Larsen & Toubro Infotech Limited (LTI) Q3 FY22 Earnings Concall Transcript

Larsen & Toubro Infotech Limited  (NSE:LTI) Q3 FY22 Earnings Concall dated Jan. 19, 2022

Corporate Participants:

Sunila Martis — Head of Investor Relations

Sanjay Jalona — CEO and Managing Director

Anil Rander — Chief Financial Officer

Nachiket Deshpande — Chief Operating Officer

Sudhir Chaturvedi — President, Sales

Analysts:

Sandip Agarwal — Edelweiss — Analyst

Vibhor Singhal — PhillipCapital — Analyst

Mayur Patel — IIFL Asset Management — Analyst

Sulabh Govila — Morgan Stanley — Analyst

Dipesh Mehta — Emkay Global — Analyst

Sandeep Shah — Equirus Securities — Analyst

Manik Taneja — JM Financial — Analyst

Madhu Babu — Canara HSBC — Analyst

Abhishek Shindadkar — Ingrid Capital — Analyst

Abhishek Jain — Nomura — Analyst

Debashish Mazumdar — B&K Securities — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to LTI’s Q3 FY22 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions]. Please note that this conference is being recorded.

I would now like to hand the conference over to Ms. Sunila Martis, Head of Investor Relations. Thank you, and over to you Ms. Martis.

Sunila Martis — Head of Investor Relations

Thanks, Faizan[Phonetic]. Hi, everyone, and thank you all for joining us today to discuss LTI’s Q3 FY22 Earnings. The financial statements, press release, and our quarterly fact sheet are all available in our filings with the stock exchanges as well as the Investor section of our website. On the call, we have with us today 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 to start with and this will be followed by the Q&A session.

As a policy, LTI does not provide specific earnings or revenue 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 risks that the company faces. Let me now hand over to Sanjay to start with our results.

Sanjay Jalona — CEO and Managing Director

Thank you, Sunila. Hello, everyone. I wish you all a very happy New Year and I hope you and your loved ones are staying — staying healthy and well. It was good to see you guys in December for our Analyst Day. Since we recently talked about our view on the market and six reasons why we are confident about the future, I would not dwell[Phonetic] much on these today.

Let me quickly walk you through our Q3 numbers. We are happy to report 9.2% quarter-on-quarter and 30.1 year-on-year revenue growth in constant currency. This translates to a growth of 8.7% quarter-on-quarter and 29.3 year-on-year in USD. This is our best ever sequential growth since listing. Our Q3 performance once again brings to fore, the strength of our portfolio as we have witnessed wholesome growth across verticals, service lines, as well as geographies.

While we are seeing increased inflation, supply chain challenges, Omicron spread leading to shortage of people for companies globally as we read and hear our optimism is still underpinned by conversations, we are having with our customers on their digital transformations. Let me now some highlights — tell you some highlights from Q3 that exemplify that optimism. BFS our largest vertical continues to show strong growth with over 38% Y-o-Y growth this quarter.

Excuse me, our manufacturing vertical grew over 30%. Our high-tech and media and entertainment vertical grew over 44% Y-on-Y while the Others vertical, which includes some of our marquee clients and services sector grew about 37% Y-o-Y. On the service line front, our Analytics AI and Cognitive service line grew over 37% on a year-on-year basis and Enterprise Integration and Mobility grew at 36% on a year-over-year basis with the rest of the service line also growing in double digits on a yearly basis.

All our geos, also grew over 25% on a year-on-year basis. Our Europe deal has turned around very well over the last few quarters and has grown 30% on YTD basis. We added 27 new logos this quarter, including one Global Fortune 500 logo, taking the total Global Fortune 500 count to 72. On a YTD basis these — this is the highest number of new logos we have added since our listing. We also opened a new logo in our pharma vertical in North America with a large deal TCV of $32 million.

All top client buckets, whether it’s top 5, top 10 or top 20, grew by about 25% year-on-year basis and we have added 1 more client to the $50 million bucket. Our hiring in India continues to drive our growth momentum. We increased our fresher intake to INR5,500 for FY ’22 and we have proactively hired around 1000 hire, train, deploy, or HTD people in Q2 and Q3 in the one to two years experience bank. Both the three-month training on the new age capabilities like data and cloud, these 1000 HTD resources are now ready to support our growth plans in Q4 and beyond. We continue to hire ahead of the curve, while balancing our utilization to capture the robust demand we see in the market.

