LTM Limited (LTM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the LTI Q2 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Sunila Martis, Head of Investor Relations. Thank you, and over to you, ma'am.

Thank you, Lizan. Hello, everyone, and thank you all for joining us today to discuss LTI's Q2 FY '21 earnings. The financial statements, press release and quarterly fact sheet are all available in our filings with the Stock Exchange and on the Investors section of our website. On the call today, we have with us Mr. Sanjay Jalona, CEO and Managing Director; Mr. Sudhir Chaturvedi, President, Sales; Mr. Nachiket Deshpande, Chief Operating Officer; and Mr. Ashok Sonthalia, our Chief Financial Officer. Sanjay and Ashok will give you a brief overview of the company's performance, which will be followed by Q&A. As a policy, LTI does not provide specific revenue or earnings guidance, and anything said on this call which reflects our outlook for the future or which can be construed as a forward-looking statement must be reviewed in conjunction with the risk that the company faces. Let me now invite Sanjay to talk about the results. Over to you, Sanjay.

Thanks, Sunila. Hello, everyone. I hope all of you are staying safe and keeping well. This quarter marks 5 years for me at LTI. These years have been very turbulent and transformative at the same time for the world. We, at LTI, have gone through our own transformation to create an identity for ourselves, build world-class capability, strong partnerships, solid footing for our customers, competing and winning against the world's best companies. In 2020, we're also operating in a manner unimaginable in the past because of COVID. Personally, these 5 years have been an accelerating experience, overcoming challenges and celebrating multiple milestones, making it one of the most fulfilling periods of my professional journey. My team and I are filled with deep gratitude for all the support we have received during these years from all our stakeholders, our clients, employees and investors. Thank you to you all, and we will continue to do the best in the years ahead. While the unfortunate impact of COVID continues in the form of lost lives and livelihoods, as well as the rising income inequalities, we are also seeing an increasing dichotomy between weak economic indicators and load delivered by technology sector. This is because the past 6 months have made it apparent that organizations need to reimagine their operating models and embrace digital transformations to ensure that they remain relevant today. Banks need to onboard customers remotely, insurance companies need remote sales and distribution, retailers need to have online to offline capabilities in order for customers to order online and pick up at curbside. Technology has been a redeemer in these difficult times. It is no longer the preserve of only large companies and industry leaders but has become a necessity for all companies of all cycles. We are seeing business acceleration -- business accelerate the digitization of every aspect of their operation, from their core functions to their customer-facing capabilities to their workplaces. Our go-to-market strategies around Digitizing the Core; Operate, To Transform; Data-Driven Organizations; and Experience Transformation are finding even greater resilience with clients in their journey to new operating models. Two areas have emerged as huge opportunity areas based on the convergence of market trends and the capabilities we have been building. Firstly, it is the cloud business with the work we do along with the hyperscalers like AWS, Azure and GCP. Secondly, the data products business with our market-leading platforms and products, namely Mosaic and Leni. We are already working with some of the largest companies, helping them get more from cloud and data leveraging our IP. To further fuel this momentum and bring our missionary commitment to these areas, we are setting up a unit dedicated to building this business. This will be a key investment area for us in terms of sales, marketing, alliance and capability build. We believe that most industries are in the foundation stage of truly leveraging these capabilities, and this unit will focus on helping clients realize that future. Let me now walk you through the headline numbers. We delivered revenue of $404.5 million, a growth of 3.6% quarter-on-quarter and 11.2% year-on-year. In constant currency, this translates to 2.3% and 10.5% year-on-year basis. We continue to receive positive feedback from client during COVID times on the performance and commitment demonstrated by our employees. Safety of our employees and fulfilling our promises to our customers remain our top priority. During this quarter, we launched Canvas PolarSled. This is an automated cloud migration and modernization framework to help enterprises accelerate their data move to cloud with Snowflake. We have a very healthy deal pipeline, which is about 22% up a year ago. We see broad-based demand across verticals. Our win rooms continue to be busy. We added 26 new logos across all the verticals during the quarter and won a large data and analytics-led transformation deal with net new TCV of over $40 million. Our large deal pipeline is stronger than last quarter. Large deals due to their complex nature are taking longer than usual to close though. I'm also happy to state that we added a new Global Fortune 500 logo to our list of clients, taking the total Fortune 500 logos to 68. I'm also delighted to share that LTI in the U.S. has been recognized as a Great Places to Work Company. I also take this opportunity to thank you on behalf of Ashok, our IR team and myself for your nominations on the Institutional Investor's 2020 All-Asia Executive Team survey. This recognition is a testimony of the faith and trust that our investors have reposed in us, and we are truly honored. Let me provide briefly some color on the performance of our verticals. BFS, we had double-digit sequential and year-on-year growth in this vertical at 11.7% and 22.5%, respectively. Our top line continues to grow and grow well. Insurance vertical registered a decline of 3.4% quarter-on-quarter and close to 5% year-on-year basis. This vertical continues to struggle with the impact created by COVID. Manufacturing was our hardest hit vertical in the first quarter, and we have seen good recovery from there. This vertical grew 6.4% quarter-on-quarter and 10.2% on a year-on-year basis. Energy & Utility vertical saw 2.5 -- 2.1% increase quarter-on-quarter and a decline of 2.2% year-on-year. Recovery is tepid, even though oil prices have stabilized, but at much lower level compared to pre-COVID. CPG, Retail & Pharma saw a marginal sequential decline and a growth of 6.3% year-on-year basis. The Global Fortune 500 client that we have added belongs to this vertical. They will be using intelligent automation to automate their core business processes, resulting in a faster and [ adult free ] new drug release process. High-Tech and Media saw 5.1% decline and 9.5% growth year-on-year basis. The decline during the quarter was on account of reprioritization of work due to COVID on one particular account. We see this vertical returning to growth in coming quarters. The Other verticals, which include defense and professional services registered 8.7% growth quarter-on-quarter. Our large deal win announced this quarter also falls under this vertical. Briefly touching on outlook. World continues to be in a difficult place. Macroeconomic issues continue to exist, and we are keeping a close watch on the trajectory of the virus plan. We remain focused on our 3x3 strategy detailed during our earlier earnings call on customer-first thinking, the resilience in operations and protecting our P&L to deal with the impact of the pandemic. But in summary, if I have to talk about our outlook for the third quarter, our healthy deal pipeline and sustained client mining makes us optimistic. We have already surpassed our Q3 FY '20 revenues this quarter, and we will surprise our Q4 FY '20 revenue in Q3 itself. We remain committed to deliver top quartile growth in FY '21 as well. Additionally, we would also roll out salary hikes from January 1. We are working out details and would be communicated subsequently. With that, let me hand it over to Ashok now.

