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Edited Transcript of LTEH.NS earnings conference call or presentation 19-Jul-19 1:00pm GMT

Q1 2020 L&T Technology Services Ltd Earnings Call

VADODARA Jul 25, 2019 (Thomson StreetEvents) -- Edited Transcript of L&T Technology Services Ltd earnings conference call or presentation Friday, July 19, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Amit Pal Singh Chadha

L&T Technology Services Limited - President of Sales & Business Development and Whole Time Director

* Keshab Panda

L&T Technology Services Limited - CEO, MD & Whole Time Director

* Parameswaran Ramakrishnan

L&T Technology Services Limited - CFO

* Pinku Pappan

L&T Technology Services Limited - Head of IR

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Conference Call Participants

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* Abhishek Shindadkar

Equirus Securities Private Limited, Research Division - IT Analyst

* Aniket Pande

Prabhudas Lilladher Pvt Ltd., Research Division - Analyst

* Ankur Rudra

CLSA Limited, Research Division - Research Analyst

* Apurva Prasad

HDFC Securities Limited, Research Division - Research Analyst

* Ashish Aggarwal

Principal Mutual Funds - Senior Research Analyst

* Dipesh Mehta

SBICAP Securities Ltd., Research Division - Information Technology Analyst

* Mukul Garg

Haitong International Research Limited - Research Analyst

* Niket H. Shah

Motilal Oswal Asset Management Company Limited - VP & Associate Fund Manager

* Pankaj Kapoor

JM Financial Institutional Securities Limited, Research Division - Director of India IT Services and Software Equity Research

* Sandeep Shah

CIMB Research - VP

* Sandip Kumar Agarwal

Edelweiss Securities Ltd., Research Division - VP

* Shyamal Dhruve

PhillipCapital (India) Pvt. Ltd., Research Division - Analyst

* Sudheer Guntupalli

AMBIT Capital Private Limited, Research Division - Associate of Technology

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the L&T Technology Services Q1 FY '20 Earnings Conference Call. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Pinku Pappan, Head of Investor Relations. Thank you, and over to you, sir.

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Pinku Pappan, L&T Technology Services Limited - Head of IR [2]

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Thank you, Stanford. Hello, everyone, and welcome to the First Quarter of FY '20 Earnings Conference Call of LTTS. I am Pinku from the Investor Relations team. I hope you've had a chance to go through our investor release and financial statements. If not, you can download them from our website, www.ltts.com.

On today's call, you will hear from Keshab Panda, CEO; Amit Chadha, President, Sales & Business Development; and P. Ramakrishnan, CFO. We also have our Chief Operating Officer, Abhishek Sinha, on the call.

We will begin with Dr. Panda providing an overview of the company's performance and a commentary on the business outlook. Amit will provide an update on the large-deal wins and the deal pipeline. PR will then walk you through the financial statements. We will then open the line for questions.

Let me now hand over the call to Dr. Panda.

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Keshab Panda, L&T Technology Services Limited - CEO, MD & Whole Time Director [3]

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Thank you, Pinku. And thank you all for joining us on the call today. Good evening.

I will start with the highlights of Q1. We grew revenue by 1.4% sequentially to USD 194 million. We had a strong quarter in 4 out of 5 segments -- industrial products, transportation, medical and Plant Engineering -- with sequential growth accelerating in Q1 as compared to Q4 last quarter.

Digital and leading-edge technologies, the growth drivers for ER&D, contributed 37% of the Q1 revenue and grew 44% year-on-year. Customers are leveraging our capabilities in smart buildings and energy management for industrial product, IoT and Telematics in transportation, asset digitization in Plant Engineering and connected health care in the Medical.

Our fiscal performance was healthy with EBIT margin at 17.1%, which is an improvement of 230 bps year-on-year. Our deal-win traction continued with 7 wins across the sector.

Let me now talk about our 5 industry segments. Transportation had a strong quarter with 7.6% sequential growth on top of 7% growth delivered in quarter 4. Growth was strong in all 3 segments, auto, Truck and off-highway, and Aerospace.

The last deals that we won in quarter 4 in the area of active safety and autonomous driving are ramping up very well. In Q1 too we hold deals in ADAS and body and security system design. In auto and trucks, we continue to see a good pipeline in areas like functional safety, electrification, autonomous, and IoT and telematics.

In Aero, we have been selected as starting supplier in Collins Aerospace, and you'll see us issue a press release on that very shortly. We have seen opportunities in area of aftermarket, digital solutions and creation of innovation labs for our customers. Overall, we expect this trend in transportation to continue in coming quarters as well.

Moving to telecom & hi-tech, we had a tough quarter with revenue dipping by almost 7 million sequentially. In the semiconductor subsegment, we saw a reprioritization of expense happening as a result of disruption in the mobile supply chain and slowing demand from the end market like China.

This weakness in semiconductor added to our challenges in telecom, which we -- telecom & hi-tech segment, which we explained mainly on, and we were unable to offset the headwinds arising from the customer issues that we reported in the last quarter. The good news is that we continue to see big opportunities in the pipeline, and the last deals win that we signed in Q1 in the physical design area highlights our capabilities and competitive positioning.

Overall, the telecom & hi-tech deal pipeline continues to grow, and we see multiple opportunities for VLSI design and in advanced video equipment and software design and development. We expect a slight dip in revenue in this -- telecom & hi-tech segment in Q2 also as some residual impact flows through Q2 as well.

We see us getting back to the growth track between Q3 and Q4 in this particular segment. It depends on how quickly some of the large deals in the pipeline convert.

Now let me talk about Medical. We had a strong quarter with 15.6% sequential growth driven by some of the large deals we own in this particular segment. In Q1, we won a large deal involving Remediation project in the new Medical segment. We see a strong pipeline ahead with opportunities with facial monitoring devices, connectivity solutions, process validation and via compliances.

Moving on to the Plant Engineering. We had another quarter of strong growth with 5.9% sequential growth, the growth outlook continues to be robust in all 3 subsegment, like CPG, oil and gas, and specialty chemicals. In Q1, we won a large deal to be the engineering partner for a global beverage giant.

We are, indeed, in discussion with our customers in newer domains like floating production storage and offloading, which is going to help us in the coming quarters. We see a good pipeline with opportunities in digital engineering, EPCL support towards engineering values in central models, asset digitize and harmonize.

Moving to the Industrial Products. We are back in the double-digit growth territory on the year-end -- year-to-date basis with healthy 3% sequential growth achieving throughout. We are seeing good demand in areas like smart building consultancy, digital, power electronics, fixture design and end-to-end product design. We signed a few new logos with good potent sales and expect growth to continue in coming quarters as well.