Moving to the performance of our verticals, BFS continues a strong near double-digit growth at 9.7% quarter-on-quarter. This vertical has seen holistic growth during the quarter across all geos and service lines. We talked in detail about key growth drivers and how banks are responding to the Great Restructuring during our Analyst Day.

On Insurance, we saw a 2% quarter-on-quarter growth. This vertical has traditionally been a laggard in the last few quarters — several quarters and saw some pickup in the last quarter with a 5.5% growth. Even so, some work still remains to be done on this — this vertical. Manufacturing saw growth of 18.3% quarter-on-quarter as to a stronger for this vertical due to the presence of higher pass-through in one of our India engagements.

Our reported company level revenues of 8.7% quarter on quarter includes about 2% quarter-on-quarter growth on account of these pass-throughs. And as the utility grew at 6.7% quarter-on-quarter while this has been a good quarter and all price all prices are high, we expect cyclicity to continue in this vertical. CPG Retail and Pharma grew at 7.2% quarter on quarter. We see a consistent trend of leveraging data and supply chain resilience for our optimism.

Hi Tech and Media grew at 3% quarter-on-quarter and has had a strong year over year growth of 42.5. Others which largely include professional services Government of India ministries and other global enterprises and public service public services registered 10.7% growth quarter-on-quarter. Let me now move to outlook.

On slide 22 is shaping up to be one of our highest growth years since listing. Where we are today, we continue to be excited about our conversations with our customers, the pipeline, revenue momentum, and broad-based nature of our performance. We remain confident to deliver on our promise of being on the leader’s quadrant for growth with a stable PAT margin of 14% to 15% band. Now, let me hand it over to Anil for further comments.

Anil Rander — Chief Financial Officer

Thank you, Sanjay. Hello, everyone. It is great to be back with you all with another quarterly earnings, and I wish you all safe and healthy days ahead. Let me take you through the financial highlights for the third quarter of the FY22 starting with the revenue numbers. In the third quarter FY22 our revenue stood at $553 million, up 8.7% sequentially and 29.3% on a year-on-year basis.

The corresponding constant currency growth was 9.2% quarter-on-quarter and 30.1% year-on-year. Reported INR revenue of 41,079 million was up 9.8% quarter-on-quarter and 31.2% year-on-year. Now coming to profitability, EBIT for the quarter was INR7426 million, translating into an operating margin of 17.9% as compared with 17.2% in the previous quarter. The margin walk is as follows. Tailwinds of 40 basis points from growth and operational efficiencies and 30 basis points from currency.

Reported profit after tax was INR6,125 million this quarter, which translated into a PAT margin of 14.8% as compared with 14.6% margin in Q2. We remain comfortable with our guided margin band of 14% to 15% for FY22. Moving on to the people front, utilization without trainees was at 81.4% as compared to 83.7% last quarter and utilization including trainees was at 80.3% versus 81.6% in Q2. We continue to strengthen our workforce and during Q3, we added 1,818 people on a net business.

The total manpower stood at 44,200 of which our production associates were 95.4%. In this quarter attrition is at 22.5% versus 19.6% last quarter on LTM basis. On forex and hedge book, our cash flow hedge book stood at $1,715 million as of 31st, December 21 versus $1,586 million as of 30th September 21. While the on-balance sheet hedges stood at $94 million versus $88 million last quarter.

Moving onto DSO in Q3, the billed DSO stood at 66 days as compared to 61 days last quarter. The DSO, including unbilled revenue over 100 days compared to 98 days last quarter. For the quarter, the net cash flow from operations was at INR4,303 million, which was at 70.3% conversion of the net income as compared to 91.3% conversion we had in Q2. This is largely impacted by the licenses, which were booked on the last day of the quarter, leading to increase in DSO.

At the end of the quarter, cash and liquid investments stood at INR36,142 million as compared to INR38,403 million last quarter. The effective tax rate for the quarter was 25.6%, this is the same as Q2.

Earning per share for the quarter stood at INR34.9, as compared to INR31.5 in Q2. The diluted earnings per share was INR34.9 versus INR31.4 last quarter. With that, I would like to open the floor for questions.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] Ladies and gentlemen, we will wait for a moment, while the question queue assembles. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to two per participant. Should you have a follow-up question we would request you to rejoin the question queue.

The first question is from the line of Sandip Agarwal from Edelweiss. Please go ahead.

