High onsite attrition led to a supply gap in Q4FY22, although demand continues to remain robust for LTI | Q4FY22 Conference Call Highlights

• Q4FY22: In US Dollars: Revenue at USD 570.4 million; growth of 3.1% QoQ and 27.5% YoY. Constant Currency Revenue growth of 3.6% QoQ and 29.0% YoY. In Indian Rupees: Revenue at INR 4,302 Cr; growth at 4.0% QoQ and 31.6% YoY. Net Income at INR 638 Cr; growth of 4.1% QoQ and 16.8% YoY.
• FY22: In US Dollars: Revenue at USD 2,102.5 million; growth of 25.9% YoY. Constant Currency Revenue growth of 25.8% YoY. In Indian Rupees: Revenue at INR 15,669 Cr; growth at 26.7% YoY. Net Income at INR 2,299 Cr; Net Income growth at 18.6% YoY.
• EBIT margin declined 60 bps QoQ on lower working days and business mix shift. (Sales, general and administration) SG&A declined 60 bps QoQ to a low of 10.3%. Cost to backfill attrition was managed through SG&A leverage.
• Verticals: Revenue mix in Q4FY22 consists of Banking and Financial Services (32.7%), Insurance (13.4%), Manufacturing (17%), Energy and Utilities (8.8%), CPG, Retail and Pharma (10.3%), Hi-tech, Media & Entertainment (11.7%), Others (6.3%).Growth in verticals on YoY basis: Banking and Financial Services (35.5%), Insurance (17.6%), Manufacturing (26.5%), Energy and Utilities (23%), CPG, Retail and Pharma (21.9%), Hi-tech, Media & Entertainment (27.1%), Others (30.6%).

• Geography: Revenue mix in Q4FY22 consists of North America (65.6%), Europe (16.2%), Rest of world (8.3%), India (9.9%).  All the geographies have grown at nearly 25% on YoY basis except India which has grown by 42%.
• Onsite supply gap hurts volume growth. High onsite attrition led to supply gap resulting in non-fulfillment of demand, leading to flat volumes on a sequential basis. Onsite volume growth could have been in the 2-4% range in case supply challenges were met.
• SG&A costs will increase as a % of revenue. LTI will increase sales and marketing costs. LTI will ramp up hiring of sales team. Endeavour will be to reduce G&A costs.
• Capex spending will remain high in FY2023 to make up for weak capex in FY2021. LTI is investing in locations such as Coimbatore and Kolkata to cater to employee preferences.
• Human resource: Hired 5200 freshers in FY22 and planning to hire 6500+ freshers in FY23. Majority of salary hikes done on April 1; hence margins will be affected in the next quarter. + Net headcount addition of 2,448 |Workforce strength: from 44,200 in last quarter to 46,648 in Q4FY22. LTM (Last twelve months) Attrition rate increased from 22.5% in Q3FY22 to (~25%) in Q4FY22. Attrition declined 200 bps in 4QFY22 qoq. Decline in attrition was sharper offshore. Onsite attrition continues to remain high and will be addressed. Attrition rates will decline after a few quarters.
• +486 Clients including 70+ Fortune 500 companies in 31+ countries
• Capital Return: Final Dividend of INR 30 per share; Dividend pay-out ratio of 41.9% for the year.
• ROE of 28.5% for the year
• Total contract value (TCV): In Q4 FY22, won 4 large deals with net new TCV of over USD 80 million. Large deals are a positive and provide visibility to growth, especially in an environment where headwinds could emanate from a deteriorating macro. The deal pipeline is reasonably good with 50% of pipeline in late stage and four large deals in contracting phase. Deal pipeline continues to be robust, and company remains confident of maintaining industry leading growth in the coming year as well.
• FY23 Guidance: PAT Margins (14-15%) in FY23.

Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell stocks or MF.

Originally Published On: https://blog.investyadnya.in/larsen-toubro-infotech-q4fy22-conference-call-highlights/