LTM Limited (LTM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and thank you for joining us today to discuss LTI's financial results for the fourth quarter and full year fiscal 2020. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nitin Mohta, Head of Investor Relations, LTI. Thank you, and over to you, sir.

Thank you, Margaret. Hello, everyone. Thanks for joining us today to discuss LTI's financial results for the fourth quarter and full year fiscal 2020. The financial statements, press release and quarterly fact sheet are available in our filings with the stock exchanges and at the Investors section of our website. On the call, we have Mr. Sanjay Jalona, CEO and Managing Director; Mr. Sudhir Chaturvedi, President, Sales; Mr. Nachiket Deshpande, Chief Operating Officer; and Mr. Ashok Sonthalia, Chief Financial Officer. Sanjay and Ashok will give you a brief overview of the company's performance, which will be followed by a Q&A session. As a policy, LTI does not provide specific revenue or earnings guidance, and anything said on this call, which reflects their outlook for 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 about the results. Over to you, Sanjay.

Thank you, Nitin. Hello, everyone, and welcome to LTI's earnings call for the fourth quarter and the full year of FY '20. We sincerely hope you and your loved ones are staying safe and healthy in these unprecedented times. We are living in times that none of us ever have experienced before. In these unusual times, our primary focus at LTI has been on employee safety and keeping our promises to the customers. The agility of our employees and flawless execution of our BCP plans helped us hit the 95% work-from-home enablement mark within a week of the lockdown in India. Our solid Q4 performance is a testament of negligible impact at LTI due to COVID-19-induced supply shock -- supply-side shock for Q4. We are extremely proud of our strong performance in Q4 and full year FY '20 given the circumstances that we dealt with. We delivered revenues of $409.9 million, up 3.9% Q-on-Q and 15.9% year-on-year. On constant currency, this will translate to 4.7% growth quarter-on-quarter and 17.4% year-on-year. This helped us conclude the year with yet another year of industry-leading growth of 13% year-on-year in U.S. dollar terms and 14.2% year-on-year in constant currency. Folks, to put this performance in perspective, you'd recall that we had a very difficult H1 due to client-specific challenges. We were confident of regaining our growth momentum in H2 based on the resilience of our portfolio. We delivered 4.7% constant currency growth Q-on-Q in Q4 on back of a strong 8.3% in Q3. FY '20 marks the fourth consecutive year of double-digit constant currency growth for LTI. Let me now share with you our initial response on COVID-19, our action plans to fight against it and why we are confident of emerging stronger on the other side of this crisis. Ever since the outbreak of this health crisis, we have been proactive in reaching out to our customers and ensure that they count on us during these difficult times. We have deployed -- we have developed our 3x3 strategy to ensure we respond to this crisis in a holistic manner. Our strategy covers 3 key aspects: ensure customer-first thinking, build best-in-class organization and resilient in operations, and protect our P&L. In each of these 3 areas, we have defined act now plan now goals, developed defense and offense playbooks and setup war rooms as well as win rooms for programmatic execution of our strategy. Let me share with you a couple of examples to explain this 3x3 strategy of ours. As part of our customer-first thinking, we are working with customers in distressed verticals to reduce their total cost of ownership in medium term. We are proactively focusing the same customers on how LTI can use cloud-first technologies to make their cost structures lean and better equip them to handle macroeconomic turbulence in the longer run. Fundamental business models for IT services have been shaken during this crisis, and work from home will be part of the future of IT services. During COVID lockdown times, we delivered on critical separation programs for our client, help another client meet a regulatory deadline, all while working from home. For improving resilience of -- resilient operations for LTI, we developed LTI's approach to our journey from simple operations from home to growing from home. We call it xFH or Everything from Home. We broke down xFH in 5 layers. First is operations from home, then secured from home, then engaged from home, then productive from home and, finally, how do you grow from home. Our entire philosophy of work from home is outlined in the blog that was authored by Nachiket, our CEO; and Siddharth Bohra, our CBO for CMT vertical