Sandip Agarwal — Edelweiss — Analyst

Yeah, hi, good evening Sanjay, and congratulation to the whole team for excellent execution and Happy New Year. Just a simple question, like if you compare supply-side issues right now which are there in the industry and the level of urgency with client has to implement the projects where do you see this both metrics of of letting is, is the urgency of the client to implement the project much higher than the supply side constraint, which is there in the industry. So basically want to understand how open the client is to give — to take the cost — additional cost on the books and allow the execution to happen.

So that was number one and number two, another simple question which I would like to ask is, where do you see from here next two to three years. I’m sure the environment right now is very good, but when you see the kind of cost which the clients are incurring on developing the IT infrastructure what is the sense, is it very longish, at least 10 to 12 quarter kind of thing with you, which it will take to complete those projects. It is more like digital projects, durations are shorter, but very frequently the deals are coming. So what kind of activity you’re seeing on that front. Thanks a lot.

Sanjay Jalona — CEO and Managing Director

Thank you, Sandip. On the first question on the urgency that we are seeing — witnessing our customers across verticals we have seen a lot of serious efforts going in because the world is not the way it used to be. This is where following the great depression, great recession we have coined the term of Great Restructuring for the industry, because the nature of every industry has changed because the way you and I are operating is very different than what we ever did in our lives.

The future of workforce, workplace everything has changed to work in place of people coming to work, work is moving towards people, right, and every industry has to adapt itself to that otherwise they — they’ll perish and I’ve given many examples in the past, but the simple example that all of us deal with in a simple way is if the companies did not have the ability to order online and pick up at the curbside you will actually face extension — extinction. Now so that urgency continues to be there we are seeing on to the second point and in order to deal with that urgency, we all need to scale up.

There is a lot of demand, we need to hire a lot of people. That’s where you see the demand really going up in the marketplace. Market industry has not created enough — enough people in the last few years. So that’s why I believe in the next three, four quarters, it will take the supply to really come there[phonetic]. That’s why we took our call of firing hired trained deploy 1,000 odd people in Q2 and Q3. Right. So just to create the pipeline for us to meet the ever-growing demand that we see in our marketplace.

And our — and the second question, how long do we see this demand to be there. Look, I’m not [indecipherable] because our industry changes very, very quickly. But what we have maintained to say based on three reasons that we gave at Analyst Day. One, global restructuring; second, new areas of spend that is coming to market place AKA ESG which is nothing else but workflows and data business growing in a meaningful way; and the third is great resignations because the customers are also facing double digit attrition and they believe that we need to support them and do more work from offshore, maybe that’s why you’re seeing offshoring increase for every organization as well.

So these are reasons, we believe that it gives us the confidence for next three to five years. Definitely, there will be this continued demand as the companies cater to their digital needs.

Sandip Agarwal — Edelweiss — Analyst

Thanks a lot, and best of luck for the current quarter.

Sanjay Jalona — CEO and Managing Director

Thank you, Sandip.

Operator

Thank you. The next question is from the line of Vibhor Singhal from PhillipCapital. Please go ahead.

Sanjay Jalona — CEO and Managing Director

Hi, Vibhor.

Operator

Mr. Singhal, your line is on talk mode.

Vibhor Singhal — PhillipCapital — Analyst

Yes. Hi. I’m sorry, I hope I’m audible.

Sanjay Jalona — CEO and Managing Director

Yes, yes.

Vibhor Singhal — PhillipCapital — Analyst

Hello sir, thanks for taking my questions, and congrats on a great quarter I guess again. Sir, I think there isn’t much outlook in these two [indecipherable] that we have the of all on the revenue margin spend. There is just one question that I had and this is basically, I think which is something which we are seeing across the boards of almost all the companies and for our shares also, one is that the on-site offshore mix of course in terms of the effort mixes more and more going towards FRB, offshore path, in this quarter also we have around 84%. So just wanted to basically pick your brain on, where do you think eventually stabilizing at let’s say, two or three or four quarters down the line? Do you think these numbers are sustainable or do you think they’ll go back to pre-COVID levels or be some where in between.

Similar kind of question is on DSO days. We have seen the DSO days for ourself and of course we are almost the entire all other companies as well increase over the past two to three quarters. Of course, our number in this quarter was strong, it was also an outcome of the license sales, which Sir mentioned at the end of the quarter, but overall there is no increase in DSO based on the past two to three quarters, is it some thing to worry about in terms of I mean growing so fast line from not may be making those payments on time and something that you believe is something that we should be concerned about or do you think those also should come back to their gradual normal level in maybe a couple of quarters? Thanks.

