LTM Limited (LTM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to LTI Q4 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.

Thank you, Sanford. Hello, everyone, and thank you all for joining us today to discuss LTI's Q4 and full year FY '21 earnings. The financial statements, press release and quarterly fact sheet are all available in our filings with the stock exchanges as well as in the Investors section of our website. Today on the call, we have with us Mr. Sanjay Jalona, CEO and Managing Director; Mr. Sudhir Chaturvedi, President, Sales; Mr. Nachiket Deshpande, Chief Operating Officer; and Mr. Anil Rander, Chief Financial Officer. Sanjay and Anil will give you a brief overview of the company's performance, which will be followed by the Q&A session. As a policy, LTI does not provide specific revenue or earnings guidance. And anything said on this call which reflects our outlook for the future or which can be construed as a forward-looking statement must be reviewed in conjunction with the risk that the company faces. Let me now invite Sanjay to talk about our results. Over to you, Sanjay.

Thank you, Sunila. It has been over a year since COVID-19 was declared a global pandemic, a year of terrible loss of lives and livelihoods. Globally, communities are still confronting extreme social and economical stain as the human toll rises and millions remain unemployed. Last many weeks have witnessed a sudden surge of COVID cases across India. It is just heartbreaking to see and hear about the struggles and pains of numerous people across the country. This time, COVID has touched much closer to all of us. Like many around the world, we, at LTI, have lost a few of our employees to the pandemic. And on behalf of everyone here, we extend our deepest sympathies and condolences to the families as well as all those who are struggling to cope with the crisis and who have, most unfortunately, lost a loved one. Our priority at LTI continues to be employee safety and supporting our employees. We are working to ensure medical health and financial aid to the best of our abilities for our employees. We are also working with the relevant authorities to organize vaccination camps in our campuses for our colleagues based in India. I hope that the situation improves and the affected people find the strength to recover and recuperate. Recently, I wrote to all our customers about the situation in India and the response from LTI. The messages received from clients have nothing but strong support, kindness and care for our people. It's quite touching and overwhelming to read these responses. The world is showing great character in dealing with the situation. If we look beyond the public health crisis, FY '21 has been a year of several inflection points. In the past 1 year, every industry has been required to reimagine their operating models to survive and stay relevant. The lines between B2B and B2C have blurred with several B2B organizations facing the need to explore new routes to market and sell directly to end consumers during the pandemic. For instance, several manufacturing and CPG companies are trying to reach you and me directly for the first time. Most of these organizations are either building or speeding up their B2C capabilities. The future of workplace is also evolving at a rapid pace with work from home. It started off as a necessary stop-gap measure to keep companies operating amid the health crisis evolving into a new business paradigm. This has permitted a surge in reverse migration across most professionals close to their homes away from Tier 1 cities. We now have work moving to where the people are with several companies planning to set up satellite and collaboration offices across Tier 2 and Tier 3 space. This will result in most companies gradually building out a far more distributed and diverse workforce. If we look at the major events in the last century, the great depression, Great Recession and now the great restructuring. I call it great restructuring because we are facing fundamental changes to the way we live and work, and the situation continues to evolve. The way we interact, collaborate, learn, deliver and expect value has changed forever. This great restructuring is so comprehensive that no industry, company, country and to some extent, even individual is isolated. What we are witnessing is a curve-bending phase where status quo is no more an option. Every industry has to restructure and adapt to the new normal, and that creates tremendous opportunities for us to partner with our customers. I'm so proud of how our team at LTI has responded to these challenges and seize this opportunity. We have a blend of experience and innovation that are coming together to allow us to execute with more creativity and speed. We pioneered innovative solutions during this time like xFH, SafeRadius, Canvas and the Grit Alliance. These are helping us pave our future as much as they are helping our customers steer through this change. Before I talk about our results, let me take a minute to introduce and welcome Anil Rander, our new CFO, to the leadership team. He's a seasoned finance leader with over 27 years of multi-faceted experience. Anil joins us from Tech Mahindra, where he was a global Head of Finance for BPS. As Senior Vice President, Finance and Legal, he led the finance, legal, facilities and risk management functions of Tech Mahindra Business Services. We are very happy to have him with us as we chart the next phase of growth at LTI. Coming to our results. Our Q4 numbers cap another year of industry-leading growth. We delivered revenues of $447.4 million, a growth of 4.6% quarter-on-quarter and 9.1% for Q4 year-on-year. In constant currency terms, this translates to 4.4% and 7.1%, respectively. This helped us conclude FY '21 with a revenue of $1.67 billion, growth of 9.5% in dollar terms and 8.8% in constant currency. The Board of Directors, at their meeting held yesterday, have declared a final dividend of INR 25 per equity share. We had 2 large deal wins this quarter. First one is a vendor consolidation win with an existing logo and is part of the insurance vertical in North America. LTI has been chosen as a long-term strategic partner for management of core insurance platform -- platforms for a large Fortune 500 insurance company. This is a unique deal, which includes vendor consolidation and several modernization programs across multiple core areas in the P&C space. The deal tenure is 5 years and the net new TCV, net new TCV of $21 million, and it will grow from there. This deal has won against top tier incumbents. Our second is in the BFS vertical with a new logo. One of the world's largest Islamic banks is in the process of a digital transformation to enhance its Islamic lending and finance -- and financing products capability. LTI has been selected as the prime system integrator to accelerate the first phase of this transformation program using Temenos' T24 platform. This implementation by LTI will enable the bank to introduce new lending products to the market, reduce complexities, service its increasing customer base in a faster and efficient manner while lowering the total cost of ownership. Empowered with preconfigured local functions, this transformation would enable the bank to cater to regulatory requirements within a relatively short time span and reduced effort. The deal tenure is 2 years with a TCV of USD 45 million. We have won this deal against leading global consulting companies. This win is a playbook example of how we leverage acquisitions to enhance our capabilities and drive growth. Our pipeline continues to be healthy, and we added 2 Fortune 500 logos to our list of clients in Q4. With this, our total Fortune 500 customer count goes to 71, an addition of 5 during the year. Before we move to the performance of our business verticals, let me share a few updates with you. The result of our annual third-party-conducted client satisfaction survey has come in, and our scores have improved sharply. Our customer experience index has seen an 18% increase in the last 1 year alone. 