and is available on our website. In protect our P&L and conserve cash, we acted swiftly to review, identify and defer noncritical CapEx, initiate rent negotiations -- renegotiations and drive efficiency in procurement. For us to achieve our longer-term margin goals, we have set up win rooms to achieve enterprise-wide efficiencies as well as recalibrate our cost structures to operate in this new normal. Let me now cover business highlights for Q4. We announced 2 large deal wins this quarter with net new TCV of $113 million. The first deal with TCV of $73 million is with a key government ministry, a new logo for us for its complete digital transformation, enhance productivity and quality of service by implementing new microservices-based applications and build our data and analytics platform. The second large deal win that we announced today is with an energy retail company in Europe with a TCV of $40 million. It is an end-to-end managed services deal for managing clients' IT applications and infrastructure operations. As part of this deal, LTI would -- would be setting up private cloud environment, migrate existing workloads and operate it for the next 5 years. The migration would involve close to 2,000 users across 8 locations and 75-plus applications. Our large deal teams and war rooms continue to be busy, though these are -- though there are some delays and difference in our pipeline. We are optimistic to close and share some large deal wins with you as part of our Q1 results as well. Our consistent investments in partnerships ecosystems help us to stay ahead in our digital curve. We are now a GOLD partner with Pega and a Premier partner with MuleSoft. I'm particularly pleased to share with you that LTI recently won the SAP Pinnacle Award in the category of Industry Innovation Partner for the year 2020. Just imagine, we completed -- we competed with best-in-class 2 of the largest consulting companies in the world and beat them both to bring home this award. It is a moment of immense pride for me and my team. Let me now provide you color on performance on our respective verticals. In BFS, we grew 2.9% quarter-on-quarter on back of a very strong Q3. On track ramp-up of our earlier announced large deals and absence of client-specific challenges that hurt us in H1 is the key reason for our revenue momentum in this vertical. In Q4, we also announced a deal with Standard Chartered Bank to be their partner for a strategic Temenos T24 engagement. In Insurance, we registered a minor decline of 1.3% quarter-on-quarter in Q4. Manufacturing had second consecutive quarter of strong growth at 7.2% quarter-on-quarter. This robust performance is a combination of ramp-up of earlier announced large deals in this vertical and some pass-through revenues as well. In Energy & Utility vertical, we delivered a 4.9% sequential growth. On our last call, we had shared our expectation of a strong performance in this vertical due to a ramp-up of an earlier announced large deal, and that came through in Q4. CPG, Retail & Pharma, we continue to do well in this vertical with another quarter of steady performance of 3.3% quarter-on-quarter growth. The staple nature of the underlying business in this vertical would help its performance. We expect to continue to grow above company average in FY '21 as well. High-Tech and Media delivered another quarter of high single-digit sequential growth of 6.3% quarter-on-quarter. Our investments in this vertical are strengthening and producing results. In addition to CPG and Pharma space, we expect this vertical to grow -- as well to grow ahead of the company in FY '21. Other vertical was up 12.5% quarter-on-quarter. The large deal win announced with a key government ministry falls into this vertical. Ramp-up of this win would be a key growth driver for this vertical in near future. Let me now turn over to our business outlook for FY '21. We had an excellent growth momentum in H2 after the tough H1 in FY '20. Our Q4 growth was broad-based and helped by the fact that LTI has near zero exposure to some of the worst-hit sectors. We had record deal wins in FY '20. Our order book is very healthy, and we have a strong pipeline. We are conscious of the demand pressures for COVID-19 crisis and expect the pain to be visible in our Q1 performance. The situation is too fluid for me to add any quantitative color. But what I can say today is that based on the strength of our client relationships, our value propositions to our customers, our ability to innovate, I have no doubt that LTI would be in an industry leadership quadrant in FY '21 as well. I derive that confidence from the programmatic resilience built in our business model and our client-centric growth strategy. Now let me hand it over to Ashok to give you some financial details. Over to you, Ashok.