Sanjay Jalona — CEO and Managing Director

Okay, let’s talk about onsite, offshore mix. I think we’re very comfortable with where we are. Just remember Vibhor if you were to ask me before 2019, if the world will continue to operate and will continue to grow like we have done now for IT services, all industry has grown. I would have said, absolutely not. Right. No one ever imagined that the work world will work as seamlessly. People will actually communicate on these tools and platforms that do not go down, right, whether it’s Teams, whether it’s WebEx, whether it is Zoom, there are many collaboration tools, right. If you had just recollect two or three years back, also the world said, you know the newish full stack developers and projects can only be done when people are sitting together and all those myths we have been breaking. We have always talked about, you can do these full-stack work also with offshore. If you have the right sets of tools, if you make infrastructure investment, and so on, so forth, and I think today that is what is happening.

Actually, people are working for in our case maybe from 40,000 offices, right, because everyone is at their own house. Right. So why can’t it continue to be in there. So we are very comfortable with where we are. There is obviously a lot of merit to people, we are social. The people are all about social fabric. We need to some time go back to meeting people, but I hope we don’t go back to the model of a lot more travel because these platforms are sort of one thing that these are the good things that we need to continue, to talk more people using these platforms and customers are ready to do that. That’s why I think we are comfortable with the offshore mix and I think it can still continue to move a little bit more offshore.

On the DSO days, I think this again bring it back this actually change actually started in 2007-2008 timeframe when after the financial crisis, people started to increase the payment terms, right, and that problem is what has continued. I don’t think it’s a recent phenomenon at all. Right. So that’s why, if you look at DSOs has been more or less stable for most of the companies.

Vibhor Singhal — PhillipCapital — Analyst

Okay. So just basically as a follow up on the first part, as you mentioned you are comfortable with the kind of on-site, offshore mix that we have today. Do you believe there is or do you have conversations with the client, do you see them also probably being comfortable with if not similar numbers, maybe slightly lower numbers but then changing their mindset and becoming more and more comfortable with this higher offshore mix. Followup to the second question was, what I was talking about in the.

Sanjay Jalona — CEO and Managing Director

Vibhor, I cannot remember so many things, one by one. I’ll give you another option. Right, so your question is what, your line is a little unclear. Are clients okay with offshore percentages being as high as what it is today?

Vibhor Singhal — PhillipCapital — Analyst

Yes. [indecipherable] question.

Anil Rander — Chief Financial Officer

So, Vibhor, people work is moving to people. That’s what I said future of work is changing in place of people moving to work, work globally is moving to people, that’s the fundamental change that has happened. Right. So I think customer level are very bold and happy. That’s why everyone is going.

Vibhor Singhal — PhillipCapital — Analyst

Got it. Got it.

Sanjay Jalona — CEO and Managing Director

Your second question?

Vibhor Singhal — PhillipCapital — Analyst

Yeah. On the second question, what I actually meant to ask was as DSO days have been gradually increasing, but I think we’ve seen a sharp increase, not just for ourselves over the past three to four quarters. So just wanted to tie this up, is it somehow related to be COVID part or is it something that you think is a normal course of business and like what basically correct.

Sanjay Jalona — CEO and Managing Director

Vibhor, I don’t want to comment on others. But for us we are at the same level as before. If not a little better. From pre-COVID to now. So I don’t want to comment on anyone else, you need to look at their data and their management.

Vibhor Singhal — PhillipCapital — Analyst

So overall net-net for us at least the COVID hasn’t led to any change in payment terms of deterioration of any of the premiums.

Sanjay Jalona — CEO and Managing Director

That is absolutely right.

Vibhor Singhal — PhillipCapital — Analyst

Perfect. Sir, great to hear that. Thank you so much for taking my questions and I wish you all the best.

Sanjay Jalona — CEO and Managing Director

Thank you, Vibhor.

Operator

Thank you. The next question is from the line of Mayur Patel from IIFL Asset Management. Please go ahead.

Mayur Patel — IIFL Asset Management — Analyst

Hi. Sanjay and team, congratulations for excellent of results. Execution has been really good. Just one question more inclined towards the revenue growth from India and is there any specific reason around that.

Sanjay Jalona — CEO and Managing Director

Sorry, say that again, I was trying to figure out something. Tell me — say that again.

Mayur Patel — IIFL Asset Management — Analyst

The revenues from India is a mix in the overall scheme of things. Is it higher in this quarter and what is the reason behind it. Just want to ask.