Thank you, Sanjay. Hello, everyone. It is great to be back with you again. Let me take you through the financial highlights for the second quarter of FY '21, starting with the revenue numbers. In the second quarter FY '21, our revenue stood at USD 404.5 million, up 3.6% sequentially and 11.2% on a year-on-year basis. The corresponding constant currency growth was 2.3% quarter-on-quarter and 10.5% year-on-year. Reported INR revenue of INR 29,984 million was up 1.7% quarter-on-quarter and 16.6% Y-o-Y. Now coming to profitability. EBIT for the quarter was INR 5,957 million, translating into an operating margin of 19.9% as compared with 17.4% in the previous quarter. The 250 basis point increase in the margin can be attributed to improvement in on-site offshore mix and utilization, higher working days and operational efficiencies. Reported profit after tax was INR 4,568 million, which translated into a PAT margin of 15.2% this quarter compared with 14.1% in quarter 1. Exchange loss and lower other income have partially offset increase in operating profit. Based on our strong performance in face of the pandemic and enhanced visibility for the rest of the year, we feel confident to reinstate PAT margin guidance for the full year FY '21 to be in the 14% to 15% band, despite salary hike in January '21. Moving on to the people front, utilization without trainees was at 82% versus -- as compared to 79.6% last quarter and utilization including trainees was at 80.5% versus 79.4% in quarter 1. We continue to strengthen our workforce. And during quarter 2, we added 978 people on a net basis. The total manpower stood at 32,455, of which our production associates were 94.5%. In this quarter, attrition has improved to 13.5% versus 15.2% last quarter on LTM basis. Our cash flow hedge book stood at USD 1,030 million as at 30 September 2020 versus USD 1,098 million as at 30 June 2020, while the on-balance sheet hedges stood at USD 115 million versus USD 111 million last quarter. Moving on to the DSO in quarter 2, the billed DSO improved significantly by 8 days and stood at 62 days compared to 70 days last quarter. The DSO, including unbilled revenue, was at 94 days, an improvement of 5 days over quarter 1. For the quarter, the net cash flow from operations was at INR 4,465 million, which was at 97.7% conversion of the net income, despite the fact that like every other year we paid our annual incentive during the quarter. At the end of the quarter, cash and liquid investments stood at INR 35,472 million compared to INR 34,256 million as on 30 June. The effective tax rate for the quarter was 25.5%. And now coming to the EPS and dividend, the Board of Directors at their meeting held yesterday have declared an interim dividend of INR 15 per equity share. Earnings per share for the quarter stood at INR 26.1 as compared to INR 23.9 in quarter 1. Diluted earning per share was INR 25.9 versus INR 23.7 last quarter. On LTM basis, diluted earnings per share was INR 95.5 versus INR 90.1 in quarter 1. With that, I would like to open the floor for questions. Thank you very much.