Thank you, Sanjay. Hello, everyone. It's great to be back with you again. Hope all of you are keeping safe and healthy. Today, we are presenting to you LTI's 16th quarterly result and fourth full year performance since our listing in July 2016. Thank you for your trust and confidence in us. Now let me take you through the financial highlights for the quarter and the year gone by. Our revenue stood at USD 409.9 million, up 3.9% sequentially and 15.9% on a year-on-year basis. The corresponding constant currency growth was 4.7% quarter-on-quarter and 17.4% year-on-year. Reported INR revenue of INR 30,119 million was up 7.1% quarter-on-quarter and 21.2% Y-o-Y. Revenue for FY '20 stood at USD 1.52 billion, growing at 13%, which corresponds to a constant currency growth of 14.2%. In rupee term, the full year revenue was INR 108,786 million, registering a growth of 15.2%. In our tradition of solving for society, LTI contributed INR 180 million towards PM CARES Fund during Q4. Our employees and the company continue to do their bit in supporting COVID-19 relief measures in India and elsewhere. I'm sure none of us mind the minor impact of these measures on our profitability. Now coming to profitability. EBIT for the quarter was INR 5,035 million, translating into an operating margin of 16.7% as compared with 16.2% in the previous quarter. Excluding the PM CARES Fund contribution, EBIT margin would have been 17.3%, up 110 basis points quarter-on-quarter. This margin improvement of 110 basis point was equally contributed by working days, currency and operational efficiency, partially offset by higher product and pass-through revenue in the quarter. For the full year, operating margin was INR 17,564 million at 16.1% against 18.4% of previous year. Several factors resulted into higher employee cost and thus lower operating margin for the year. Accelerated growth momentum in second half of the year and our programmatic efforts to improve operational efficiency had helped us in improving our profitability in H2. Reported profit after tax was INR 4,275 million, which translates into a PAT margin of 14.2% this quarter from 13.4% in quarter 3. Our full year [ profit after tax ] stood at INR 15,205 million, helping us deliver a full year PAT margin of 14%. Moving on to the people front. Utilization without trainees was at 80.6% as compared to 81.3% last quarter. Utilization, including trainees, was 79.3% versus 79.2% in quarter 3. Full year utilization, including trainees, stood at 79.5% as compared to 80.6% in last year and without trainees at 80.9% as compared to 81.9% last year. Our net additions to manpower in the quarter was 18, and for the year, it is stood at 3,268, which translates into 11.6% growth in headcounts from FY '19. The total manpower stood at 31,437, of which our production associates were 94.4%. In this quarter, attrition has improved to 16.5% versus 17.7% last quarter on LTM basis. Now moving on to ForEx hedge book. Our cash hedge book stood at USD 1,251 million as at 31st March 2020 versus USD 1,249 million as at 31st December 2019 while the on-balance sheet hedge stood at USD 91 million versus USD 137 million last quarter. Keeping the market uncertainty in mind, we have been executing our hedging strategy consistently in a measured manner. In quarter 4, the billed DSO stood at 77 days compared to 78 days last quarter. And the DSO, including unbilled revenue at 106 days, shown improvement of 4 days over quarter 3. Full year DSO, including unbilled, was higher by 3 days compared to FY '19. The net working capital has improved by 2.5% to 16.4% of revenue as on 31st March 2020 over 31st March 2019. For the quarter, the net cash flow from operations was strong at INR 7,332 million, which was at 171.5% conversion of the net income. For the full year, the net cash flow from operations was INR 16,435 million at 108.1% conversion of the net income versus 92.1% in FY '19 and represents a growth of 17.8% year-on-year. We ended the year with cash and liquid investment at INR 27,458 million compared to INR 21,502 million as on 31st March 2019. EPS for the quarter stood at INR 24.5, and diluted EPS for the quarter was INR 24.3 per share. Earnings per share for the full year was INR 87.5 per share. Diluted EPS stood at INR 86.6 per share compared to INR 86.4 per share in FY '19. The Board of Directors at their meeting held yesterday have recommended a final dividend of INR 15.5 per share, bringing the total FY '20 dividend payment to INR 28 per share, including interim dividend of INR 12.5 per share. With that, I would like to open the floor for questions. Thank you.

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

Congratulations on a very good quarter. I think this quarter, given the environment, the performance was really commendable. Sanjay, to start with, if you look at the current environment, there's a lot of concern because of the lockdown and macroeconomic pain. Would you like to give us thoughts on the client feedback in the last few weeks in terms of the cost reduction and technology spend? Do you see a reduction in tech spend to have a high impact on current business in FY '21? Is there a meaningful business which is at risk? Or do you see this as an opportunity to use cost levers to capture higher share at clients? And I have one more question afterwards.

Mukul, I must tell you, your line is really bad. So folks, this is a request that goes out to everyone. Obviously, telecom infrastructure, we struggle with at times from India. Request you to keep the questions as short as possible, and we will try to come back to you for subsequent.

Let me repeat that...

I think your question if I heard you right is given -- no, no, don't say because the line is bad. Let me try to say and you tell me yes or no. The question was given the lockdown concerns, what is the thought on how customers are going to spend in these times and what would be our strategy with regards to that. Does it cover that point or something else you have?

Yes, pretty much. And then also, if you kind of just add a bit on basically, do you see a meaningful...