80% of the respondents were delighted with our remote delivery during the pandemic. We also scored well on responsiveness and client engagement. Our focus on customer centricity has been widely recognized, has seen as a key differentiator, followed by our partner mindset. Supplementing the finding of the survey was our top rank by Everest Group's PEAK Matrix IT Service Provider in their list of challengers for 2021. These recognitions demonstrate the credibility of LTI to focus on building capabilities, getting recognition and putting all our grit together to solve the customer issues. In our endeavor to continue building and scaling differentiated capabilities, we had carved out 2 separate units to focus on cloud and data products. Some updates on these units since our announcement a few months back. On the Cloud side, we have made significant progress, both in terms of setting up a dedicated organization and in terms of market success. We continued to strengthen our team with new leadership hires across technology and business roles. We have started seeing momentum pick up with a spate of new wins and implementation across all geographies. We have entered into a strategic -- our global strategic partnership agreement with AWS to enable accelerated cloud adoption requirements of enterprises. We are investing further to expand assessment, migration and modernization capabilities with primary focus on SAP application workloads, IoT and data analytics-driven solutions and services. We reached a significant milestone with Azure, and LTI is now certified Azure expert managed services provider. This makes us part of a pool of only select Microsoft partners worldwide to be rewarded with this prestigious MSP badge, which is an assurance of our proven expertise in Microsoft Azure capabilities to assist clients in their transformation journeys. On data products, our near-term focus is to building dedicated go-to-market teams, branding, marketing, sales and partnerships. In many cases, our data products are creating a new category of innovative solutions. We are getting market validations as well as recognitions in the latest reports from Gartner and Forrester. Leni and Mosaic were both featured in the Forrester Tech Tide Enterprise Business Insights and Analytics. Overall, early days in the setup of dedicated units for these -- both these businesses, but the signs are very encouraging, even as we build out the foundation. Another focus area for us is the enterprise applications market. This space is undergoing rapid transformation due to exponential growth of cloud-based applications, advancements of intelligent technologies and new market entrants with disruptive propositions. LTI has always been a major player in this space. However, we want to renew our approach to enterprise application market and consequently have created a new sales unit called intelligent enterprise sales. This unit is focused on major enterprise application economies like SAP, Oracle, Salesforce and MS Dynamics. Our initial centers around investments in major areas such as consulting, go-to-market initiatives, productized offering and delivery platforms. Let me now provide you with a color on performance of our verticals. BFS, our growth of 5% Q-on-Q was driven by broad-based performance of all our clients in this vertical. One of our large deal wins this quarter is with a new logo from this vertical and involves a digital banking transformation program, as I talked about using the Temenos T24 platform. In Q3, in partnership with Temenos, we announced the launch of our digital banking platform in the Nordics region that we talked last quarter as well. This strategic partnership for both companies was a joint sales effort to capture the market. I'm happy to say that we have won our first customer here, a pan-European financial services company has selected LTI to provide banking as a service for its performing loan segment. The new powerful digital banking platform is based on Temenos' cloud-native technology and will enable our clients to scale, modernize and reduce IT costs significantly. Moving to Insurance. We saw a 0.8% quarter-on-quarter growth here. Our other large deal win is in this vertical and is a result of vendor consolidation exercise by an existing client in North America. While we have reported soft numbers in this vertical over the past year, we hope to strengthen our performance going forward. Manufacturing grew 5.5% quarter-on-quarter. This is a combination of ramp-up of some new -- our existing logos and some pass-through revenues in one of our India engagements, which flows through in H2. Energy and Utility. This vertical has been soft for most of the year due to the declining oil prices and the impact of COVID. We have ended the year with a decline of 2.8% Y-o-Y. On our last call, we had shared some expectations on how sector spends would continue to be impacted. Our last deal announced last quarter from a global Fortune 500 energy company is in valuation phase and is going to -- going as per schedule. We expect to see further ramp-up in the deal in FY '22. One of the large Fortune 500 clients, which we have added this quarter also belongs to this vertical. CPG, Retail & Pharma grew up 3.5% quarter-on-quarter, driven by some of our large deals announced in the previous year as well as our existing logos. High-Tech and Media grew by 16% quarter-on-quarter. One of the drivers for this growth has been a large deal win with Injazat announced last quarter. The ramp-up on this deal has happened earlier than expected, and we have completed the rebadging of around 350 resources and are in the full-fledged operation mode now. We've also had some good client additions in this vertical during the quarter. The second Fortune 500 client which we have added in Q4 also belongs to this quarter -- this vertical. Others, which includes government business, defense business, professional services, pseudo government bodies registered 8.2% growth quarter-on-quarter. That growth is being driven by the scheduled ramp-up of our earlier announced large deal wins and some of our existing logos. Digital revenues across all our verticals now account for over 45% of our total revenues for the quarter. You have heard my views on this classification earlier. Our philosophy has always been that clients are spending money only on new technologies, and the lines between digital and so-called traditional services are blurring. This trend of calling out digital revenues has started 5 years back as the industry attempted to provide validation on our efforts to re-skill and remain relevant. We think that this metrics is no longer a relevant measure of our capabilities and performance. And hence, starting FY '22, we shall stop reporting these numbers. On outlook, let me now just give you some details. We delivered market-leading growth in FY '21. We had strong growth momentum supported by record large deals TCV in the year. We continue to execute and deliver in challenging and changing times. Our pipeline remains healthy, and we will continue on that strong momentum. Strong -- our strong Q4 exit rate, strength of our pipeline and incredible conversations we are having with our customers, give us the confidence that we'll be in the leaders quadrant for growth in FY '22 as well. Considering the investments we plan to do in the areas of capacity building and sales, post-COVID workspaces, reskilling, diversity and localizations, as detailed earlier in the year, our margins will be in the narrow band of 14% to 15% for FY '22. We also need to acknowledge the uncertainties from a second wave of pandemic, especially in India. While vaccination continues to be rolled out in phased manner, the number of people impacted by the virus continues to spike. According to some media articles, the impact of second wave has been concentrated around the middle class and the urban affluent or those in the high-rise building. In line with this, we are also seeing a high number of our employees being impacted directly or indirectly by the ongoing second wave in comparison to the first wheel. Safety of our employees and fulfilling our promises to our clients remain our top priority. Thanks to our committed workforce, we continue meeting client deliverables and time lines. We are closely monitoring the health crisis and continue to stay connected and update our clients on our evolving situation regularly. I sincerely hope that these things improve for all those who are impacted. Given our performance for the year and to recognize the untiring effort of our employees, we have advanced our performance review cycle for FY '22 for all our employees, except for our senior executives. I'm happy to state that we would be rolling out salary hikes effective April 1 instead of our regular July cycle. With that, let me hand over to Anil.