Sanjay Jalona — CEO and Managing Director

Okay. So this is what. So around 2% is coming from our traditional. This is the time in Q3 and Q4 we have pass-throughs. So this amount is 2% of our growth is coming and which is also associated with manufacturing also associated with India. Okay. In addition to that we have seen growth and not only India projects but some other services to company that are classified and contracts out with banks, which are are having contracts with India so which are also in our model classified under India. These are global banks.

Mayur Patel — IIFL Asset Management — Analyst

Okay. Okay. Sure. And Sanjay, is it — when we say specifically some numbers around the cloud business that is in addition to the cloud related work which is being done in individual verticals. Right, if I understand it right.

Sanjay Jalona — CEO and Managing Director

So, yeah, so this is what we explained to you guys last quarter also but I think we will — we will have a reclassified service line breakup effective Q1 onwards. But right now I’ll request Nachiket to explain what we explained last time also.

Nachiket Deshpande — Chief Operating Officer

So as you rightly said, the revenue reported under CIS service line largely captures only the infrastructure part of our business. If you combine the overall hyperscaler business in LTI it is actually growing faster than the company average. And we continue to see very good demand driving growth for us in quarters to come.

Mayur Patel — IIFL Asset Management — Analyst

Sure. Understood, thank you, gentlemen. All the best.

Sanjay Jalona — CEO and Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Sulabh Govila from Morgan Stanley. Please go ahead.

Sulabh Govila — Morgan Stanley — Analyst

Yeah, hi, thanks for the opportunity. And congrats on good set of results. So, I had a couple of questions. First is on the pricing bit, do you see that incrementally coming in and supporting growth rates for you in the coming quarters is something which is echoed by peers as well and if there has been a positive impact on revenue and margins in this quarter, which was not there earlier.

Sanjay Jalona — CEO and Managing Director

So pricing more or less is stable. We have seen pockets where there has been price increase as the demand is much higher than the supply, it’s logical for us to have the flexibility to have a positive impact, but broadly as we keep saying we are a growth company. Look at us as a growth company. We, this is the time when we want to capture as much market as we possibly can. We have — we have pricing, you take it is stable with a positive mind.

Sulabh Govila — Morgan Stanley — Analyst

Okay, got it. And then the other bit is that if you could provide some qualitative current around — color around the book to bill ratio in terms of how it’s trending for you guys over the past several quarters, how is the trend been on that track.

Sanjay Jalona — CEO and Managing Director

Okay. I request Sudhir to comment on this.

Sudhir Chaturvedi — President, Sales

So I think as we explained, even during our analyst day, right. So the pipeline is up significantly over the last year. It’s not of the company growth rate comfortably, which gives us confidence, I think the key thing as Sanjay also mentioned is that the changing nature of demand, especially for three verticals banking, insurance, and High tech tends to be, is becoming a lot more pod model oriented. So these pod teams is made up of 10 people. So they are that model, which is essentially a people requirement-based model and barge to deliver extreme off essentially transformation projects that is a — that is different nature of demand compared to you know we’ve had typical laboratory RFP Delta mode. So I think when you combine the two demand overall pipeline as well as the resourcing demand with the purple bars that is significantly ahead, which is reflected on this commentary also on where we see confidence that there is growth in the environment for the next three years, at least that we can foresee.

Sulabh Govila — Morgan Stanley — Analyst

Sure. Thank you. Thank you.

Operator

Thank you. The next question is from the line of Dipesh Mehta from Emkay Global. Please go ahead.

Dipesh Mehta — Emkay Global — Analyst

Yeah, thanks for the opportunity and congrats for strong execution. Couple of questions, first about the one new logo in pharma, which you said I missed the number you said, if you can provide more detail about nature of work, which we are likely to do for this line. That is first question. Second question is about the related to large deal related thing. Earlier we indicated, we are — we are having very strong pipeline and H2 is expected to be better, do we think those pipelines are getting converted or you are still seeing clients are deferring some of this decision, and we are seeing good flow but from larger perspective, it might be likely to remain relatively less than what we might have expected.

Sanjay Jalona — CEO and Managing Director

So I’ll answer your second question and I’ll request Sudhir to answer the first question and give you details on the new logo on large deal data et cetera. Look first thing, pipeline is not necessarily equal to large deal. On Analyst Day we tried to explain to you the changing nature and every quarter we are telling you the changing nature. I’ll tell you one something a lot of debate went in. Previously we used to report large deals in my court itself. I intentionally did not report it, because the importance of large deal while it continues for the industries, the major demand has changed so dramatically that it is one of the things that drives it not necessarily. The only thing that drives it. Right. So it is continuing to be the pipeline is very, very strong. Large deals also continue to be there. Right. But that is not necessarily the only way to grow in this market today, it’s about capturing the market of digital transformation which is coming in small and discrete projects and thoughts that should be talked about and that’s what we are trying to capture. Sudhir why don’t you answer the first question.