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

Good performance to the management. Sir, the first question was on the margin improvement which you saw this quarter. A lot of this seems to be driven because of higher utilization and offshore shift. Can you just help us understand whether -- is this sustainable, especially the offshore shift portion? And while we understand that wage hikes will be having a drag from Q4 onwards, where do you see margins settling down, given the constant improvement in margins over last 1.5 years?

So look, Mukul, thank you for the question, and thank you for your comments. There are many things that have gone in there, and I'll just list a few. One operational efficiency, speed, utilization, we have increased offshoring. Obviously, let's say the COVID discounts have also helped it. Sales and marketing expenses have also been a debit. An extra day of working also helps in this whole process. So there are many things that have been there. And I think we can sustain with the operational efficiencies to your specific questions on offshoring. Most of the deals, actually, today, there are deals where customers are -- we are able to pitch at 90%, 95% offshore ratios as well. So it is sustainable. Margin percentage, while Ashok has in his speech given you where we want to stay, you've also heard in my speech we want to focus and invest back in the business with -- and drive growth with special focus and more investments in the areas of cloud and data products. So go with what Ashok has given in terms of margin guidance. Operational efficiencies, especially offshoring percentage, it can be sustained and will continue to drive growth as we go along.

Great. And then one more question is on the deal win number, which -- the large deal win which you announced this quarter. Now if you go back to the commentary from Q1, there were a few deals which were in pipeline and which were closed out with Q2. If you look at the deal win number from FY '20 quarters, this seems a bit tepid. And I think you also alluded that the large deals are getting delayed. So if you can just offer some more perspective on this?

Sure, Mukul. I think -- I wish I was standing here announcing deals as we normally do. But if I were to reflect back and think whether -- if you had asked me those questions when -- in March or April, whether we will be at the same place, I don't think anybody would have imagined that we will be talking as confidently with the pipeline. So coming to pipeline, on large deal, I think it continues to be strong. It is actually stronger than last quarter as well. Absolutely acknowledge that we were a little tepid and soft than our normal announcements. But these deals are typically very complex. And obviously, not being in front of customers don't help in faster closures. But we are confident about growth. Again, I take you back to 4 things that I always talk about, growth accounts, invest accounts, new account openings and large deals. And where we stand, there are -- obviously, it's a little difficult, different world than what we typically operate, but we're confident on all 4 of them.

The next question is from the line of Sudheer Guntupalli from ICICI Securities.

There appears to be an interesting dichotomy in the growth of service offerings. Those offerings, which are perceived to be new age in nature, like, let us say, analytics, AI and cognitive and enterprise integration and mobility, they seem to have reported either declines on a Q-o-Q basis or even tepid growth even on a year-on-year basis. And some service offerings like ADM and testing, which are typically perceived to be legacy in nature, they seem to have reported very strong growth, both on a Q-o-Q and Y-o-Y basis. So how do we read these trends?

Nachiket, why don't you go ahead and answer? Then I'll add on to it.

Sure. Sure. Thanks, Sanjay. So I'll answer it in 2 parts. Let's first talk about the analytics, AI and data part. There, we had some specific -- the account problem that Sanjay talked about, our reorganization part, that also was in this particular service line. You will also see that we had a particular Mosaic license component in Q1 in the same service line as well. So hence, there is an impact on a Q-on-Q basis. And as regards to the ADM part that you talked about, if you see across our service lines, we don't report cloud revenues separately because we believe cloud is there in all service lines and all pervasive across many service lines. So the growth you see in the ADM space also as well as our enterprise solutions space also has a lot of new age services embedded in that, which we don't separate out anymore.

Sure. But analytics, AI and cognitive and even enterprise integration and mobility, even on Y-o-Y basis, it looks a little tepid. So any...

Yes. Just to add, probably on a Y-o-Y basis, we also had a fairly large analytics program in our India customer that we talked about, which ended last year. That has a impact on this year's numbers. And the new deal that we have announced this quarter is also in the analytics space. So we expect in future quarters for that deal to pay out.

Sure. That's helpful. And...

Sudheer, this is Sanjay.

Yes, Sanjay. Sorry.