One question at a time, Mukul. Mukul, please request you. Let's start with one question at a time. Okay. Look, these are unprecedented times. There are -- as you can imagine, there are probably going to be some verticals we think that impacted more than others. That's the first impact. We need to do a segmentation of how we deal with each and every vertical and each and every customer because the customer situation will also be unique at these times with or without COVID situation. And frankly, that's where this 3x3 strategy that we've talked about has come into play. The verticals where we have a bigger challenge, let's talk about those, right? So manufacturing, where we have a significant bit of revenue, and that's the vertical that has been doing very well for us, and oil and gas, right, are 2 verticals, which probably have the highest exposure for us during these times. When our factory shut, IT is a far thought in these difficult times, right? Oil and gas companies have struggles with regards to not only COVID situation but also the steep fall on the oil prices that we have seen. But if you look at CPG companies and pharma companies, the fall is not going to be like that. But we still believe -- while BFSI, we have not seen any impact so far, but we believe as they struggle with the results coming out and maybe defaults on mortgages and a whole bunch of things that will happen, probably some issues might come and crop up in Q2 and Q3, okay? We have limited exposure on some of the verticals, which are more stressed than others. And so we are not impacted as much. There are customers who are -- obviously, the impact will come in discretionary pieces of work. There will be impacts and -- but there is also an opportunity at times -- in these times, which is the offense playbook that we talked about in 3x3 case, where you have opportunities to help improve the resilience of the companies taking them to cloud initiatives. What has come out very clearly in these times is companies have gone to work from home completely. Lots of them were not be able to get their operations up and running in time because they didn't have enough exposure in the cloud, right? So that is one opportunity that comes in. So how do you actually help our company's customers move very quickly on the various platforms that are available in the marketplace is one opportunity. But yes, overall, there is still an impact that will become broad-based, and we will also see an impact on ourselves, but there will be opportunities of growth that we will have to work with our customers. Each customers might have different challenges. They might have different priorities. So we need in these times to invest back in the client relationships, which means helping them in these difficult times, partnering with them and together coming out stronger at the other side of the tunnel.

I would request Mr. Garg to come back in queue...

Do you have another question, Mukul?

[Operator Instructions] The next question is from the line of Sandip Agarwal from Edelweiss.

First of all, I wish good health and stay safe to everyone. So Sanjay, I have only one question that what I see in this quarter is that most of the growth, basically your top beyond 10 or beyond 20 clients have contributed to this strong growth, which is very exciting and which is very good because it increases the base on which we can rely going forward. Just wanted to know, is there any particular issue with 1 or 2 clients, which have brought down the top 10 growth or something like that? Or it is just something, which will be probably due to sudden lockdown or something like that? And also congratulations to the whole team for excellent quarter and excellent execution.

Thank you, Sandip, and I sincerely do hope all of you, your families are staying safe at these times as well. Look, Sandip, we have always talked about four-pronged strategy for ourselves, right? We need to make sure that large accounts are growing well, invest accounts are growing well, new accounts are opening at a right pace and followed by taking a steep upward bias with large deals coming in, right? If you look at top accounts with us, right, they had a growth of -- 5 accounts, for example, which had a growth of 12% quarter-on-quarter in Q3, obviously. So that's why you probably see a little bit of decline. But obviously, the deals that we had announced in the past that has ramped up have grown accounts after 20, right, very efficiently. But -- and also another thing, which you need to probably bear in mind with H1, the issues that we -- the client-specific issues that we talked about were in the largest accounts and some of the accounts that we talked about, which obviously took a toll on a year-on-year number. As far as any issues where we sit today, we don't see -- amongst the top 5 customers is one oil and gas customer, where obviously they are a little strained. But barring that, we don't see any fundamental issues where we believe we will lose [indiscernible]. They might go through their own challenges and times to come, but it will -- from where we sit, there is nothing extraordinary that's in the pipe.

The next question is from the line of Sudheer G from Motilal Oswal.

My question is to Ashok. If I look at your segmental EBIT margins, there's a sharp increase in the segmental EBIT margins of High-Tech, CPG, Retail & Pharma. So these 2 verticals contributed almost an incremental EBIT of INR 50 crores quarter-on-quarter. And that seems to be the delta at the full company level also. So any color on this, Ashok?