Sudhir Chaturvedi — President, Sales

Yeah, sure. So the large deal is with the company, which is a subsidiary of our very large global organization. This is a multi-year deal for Infrastructure Management Services, in addition to this, this is sort of $32 million is all net new TCV for us. So this is a new logo addition. So we’re making an entry into this account as well. This company is embarking on a multi-year transformation program in addition to this outsourcing program where they are looking to modernize their infrastructure and move to the cloud as well as modernize their application infrastructure. So we see headroom for future growth beyond what we have already contracted also in this account.

Dipesh Mehta — Emkay Global — Analyst

What typical kind of competition, let’s say, new logo we encounter and how we differentiate ourselves. If you can provide some perspective.

Sudhir Chaturvedi — President, Sales

It varies but on this particular deal, it was the two largest companies in the oil sector.

Dipesh Mehta — Emkay Global — Analyst

So what, what played out in favor of LTI. If you can just help me.

Sudhir Chaturvedi — President, Sales

You come over, I will spend a day with you. I don’t know how to answer this. Look, everyone is looking for a very customized solution for their needs. And this is where if you understand listen and be disruptive challenge status quo that show the urgency and help them meet the urgency that they have in the marketplace. I think these are some of the differentiators that we bring. The strength of solutioning is very important. Focus on a few customers — few verticals is very important when you cannot do digital transformations on a generic vertical that you don’t operate. So these are things that continue to operate and differentiate us in any day and nothing is different here and this is how we are able to open some of these large Fortune 500 companies as well because customers are also not sourcing for scale but for expertise, right. That is what differentiates. The base of people providing these predictable cookie cutter outsourcing solutions are over, you need as Sanjay said you need to provide a highly customized solution delivered at speed and I think that changes the game significantly when it comes to the new age of outsourcing.

Dipesh Mehta — Emkay Global — Analyst

Understand. Understand. And considering the changing nature of demand, do you think some of the metrics, which you might start providing as a lead indicator, maybe either total deal intake or anything which you think maybe from next fiscal year onwards, because the demand.

Sanjay Jalona — CEO and Managing Director

Dipesh, we will just do better now. We will provide you better revenues.

Dipesh Mehta — Emkay Global — Analyst

Fair enough.

Sanjay Jalona — CEO and Managing Director

All right. Take care Dipesh. Thank you for your time and thank you for your interest.

Operator

Mr. Mehta is that answer your question.

Dipesh Mehta — Emkay Global — Analyst

Yeah, thank you.

Operator

The next question is from the line of Sandeep Shah from Equirus Securities, please go ahead.

Sandeep Shah — Equirus Securities — Analyst

Yeah, thanks for the opportunity and congratulations on a solid quarter, Just Sanjay and Sudhir both in terms of interaction with the client entering into CY 22. Any color in terms of IT budgets where you believe there could be some share off related to pent-up demand into CY 21 or when you say, three to five years the growth momentum what we have seen in FY22 has the potential to continue for the industry as well as LTI as a whole, some initial colors will help us to understand the nature of the demand. Is it more pent-up or is it more structural which will help in terms of a multi-year growth.

Sudhir Chaturvedi — President, Sales

So Sandeep I shared this data with you during the Analyst Day in December that this is a Gartner forecasts. The Gartner forecast is that we are going to see a budget growth of north of 6% this year across all sectors. And in the key sectors that we operate the budget growth is our largest sectors is between 6% and 10% actually. So that is the Gartner prediction. Now of course what we haven’t seen anything right now, that changes it but I think there are a few factors that are emerging from a global macro perspective and Sandeep to also add to this, but there are concerns around the inflation that is it’s very high right now in both in the US and in Europe in key markets.

There are issues with even still with supply chain predictability and that is impacting some sectors. And the third thing is that this Omicron is still a relatively we are still to see what exactly the impact will be right now. Of course, things seem to be getting better, but we will have to wait and watch but I think clients — the transformation journey they are undertaking at these multi-year journey. So, the nature of that work will continue and I like it continued during the pandemic, it will continue this year as well, but there are certain macro factors to look out for.