Sorry. Go ahead, Sudheer. No. No. That's okay. Go ahead.

Yes, yes. My second question is on the impending management change at the top account, seemingly with a focus on cost restructuring. Historically, what we had noticed in some of your competitors is that whenever such an event happens at top accounts, there will be 3 to 4 quarter kind of sluggishness in terms of receiving sign-offs and project spend, so on and so forth. So how do we see the situation panning out now?

You're talking about -- your line is breaking a little bit. You're talking about High-Tech, Sudheer? As we talked about reprioritization of the work?

No. No. No. I'm talking about the impending management change at the top account, seemingly with the focus on cost restructuring. So what I was asking was historically, whenever there was a change in the top accounts of some of your competitors, we had noticed a 3 to 4 kind of -- 4-quarter kind of sluggishness.

Look, top account is growing and growing handsomely. The areas that we work in are very critical in these times. And we -- where we stand today, we feel there are more opportunities for growth for us at the top account. The new management is even more tech savvy and wants to do a lot more with tech. Banks have to deal with situation even more differently, not only from customer onboardings remotely, but also our finance risk and compliance is a lot more rigorously in these times. Also distribute monies that the government is making in terms of growth and so on and so forth. With the management and what we understand and the pipeline that we see, we are very confident of the growth in the top account as well. Sudhir, would you have something to add here?

Yes. Sanjay, absolutely. I think the 2 elements, and this applies to top account, and I think more broadly, BFS as well. See we are seeing a significant shift from multiple perspectives, from a technology perspective. For example, if we look at onboarding of customers onto whether it's new customers onto the -- onto any of the bank's products or existing customers onto new products, all of this has to be done digitally now. There is -- so the entire digital onboarding space is something that we are seeing growth in across the board. Similarly, loan management and the credit risk that comes with loan management, the entire analysis of that, the reporting of that, the risk management of that is leading to new growth opportunities. So essentially, what we are seeing is -- and this will continue to be the case even in our top account. In fact, in our top account, it will be slightly more enhanced, especially on the credit risk side. So I think BFS has had -- we've had good growth this quarter, and we see a continuing pipeline in the future as well.

Just one point from my side.

Sorry to interrupt, Mr. Guntupalli. [Operator Instructions] The next question is from the line of Shashi Bhusan from Axis Capital.

Congrats on a good quarter. TCV announced in this quarter was slightly lower than our historical average from the pre-COVID. Now with deal pipeline seems sharp improvement, are there few deals, those that got pushed to November or December? And do you think there are enough of small deals that got moved in the quarter to take care of growth momentum in the near term?

Yes. Shashi, so the revenue momentum will not get impacted. Though we agree, we wish we were announcing a lot more. And with God's grace, we still have time before we meet you in December for the Analyst Day. So I think we are very confident on growth on existing accounts, new account openings as well as the large deals being closed in shorter staff.

And any color on the smaller deals -- I mean those momentum has picked up or accelerated compared to the previous quarter that could result in improved visibly?

See, the overall pipeline -- I will open, and, Sudhir, you can comment a little bit. Overall pipeline, as I said, is, I think, 22% higher than what we have seen. We have seen large deal pipeline also increase proportionately. We are seeing enough pipeline in all accounts. As I said, technology is imperative. There is no dialogue whether spend needs to be done because that's the only way companies can operate in the new normal and serve the customers, whether it's a remote distribution of insurance or telemedicine or onboarding, as Sudhir and I spoke about, or customers in BFS. You have seen Mulan being launched not in theaters, but on Disney's OTT for $30 a pop. There are these things which are imperative for all customers. It's not even only the leaders doing that. It's -- everyone needs to do that to compare -- to compete. And so they compete -- to existential survive, you need to use technology. So there are many, many deals which are there. We have depth in our verticals that we operate in. We are co-creating solutions with customers in these areas at these times. So yes, the pipeline is strong enough for us to have the confidence. Sudhir, you want to add anything?

Yes. I think all I'd say is on the large deal front, we do have deals in final stages where contrasting is one activity, which is -- which requires essentially negotiation and discussions. And it's a little -- it takes a little longer when you're doing that remotely. So I think that's faster in some of the delays, but as Sanjay said, right, our pipeline is up on the overall basis as well as from a large deal perspective. And that's what we're continuing to focus on.

Just last one from my side.

Sorry to interrupt, Mr. Bhusan. The next question is from the line of Nitin Padmanabhan from Investec.