Sudheer, there was an insurance claim settlement, which came in handy in that quarter, but that segment has also improved their margin. But yes, the 20%, which you see, that's not the sustainable margin. While the segment has improved margin through a lot of production efficiency measures and operational efficiency, there is a benefit of onetime claim settlement also.

Any quantification of that buildup?

So I will say 5%. So the sustainable margin for segment is around 15%, and that 5% is that onetimer.

Sure. And your on-site deals during the quarter seem to have inched up. So how do you see the overall pricing situation at this juncture? That's it from my side.

Okay. So as far as -- there are 2 to 3 things on the rate realization, which you see. I think actual rate realization when we adjust for higher on-site working days, et cetera, then it is actually 6% quarter-on-quarter instead of 9%, which you might be seeing from the factsheet. And that 6% is coming through productivity improvement and FTE optimization. There were large deals, which were going through transitions, and how those resources are generating revenue because those deals have moved to the steady state and started generating revenue. And of course, some of the new engagements, which we started, they had a better pricing. So all these 3 things kind of contributed that 6% quarter-on-quarter benefit.

Sure, sir. And outlook on pricing?

It's stable. But of course, as there are challenges about COVID, so there could be specific commercial concessions with the client which will be discussed, short-term measures which will be taken, and that might have impact on rate realization going forward. But otherwise, we don't see any more challenges other than the commercial concessions with some of the specific and selective clients, which we are dealing with.

The next question is from the line of Sandeep Shah from CGS-CIMB.

Congratulations on strong execution. Sanjay, just wanted to look at -- if I look at your service spread, based on the headings, it looks like more than 50% of those services could be discretionary. So are you worried that 1Q, 2Q relatively may have slightly more pressure for us because of the kind of high-end value services, which we provide to the clients?

Sandeep, you take care as well in these difficult times and stay safe. Look, I -- we have increased the pace of communication with our clients overall, significantly from top to bottom, how do we communicate to clients, get to hear their pulse, look at defense strategy and offense strategy, look at plan now -- act now, plan now, right? How do you look at executing some projects a little differently, how do you construct and bring the projects a little differently and so on and so forth. Obviously, our momentum that we have seen in H2, the strong pipeline, order book that we had talked about, the strong order book as well, we see that momentum is going to continue the push for us in times to come. Obviously, Q1 is going to be where we will continue to see some challenges, and we will partner with our clients in times to come. But we don't believe that we are going to have anything extraordinary in terms of the discretionary work that others will not face, right? But we also have to be creative in these times, work with customers to create solutions, alternatives for them to continue the piece of work because at times, these are very important for them. There are companies, which are separating from one another. There are companies, which are merging with one another. There are companies, which are not able to follow regulatory guidelines on geographies. So you just cannot shut the tap completely. We need to work with the customers to find solutions in this time and this is exactly what we are doing.

Fair enough. Just last question and second question is, Ashok, can you give some color about the hedging rates for FY 2021 and maybe beyond for the '22, '23 because we have a 3-year layered hedging program? So looking at the current spot rate, do you expect FY '21, there could be hedge losses in the books?

So unfortunately, we don't disclose our hedge rate, but what I can tell you that -- and we have been talking about that whenever currency depreciates, I think we get much better gain in our revenue line and much less compared to that loss in hedge book. But where we are standing today, I don't get too much concern for FY '21, as you may be -- you see, there are 3 elements, which goes into hedge. One is the revaluation rates, which happen at the quarter end and you don't control that, but other than that is the hedge rate, average rate of my book and the volume of my hedge book. These are the 3 major elements, which decides that what gain or loss will be booked in a particular quarter. And where we are standing today, I think we are okay. Of course, we don't expect too much gain in FY '21, but at the same time, we don't expect even loss. For the full year, we should be okay.

The next question is from the line of Manik Taneja from Emkay Global Financial Services.

Just wanted to get some sense with regards to the pricing or the productivity trends that we are seeing on an annual basis for us. So while we've seen onshore revenue productivity move up sharply over the last couple of years, our offshore revenue productivity essentially has been down. Just wanted to understand what is driving some of those trends there?

Ashok, do you want to take that?

Can you just -- onshore productivity, you are finding it is down? Or what did you say, if you can repeat?

Ashok, so basically, with regards to onshore productivity, we've seen this jump up sharply over the last couple of years, while on the other side, what we've seen is that our offshore revenue productivity has been coming off. So just wanted to understand what's driving some of that divergence in terms of productivity trends.