Thank you, Sanjay. Hello, everyone. I'm happy to be speaking with all of you today on my first earning call for LTI. Hope all of you are keeping safe and healthy. Let me take you through the financial highlights for Q4 as well as the financial year 2021, starting with the revenue numbers. Our revenue stood at USD 447.4 million, up 4.6% sequentially and 9.1% year-on-year basis. The corresponding constant currency growth was at 4.4% quarter-on-quarter and 7.1% year-on-year. Reported INR revenue of INR 32,694 million, was up 3.7% quarter-on-quarter and 8.5% year-on-year. Revenue for FY '21 stood at USD 1.67 billion, growing at 9.5%, which corresponds to a constant currency growth of 8.8%. In rupee terms, the full year revenue was INR 123,698 million, registering a growth of 13.7%. Now coming to profitability. EBIT for the quarter was INR 6,329 million, translating into an operating margin of 19.4% as compared to 20.6% in the previous quarter. The impact of wage hikes effective from January 1, 2021, were partially offset by operational efficiencies, leading to about 120 basis points decline in margins for the quarter. For the full year, operating margin was at INR 23,926 million at 19.3% against 16.1% of the previous year. Reported profit after tax was INR 5,457 million, which translated into a PAT margin of 16.7% this quarter as compared with 16.5% in quarter 3. Other income pertaining to quarter 4 FY '21 includes the write-back of certain earn-outs payable towards an earlier acquisition amounting to INR 571 million. Adjusting for this amount, PAT margin for Q4 FY '21 would have been at 14.9%. Our full year PAT stood at INR 19,382 million, helping us deliver a full year PAT margin of 15.7%. Considering the investments outlined by us on our Analyst Day, the margins will be in the narrow band of 14% for FY '22. On the employee metrics, moving on to the people front, utilization without trainees was at 82.2% as compared to 84.1% last quarter. And utilization including trainees was at 80.8% versus 81.1% in quarter 3. Full year utilization, including trainees, stood at 80.5% as compared to 79.5% last year and without trainees at 82% as compared to 80.9% last year. We continue to strengthen our workforce. And during Q4, we added 2008 people on a net basis. And for the year, it stood at 4,554, which translates into 14.5% growth in headcounts from FY '20. The total manpower stood at 35,991 of which our production associates were at 95%. In this quarter, the attrition is at 12.3% versus 12.4% last quarter on an LTM basis. Moving to ForEx and hedge book. Our cash flow hedge book stood at USD 1,354 million as at 31st March 2021 versus USD 1,296 million as of 31st December '20 while the on-balance sheet hedges stood at USD 65 million versus USD 69 million last quarter. Moving on to DSO. In Q4, the billed DSO improved by 2 days and stood at 61 days as compared to 63 as last quarter. The DSO, including unbilled, was at 94 days, an increase of 1 day quarter-on-quarter. DSO, including unbilled, was lower by 12 days as compared to the corresponding quarter last year. The net working capital is at 15.1% of the revenue as at 31st March 2021, as compared to 16.4% as on 31st March 2020. For the quarter, the net cash flow from operations was at INR 7,136 million, which was at 130.8% conversion of net income. For the full year, the net cash flow from operations was INR 23,997 million at 123.8% conversion of net income versus 108.1% in FY '20. This represents a growth of 46% year-on-year. At the end of quarter, cash and liquid investments stood at INR 43,877 million as compared to INR 38,560 million as on 31st December 2020. The effective tax rate for the quarter was at 23.9%. The Board of Directors at the meeting held yesterday have recommended a final dividend of INR 25 per equity share. The earnings per share for the quarter stood at INR 31.2 as compared to INR 29.3 in quarter 3 -- INR 29.7 in quarter 3. Diluted earnings per share was INR 31 versus INR 29.5 last quarter. Diluted earnings per share was INR 110.3 in FY '21 versus INR 86.6 in FY '20. Before I end my presentation, I would like to say that solving for society is one of our core beliefs. We will continue to explore ways in which we can work with communities and those around us to help them overcome the second wave of this pandemic. With that, I would like to open the floor for questions. Thank you.