Actually, from an outlook perspective, historically, we've always said it as we see it. And from what is saying for the next quarter in terms of Q3 surpassing Q4 of last year looks tepid relatively, whereas Q3 has historically been very strong quarters for us. So anything that I'm missing in terms of from an outlook perspective. And if it's tepid, then what's driving the sort of softness overall?

We -- Nitin, I don't want to give any more guidance. There was a lot of debate whether in the last call, a quarter back, when would we cross Q3. So it's just a statement of fact that we will cross Q3 -- our Q4 numbers in Q3 results as well. It's not to say that we will just cross it, right? Where we stand today, we are confident of the growth to be in the leaders quadrant for the year. I'd like to leave it at.

Sure. Fair enough. That's helpful. And do you think that the offshore shift that you have seen in the current quarter from the rate of shift, that will continue over the next 6, 7 months in terms of the pace that it is? And that is something that could sort of need to slightly lower growth outlook, but maybe better sort of margin performance? Is that how we should think about it?

Nitin, I think we have always had a sharp focus on increased offshoring. If you look at RPA segment, you will always see that. And whenever you ask me about issues with protectionism, issues with what's happening in the world, we have always said we have to be operating as local companies, but also have the ability to use technology in order to do the work even more from India and offshore locations. And it took a COVID for the industry to believe us to also execute that effortlessly in our model. And I think we will continue to see that growth. The primary focus for us is to make sure that we are client-centric. We are solving big for our customers in the area. We are available to work and have overlap of time. So we have shifts that we have people working on. But maximize the dollar in these turbulent times for our customers to make the most out of it so they can invest in creating new operating plans. This trend is going to continue albeit slowly now and times to come, but this is an important area to look at.

The next question is from the line of Manik Taneja from JM Financial.

Just carrying on with a question that a few other participants have asked. Given the strong pipeline that you are seeing in terms of more offshorization, do you think at some point of time, maybe, in 12 to 18 months time frame, we start seeing some pressure from a talent or a supply side perspective?

Look, we inducted 1,000 fresh trainees this quarter. The quality of people that we are getting, the day zero slots that we are getting from the campuses and the kind of people who are wishing to come and work for us, I think it's a testimony of what position that we had created to be a growth leader and give an environment to people to grow in the organization. The kind of talent that one gets is an after effect of -- it's a lagging indicator for the differentiation and growth that one creates in the market. So I think we're getting a lot more positive. Having said that, we are also seeing -- there are many, many startups and a lot of global companies are not hiring as much as they did in the past. So we -- if we continue to book from, we'll create modules and opportunities for getting more people there. Nachiket, would you like to add anything to that?

Just one data point. I think you mentioned it. We continued to hire even during the last quarter. Ashok mentioned the net addition. And the -- our fresh trainee intake also continued as original plan. So we believe this is actually a good opportunity for us to attract a better talent in the market, and we continue to focus on those.

Sure. If I can ask one more. I just wanted to understand geography-wise trends in terms of what you are seeing between U.S. and Europe on this sector?

Sorry, I missed that question. Can you say that again, Manik?

Sanjay, basically just wanted to pick your brains on if you are seeing that incremental acceptance of offshoring, primarily in Europe, given the underpenetration there or this is something that is much more broad-based across Europe?

I'm not sure whether your question -- if your question is related to COVID, I don't know whether I'm seeing anything specific trend because of COVID, whether Europe customers are accepting offshore. I think that will always -- that has always been lesser compared to the U.S. But I think globalization has actually helped it over the years, and we have seen more and more companies do work offshore. In the beginning, when COVID happened, obviously, Europe was a little slow to start with, especially getting approvals for data coming out of Europe, but it has picked up. And that's one reason why you have seen our growth in Europe this quarter. And there is a lot more acceptance and doing work. They've also seen that India has operated very well during pandemic. All Indian companies, when you talk to customers, they always say that India has actually led the way in showing that Indian companies actually have performed better during COVID with a lot more productivity, a lot more SLAs being met compared to companies outside.

The next question is from the line of Mohit Jain from Anand Rathi.

Just one question on your U.S. top line growth. So we saw a decline in 1Q and then a relatively slower recovery in 2Q. So what is the readout from your pipeline? Should we expect U.S. to catch up with Europe going forward? And this goes true for your top line stock? Clients have specified, but 2 to 10 is specifically what I'm referring to.

So U.S. will definitely grow faster, in my view. Europe base is smaller as well. So you can't equate growth percentages, but we are optimistic about what we see in the U.S. There's a good and healthy pipeline across. In top line, we have already commented. We feel very confident about our growth there.

Sir, top line, you have commented, but 2 to 10 was also relatively on the slower side compared to 1Q?