Sanjay Jalona — CEO and Managing Director

I’ll just add a few things Sandeep your question was pent-up versus new, I don’t know whether you can call this the traditional for the last 30 as we’ve talked about pent-up demand in budget flushes those don’t apply anymore. This is the nature of the way the world is operating in the new normal, and there is a lot of work, everyone is still discovering what is the best way to connect to customers who are operating differently. How do you talk to millennials who just don’t want to even own a car, right. So how do you communicate to them. Their investment philosophies are very different there. The way they take insurance is very different so that both will continue to be there for some time and you know these three things that Sudhir talked about, these are not new as well. Right. But one has to be watchful because these will have an impact in the marketplace.

But based on the conversations that we are seeing we still believe there is a positive bias towards the spend, continuing to be strong for the next, at least three to five years.

Sandeep Shah — Equirus Securities — Analyst

Okay, thanks Sanjay and Sudhir.

Sanjay Jalona — CEO and Managing Director

How to help you model this anymore, man.

Sandeep Shah — Equirus Securities — Analyst

Yeah, just last thing on a bookkeeping treasury income generally used to be between INR40 crores to INR60 crores per quarter. At this time, if I’m not wrong, it is INR28 crores anything to read as an aberration in terms of the FMP related investment income booking happens on a volatile basis.

Anil Rander — Chief Financial Officer

No, there is no aberration as such, actually our corpus reduced slightly, as I said mentioned in my speech itself where our cash and liquid investments stood at INR36,142 million versus INR38,403 million last quarter and there has been hardening of yields, by the end of the quarter. So, it also has an MTM impact on the revenue.

Sandeep Shah — Equirus Securities — Analyst

Okay. thanks, and all the best.

Operator

Thank you. The next question is from the line of Manik Taneja from JM Financial. Please go ahead.

Manik Taneja — JM Financial — Analyst

Thank you for the opportunity. Sanjay basically just wanted to get your thoughts on the trend towards expansion in Tier II and Tier III locations by company and why we have seen significant offshore expansion, there is concern around the increase in cost of talent in India as well. So with the increasing shift in terms of delivery centers in Tier 2 and Tier 3 locations do you think that hence negate some of the cost pressures and probably provide some margin leverage to the industry as a whole.

Sanjay Jalona — CEO and Managing Director

I am going to let Nachiket answer this question, but I think you got to look at this answer more from cost perspective, if you have to look at it more from whereas a good talent going to be. Nachiket, why dont you answer this.

Nachiket Deshpande — Chief Operating Officer

Yes, so I think as Sanjay said. Right. The whole work moving to talent phenomena is happening within India as well within all geographies as well. And especially in the current climate. I think the location of people will be coming in low-end data point that because people are still working from home and whichever city they are already in. So for us, we have also looked at where people are who are already working with us and where we have a good supply of talent. We are invested in bringing our new facilities in Coimbatore that we inaugurated just a few weeks back. We have also inaugurated our facility in Hyderabad and we are also expanding in Kolkata, so for us, we are also growing and for us, the strategy is largely driven by where we see our existing employee base where we have already operating today. What’s the preference of people — the employees are talking about and we want to provide that flexibility to them as we start to operate in a hybrid model. So, we have expanded into these three cities and we will continue to reach out to multiple locations in India as we roll out our hybrid model.

Manik Taneja — JM Financial — Analyst

Do you think that provides some sort of cost leverage to the industry as a whole or it’s just the ease of finding talent and ease of delivery.

Nachiket Deshpande — Chief Operating Officer

See one easy way to look at this is, when people are drifting towards their hometown, so to speak. If people are in Bangalore people in Mumbai, the commute is killing them right in many of these places, if somebody has for whatever reason, the last two years have shifted to Indore, Lucknow, Kolkata, Coimbatore for all matters. Right, what typically happens is they like a better lifestyle. They have, they’re closer to their families, but that’s meant to the city is a far, far stronger on many, many fronts and that gives longevity for them in the company itself, right, so the attrition levels. Hopefully, are going to be a lot less as well. So those are the things which definitely should help. But right now focus is on where the talent is going to be and where do we want to be how do we actually get the talent, because there is so much demand. That’s what our focus.

Manik Taneja — JM Financial — Analyst

Sure. Thank you all the best for future.

Sanjay Jalona — CEO and Managing Director

Thank you Manik.

Operator

Thank you. [Operator Instructions] The next question is from the line of Madhu Babu from Canara HSBC. Please go ahead.