[Operator Instructions] The first question is from the line of Sudheer Guntupalli from ICICI Securities.

Sanjay, while the company level growth for the full year has been very impressive at around 10%, growth in the top 20 accounts is very weak. It's actually in the range of 1% to 4% across different subsegments across the top 20. And it's interesting on 2 counts. Unlike some of our competitors, we don't have many key accounts in highly troubled verticals like travel or retail so on and so forth. Also, LTI has always been well-known for its [ top-of-mind capability ]. Just wanted to get your thoughts on what is happening here. And the spend of nonkey accounts actually offsetting the pressure in the key accounts and keeping the growth rates [indiscernible]. How sustainable is this?

Yes. Sudheer, good question. Look, top 10 accounts have seen impact. Some of them have seen impact due to COVID. Some are in oil and gas, as you probably know. And some of -- some are in the Insurance vertical where we probably have to perform a lot better in times to come. And we have sown some seeds of that bringing in new leadership as well. Look for -- look -- from the long-term perspective, we have always looked at them, and these will [ pick pace ] going forward. So if you look at 5-year CAGR for top accounts, it's been pretty healthy, top 5 accounts from FY '16 to FY '21 have grown at 8%, top 6 to 10 have grown at 9.4%, 11% to 20% have grown by 13.2%. Please remember, were also 5 years back during IPO time when we did road shows, we also had a lot of concentration risk. And I think that has been very consciously done, balancing -- reducing the concentration as well as growing large key marquee names in the world as customers has been the key theme. But recently, I think it is on account of COVID or oil and gas or insurance that you see the softness in our top accounts. But we are extremely excited about the prospects of growth in all of them.

Sure, Sanjay. And second question is on the top client. They seem to have announced some business restructuring and exit from some geographies, and more such measures may likely come into picture going forward. So any sense you are getting based on your discussions with the decision-makers inside the company about the potential sluggishness in decision-making activity so on and so forth? Basically, I'm asking this because one of our competitors, let us say, when one of their top 3 clients had gone through a similar transition earlier, they had seen almost 3 to 4 quarters of sluggishness in decision-making eventually impacting their financials as well. So any thoughts on that front?