That is correct. And if you really look at it, lots of -- we have a mixture of clients, which are insurance and some manufacturing clients, which -- these are the sectors which are still not out of trouble completely. And that is where we have seen a little bit of softness. But the pipeline that we see on certain sectors gives us the confidence that we would be able to grow effectively well in Q3 and Q4.

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

Sir 2 questions from my side. In the insurance segment, you have mentioned that it continues to be weak last quarter as well. So just wanted to pick up based on -- what exactly are we seeing in reserves? What are the target clients putting their CapEx on hold on other deals or other -- with the descoping that's happening? And when do you think with your estimation of the sector would we see the sector bottoming out? And also, secondly, on the pricing front. How do we see -- how have you seen the pricing front from different clients? Is higher offshoring also leading to clients demanding more price cuts? And are the newer deals coming at a slightly lower rate than earlier? Or is it the same as before?

Sudhir, you want to take that. Sudhir, you might be talking on mute.

No. No. Yes, sorry. Yes. So I think overall pipeline, right, if you -- and it goes back to the point we mentioned earlier. So what we are seeing is across verticals as well as geographies we're seeing a pretty secular increase in our pipeline. Large deals are essentially being led by a combination of factors, which are to do with clients looking to cut costs in several areas, but also due to clients shifting priorities and transformation spend. So the question is, from a pipeline perspective, as I said, we see -- we're talking about a 20% increase in pipeline, which is in sync with what we expect to see despite still a sort of uncertain macro environment. So I think, overall, I would say, pipeline is in good shape. What we need to focus on is conversion and the speed of conversion of data.

Actually, Sudhir, my question was on pricing.

Vibhor, your question was on insurance, right? Was your question on insurance or overall pipeline?

So the first question was on insurance. How is the vertical feedback? And second is on the pricing of deals.

Okay. Sorry. Maybe I misheard you.

U.S. insurance, if I just have to say, they are seeing -- in second half, they've seen impact by COVID-related insured losses and premium volumes have declined. They have also seen significant hurricane and wildfire losses, which has been a threat to the industry. But this is a significantly large industry. And we have, I think, a good pipeline. And the focus will be on closing of this pipeline because this sector can potentially grow well for us as well.

Sure. And on the pricing front, if you could answer that question.

Sorry to interrupt, Mr. Singhal.

Sudhir, the question is on pricing. We'll answer this question. Sudhir, the question is on are you seeing any pricing difference?

No. I mean what we are seeing is obviously clients looking for newer models of execution, but not pricing per se. There is -- I wouldn't say there is a pressure on rates, et cetera. What is -- what they are looking for is different models of execution, which includes how the -- from an automation perspective, for example, or from an offshoring perspective or how are we using in -- for example, in our cases, like LTI Canvas, our new mechanisms for executing these projects in a different -- in a hybrid work environment, that's where most of the focus is.

[Operator Instructions] The next question is from the line of Sandeep Shah from Equirus Securities.

Congratulations on a great execution. Just, Sanjay, I wanted to understand that if I look at FY '19 and FY '20, your large deal new business TCV was upwards of $200 million and $300 million, respectively. While if you look at the 1H, it has been more than $40 million. So I'm not asking for any numbers, but that TCV in 1H versus last 2 years makes you feel slightly more pessimistic about FY '22, when you budget about the growth? Or you believe still there are 2 more quarters to go. And TCV can catch up, and you can continue to remain in a leaders quadrant beyond FY '21 as well?

Yes. Sandeep, as I again repeat 4 things. A large deal is very important, one of them. So I will not underrate it by any manner. Obviously, you're answering the question as well. So we also have 2 quarters to go. But we have enough pipeline that gives us the confidence that we are setting ourselves for a strong FY '22 as well. It's still some ways off. World is still not a very stable place. We are seeing second and third degrees of lockdowns in the world, but we are also seeing technology as being the enabler of sorts for companies to operate in this new normal. There are many things which we are doing differently and investing in areas like cloud and data in order to address what will be foundational for growth for these companies in their existential or being the leaders of the future. Where we sit today, I agree -- I couldn't agree with you more that I wish we had closed a lot more deals, but I also want to acknowledge that I wouldn't have -- none of us would be here, given the situation we saw ourselves at the start of pandemic in March and April. We will see how FY '22 pans out. This is a plug for me -- a plug-in for me to say we will have our Analyst Day in December. We will have saved the date issue -- saved the date for December 10 or 12, I forget. Sunila will send it out. We will probably address a little bit on FY '22 growth. But I just want you to be aware, large deals alone don't drive that, right? So we'll drive based on all the 4 things: growth accounts, invest accounts, new accounts as well as large deals.