Now let me talk about our platform and solutions. We are seeing an increase in customer traction power solutions like connected platform, MCare and AiKno is our AI platform. Our engineering connected platform or E&P, which lever is machine learning has opened new customers in area of energy management and predictive maintenance.

As discussed in the previous quarter, we're engaged with an external consultant to advise us on the road map. Currently, we are studying the recommendations by the consultant and evaluating the right strategy to take this forward. We'll provide an update on this progress very soon.

Finally, let me discuss the outlook for FY '20. Our focus on our top customers and on winning large deals remains unchanged. As said, 4 of segments are doing very, very well. In Q1, we launched a unique campaign to showcase our innovation to and the R&D our customers in Europe covering 4 countries and 9 cities over 16 days. Many of our unique customers have an opportunity to interact with our digital experts and explore our solutions in artificial intelligence, digital twin, cybersecurity, 5G and Internet of Things.

The feedback on this tool has been very encouraging and achieved the objective of promoting our capabilities that span across a wide spectrum. We remain optimistic on growth and see multiple large opportunities to partner customers in their business transformation journey.

However, due to loss of good momentum in the telecom & hi-tech vertical, which we believe will recover in quarter 3 and quarter 4, we are now revising our USD revenue growth guidance to 12% to 14% for FY '20.

I now hand over to Amit Chadha.

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Amit Pal Singh Chadha, L&T Technology Services Limited - President of Sales & Business Development and Whole Time Director [4]

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Good evening, Dr. Panda. Good evening all. Thank you, Dr. Panda. I will discuss 3 broad areas with you today. One, large-deal updates; second, our large-deal pipeline; and third, a geography outlook.

Large-deal updates standpoint, we continue to see signs and sign large deals across verticals and geographies. Let me share the notable ones. In the hi-tech sector, Dr. Panda talked about a large-deal win, a large semcon major has awarded us a contract for executing the design of their chips globally, which entails activities across the VLSI value chain from physical design to design for testing and post-Silicon Valley verification. The ramp-up started at the end of quarter 1, and it's supposed to get to steady state in the next 2 quarters.

Second, in the Medical domain, we have 4 large programs in digital connectivity and analytics to help medical companies enable patient monitoring devices. All 4 programs in this area have started ramp-up and expected to reach steady state in quarter 2.

Third, in Transportation, we won 2 large orders in U.S. and Singapore to help with electric vehicles, battery management systems in one case and power charging in another case. Again, these deals have started execution.

Fourth, in the IP sector, we've signed a deal to grow our relationship with an electrical automation company in the area of park control and drive monitoring.

Moving on to large deals pipeline. We continue to see a build-up of large proposals to engage with our clients. Let me first speak about a hi-tech segment where we are doubling our efforts to grow and close large deals in the current quarter.

One, we are looking to expand our relationship with a technology major to provide connectivity solutions for their worldwide programs. It will require us to expand our existing global labs.

Two, we are in conversations with 2 companies -- one, semcon and another media major -- for complete design and development of new chips for computing and entertainment leveraging augmented reality.

Three, as 5G rolls out start, we are expecting to close deals to work with consumer electronic companies to upgrade devices for 5G and enhanced cybersecurity.

Four, we are pursuing a contract for smart buildings consulting services for a large tech company close on the heels of a previous rollout to that.

Now for the other sectors, where we've had steady and healthy growth in the last quarter. In the O&G and petrochemical sector, we are in conversation to set up an engineering value center in one case and expansion of digital services in the second case with large U.S. and Europe companies. And in a third case to support detailed engineering efforts for their greenfield expansion.

Next, in the transportation sector, we are pursuing a couple of large deals for helping a Tier 1 in their autonomous driving; and in Q2 driving controls program. We expect closure and ramp-up in the current quarter.

Finally, the Medical and industrial product segment, we are pursuing 5 different deals in the current quarter for engineering development centers involving product sustenance, digitalization and AI using voice and image processing.

Finally, the geography outlook, we continue to see traction for our business in the U.S. across all segments from product design to support to verification and validation to connectivity, digital and AI programs. In Europe, we are seeing traction in 3 segments -- automotive, aerospace and O&G Petrochem -- in traditional and digital investments. In Japan, we are seeing traction across IP, auto and hi-tech segments.

To sum up, we see good traction in digital businesses. We continue to see a healthy pipeline across geographies and verticals, including telecom & hi-tech. Our large-deal engine continues to churn wins continuously, which gives us confidence and growth.

I would now hand over to PR.

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Parameswaran Ramakrishnan, L&T Technology Services Limited - CFO [5]

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Thank you, Amit. And good evening to all of you. I will summarize the financials for the quarter ended 30th June. All of you must have seen our press advertisement of the financial performance along with the earnings fact sheet.

Just to summarize again to take you through the revenue, we have posted INR 1,348 crore for the quarter, which has a 0.3% Q-on-Q and 16.9% Y-on-Y. In constant dollar terms, the growth in constant currency, we have reported a 1.3% Q-on-Q and 15.2% Y-on-Y.

Till the last -- I mean till the Q4 of last year, we have been referring to our EBITDA and net income pursuant to the adoption of the -- mandated adoption of Ind-AS 116 on lease. From this quarter onwards, we will be explaining the EBIT margins and the net income. So the EBIT for the quarter ended 30th June is around INR 230 crores for the quarter, which has a 4.2% Q-on-Q and 35% Y-on-Y -- 35.2% Y-on-Y.

The EBIT margin for the quarter ended 30th June is at 17.1%. Mandated net income margin for the quarter is at 15.1% reported at INR 204 crores.

Coming to the overall -- the improvement or the explanation for the EBIT part. So for the year -- for the quarter ended 30 June FY '20, our EBIT was INR 230 crores as compared to INR 221-odd-crores for the previous quarter.

As you may see, this increase in EBIT margin -- EBIT at 17.1% as I would summarize the impact into 3 broad areas. We had a visa cost impact, which almost impacted 70 basis points. The appreciation of the rupee against the dollar impacted by another 30-odd basis points. This was compensated by operational efficiency, better SG&A leverage and a better revenue mix amongst segments. So that's one of the reasons that we have been able to show a better EBIT.

Coming to other income. The other income reported is at INR 440-odd-crore, which has to be split into -- I will just give you a breakup. We have almost income from our short-term treasury investments instead adjusted for the finance cost under the Ind-AS 116 implementation of [mine]. So net income is [INR 1 crore]. We have exchange differences on account of hedging and other translation, transaction differences aggregating to INR 22-odd crores. And we have licenses of '17-'18, which we got during the current quarter a mark-to-market gain of roughly around INR 19 crores. The balance is all miscellaneous income.