No. So I think there are few things which are, of course, in the recent quarters responsible, which I talked about, that many places offshorization and optimization can happen. You see our on/off ratios, that are also getting sharper and sharper every quarter. And whatever we are doing on the -- and digital has become now 41% of the company, so some of the digital and projects, which happens mostly on site, they have some better pricing points. And at the same time, when through automation, through managed services, you are taking out people, of course, realization goes up. So this is a combination of that. I -- and I would imagine while there is effort now also to ensure that offshore keeps pace and remains stable, but that's -- there is nothing very special about that. These are some of the levers, which we have been kind of trying to work very, very judiciously. Our subcon cost, if you look at, is still under very, very -- under control very much, and all those things are finally contributing to the realization there.

And while you're not providing any revenue outlook with regards to our margin outlook that we typically had of about 14% to 15% net profit margins, do we see something similar playing out for us even in FY '21?

So FY '21 is going to be clear where...

Manik...

Do you want to say something, Sanjay?

Yes, Sanjay. Yes. Go ahead.

No, no, no. Go ahead, Ashok. Go ahead. Go ahead.

No, I was saying to Manik that this is a year where you can understand things are evolving very fast. When the COVID broke out and India lockdown started, from there till now, every week, you would have seen how the global economic environment has been changing, the growth rate predictions has been changing. At this point of time, we would definitely not like to give a guidance. But all efforts are there that how do we protect our P&L. And at the same time, when we conserve our cash, generate cash, generate some of the margin but reinvest. And there are requirements which are coming up. We want to work with the clients to tackle the current crisis situation and also want to invest in the resiliency of the company. So I think we will not give guidance at this point of time.

The next question is from the line of Diviya Nagarajan from UBS.

Congrats on the strong execution in this quarter. My question is that we are kind of halfway through this quarter already. Could you kind of run us through some of your key customer verticals? What kind of trends you're seeing in terms of where the priorities are and how they're shifting? Some qualitative color would be helpful.

Sudhir, do you want to answer that?

Sure, Sanjay. Okay. So in terms of verticals, what we are seeing right now, and Sanjay mentioned this earlier, in the manufacturing vertical, so industry manufacturing, automotive and the oil and gas vertical for obvious reasons has been the most impacted. We are seeing, from a positive perspective, the life sciences and high-tech verticals continue to do well. And if you see our growth in the last 2 years, that -- those 2 verticals have contributed a good amount of additional growth to us in the past. The other segments where we really need to keep an eye right now, banking is doing okay as there is activity, but perhaps towards the second half of the year, we might begin to see some reduction or some -- potentially some impact depending on how banks react in the future. So all these are a mixed picture that we're seeing from a vertical perspective. From a geo perspective, Americas and our emerging market business, which is essentially India and Indo Asia Pacific, are relatively less impacted, whereas Europe and Middle East have borne most of the brunt. That's where we see a bigger slowdown in terms of client activity. So I think the overall -- from an overall perspective, as Sanjay said, it's really everything that clients do at this point in time is different from what they were planning to do. So the key thing is to be in close contact with them and to be able to move very quickly to cater to these new requirements as they emerge. And that's where the 3-pronged strategy that he spoke about is really helping.

[Operator Instructions] The next question is from the line of Princy Bhansali from Anand Rathi.

One question. There has been an increase in other current liabilities and financial liabilities for the year. Any reason for that?

Ashok?

Sorry. Sorry, I was on mute. So these are basically the MTM valuation of FX book, and they are sitting there, okay?

Okay. And regarding the tax rate, why the tax was low for the quarter? And what will be the outlook on ETR going ahead?

Typically, the way I would imagine most of the company work that the full year tax liability calculation is done, and then minus 9 months whatever we have done is the quarter 4. So quarter 4 is the final year of this -- final quarter of the financial year, where all the plus minuses happen. And before till 9 months, we were taking many assumptions and calculations around SEZ benefits, other stuff which goes on. So this quarter got benefit of the first 9 months a bit conservative tax provision. And that is why it was, I think, some 22.4% or something. But for the full year, it was 24.2% or 24.3%. I expect going forward also, we should think about 25%. And we are currently using our max taxes, which we think in FY '21, we will use it. And from FY '22, we may move to the new tax regime, which Finance Minister announced last year. And then again, it will remain at around 25%.

The next question is from the line of [ Manish ] from Centrum Broking.