Actually, it's exactly the opposite right now with the top client has a very, very strong momentum on projects, and there is no indication of it slowing down right now.

Okay. The next question is from the line of Vimal Gohil from Union Asset Management.

Sir, despite margin -- despite the salary hike, what I noticed is your margin outlook for FY '22 is quite similar to what you've been guiding, about 14% to 15% range. So -- and plus, you're also going to make certain investments. So what are the -- I just wanted to understand what are the offsets here. You spoke about some operational efficiencies that you had this quarter. If you could just explain those as well. So what is leading to that? And secondly, on the Insurance vertical, we've seen some softness. Is it industry specific? Or is it client specific? These are my 2 questions.

I'll ask -- answer the second question, and Anil, you could take a look at the first question. The Insurance, by and large, if you look at the insurance companies, what they have faced in the last 2 years with the hurricanes, with the situations like COVID now has been tremendous. So there has been a lot of strain. But I will still say that while this industry has been -- is typically cyclical in nature and goes through up and down. But I must also, at the same time, agree that we have a lot to do by ourselves. And we are -- with the win that we just announced this quarter, it's the start. It will still take 3, 4 quarters for us to get in full steam, but we are at the right direction at this point on insurance. Anil, would you like to answer the first question?

Yes, sure. Thanks, Sanjay. So surely, I think what the guidance is coming is also coming more from operational efficiencies, which will move ahead. And we will also look at areas in terms of transformation and also cost optimization. These things, we think, overall, when we work together, will be actually guiding towards a better margin.

Vimal, remember, growth is the biggest lever. Growth is the biggest lever for margin improvement.

Fair enough. Fair enough. Point noted.

The next question is from the line of Sandeep Shah from Equirus.

Yes. Sanjay, just in terms of your new deal addition this time in FY '21 from developed markets, U.S. and Europe, slightly lower versus what the peers were reporting. So is it as per your expectation? Or do you believe the decision-making is slightly slower in our set of accounts and may improve going forward? And a second question. Generally, 1Q, we have a seasonality because of the attrition on pass-through revenues. Whether the same phenomena may continue in FY '22? And just last thing on SG&A. In fact, historic low of 10% while we are talking about investments. So whether it will go back to normal levels of 12% to 14% over a period of time?

You have mastered the art of asking many questions in one question now. Okay. Sudhir, why don't you answer the question on the deal wins.

Yes. So I think, Sandeep, if I got your question right, you were looking at the geo mix of the deal wins. Is that correct?

Yes. Yes. Yes. For FY '21, yes.

Yes. So I think if I look at the quality of the deals that we have announced in the regions, right? Those are deals, cloud-based transformation deal in Injazat's case. And then the recent win that Sanjay spoke about in his opening remarks with this core banking transformation of one of the world's largest Islamic banks. Similarly, there have been some good, strong data deals that we have done in both India and Asia Pacific region. So I think I would -- if I look at the quality of deals, these are deals that we would do -- happy to do in any part of the world. I think we saw good growth opportunities in this -- in these geographies and that's the case. If you see overall, I think the percentage mix, U.S. still continues to have the same share of revenue for us and was also our fastest growing region. So I think in terms of pipeline also if I look ahead, we will see that we are going to be in a similar revenue mix per geo as we've had over the previous years.

And on SG&A and pass-through, Anil, would you like to answer the question there?

Yes. Yes. Sure. Sure. So I think on SG&A, obviously, I think there has been an improvement in terms of our sales productivity. You're right, there is going to be an investment in sales and marketing. In this quarter, there have been some provisions which we no longer required in terms of expenses, which we have reversed. That also has an impact here. And in terms of pass-through, you're right. It's a seasonal phenomenon in Q4, which we foresee to continue.

Sandeep, just to summarize, we will continue, as we have said, on investing in sales and marketing. The nature of the business is also changing. As I talked about rate restructuring, every customer, every industry, every vertical, every geography needs to be competitive in the new normal. So the nature of business is also changing. We are at record number of open positions, record amount of work that we need to do at every single client today. And frankly, it's a supply-constrained environment definitely for us. And our focus is on getting the right sets of people on sales and marketing to influence and work and co-create the solutions with our customer. The kind of deals that we are -- we have done, obviously, Injazat was really critical for the future of cloud. And it's a great, great way of impacting the whole market in a meaningful way. And highlights for the year, personally for me, is the banking transformation on top of a phenomenal job done by the Syncordis team and creating this opportunity and fighting, going against the biggest players in the world to win that deal. So we continue to stay excited for our customers and the pipeline all around the world.