Coming to income tax. Our blended tax rate is around 26.5% for this quarter, and that's how the net income of INR 204 crore has been arrived at.

Coming to -- in terms of our overall balance sheet, which you can see in the earnings fact sheet. There has been an increase in property and equipment from INR 144 crores as of March '19 to INR 512 crores in Q1 FY '20. This largely is on account of the Ind-AS 116 recomputation. Around INR 333 crores has been added because of capitalization of right to use of all of our leased property. The corresponding entry is factored in terms other current liabilities and noncurrent liabilities.

Coming to our investments. Short-term investments, which typically represent our surplus, is around INR 740 crores as of 30th of June. The free cash flow for the quarter is INR 216-odd crores.

Coming to -- Dr. Panda explained about the performance of the various verticals. So I would like to just summarize here that, as per the last 4 or 5 quarters, Transportation continues to be our major vertical having almost 35% share of revenues. Followed by telecom hi-tech, which is reported at 22%. Industrial products at around 20%, Plant Engineering, 15% and the last balancing Medical devices at 8%.

The revenue per geography also no major surprises. North America continues to have the -- continues to dominate with excess of 60% of revenues followed by Europe at around 16%, India improves to 13% and the rest of the world around 10%.

Our on-site offshore revenue mix continues to be around 45% to 55%. On-site is 44.3% of revenues for the quarter ended 30th June, FY '20.

In terms of the mix of fixed price and T&M contracts, 42% of fixed price and that balance 58% under T&M. In terms of active clients, we have around 258-odd active clients. And it is important that we have almost -- around, I would say, $20 million-plus-clients, we have 5; and $10 million, we have around 17; and $5 million, around 44.

In terms of the client concentration, the top 5 clients contribute to around 25% of revenue and the top-20 clients around more than half [time] of the revenue. The utilization, as I talked about, the maintenance of EBITDA is because of better operational efficiency, is around 80-odd percent. We added around 700-people-odd during the quarter, so the end of the quarter, the head count was 15,913.

The exchange rate assumptions, which are being used, we have had a average realized rate of 69.5 of the dollar-rupee for the quarter ended 30th June as compared to 70.2 for the previous quarter.

So with this, I have given a overview of the financial performance. Now it's back to you, Stanford, for opening of the bridge for any questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Pankaj Kapoor from JM Financial.

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Pankaj Kapoor, JM Financial Institutional Securities Limited, Research Division - Director of India IT Services and Software Equity Research [2]

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Dr. Panda, I just wanted to understand the softness that you spoke about in the technology vertical. Is it pertaining to any realignment in the supply chain so some macro-specific factors which are leading to this kind of reorg of the ER&D spend that you mentioned? Or is there something which are more client-specific issues which are impacting the semi?

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Keshab Panda, L&T Technology Services Limited - CEO, MD & Whole Time Director [3]

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Pankaj, we talked about last time a -- one customer issue we talked about. This is not a customer issue. This is -- semiconductor is a segment that is going through a challenge right now. If you track it down last 3, 4 months or so suddenly, semiconductor has problem because of China and U.S. This issue is going on right now. So it's a segmental issue, not a customer issue. That segment itself has slowed down a little bit. It will take some time to come back.

At the same time, we've got -- as Amit talked about, there are some chip design, end-to-end, we've got some orders which we're working on it, right? So it is like what we expected the semiconductor to go that has slowed down. That is the impact of the telecom hi-tech business.

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Pankaj Kapoor, JM Financial Institutional Securities Limited, Research Division - Director of India IT Services and Software Equity Research [4]

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Got it. So I'll just persist. Are you seeing the segmental issues which affected the semiconductor at this time. And do you see any signs of these global issues affecting any other business segment in any other vertical as of now?

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Keshab Panda, L&T Technology Services Limited - CEO, MD & Whole Time Director [5]

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Not really. I think it will see the 4 sequentially -- the full segment is growing and will continue to. We also said that it'll continue to grow in coming quarters. There is no surprises we see now for anything other than the telecom hi-tech segment. And the deal pipeline, it's quite robust. If you see the 4 segments, I think we have a number of large deals very close to closing dates and there are multiple deals in place. So I don't think any problem right now in global scenario. There's nothing there.

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Pankaj Kapoor, JM Financial Institutional Securities Limited, Research Division - Director of India IT Services and Software Equity Research [6]

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Okay. And sir, I am presuming that you're not seeing any impact of these factors on the deal decision-making as well. Like many deals which you are seeing are taking time to -- for the client to decide. Has there any such instances like that?

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Keshab Panda, L&T Technology Services Limited - CEO, MD & Whole Time Director [7]

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No. Actually, if you see deal size this full. Whatever we have given the 4 segment growth, I don't think deal size closing the issue. Only problem we are saying is the main reason is the telecom hi-tech, some of deals we are working right now and how soon we can close it. The other segment, there's no issue at all.

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Pankaj Kapoor, JM Financial Institutional Securities Limited, Research Division - Director of India IT Services and Software Equity Research [8]

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Got it. This is helpful. And PR, just one small question. So we are going to see the wage hike happening in the coming quarter. So any quantification, if you can do, of the impact? And second, with the focus now shifting on the EBIT margin, do you have any aspirational or target margin band that you're looking at, at a EBIT level?

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Parameswaran Ramakrishnan, L&T Technology Services Limited - CFO [9]

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So Pankaj, one thing is, yes, we will be having the wage hike from this quarter. And the approximate impact would be in the range of 1.6 to -- 1.6 -- around 1.6%.

And in terms of EBIT guidance, as you know, we generally do not give the margin guidance as far as the overall profitability is concerned. So what levers we are talking about is -- this wage hike is there. But is -- a more important thing is the composition of revenues, better operational efficiency are all other factors by which, hopefully, we should be in a better position, too. But at this stage, no guidance for the margins part.

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Operator [10]

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

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Sandip Kumar Agarwal, Edelweiss Securities Ltd., Research Division - VP [11]

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Already some of the weakness which is coming from the semiconductor side, but Dr. Panda, are you getting any sense of any kind of budget cut downs or anything which is related to economy or something in the developed market where some, what you say, some kind of news developing that there is some kind of slowdown and because of this, some clients might be cutting down? Or even in the ER&D space where we are very strong, there is -- other than semiconductor also there is ample challenge? Do you see any of those things, number one? Is this problem only in (technical difficulty).

