On the back of strong growth in the first quarter (Q1) of financial year 2021-2022, pure play engineering services firm L&T Technology Services (LTTS) has drawn up plans to invest and scale six key areas -- electric autonomous and connected vehicle (EACV), 5G, medtech, digital manufacturing, artificial intelligence and machine learning driven smart offerings, and sustainability.
In this interview with TechCircle, CEO and managing director Amit Chadha elaborated on the six investment areas, the demand trends witnessed in the last quarter, and the future prospects for growth in the context of a third wave of Covid-19 being around the corner.
LTTS reported an 84% year-on-year increase in its Q1 net profit to Rs 216 crore and a 17% year-on-year increase in revenues to Rs 1516 crore. Sequentially, profits and revenues grew 11.1% and 5.4%, respectively.
What factors drove the growth rebound during the first quarter?
There are multiple things factors. Number one what we see is that the markets in the US and Europe are sort of coming back. Of course, there are chances of third wave but we do see decision making coming back. Second, if you look at the way we have bounced back; we had fallen because of Covid-19, we had gone down quite a bit but since Q2 last year we have continuously shown growth in that 4% sequential organic growth range. So that has continued into the first quarter of this fiscal.
Third, we’ve had a specific focus towards deal wins and pipeline and creating deals proactively, which has helped us. Fourth, we have continued our attention and focus on technology.
We focused on differentiated patents, on reusable assets. This quarter itself we filed 23 patents and if we include our customers, the number goes up to 69.
We also gave wage increments on April 1 for our junior and mid-grade employees because no company can do well without employees. Seniors started getting it from July 1. So that's broadly the contours that led us to the performance that you've seen.
What demands trends are you seeing across segments?
If I look at transportation, electric vehicles are in vogue in terms of spends, etc. We have signed two deals in this area. Connected and then autonomous, that’s the order in which people spend in that area. Second, we are starting to see people starting investments in 5G, which has helped with growth in hi-tech and telecom. In industrial products, the IP vertical, discreet manufacturing. We are seeing spends in digital twin, digital manufacturing as well as in digital products.
We are also seeing spends in medical technologies but we haven’t had such a good quarter in that area. Apart from that, we are seeing growth in plant engineering as well. So broad based growth is what we're seeing.
Why was the growth almost flat in medical devices?
The pipeline was always there. If you go back five quarters, there were a lot of elective surgeries because of Covid-19. We worked with dental companies, we worked with medical device companies. We did not work with hospitals. What’s happened is, during the last quarter, one project got completed and the other took time to ramp up because a lot of product design got delayed by people. Now, elective surgeries are back as well as the demand is back. So, I expect this is a short-term thing and you will see growth coming back from the second quarter onwards.
Tell us more about the deal wins from the last quarter.
Last year saw us closing a $100 million deal with an oil and gas major. That has ramped up and picked up execution in this quarter. Beyond this, we won two $25 million-plus orders from electric vehicle manufacturers – one is an old age (traditional) company and another is a new-age company.
With the first, we will be working on vehicle design, chassis design, and electronics components, while the with the second, we will be working only on electronics such as the power distribution unit, inverter controller etc. So that’s the major set of wins.
We have also had wins in the industrial products category. In refrigeration, for developing a smart refrigeration system for a client. Then, we have won in 5G to set up a lab for network OEM Mavinir. We've also won a network testing platform and web development engineering contract from an Asian electronics commerce company. There’s been multiple wins we’ve had in the last quarter.
Totally, the net new deals wins have been about 15% higher as opposed to the previous quarter.
Do you expect this growth trajectory to continue?
We have upgraded our FY22 revenue growth guidance to 15-17%. Last wave, the second one, was really damaging for all us. I don't talk about profits and revenue; I talk about people. We had fatalities and a lot of people were down. I believe that the third wave may not have so many hospitalizations. People who have been vaccinated are safe. I have not seen the future so can’t tell what will come but at this stage we are fairly optimistic about what we have provided.
On the Covid-19 front, what steps did the company take to ensure employee safety?
Employee wellbeing is core to us. There's nothing more important as far as I'm concerned. So, when the first wave came, we set up work from home, etc. Then, we opened our offices, we had about 30% attendance back in office on any given day. And, then the second wave hit, all were unprepared.
So, we did a few things.
We opened a telehealth line, where people can call and get medical advice. So far, close to about 1,000 people have called and taken advice on it. Second, we set up Covid care facilities in all the cities we operate in. Where we owned the buildings, we set it up in our buildings and where we didn’t own, we found other locations to set it up. For each location, we have had about 20 bed facilities for our employees.
We have also provided short term relief in the form of advanced salaries if required by junior employees for insurance co-payment and all that. We also opened up life insurance enrollment and a mental health and wellbeing line to help our employees in these stressful times.
After all that was done, we started a drive to vaccinate employees and their families. I am happy to share we will get about 75% of our workforce vaccinated by August-end.
Tell us about the six technology investment areas that LTTS has identified for future growth?
The six areas that we've identified are electric autonomous connected vehicles (EACV), 5G, digital manufacturing, AI for digital products, sustainability, and medtech. Now, I can tell you that the spend in EACV, digital manufacturing and medtech is happening here and now. 5G will pick up in a little bit.
We're building reusable assets in each of these areas. Meanwhile, AI and sustainability will pick up over a period of time. That’s how it is phased in my mind.
If you look at the investments we have done, we've set up our own EV lab in Bengaluru. We've created our own software for converters, vehicle distribution unit, power distribution unit, and a modular battery pack. I can go on and on, but the point is, we've made investments in creating hardware and software in specific areas of EACV.
Similarly, in medtech, we have developed our own algorithm for digital products and we are working on sepsis detection and other products in conjunction with experts from IIT Madras and IISC etc. So, we are doing that. We are also working on digital manufacturing with partners such as PTC, Microsoft and others. So, we are continuing to build an ecosystem to take things forward.
Finally, how is the hiring effort going?
Last January, our chief operating officer hired and set up a team for the Global Engineering Academy that provides training to our employees. That academy has helped us in reskilling our workforce in digital technologies -- because 54% of our work has become digital now -- as well as hiring fresh graduates and getting them ready. With this, we hired close to about 300-plus freshers in quarter four, we did another 350-plus in the first quarter. Our goal for the whole fiscal is to get about 1,500 freshers. So, we are on target there.