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

Sir, I had 2 questions. One is on this Europe thing. So it appears that our -- in terms of currency, our constant currency growth in Europe is more or less similar to the USD numbers for the quarter. So how do we -- like is there some client who is billing in USD? Or how did we insulate us from this whole thing? And second was on intangible. There was some intangible increase on the balance sheet for FY '21. So what is the nature of that intangible increase? And what should we expect there going forward?

Anil, would you like to take that?

Yes. I'll take that. So I'll ask the second -- I'll answer the second question first. I think in terms of intangible, this is a part of the deal construct where we have been -- we acquired a competitive deal. And that is the reason why you see a higher intangible, which is in place in the balance sheet. And on your first question, which you mentioned in terms of the European -- I mean in terms of the currency for the constant currency growth and the reporting currency. I mean there are transactions which happens throughout the year. And at a certain point of time, I mean over a period, the currencies may go weaker or stronger. And -- but on an average, if you see, you can say euro has depreciated or appreciated but at a certain point of time when these transactions are done, possibly that would be the impact on account of reporting and constant currency.

So -- and on intangible, you are saying it is part of the payout, which was done for the deal.

Yes. This is part of the deal construct where we have done as a part of the competitive deal.

So this is the cash outflow, right?

Yes. This would be cash outflow.

Can you hear me?

Yes.

Is it the part of the cash outflow that has actually happened? Or is it some customer contract or something that is sitting in that intangible?

No, no, no. It is a part of -- it is a part of the deal. There could be an accrual. There could be a payout partially. It includes both.

The next question is from the line of Rishi Jhunjhunwala from IIFL.

Yes. Two questions. One is regarding the reversal of the earn-outs that we have recorded in this quarter. Just wanted to understand which acquisition, what was the target is and why do you think that happened? Secondly, if you look at capital allocation for us, while our growth clearly continues to remain sector leading, capital allocation is probably at the lower end of where the industry typically operates at. We have clearly accumulated significant amount of cash. Now it's almost INR 4,300 crore. So any intention to change the trajectory of capital payouts?

Sudhir, why don't you answer on reversal of earnouts? And Anil, you can take capital allocation question.

Sure.

Sure. So this reversal is on account of Syncordis and the asset that we had acquired in core banking. So let me just step back, right? We -- LTI did not operate in the core banking space. We were -- this is an open -- though BFS is largest vertical for us, industry vertical, we did not operate in this key space of spend in the BFS vertical. So we acquired 2 assets. And now we are the second largest player in the Temenos ecosystem. And let me first start by saying that the business case for this acquisition has been met. And in fact, if anything, we've built on that. We talked about the core banking transformation deal as announced in this quarter. We also announced a Temenos-based SaaS offering for the Nordics market. We've done some significant deals in Europe and Asia Pacific also on the back of that. So the overall business case is met. Now in this specific case, as part of the acquisition, we had a base case and a special case. So the base case has been met, and we were prudent, and we had made provisions as per the special case. And so I think if I look, that's the reason why the base case has been met, the special case has not, and therefore, there has been these reversals. But overall, the business case has been met. And if anything, we expect to see much stronger growth in this business going forward.

Okay. On the capital allocation, let's understand, we are a young organization, maybe in terms of the IPO, it's just about a 5-year old. And surely, we are looking in terms of our inorganic growth for good M&A opportunities also. And currently, you'll appreciate, we are also passing through a lot of turbulent times. Still, however, I think as compared to last year, where the payout in terms of per share was INR 28, have been increased to INR 40 this year, and we continue to be in the payout ratio as what we were in the last year.

But Rishi, we hear you. We hear your point, and we'll keep looking at opportunities to do justice, as always, for all our shareholders on that.

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

I just wanted to check with you on the strength that we've seen around our revenue productivity metrics. And this year, we've seen an improvement in terms of offshore revenue productivity. If you could help us understand what's driving that? And the second thing is that, as you mentioned that we are in a supply-constrained market. And given the current situation, from a COVID scare, do you think in the near term we could have some delivery fulfillment issues for the industry as a whole?

Nachiket, would you like to take this?

Yes. Sure. Thanks, Sanjay. So Manik, I think our offshore ratio, as you see, offshore productivity has gone up. And as Sanjay said it in his preliminary statement as well, whole of this year, we have seen a significant constraints on travel and all of those things related to COVID impact. And hence, the acceptability of clients for people to work for where they are as well as resources propensity to be based closer to their home location has made this change more acceptable. And that's where I think you would see across the industry, the offshore ratios have gone up. Some of that, we expect to stay. Some of that will probably return as the things start to get normal whenever it does. Also, as regards to the supply constrain and our ability to serve, so we -- actually, if you see from our numbers, we had highest hiring that happened in Q4 for us. And we've seen a similar traction going into Q1 as well. And we have plans for our -- full year hiring are also significantly aggressive, and we are able to fulfill those. So I don't see, from an industry perspective, COVID-related things will have an impact on our ability to fulfill our clients' demand. Of course, based on the current wave 2 and some disruption related to that with individuals and so on and so forth, we see a better balance between onshore, offshore, nearshore to also emerge in the long term as we continue to navigate through this crisis.