And third, already you mentioned that we'll recover in Q3. So is it because of the hit in Q1 and Q2 that we are doing this kind of a adjustment in our outlook? Or you think that (technical difficulty) normally you would call out?

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Keshab Panda, L&T Technology Services Limited - CEO, MD & Whole Time Director [12]

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No. Sandip, I think, the reason I'm saying it will take 1 quarter, 2 quarters to recover Q3, we said because you know that we explained one customer issue earlier when we have semiconductor slowdown, a combination of both, right? So we believe that we also have given quantum of impact on the last time last year what we announced. So to -- again, the large deals, we're working on a few deals on the telecom and hi-tech segment. We believe that we'll be able to close quickly so that Q3, Q4 onwards, we will get the revenue, right?

Other than telecom hi-tech, and we don't see, at the same time, again, I want to give you the very reason I think we are a leader in the semiconductor segment, VLSI design, especially on the chip design end-to-end. And that gives lot more opportunity for us, right? As we speak today, we are working on a few very advanced chip design. It is close to closing that maybe.

So I think it is a mixture of both. But outside of this, we don't have -- so far, we have not seen anywhere any slowdown or cooldown where I think, these other 4 segments, we are now seeing that. The pipeline, large deals and the customer, what we have, I don't see any issue in the other 4.

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Operator [13]

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The next question is from the line of Shyamal Dhruve from PhillipCapital.

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Shyamal Dhruve, PhillipCapital (India) Pvt. Ltd., Research Division - Analyst [14]

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So my first question is on the guidance front. So like at the start of the year, we had given the guidance of 14% to 16% revenue growth after taking into consideration the decline in one of our last telecom client. So though or like apart from that, you mentioned that the deal flow has been robust and you had not seen any weakness in any of the other verticals. So what led to the lowering of our guidance by around 2 percentage points?

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Keshab Panda, L&T Technology Services Limited - CEO, MD & Whole Time Director [15]

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Yes. Shyamal, I think, if you look at that, I did talk about this segment, the semiconductor slowing down because of global impact. China and U.S. trade conflict is going on right now. That had some impact on the -- this particular segment, okay?

So this segment, we have talked about the customers earlier. We've talked about customer issue earlier and during the guidance. Now we saw suddenly the semiconductor segment has cooled down a little bit, right? Because of that, we talk, whatever we know we communicate very clearly. So making sure that you know as much as we know, right? So we thought it important that we should communicate to you, semiconductor has slowed down. Because of that, the guidance is revised. Nothing else other than semiconductor segment. We don't have an issue with any others.

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Shyamal Dhruve, PhillipCapital (India) Pvt. Ltd., Research Division - Analyst [16]

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Thanks for the clarification. And my -- another question is to PR. So at the end of Q4 FY '18, we had mentioned that we would be getting around $1.2 million so for payout from the Esencia deal, which we did at that quarter. But there was no mention about that in the other income in this quarter. So whether that milestone billed payment has been delayed or any color on that.

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Parameswaran Ramakrishnan, L&T Technology Services Limited - CFO [17]

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Shyamal, that payment of $1.5 million did accrue in the first quarter. But against that, contractually, there was a payout as well. So the net impact of that attribute aggregated around INR 4 crores is coming in other income in the current quarter.

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Shyamal Dhruve, PhillipCapital (India) Pvt. Ltd., Research Division - Analyst [18]

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So that INR 4 crores, like that other income includes from Esencia as well as the export license sale. Is this correct?

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Parameswaran Ramakrishnan, L&T Technology Services Limited - CFO [19]

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Yes, yes. So just to summarize other income, the net income of interest adjusted for the income from mutual fund investments where we do investors surpluses adjusted for the Ind-AS financial expense is around INR 1 crore. Exchange difference INR 22 crores. Then around INR 19 crores follows from SCIS that is our license. And the balance, INR 4.5 crores largely contributes to this particular line item, which I talked about for which I've answered your question now.

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Operator [20]

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The next question is from the line of Abhishek S. from Equirus Securities.

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Abhishek Shindadkar, Equirus Securities Private Limited, Research Division - IT Analyst [21]

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The first question is regarding Mr. Panda's opening comments about weakness in the telecom, hi-tech business also...

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Keshab Panda, L&T Technology Services Limited - CEO, MD & Whole Time Director [22]

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Abhishek, can you be a little louder, please?

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Pinku Pappan, L&T Technology Services Limited - Head of IR [23]

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Abhishek?

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Abhishek Shindadkar, Equirus Securities Private Limited, Research Division - IT Analyst [24]

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Is this better?

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Keshab Panda, L&T Technology Services Limited - CEO, MD & Whole Time Director [25]

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Yes. Much better.

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Abhishek Shindadkar, Equirus Securities Private Limited, Research Division - IT Analyst [26]

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Okay. So the first question is regarding your comments about a decline in the telecom, hi-tech business in Q2 as well. Is it possible to quantify either on a Y-o-Y basis or a year-on-year basis as to -- because this quarter was significantly higher, almost 11% sequential on a Y-o-Y basis. So would you like to quantify in terms of -- or any commentary as to how could we see that decline in the quarter?

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Keshab Panda, L&T Technology Services Limited - CEO, MD & Whole Time Director [27]

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We are working on this right now. As I said, we have multiple large deals in the pipeline now. If we close it, it's going to come up. This is going to be taken care of. So I think you'll have to wait for that. We'll not be able to tell you right now what the impact is going to be. But we thought why do we see now there will be -- definitely Q2 had some impact. How much impact, we don't know at this time. But not to the same level as what we saw in Q1, less than Q1.

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Abhishek Shindadkar, Equirus Securities Private Limited, Research Division - IT Analyst [28]

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Okay. That's helpful. And how should we read the -- your revenue mix on on-site/offshore basis on a Y-o-Y basis? That has seen almost a 500 basis points movement. So how should we read that, both from a revenue per employee and a margin perspective?

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Parameswaran Ramakrishnan, L&T Technology Services Limited - CFO [29]

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Okay. Abhishek, as we see now, I mean we are at 45%, 55% in terms of onsite-offshore revenue. We believe that this should be in the range between 45% to 48% for the year -- for this year. So today is 45%, 55%, could probably go up to maybe in 1 or 2 quarters, depending on any large deal that comes through, which usually is initially onsite-centric. So it's fair to assume that we will have this range of onsite-offshore from 45%, 55% to 48%, 52%.

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Abhishek Shindadkar, Equirus Securities Private Limited, Research Division - IT Analyst [30]

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Okay. That's helpful. And last one from my side here. What is the reason for a significant jump in the unbilled revenues on a quarter-on-quarter basis?