Yes, interesting blog you have put on the work-from-home. So would the clients give the necessary approvals for taking this off in a big way? And which are the verticals where you see the initial adoptions would be easy? And are we starting to recruit a force, which will be completely in a work-from-home kind of environment? And any possible deflection from this theme on the sector?

Manish, I think it's too early. Right now, the focus -- as I said, the primary focus has been on employee safety and making sure we're keeping the promises. But obviously, we are -- our deployment is close to 98%, 99% now. Most of the customers, barring a few where there were requirements from their [ entry site or ] regulatory requirements for us not to be able to work from home, we have been able to operate like that. We are measuring the productivity very, very carefully. And what we have seen is even the customers have commented that the productivity has gone up in many of our places. They're seeing that with their operations as well. So I think this work from home is here to stay. Obviously, we need to focus not only on enablement but the entire xFH that we talk about. Security is of paramount importance, engaging employees. And there are things associated with that in physical health, mental health and a whole bunch of other things that will come up. It's about how do you drive productivity improvements, how you close more tickets, or if not, similar amount of tickets that you are closing when we are working in offices. How do you drive productivity improvements in terms of function points delivered or story points delivered in an agile DevOps kind of model. All of that will evolve over a period of time. It's too early to say what will be the right model. We are taking a pragmatic view in terms of this. We are getting ready to start by creating all kinds of mechanisms in place, so that our employees, we are able to continue to provide a workplace, which is safe and secure. All new measures have been taken in place, but we are also being pragmatic how we bring in a smaller number of people, right, with confidence and see how we are effective with our customers. In the long term, I think clients have realized and they will have to change a lot of their requirements of working only in offices. But it is an evolution process. I am sure over a period of time, this is not the last that we are hearing about it. But overall, it is going in the right direction. I don't know what percentage is. I don't think anybody is in the business of predicting. We don't know what day it will settle. But the answer will come somewhere in middle to what we have heard other people talk about.

Sir, just one more. When you're saying banking can be soft in the second half, any issue in the top accounts where there may be ramp down or loss of business?

For us, not at all. Actually -- but we do expect banking. As of now, where we stand, our issues were predominantly on H1 of FY '20, where there were very strong budget cuts. There will be ups and downs like any customer as they shift on prioritizing and reprioritizing their activity. We don't see where we sit today any issues with that, but we do believe that banking industry, BFSI, overall, will have a challenge subsequently as they will start to see defaults. Insurance companies have -- I don't think they have relief on pandemics overall. But I think governments might force them to behave a little differently at times to come. So we don't know. A lot of things are unknown. We do believe that BFSI might have a challenge in times to come. Important for us is that we are not losing any share to anybody in the market.

The next question is from the line of Vishwamithra from White Oak Capital.

I wanted to ask how is your client portfolio positioned for vendor consolidation effect, particularly in terms of the mining and addition of tail end account.

I think our portfolio mix is very resilient, and we are very similar to a large cap. Obviously, our size gives us the advantage. We are 30,000-plus people who are very nimble and agile. So that shows in our ability to probably WFH quickly first of the block, our ability to connect with the large deals, et cetera, that we bid in. We -- where we stand today, if there is any consolidation, we will probably be in a good place. That is all I can tell you right now, portfolio mix is of course, resilient.

Okay. And I also had one question on the rest of the world growth. You saw 15% quarter-on-quarter growth. So could you give some color on the breakup of that?

I couldn't hear the question, but I think it's rest of the world, something. Sudhir, if you heard, can you answer that?

I think it's growth in the rest of the world portfolio is 15% quarter-on-quarter, right? Yes. And that's back on the recent large deals in the region.

Ashok, do you want to add anything to that?

No, I can -- one is the -- base is small still, and so 15% growth, one large deal and some revenue coming from there helped that segment to display that kind of number. Yes.

The next question is from the line of Ravi Naredi from Naredi Investment.

Sanjay, in this tough time, you have given a very good result. My point is there is, 31st March '20, in full year basis, our top line grew 15%, but our PBT has not grown anything. So will you tell something about why the margin is so low?

So Ashok here. And Sanjay can be...

Go ahead, Ashok. Go ahead, Ashok.

