300 billion. So these customer new -- existing customers, new business, okay? That's what I think is more and more we look at it. Not that new customer for new -- new business from new customers. So overall point of view, every time engineering services, when you say, if I'm designing a product and being a sustenance engineering for one particular geography or plant, and that is going to roll out to multiple plants, so that is, again, new business for me. But I have done this well for this plant. I'm [indiscernible] with next plant, next plant. We have demonstrated this in this geography, I take it to other geography. This is new business for us. So it is not like -- and one product I design, a component I design, in that component, I designed 3 more components for that particular product for the product to go to market. All these products where have taken the cost takeout, they have 1,000 products, I have taken 3 of them and designed the cost takeout plan for 3 products, and other 900 products should be done and how do I go about doing it. So those type of -- we call it a new product. So I think visibility point of view in a conceptual sense in engineering services, I would say 80% of this, 75% to 80%, we need to be clear that you know this is going to happen. Other 25% or 30% if you look at or 30% if you see, these are all new business. The 30% new business, you are more or less into relationship, good, with the big customers, sizable customers, which we have the top customers we have, then out of 30, we will have 15% visibility already there. Other 15%, you work on this. So this is how the engineering works in conceptual sense.

Okay. Fine. And just lastly, Dr. Panda, so theoretically, R&D happens in the development environment, and IT services is a large part, which is -- could be on a production environment as well. So one would assume that work from home is lot more potentially possible in R&D versus IT services. And therefore, if the lockdown continues for a longer, R&D outsourcing will do much better than the overall IT services industry. Is that a fair generalization?

I don't think so. I don't think you can state that because IT also is divided into there are multiple parts of IT, whether [indiscernible], you are doing ERP or doing development, you are doing support or you're into CRM or which you do on ADMS or whether you do development or maintenance, there are many parameters in IT as well, okay? Only thing I would say engineering point of view, even engineering, when you talk a lot, are you doing a new product design, are you doing a component, you are doing a cost takeout, you are doing a software, you're doing a hardware and prototyping, interfaces manufacturing, so I don't think it's so simple to say that I think ER&D is much better positioned or IT is better positioned, no. But only thing I know for sure if the companies have to -- IT, they have to do it, they have to survive as a company, right. They have to sell product to get revenue to support IT, IT is a support function. Engineering is their core function, P&L function. So if P&L has to do well, they have to get more revenue to spend in IT, they have to spend. If they don't do that, long term, they're not going to be competitive in the market, they lose their market share, then they lose their business as a whole. So I think these are 2 -- conceptually when you look at it, if I'm doing well for an engineering company, I understand their business model, I know the technology, the product line well, the competition -- competitive product, I have understanding, then there is no reason I should not continue to be relevant long term with that. That's how I look at it.

Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Pinku Pappan for closing comments.

Thank you all for joining us on the call today. We hope we were able to answer most of your questions. If you have any follow-up queries, please reach out to me on e-mail. We look forward to meeting all of you on the other side of COVID. Goodbye, and stay safe.

Thank you very much, sir. Ladies and gentlemen, on behalf of L&T Technology Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.