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Parameswaran Ramakrishnan, L&T Technology Services Limited - CFO [31]

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Okay. So this is, I would say, it is more to do with in terms of the overall progress of projects across the year. This -- in my opinion, I mean this as far as we are concerned, this has got no impact. It has more to do with some delayed milestones. So this will all probably going in wasn't in Q2. So I wish to tell you that if I take both the DSO and unbilled together, as far as last quarter was concerned, we were at around 72 -- around 90, and this time we're around 90, 94-odd.

So that is not a matter of concern. It's more to do with some delayed invoicing, which will slip into Q2. As you may see that our -- you see, at the end of the day, all this will manifest in terms of the robustness in the cash flows. So for the quarter, it was almost INR 250-odd-crores-plus. So we expect the free cash flow to be robust enough in the coming quarters as well.

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Operator [32]

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The next question is from the line of Mukul Garg from Haitong Securities.

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Mukul Garg, Haitong International Research Limited - Research Analyst [33]

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Dr. Panda, just wanted to clarify on this semiconductor issue. Was there any impact from the recent regulatory restrictions which happened in U.S. on the degrowth in this business?

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Keshab Panda, L&T Technology Services Limited - CEO, MD & Whole Time Director [34]

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No. I think we don't comment on the client specifically. But this is -- I don't think this is anything to do with any particular client. This is a segmental issue, and that's where it is. I think we don't comment on any particular client issue.

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Mukul Garg, Haitong International Research Limited - Research Analyst [35]

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Understood. So just taking this forward. If you look at your current guidance, the average growth over next 3 quarters is still quite decent. So just wanted to get a sense of your confidence that even though there are some headwinds from semiconductor space in Q2, you are fairly confident that you should be able to -- you would be able to achieve the guidance?

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Keshab Panda, L&T Technology Services Limited - CEO, MD & Whole Time Director [36]

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Yes. I think we have a multivertical. That's one of the positive things we have. I think we have been able to do that in spite of a drop in customers we explained. We are showing a robust growth this quarter. So I think we believe this fourth segment is going to drive it, continue to grow. We have enough pipeline to continue those 4 segment.

And this segment, a matter of time, I think the telecom, hi-tech, the pipeline we have how quickly convert into revenue, that's the reason we said, at this time, the visibility in Q2 what we have we explained. And when you end up Q2, we'll come back and talk to you about how this segment is doing. Other 4 segment is a nonissue. I think it will continue to grow. So that gives us confidence that we'll continue to grow in coming quarters.

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Mukul Garg, Haitong International Research Limited - Research Analyst [37]

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Got it. And then if I may ask one more question? We recently so a major competitor getting acquired in the space. Any thoughts? Is this something which we should look at in a negative aspect from the competitive intensity point of view given that their scale is at a different level now and, including the regional strength they will have? So any thoughts on exactly how we should read that particular M&A deal?

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Keshab Panda, L&T Technology Services Limited - CEO, MD & Whole Time Director [38]

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I think I am very excited that the IT companies are looking at the pure-play engineering asset they want to buy. I think today, if you really want to do that, the customers are looking at pure-play engineer. We're thinking only engineering like us, right? And I do not want to comment about why they did what they did. But I can only tell you that when you go to customer all the time, they talk about -- we talk to you because you guys have pure play, you do engineering, you have domain and so on.

We have been competing with them effectively. And as that we know whether the company acquired them or the company was acquired, so both the companies we know reasonably well. We've seen their geography. One of the good things we have is our base location of India, the innovation engine what we find globally I think that's the biggest differentiator. Today, and somebody else comes to competition, I don't take issue at all.

I don't think size in engineering is a big issue. I think they become INR 13 billion, INR 15 billion. It will have its own challenges. But we believe that being an engineering company -- a pure-play engineering company, we have our rather advantages and we continue to drive that.

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Operator [39]

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The next question is from the line of Niket Shah from Motilal Oswal Asset Management.

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Niket H. Shah, Motilal Oswal Asset Management Company Limited - VP & Associate Fund Manager [40]

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Just one question. I think in third quarter of FY '19, you had highlighted the amount of open position that you had. Is it possible to spell that number for at the end of this quarter?

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Keshab Panda, L&T Technology Services Limited - CEO, MD & Whole Time Director [41]

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I think I will not comment on quarterly basis number of open positions. And I was talking about -- I think a HR team and we were discussing about how to go about it. So I don't think what we gave you last quarter, I would see similar number now. But exact number quarter-on-quarter basically, we don't specify.

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Niket H. Shah, Motilal Oswal Asset Management Company Limited - VP & Associate Fund Manager [42]

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The reason is that it was a fairly large number of vacant position being open.

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Keshab Panda, L&T Technology Services Limited - CEO, MD & Whole Time Director [43]

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Share to grow, I can tell you, Niket, share to grow, continue to grow at the speed at which we grow, at multiple verticals, we always need somebody to be there. If you don't have this number, but at the same time, we always look at it, can you add less number of people, less open positions but still continue to grow using new technologies, using the innovation what we are doing it.

So I think that's the way you look at it now. So I think number of people adding to increase more revenue, that equation is no more valid at least in engineering (inaudible) area. So I think I'm not too worried about it. The only thing I'm looking at is, am I getting right people? Am I training people well? Do I have the -- globally? As I said last time, we did hiring in U.S. We did hire in Israel. And we did hire in Europe as well.

But the number is small. We hire 20 people, 30 people and 10 in different geography, we'll continue to do that. But number of open position to revenue, I don't think is nonissue. But our engine should be fired. The number is not small. The number is big. And the number is on the different areas. In the Medical area, it comes in industrial area, plant engineering area. So I think how do we do this effectively, which we have been able to do that last years, and we continue to be the same.

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Niket H. Shah, Motilal Oswal Asset Management Company Limited - VP & Associate Fund Manager [44]

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Sir, I appreciate your point. But my only question was that if you have a number of -- which you said is a very large number, essentially mean that if you get those many people, you can obviously have a higher revenue number. And I'm assuming that is on a good margin as well. So I'm just trying to correlate your guidance downward versus the open position you have. So that is the area where I was unable to kind of join the dots.

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Keshab Panda, L&T Technology Services Limited - CEO, MD & Whole Time Director [45]

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No. I think that's the part of the guidance what we've given, right? We always look at it, the people we need and how do you translate the revenue, where it's onsite or offshore. And the part of guidance when you do that every segment when you look at it, that's the part of the job we do.