My question was related to the revenue productivity metrics and not the on-site offshore mix. So from an average revenue productivity offshore, that number has seen a significant increase this year. And that is what I was looking to understand if customers are much more open to higher pricing given the constraints around travel.

Nachiket, would you like to take -- or Sudhir, would you like to take this?

Yes. So I'll take the point at pricing. So I think what we are seeing is that there is -- I mean, if you just reflect back to same time last year, right, we had a huge pressure on pricing, request for discounts, in fact, deferment of payment terms, et cetera, please look at the DSO and all of those contexts as well. But just coming back to the question, what we are seeing now is a more stable pricing environment and where there are -- as we do more transformation deals Sanjay talked about, even the demand that we are seeing in terms of the project-based demand that we are seeing, as per the projects in, for example, in intelligent enterprise sales and in cloud sales, the price points are better than the outsourcing price point. So I think as the mix of revenues also changes, we will start to see that having an impact. But right now, I would say the pricing environment is stable, and we're focused on seeing how we service the demand.

The next question is from the line of Abhishek Shindadkar from Elara Capital.

Congrats on good execution. My question is again on mining. Now we definitely understand that the 5-year trajectory of top 5, 6 to 10 clients is very strong. But if I look at the client metric, it seems that there is a little bit of pause in the $50 million and $100 million bucket. So any color in terms of what's hitting there? And how do we plan to improve there on that metric?

Abhishek, as I said, some of them are definitely hit by COVID, some are oil and gas and probably our own doing. A little bit more needs to be done on insurance sector. But the $50 million, $100 million, I think, things will happen. We are broadening the base. We have seen good movement on $1 million, $5 million, $10 million, $20 million. And I think we -- if we keep going at the pace that we are going, you will see incremental additions on others as well. We feel good about the conversations that we are having with our customers, top 10 customers, top 20, top 50, definitely, and we'll see movements up there.

The next question is from the line of Sulabh Govila from Morgan Stanley.

I had a couple of questions. So first one is on the new client additions. So we have talked about expanding our focus from Fortune 500 clients to Fortune 2000 accounts. So do you think that we can accelerate the pace with which we have been adding clients in the last few years which has been an average of 80, 90 clients annually? Or do you think we are at a scale where meaningful acceleration from here on might be difficult. So any thoughts on that account would be very helpful. And the second bit is on the ramp-up schedule of the deals that we won this quarter. And whether the deal -- the Injazat deal that we won in December quarter that has fully ramped up? Those two would be my 2 questions.

So I'll take the first question. Your question was, can we expedite the new account opening since we have moved from -- focus to Fortune 2000. Very frankly, as I was talking about the nature of the business, which has -- the business, which is changing, and all our existing customers itself, there is such a vast amount of work that we need to do across verticals to help them be competitive in the new normal in the new restructured businesses globally. There is tremendous opportunities that exist there itself. And obviously, we want to do justice to all the customers and their needs that exist today. That's not to say that any of our focus -- new account opening focus will go down. If you reflect on this year also we -- I don't remember now, 5 or 7 Fortune 500 customers, we have opened -- we have opened quite a few logos. But at the same time, given where we are, we are also being very selective about the kind of work that we need to do for our existing customers. So it will be a balance -- balancing act. Obviously, with Fortune 5, Fortune 10 customers, we'll continue to go after that. Some of them take 2 years, 3 years to open up, and that's a work in progress and will continue to be there. And with regards to your ramp up schedule, Nachiket, would you like to take that question?

So for the Injazat deal we talked about, I think, as Sanjay mentioned in his pitch as well that we had a slightly ahead of scheduled ramp-up that happened in this quarter, but I think Q1 will be the quarter where we'll see full ramp-up of that deal. And the other deals that we had announced last quarter as well, we are proceeding on the transition plan. So that also, you will start to see from part of Q1 the ramp-up reflecting in that. And probably Q2 will be the full ramp-up for those deals.

I also want to mention a point here. While we are looking at all models of ramp-up for the customers but some ramp-up is required at client side. With the situation in India, travel restrictions from many countries, as we ramp-up some of these deals, we are seeing delays because countries have no travel policies for a period of time. That's what is giving us a little bit of uncertainty, nothing else in terms of -- but the ramp-up is there, confidence is there. We are starting a lot more work from offshore as we move along. But some of those delays are also -- the constraints are also coming for everyone and the entire industry overall.