Okay. Fair enough. Fair enough. And just a last bookkeeping question.

Sorry to interrupt, Mr. Shah. [Operator Instructions] The next question is from the line of Dhruvesh Shah from IDBI Federal.

Am I audible?

Yes. Yes. Your one question is over, Dhruvesh.

Sorry. I'm asking it for the first time. Sorry. May I?

Yes. Yes. Yes.

Yes. So I was actually trying to understand, as you rightly mentioned that a lot of deal negotiations are operating on the front of offshore rather than price cutting on the onshore. I would just like to know whether such deals are EPS accretive at the end of the day. I understand they are margin accretive. But are they EPS accretive? And if yes, can we look at utilizations of offshore improving? And how would that be?

Ashok and Nachiket.

I think, okay, I will answer. Ashok here. Dhruvesh, I think it is well established in our industry that offshore leads to better margin and better profitability, not in terms of margin, absolute amount also, which you can see in our quarter 2 result. If quarter 2 result is giving you any confidence where offshore on-site ratio has played an important role in the performance which we have put in. I don't think there is any contradiction or conflict into that. It will be EPS accretive.

Sure. And in a continuation with that...

Sorry to interrupt, Mr. Shah. [Operator Instructions] The next question is from the line of Ashwin Mehta from AMBIT Capital.

Sanjay, just wanted to get a sense in terms of your outlook on Manufacturing, which saw smart recovery this quarter as to how sustainable that is. And what is the outlook on Energy & Utilities?

Sudhir?

So -- okay. The outlook on Energy & Utilities, let me start with that first. So I think we are beginning to see some comeback in the Energy space. But I think, overall, for the full year, we'll still see -- it will be from -- the spends in that segment that are going to continue to be impacted for this financial year. Hopefully, we begin to see some recovery from Q4 onwards from Energy perspective. Before that, sorry, which vertical did you refer to. I'm sorry.

The other one was Manufacturing.

So I think Manufacturing, what you are saying -- what we are saying is growth in -- in fact, across regions as well. We are beginning to see growth come back in the U.S. as well as Europe. Partly, this is due to the return to operations as factories come up and some supply chain start to work again in a new normal, as they say. So that's partly due to it. I think what will drive the growth in Manufacturing going forward will be the move to new operating models. Sanjay referred to new operating models. We are seeing, for example, Manufacturing clients going direct to customers rather than through distributors. There are multiple other business model changes that they're seeking to make. And I think that is going to be another growth -- I mean, the next growth opportunity in that space, especially as we look forward to FY '22.

The next question is from the line of Sandip Agarwal from Edelweiss.

Congrats on great quarter and also wish you all good health.

Sorry to interrupt, Mr. Agarwal. Sir, your voice is breaking up.

Yes, sorry. Sir, can you hear me now? Congrats on great quarter to the management team and wish everyone a good health. Sanjay, I have a very simple question for you and Sudhir, and it is only one question that how do you see this pandemic? Because this pandemic has been for a long time, so people habits would have changed. So do you think the argument of upfronting of spend has any merit or you think it is a more structural change? Second, which is a part of this question only, is that -- are you seeing that with digital becoming more relevant than earlier in size of deals in digital being slightly smaller than traditional, we will see more stability versus lumpiness in past, better and quicker decision making? And also it will lose a lot of relevance on the price negotiation? Sir, that's all from my side.

What was the first question? Man, you asked 3 questions. What was the first question?

Sir, I'm just saying that the pandemic has stayed for quite long so -- yes.

I mean, Sanjay, pandemic has -- at least the way I understood is the pandemic has continued for so long, so our clients sort of not look -- I mean, is that the new model now?

No. My point basically is that because the pandemic has stayed too long. So the adoption of technology will be more permanent than being only a temporary phenomenon and upfronting, which a lot of people have that argument. So what is your sense on that? Because with such a long pandemic duration, the habit should have changed permanently, right?