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Operator [46]

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The next question is from the line of Ashish Aggarwal from Principal Mutual Funds.

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Ashish Aggarwal, Principal Mutual Funds - Senior Research Analyst [47]

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Sir, actually I have a couple of questions. First of all, in the quarter, did any of the verticals skew better than what we were expecting? And secondly, on the guidance front, now we said that there's couple of large deals in the pipeline in the telecom and hi-tech space. If you're unable to find those deals, will our view for the year change significantly?

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Keshab Panda, L&T Technology Services Limited - CEO, MD & Whole Time Director [48]

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Before answering, I would not be able to comment on this right now. What I see today, that's the guidance we've given now. Is there going to be different tomorrow, the last this, our expectation is, depending on our experience so far, we believe these deals are going to close there. So I think that's where we view that. I do not want to guess anything or do that, right? I think that, that's how we look at it.

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Ashish Aggarwal, Principal Mutual Funds - Senior Research Analyst [49]

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And what about the verticals? Did any of the verticals give any -- by which surprise policy [news that you can give us]?

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Keshab Panda, L&T Technology Services Limited - CEO, MD & Whole Time Director [50]

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I think one of the reasons we've been saying it all in line. And we believe that 4 verticals, these 4 verticals what we expected, we have been able to deliver that. And we believe that, that the trend would continue coming quarters as well.

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Ashish Aggarwal, Principal Mutual Funds - Senior Research Analyst [51]

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No, why I was asking was one of your peers gave a negative commentary on the automotive vertical, but your -- also transportation vertical, but your commentary look like very positive around it. So I just want to understand what could be the reason? Are you seeing any problem in any of the clients in that? Or you are seeing growth across all the clientele?

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Keshab Panda, L&T Technology Services Limited - CEO, MD & Whole Time Director [52]

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I think I still -- transportation is a segment. We have 3 components, right? We have truck and off-highway. We have automotive. Then we have aerospace, okay? And again, what you will see, you can't generate a segment as a whole. Aerospace, we decided to work in only 2 areas where we are good at. And that segment will continue to grow.

Similarly, aerospace -- automotive, we are not doing everything. We selected a few areas where we do well, and there is a market potential for us to grow. So that has been selectively we did that.

Off-highway, if you see off-highway segment earlier, it was hydraulic and structural engineering and mechanical engineering. Off-highway is trying to add up new technology in what automotive is doing it. So it's a combination of all 3 that gives us confidence that transportation is a segment that's going to grow.

If you see automotive as a segment, you're focusing on one particular area if you continue to do that. Our aerospace segment, you do only particular area, it's all project-specific. If a project gets over, then your revenue goes down, right? So these particular segments, that's a broad base in our transportation segment then I think -- I don't know who commented that, but I think our segment is quite broad-based. So that gives us confidence that we'll be able to continue the same.

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Operator [53]

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The next question is from the line of Apurva Prasad from HDFC Securities.

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Apurva Prasad, HDFC Securities Limited, Research Division - Research Analyst [54]

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Dr. Panda already mentioned about the decline that you expect in telecom, hi-tech in 2Q and then a recovery in 3Q/4Q. Any color that you can share on the other verticals, transportation, Industrial product and plant engineering in terms of any pattern that may play out 2Q versus second half?

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Keshab Panda, L&T Technology Services Limited - CEO, MD & Whole Time Director [55]

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I think what I can tell you is that Q2, we have clarity that figure we said telecom hi-tech, Q2 also is going to decline. We clarified clear that. And we always believe that some of the deals we are working on, large deals we're working on is that we're going to close in Q2 and get the translated revenue in Q3 onwards. Let's say one gets delayed, but we don't seen the drop happen in Q1, Q4 to Q1. It's not going to be so much drop. It will be delivery drop, not at the same level, and we believe that, with closing those deals, we'll recover by Q3 onwards.

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Apurva Prasad, HDFC Securities Limited, Research Division - Research Analyst [56]

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Sure. That's helpful, Dr. Panda, but I meant on the other verticals, transportation, industrial products and plant engineering, any pattern there in terms of 2Q versus second half? Can that be different?

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Keshab Panda, L&T Technology Services Limited - CEO, MD & Whole Time Director [57]

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No, not really. I think as we see now, our trend, if I try to study last 8 quarters, when I look at it, it follows the same trend, nothing like I think Q1 -- half -- H1 will do well compared to H2. That's not the case.

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Apurva Prasad, HDFC Securities Limited, Research Division - Research Analyst [58]

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Right. And also on industrial product, do you think we can maintain the double digit for the full year in FY '20? We hit that mark this quarter. But do you think the full year, can we get to that number?

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Keshab Panda, L&T Technology Services Limited - CEO, MD & Whole Time Director [59]

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Yes. I think it will see, last year, we did double-digit growth in the industrial. And we did make a statement this year also. We'll do, depending on what we order in hand now and what we think opportunities on our hand, and we'll continue to reaching double-digit growth again this year as well.

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Operator [60]

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

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Sandeep Shah, CIMB Research - VP [61]

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Panda -- just Dr. Panda, I just wanted to check regarding the guidance if I look at the next 3 quarters, 4% to 4.5% is the compounded Q-on-Q growth rate which is required. So is it you believe that with telecom hi-tech also having some headwind in 2Q, this would be more second half led? Or this may be like evenly spread out from 2Q itself?

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Keshab Panda, L&T Technology Services Limited - CEO, MD & Whole Time Director [62]

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What is delivered right now, we did our homework, and we believe that whether it's going to happen in Q2 or Q3, Q4, and other guidance we've given. We said look, seize in the opportunity on hand, and this is what we're going to do. We -- I'm not going to tell you that Q1 to Q2, what percentage is going to go Q2 to Q3 or Q3 to Q4, but annually, we looked at it how this is going to shape up. And that's the visibility right now, and based on that, we've given the guidance.

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Sandeep Shah, CIMB Research - VP [63]

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Okay. Okay. But because of the headwind on the hi-tech and telecom, do you believe the growth rates may be softer in 2Q? Or it's unlikely a scenario because of the deal wins?

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Keshab Panda, L&T Technology Services Limited - CEO, MD & Whole Time Director [64]

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We have given our guidance if you look at that keeping all these into account, we've given that -- given our guidance. And I'm sorry, I spell your name, Sandeep, right? Sandeep?

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Sandeep Shah, CIMB Research - VP [65]

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Yes, yes, yes.

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Keshab Panda, L&T Technology Services Limited - CEO, MD & Whole Time Director [66]

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I think we've taken all this into account giving the guidance, Sandeep.