Yes. Sanjay, just to build on that, right, we are seeing more broad-based growth, folks. Our $5 million bucket is up by 10, $10 million bucket is up by 8, and our $20 million bucket is up by 2. And all of this in FY '21, which is -- I think that's a very strong achievement to broad base our growth, and that's something we'll build on in FY '22 as well.

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

I had 2 questions specifically. We have seen very strong hiring in the recent quarter. And I think we have alluded to very strong hiring next quarter as well. Does that mean that, one, the first half, which we have usually seen the seasonality of it being weaker than the second half, does that sort of change? Or two, is it that we are hiring ahead because of the tightening supply side that we're seeing today. That was the first question. And the second one was around -- on the SG&A, the reversals and provisions that we have seen on the SG&A, is there any way to quantify what is the portion, which is an operational efficiency that could continue going forward? And how should we sort of think of that from a margin context as we move forward?

Nachiket, do you want to take the hiring question?

Yes. So I think as you look at our growth in Q3 and Q4 as well, we had very to -- very strong quarters and a lot of hiring is done with that demand. And what we are seeing in Q1 as well is the -- some of those ramp-up of the deals that we had announced and what Sanjay also talked about, that continues. So our hiring is done as per that plan for the deals that we have already won and that we are ramping up and transitioning and executing. We're not hiring ahead of time for the future demand, but we are hiring in line with that. Also, the only thing that we are probably doing is the -- our fresh graduate intake that we normally do, that we are probably preponing it by a few months. Instead of doing that in Q3 and Q4, we plan to do it in Q2 and Q3 this year based on the overall demand picture that we see.

So would it be fair to say that the typical sort of drop we see from Q4 from a growth perspective may not be as much as what we have seen historically? Is that a fair take?

That is right.

Okay. Great. The second question was on the provisions on the SG&A that have come off this quarter.

Anil?

Yes. I'll take that. So obviously, going forward, in terms of SG&A, if you see normally in the last 3 quarters, I mean our SG&A has been in a band of about 12% in terms of our revenue. We will look at roughly at that number or maybe lower than that. Because we'll be also leveraging on growth, which we will be living in. And as we said, these are provisions which are in a normal course, which has been done on account of prudence, where the benefit has been derived on Q4, which will be coming back to normal from Q1 onwards.

The next question is from the line of Ruchi Burde from BOB Capital.

Actually, my question was regarding the SG&A reversal only. It got answered. Second question related to that was -- is for Nachiket. In terms of utilization, you mentioned that you are not hiring ahead of time just to fulfill the existing demand. But given the situation, both on supply and demand side, your company's aspiration, you're a growth company, what is the comfortable level of utilization where you would ideally want to populate?

So I think we are currently operating at a utilization that we believe we should be able to sustain if not improve as we go forward. And what I -- what we also feel is that utilization percentage is also a function of size. So as we have also become bigger, our ability to maintain the bench that is needed for our growth aspirations, we are able to do that -- sustain that with the current level of utilization as we go forward.

Ladies and gentlemen, we take the last question from the line of Diviya Nagarajan from UBS.

Congrats on good execution in what's been a pretty challenging year. I think most of my questions have been answered. So I just have one clarification from Sanjay. Your earlier comment on rate discussions with customers, should I understand that customers are willing to move rates upwards because of the supply constraints? Or is something else that you were referring to?

Diviya, I think rates are stable, pricing is stable. There are places we are looking at opportunities because of high demand. If we -- cost is also higher to get the talent of these niche technologies. But by and large, I would leave it at stable pricing right now.

Got it. So then the cost of supply inflation then would have -- would have to be borne by service providers such as yourself and offset by efficiencies. Is that a fair assumption then?

Look, margins for any year are part of a situational saving or as structural saving as well as we have seen in COVID. Situation savings, like travel, et cetera, will come back. You have to give -- we have to be competitive to hire people in terms of the comp. And some of it will be adjusted with higher pricing as well, right? So I was talking about last year it was all about a lot of discounts. This year, I don't want to preempt by saying we are able to increase the pricing. So we'll leave it at stable pricing right now. Our endeavor at the same time is also to do -- to keep the structural savings that we have been able to drive through higher offshoring, for example. And that gives you the leverage and the levers for margin expansion in addition to the stronger growth in the marketplace. That is how we'll target.

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

I'll close by saying thank you. We know so many of you over several years and appreciate the time and attention you pay to the company. We hope that you and your loved ones continue to stay safe. These are difficult times in India, and we need to support each other as we go along. Our prayers, our thoughts is with everyone in India, and we continue to stay committed to do the right thing for the society in addition to the businesses as well. Thank you for your time. We look forward to seeing you next quarter. Take care. God bless.

Thank you very much. Ladies and gentlemen, on behalf of LTI, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.