Okay. So look, it's -- there are sectors which deal very differently in the marketplace. So any company which can operate remotely, I think it has worked very well. But for people who need to travel and stay in hotels, the airlines, the manufacturing companies where the shop floor needs to work, the product needs to be sold and used in the marketplace, it's a totally different world altogether. The complex worlds of sort. And frankly, if you were to ask me whether we would ever go back to 100% being remote or whether we'll go to 100% being at work, will also not happen, right? So there will be a hybrid model that will evolve in the future. Having said that, that automatically leads to newer operating model that we have been talking about for companies to exist and do things very differently. We gave you some examples of customer onboarding. We look at Mulan being launched on OTT, look at Snacks.com with Pepsi selling snacks online, which there are many things which we have never seen in our lives that will happen. The only way these things will happen and occur in the marketplace would be through technology. And fundamentally, 5 things are the ones that people are -- customers are doing. One, they are looking at direct to customer. Whether it's B2B customer, B2C customer, everyone wants to touch the customer directly. Second place, customers are looking at doing workplace modernization because it will never be 100% on-site or 100% offshore as well, outside of office, right, remote, work from home. Third is generate new operating models for them and discover, co-create new models using technology. In order to fund all of these cost savings, some operations need to be there. And fifth thing is when people are working so remote all the time, how do you work on cybersecurity? The focus on cybersecurity takes prominence as well. So we do believe this will create -- this has created opportunities for technology companies. And these are not going to disappear in shorter time frame, but a longer time frame -- longer view has to be taken. Digital is mainstream. As far as pricing goes, I think there is no discussions on price. Customers -- you've got to bring value, right? More focus is on how much can you automate, what can you do with data and analytics to be put for you to make intelligent decisions based on the data automatically rather than 10 people doing report writing in the past. Price is not an issue, but how do you use technology, AI, ML, et cetera, I think value to the customer is very important. The areas that will continue to be important is data cloud, ERP. I also believe the definition of digital in times to come will get very complex because it is going to be everywhere. Today, it's very difficult for us to say why our ADM has improved, is increasing by a double-digit on a year-on-year basis, simply because cloud and data is everywhere. Lots of things are getting done. It's getting very difficult for us to classify what is digital and what is not. So these are the things which are here to stay, guys, and that's a great opportunity for the tech industry.

The next question is from the line of Abhishek Bhandari from Macquarie.

Sanjay, first of all, congrats on your fifth year work anniversary. I had 1 question with 2 parts. First is, Sanjay, if I look at now the digital sales becoming kind of a normal process, what kind of changes have you made to your sales team to make them more comfortable talking to clients? And what kind of client communications you think could be improved to accelerate your deal closures? That's one. And related question. Second one is you mentioned about 26 new accounts getting opened this quarter. How does it fare compared to your historical averages?

Look, we did talk about transformation of sales as one of the activity that we had initiated 5 years back. And this is -- obviously, the pace has accelerated to our major speed right now. And time to market and speed is the most important today in the market. I would even reckon to say that it's more important than price in order for customers to launch products and platforms. Many things. You have to have people in sales who can co-create with the customer. People with design thinking principles, salespeople who are looking for problem, not only identity, who focus more on identification of problems and co-creating solutions with customers. People having the ability to partner and co-create are very important. Specific change that we have just announced today in my speech, we are going to create a separate unit to focus on 2 areas, one cloud, what we -- scale us, AWS, GCP and Azure. And this will include ways -- different ways of doing businesses, right? So there will be pods, which will be created where you can co-create with the customers in an iterated model. Selling more models will -- entirely turning on its head. We have several cloud certified sales practitioners today. So many things are changing on cloud and data products. This is what we are trying to do. Your second question was on NAO. NAO, guys, please remember this is -- historically, if we look at it, we have been opening over 20-odd customers per quarter. And I think we are seeing similar numbers of activity happening in the marketplace right now. Sudhir, you want to add some more on -- color on NAO, new account opening?

Yes. So I think if you look at the numbers, right, they are in line with what we've been doing previously. I think what -- I'll just cover a little bit about the previous point, right? So there's significant amount of training effort. So we did this -- we have a platform for cloud training, for example called A Cloud Guru, which is -- the entire sales organization has been through. And as Sanjay mentioned, we have several certified sales practitioners from a cloud perspective. We're also very parsing very actively with the product companies in this space. So not just the traditional partners of us, like SAP and Oracle, but also increasingly the Snowflakes of the world where we are creating joint sales traction, including go-to-market, enablement, et cetera. So the whole space has undergone a shift, and that's what we are also doing at the same time. And as Sanjay said, the next step is to create a dedicated sales unit just focused on that.

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

Thank you all for joining the call today. Please do take care of yourself and your families. Wear a mask. I also want to request you to -- you'll get a mailer from Sunila very soon. But please save the date. We will have our Analyst Day on 10th of December. I would have -- I normally cherish and look forward to seeing all of you guys face-to-face, but this time we will do it remotely. But I look forward to seeing you there on that day. With that, we'll -- take care of your health, and we'll see you next quarter. Bye-bye.

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