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Sandeep Shah, CIMB Research - VP [67]

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No issue. And just to follow up, I think on the wage inflation, 160 bps what we have said. But last year, I think there is some portion which has come in Q3 as well. Because if I look at your employee cost and apply a 3.5% to 4% wage inflation, I think it comes to close to around 200 bps kind of an impact.

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Parameswaran Ramakrishnan, L&T Technology Services Limited - CFO [68]

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Okay. Sandeep, this time, I wish to say that we're planning the wage hike for across the company in this quarter itself. And as we see it, the impact of that in the current spend will be around 1.6%.

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Keshab Panda, L&T Technology Services Limited - CEO, MD & Whole Time Director [69]

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See last year, it was last year, we've given some up to some grade to Q2 and some grade in Q3. That's where you'll see Q2/Q3 impact. This time, we're going once for all. All employees we are doing Q2 itself. So the impact is going to be onetime in 1 quarter.

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Sandeep Shah, CIMB Research - VP [70]

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Okay. Okay. But this last time in Q2, we had a 150 bps impact, and then some impact which has come in Q3. And this time we are seeing 100% impact will have just about 160 bps kind of impact?

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Parameswaran Ramakrishnan, L&T Technology Services Limited - CFO [71]

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Around 1 point -- yes, 160 bps. Yes. Around that.

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Operator [72]

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The next question is from the line of Dipesh Mehta from SBICAP Securities.

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Dipesh Mehta, SBICAP Securities Ltd., Research Division - Information Technology Analyst [73]

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If I look at geographical revenue growth, Europe and rest of world seeing weakness for some time. Europe remained broadly flat for almost 6 quarters around INR 30 million to INR 32 million kind of run rate. India also showing moderation in growth rate. Now from 70-odd percent, it's a couple of quarters big now to below 20%. So can you provide some outlook there in these 3 geographies, what is currently playing out and how you expect them to grow.

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Keshab Panda, L&T Technology Services Limited - CEO, MD & Whole Time Director [74]

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I think the geography, Europe and India, for example, is doing reasonably well. I am happy about it. The only thing, the impact I talked about, 1 customer impact, 4% impact, that's happening in the geography. Because of that, what you see the growth in Europe and India.

Although -- the business in India, for example, we're very specific and selective about which customer we do and, which we don't do. So India is the market, because of that impact, we had some people had to go, the 4 person we talked about last year, that had impacted India as well as Europe. There is no other business concern.

We see I think a lot more traction. We see -- Amit talked about there is one win we had in transportation segment that was in Europe. Again, there are few more deals we are working in Europe, and that again on different segment. So it's a nonissue.

On the India point of view, we're always -- India, we focus on global customer in India, the non-Indian customers in India. So I think this is something which will continue in the same trend.

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Dipesh Mehta, SBICAP Securities Ltd., Research Division - Information Technology Analyst [75]

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And sir, what about rest of the world?

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Keshab Panda, L&T Technology Services Limited - CEO, MD & Whole Time Director [76]

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Rest of the world, as you see, I think, we did a few deals in Japan. And as you know, the total ER&D spend, Japan and Korea, there are 2 big -- the rest of the world, they are the 2 big markets and with a little bit of -- with little Africa as well, a small part of it. But big market for us in Japan. And Japan has a good traction. There are couple of deals we won recently in Japan. And I believe that's continued to grow.

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Dipesh Mehta, SBICAP Securities Ltd., Research Division - Information Technology Analyst [77]

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If I look Y-o-Y, it's showing some weakness. It is down Y-o-Y for the quarter 1 also.

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Keshab Panda, L&T Technology Services Limited - CEO, MD & Whole Time Director [78]

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I think -- I know what you're referring to, the drop again. If you see the 4% drop, there are 3 geographies, I missed that. Again, we had some loss because of that one singular focus we talked about last year. Israel, Europe and India, these are the 3 geographies impacted. That's why you see that going down. I would say once this goes away, then you will see a different trend altogether.

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Dipesh Mehta, SBICAP Securities Ltd., Research Division - Information Technology Analyst [79]

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Understand. And sir, on top 20 client, overall weakness is largely the factor which you just now narrated in terms of 1 client-related specifically?

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Keshab Panda, L&T Technology Services Limited - CEO, MD & Whole Time Director [80]

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Absolutely, you are correct. Yes. You are right.

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Dipesh Mehta, SBICAP Securities Ltd., Research Division - Information Technology Analyst [81]

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So rest of the client, we're not seeing any kind of weakness?

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Keshab Panda, L&T Technology Services Limited - CEO, MD & Whole Time Director [82]

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Exactly. Yes.

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Operator [83]

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The next question is from the line of Ankur Rudra from CLSA.

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Ankur Rudra, CLSA Limited, Research Division - Research Analyst [84]

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Just wanted to understand the decline we saw in the semiconductor sector. Clearly, the telecom decline was more than the planned ramp-down. I was curious if you could share when you saw the slowdown in the quarter? Was this, for example, the last month or the last 15 days or so? And also what was the nature of the softness? Was this contract cancellations or ramp-downs or lack of renewal on short-duration projects?

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Keshab Panda, L&T Technology Services Limited - CEO, MD & Whole Time Director [85]

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We came to know around end of May. It's too recent. We came to know end of May also. And the suddenly customer change their priority, investment priority. So what they expected to do and we had a business plan with them. That said, this is something they're going to stop it or they're not going to do it. So diversifying into different areas, that has impacted. And we were aware of this (inaudible).

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Ankur Rudra, CLSA Limited, Research Division - Research Analyst [86]

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The second part was, Dr. Panda, what was the nature of the softness you saw? Was it cancellations, ramp-downs or lack of renewals?

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Keshab Panda, L&T Technology Services Limited - CEO, MD & Whole Time Director [87]

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See, there are customers. I think they're seeing the -- in U.S. and China impact to some extent it happened. They change their priority in semiconductor company. As you see, Ankur, it's all the semiconductor segment, they are not doing well, and they are going through difficult time as well. So it is -- we thought they're going to recover.

But at the same time, you can't fix it to one point because I think we've got some advanced chip design from the same customer. They're asking us to look at it in different areas. So I think it's a broad-based issue. It's not about that. I would say major part of it, the semiconductor segment, there are few opportunity we thought going to -- immediately go to -- we canceled it and this got delayed.

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Ankur Rudra, CLSA Limited, Research Division - Research Analyst [88]

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So it seems like it was more of lack of refillment backfilling of projects which ended as opposed to cancellations?