Ravi, there were 2 things. We spoke about H1 was pretty challenging for us where we had some of the account-specific challenges, and we have talked about them earlier, 2, 3 accounts, where sudden ramp downs, et cetera, we faced because of sudden budget cuts or other issues. And we carried people on benches, utilization came down on-site. And that continued in quarter 1 and quarter 2 quite a bit. So H1 profitability was significantly impacted. From there, we have started recovering quarter 3 and quarter 4 through a very, very programmatic way looking at how do we manage our cost, reduce our wastages, how do we take out people, optimize, improve productivity, and that has started showing results for sure. We were on a good trajectory. Of course, all of these good things have a now sudden different situation in the form of COVID-19 pandemic. And now the trajectory is, of course, not that visible, but how it will go ahead. But that's the reason H1 contributed some of these client-specific issues, which hampers utilization, carrying bench on-site, all those things happened in the first half. And just to add to that, of course, companies are doing and we are also -- talent, which is required for the newer area, newer skills, newer technology and also talent hiring at on-site. All these things are expensive compared to what used to happen earlier. So -- and that is where, if you analyze deeper, most of the things will be visible in the employee cost, whether on-site bench and low utilization or hiring of right talent for the new technology. So everything combined together was the reason that why our profitability was flat.

Okay. And sir, secondly, in quarter 1 current year, due to COVID, how much setback we can see in dollar terms?

It's evolving, we are not giving guidance. We are not giving guidance.

No, not guidance. Just asking you. See, because the working days was less and we are doing work from home and everything is in subdue manner, so just asking how much we can setback? Although we will recover in quarter 2, but just asking.

Ravi, I think the world is changing in a dramatic fashion. What we started thinking 6 weeks back, things have dramatically changed and they are changing every single day. So it will be foolhardy for anyone to start predicting and giving any guidance in terms of what will happen. We can only tell you where things stand today. Things can change more dramatically. And let me try to just bring some clarity on that. Where do we see today? What -- with the momentum, et cetera, that we have behind us, not counting any further setbacks that might come in or reoccurrence, which might cause even deeper problems that economists and people who understand this really are talking about, we do expect mid-single digit kind of a situation that is coming there. Please bear in mind, there is also a pass-through element that we talked about in our Q4 numbers. But taking all of that, we still believe we will be able to come out strongly that mid kind of number drop in Q1. I won't like to comment any more on this topic, but this is the best we can give you.

I would request Mr. Naredi to rejoin the queue. The next question is from the line of Ruchi Burde from BOB Capital Markets.

Congratulation to the management team for very strong execution. I have a question regarding your client account. If I read your number of active clients and a new client added together, it seems that that there was a rationalization of long tail account. So I would be happy to hear your comment? And is there more to go?

What number you are looking at, Ruchi?

Look, I don't think we should read too much. It's business as usual. Look, it's business as usual to us. We keep looking at the portfolio. It's not a 1-day exercise that you're going to look at using any clients, et cetera. We are looking at the portfolio at any given point of time. And the way we focus is, right, those 4 pillars that I keep talking to you in every call, large accounts, invest accounts, which could be bank accounts, new accounts that we open and the large deals that we keep winning. Now as part of the portfolio, given that we have -- you can only have talent, which can look after and do business for customers, we keep a tab on how we want to continue being a resilient company and operations. So there's nothing very specific to Q4 performance, but its business as usual for us.

Understood. A second quick question that I have for -- is on the cash flow statement. So in the cash flow from financing activity, there is a line item, which reads that credit support agreement deposit. Can you please explain, Ashok, what is this line item?

So Ruchi, we have with the financial institutions certain agreement. And when the MTM fluctuation happens in a particular band, beyond that, either they pay us money to keep as a security deposit or we pay them money as a security deposit. So that's the financing. Like, if the rupee depreciated, then we will end up paying some money. And if rupee appreciated and we are in too much gain, then they will pay us some money to keep as a security deposit. This is just to protect counterparty risk that in case the counterparty fail, we have money to kind of take care of our interest.

Ladies and gentlemen, due to time constraints, that was the last question. I now hand the conference over to the management for closing comments.

Thank you, everyone. We have an announcement to make as well. Nitin Mohta, who handles our investor relationships, is moving to another role within LTI. We would like to thank him for his immense contribution in building LTI well-recognized Investor Relations function. Sunila Martis has joined us last week and would lead us this role from next quarter. Many of you might have interacted with her earlier. Nitin and Sunila shall reach out to you during the course of this quarter to make the necessary introductions. We look forward to your continued support. Stay safe, God bless. And thank you, Nitin, once again, for your contribution in the last 4 years. Take care, guys. Bye-bye.

Thank you. On behalf of LTI, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.