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Keshab Panda, L&T Technology Services Limited - CEO, MD & Whole Time Director [89]

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It's not a cancellation. They're -- their priorities have changed, right? They have prioritized, that's not the first priority. They go to third priority. So this would be -- we expected to pick up the project in a bigger way, not slow down.

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Ankur Rudra, CLSA Limited, Research Division - Research Analyst [90]

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So would it be fair to say that the way you baked this into the guidance is, you saw this impacting 1 month of the quarter, and you baked it in for the entire quarter for 2Q and hence -- and you obviously have projects at hand -- I mean deals at hand -- on hand. And that's what's impacting -- in terms of how you baked this into your guidance?

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Keshab Panda, L&T Technology Services Limited - CEO, MD & Whole Time Director [91]

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You mean now, current guidance?

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Ankur Rudra, CLSA Limited, Research Division - Research Analyst [92]

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Yes.

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Keshab Panda, L&T Technology Services Limited - CEO, MD & Whole Time Director [93]

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Yes. So we looked at it. Is that going to come in quarter 2 and what is the impact happen in quarter 1, what in quarter 2? We said it is fair for us to communicate this because, in quarter 2, we come back again. If you don't do that, as much we know, we must communicate to you guys clearly. So we thought this is not going to happen in quarter 2. They're going to kick-start. It is going to be in the quarter 3 and beyond. So in quarter 3 and beyond, we must tell you that's the reason we are changing our guidance.

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Operator [94]

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The next question is from the line of Sudheer Guntupalli from AMBIT Capital.

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Sudheer Guntupalli, AMBIT Capital Private Limited, Research Division - Associate of Technology [95]

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Any color on the trajectory of IP revenues and IP influenced revenues will be helpful. And secondly, by any chance, has the focus on this aspect come down because if you remember 3 or 4 quarters back, we used to significantly highlight this aspect on most of our revenues calls religiously. And I think over the last 2, 3 quarters, has that focus come down by any chance?

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Keshab Panda, L&T Technology Services Limited - CEO, MD & Whole Time Director [96]

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Sudheer, I think I've been talking about the platform revenue and how is it going to help. But there are 2 ways it helps. Our priority is not changed. What we said before, it continues to be the same thing. Only thing we did is, you have to imagine, one is the license revenue from platform. The other one is, using this platform doing your services business, right? Your win ratio increases because you have this platform. So we're effectively doing in the services business using this platform effectively.

Only license point of view, as I did -- last time I did talk about, we appointed a consulting company to go through one of the business model we are going to follow so that we'll effectively play this game. The services company doing the platform of product is a different game altogether. They have come with a recommendation. We are studying into that. When I talked about in my beginning when I started, I talked about we have a report from the consultant ready. We are looking into that. Not that we stopped selling it. We are doing it, continue do that. And we'll have a bigger game plan once this effectively -- we take a decision on that.

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Sudheer Guntupalli, AMBIT Capital Private Limited, Research Division - Associate of Technology [97]

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Sure, sir. And any new platform that we have added to our portfolio beyond what was discussed earlier in...?

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Keshab Panda, L&T Technology Services Limited - CEO, MD & Whole Time Director [98]

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I can tell you, come to Bangalore, we'll show you 19 platforms. So the only thing we have to prioritize, this is what we're going to do and why we do this. But this platform from continuously we should continue to do that. There's one deal we got recently that's using AI platform, right? So because of the platform, we went and talked to the customer proposal when you talk about. We can reduce the effective time by 40%, let's say. So we are much more competent in the market compared to the competition. I think that we're doing it now.

We have multiple platforms right now, but, which is one we're going to make investment for upsizing this platform and monetizing this platform, we are very careful about doing that. And as I said last time, we have a CTO organization, full time, 200 people working on this platform creating the asset, which is going to -- which is used for the services business we run now. And they're also give a platform which is going to be competitive in the market.

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Operator [99]

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The next question is from the line of Aniket Pande from Prabhudas Lilladher.

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Aniket Pande, Prabhudas Lilladher Pvt Ltd., Research Division - Analyst [100]

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I have 2 questions. So basically large part of the contracts are fixed-price contracts. So do we see change in profitability of these contracts since we have signed in either because of the change in scope or any other reason? And my second question is on the outlook of receivable days going forward.

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Keshab Panda, L&T Technology Services Limited - CEO, MD & Whole Time Director [101]

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First part, I'll answer, and second part, I will ask PR to talk about it. See, the last part is fixed bid. That's not correct. The only thing is, impact of that on the margin, when you make a large deal, let's say fixed-bid deal, initially when -- with the knowledge transfer, more people are to go to onsite. You have impact on the margin. But overall, when you see in a few quarters then, I don't think that's an issue at all. So it is on-site/offshore knowledge transfer that you do depending on size of deal, type of deal we are doing it. It may have some impact, but overall for an annual basis, I don't see that the impact on the deal.

And PR will explain you the other part.

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Parameswaran Ramakrishnan, L&T Technology Services Limited - CFO [102]

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So Aniket, as I referred -- I mean answered to a similar question earlier, I think the emphasis what we are doing internally is a combination of tracking the aggregate of both DSO and WIP. So as we are tracking both these developments very closely, and it is one of the reasons that we could manage to have a better cash flow generation last year.

The emphasis of that even continues in the current year. So internally, we track this in aggregate, and we will -- we believe that we will ensure that it lies in the plane between 90 to 95. That is aggregate of both DSO and unbilled in terms of number of days of sale.

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Aniket Pande, Prabhudas Lilladher Pvt Ltd., Research Division - Analyst [103]

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Okay. Just one more question. Other IT services companies have cited weakness into manufacturing vertical in Europe space. As you are into IT pure-play engineering space, can you give us a brief outlook on how you are seeing things into the manufacturing space in Europe?

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Parameswaran Ramakrishnan, L&T Technology Services Limited - CFO [104]

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So thank you so much for the question. See, we are not seeing any softness in Europe in manufacturing. In fact, if anything, we are seeing discussions as well as a lot of programs, POCs that we are doing in Industry 4.0, in the manufacturing sector, discrete as well as processed. That is one.

Second, we are seeing in fact petrochem companies coming out with upgrades as well as engineering value centers in that geography. So that's two.

And third, we don't see an impact of any of the tariffs happening there. So decision are fairly straightforward. So we're fairly optimistic about it.

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Operator [105]

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

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Pinku Pappan, L&T Technology Services Limited - Head of IR [106]

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Thank you, everyone, for joining us on the call today. If you have any questions, please write to me. We'll sign off now. Goodbye, and wish you a great evening. Thank you.

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Operator [107]

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