Madhu Babu — Canara HSBC — Analyst

Yeah, hi, sir. So there have been a state of acquisitions in the recent six months from Indian IT companies especially Tech, Wipro, even in the mid-size persistent. So we have been a bit slower on that front. So what are your views there and any targets you are chasing.

Sanjay Jalona — CEO and Managing Director

Okay. So Madhu, we have done in the last six years seven acquisitions. We have always said we will never do acquisition for revenue. They will be capability driven. These are acquisitions that you have created really, really cool pieces off what products on data, for example, the data products on software that we launched. They have created great capabilities on middleware and digital integration capabilities. They have given us the ability today. We are the world’s, the most the Partner of the Year for terminals, for example, the strong partner than alliance et cetera, continue to be there. Last acquisition we did was last year as well. Right. That QLogic coming when we are, there is a bunch of 300 people. Right. All of our digital engineering, lots of different ways of supporting and answering the ability that we take to our customers. At any given point of time, we are always looking at capabilities that will act and we will continue to do that, but our focus will always be on shareholder value. This is not our personal money. This is shareholder money.

We will be wise and making sure to do all analysis to find what is the way to build the capabilities that we need to do. If acquisition is the right way and we find an asset which is at the right price point will definitely look at it. We continue to look at it, I spent significant time on it. We are evaluating the companies and all the niche things that you hear us say and talk and their customer spending and we’ll continue to look at it, but only we done if you get a right price, right.

Madhu Babu — Canara HSBC — Analyst

Sir, second one on the fresher hiring, so how are we seeing the trends on the freshers who are joining. I mean is that attrition higher in this bunch, I mean especially considering that they’re working from home I mean, so how is the, I mean overall attrition in the freshers especially in that zero to two year category.

Sanjay Jalona — CEO and Managing Director

Nachiket?

Nachiket Deshpande — Chief Operating Officer

Yeah. So we’re not seeing any specific spike or any specific pattern on fresher attrition, it’s not they are not picked up at all. It’s very similar. We are actually seeing typically a higher attrition in three to six years bracket for us and probably for all of the industry and no specific pattern on the fresher.

Madhu Babu — Canara HSBC — Analyst

Okay, sir. Thanks.

Operator

Thank you. The next question is from the line of Abhishek Shindadkar from Ingrid Capital. Please go ahead.

Abhishek Shindadkar — Ingrid Capital — Analyst

Hi, thanks for the opportunity. And congrats on a great execution. Just one question. Sanjay, you referred to spending after the earlier recessions and one of the data points is the uptaking the multi-sourcing, which happened post GFC or any other point. So anything on the ground that you are seeing differently from clients today. Those comments would be helpful.

Sanjay Jalona — CEO and Managing Director

So you are saying whether we are seeing anything about us there are ways that customer are still doing multi-sourcing or some other way. Is that what your question was Abhishek.

Abhishek Shindadkar — Ingrid Capital — Analyst

So Sanjay one of the data points which ISG reported is the increase in multi-sourcing by customers, especially after a downturn, are you witnessing anything this time is my question.

Sanjay Jalona — CEO and Managing Director

So this is where I, we use the term that customers who used to typically choose sizes and the scale has the ways and means to source their partner and multi-source model as well have moved away to sourcing for skills and expertise, right. So this is why it makes and I think this is what we are also trying to say in their own ways. This is where because the project sizes have shrunk its expertise is driven on verticals. This is why companies like us are able to open record number of new logos as well. That’s what is helping us. We have execution et cetera, agility, et cetera, all makes a difference in today’s time and is very critical in there and is a critical factor in the revaluation on who they want to partner with.

Abhishek Shindadkar — Ingrid Capital — Analyst

Perfect. That’s helpful, thank you for taking my question.

Sanjay Jalona — CEO and Managing Director

Pleasure Abhishek. Thanks.

Operator

Thank you. The next question is from the line of Abhishek from Nomura. Please go ahead.

Abhishek Jain — Nomura — Analyst

Hello. Thank you. Hi. Sanjay. I have a question around your SG&A expenses. If I remember correctly, you had indicated last year that in your efforts to scale up your cloud and data vertical, you would be probably stepping up the SG&A expenses by 1% as a percentage of sales. However, if I look at your last nine month data not only this quarter, if I look at last nine month data we are kind of flattish. Not 11.5%. The ways of working have not changed, travel is still restricted. So I’m just curious to know, you know, on this page what you had planned on these two new vertical — focus verticals panning out in the way as they are, even if I look from an absolute spending point of view will the SG&A expenses growth is only 20% compared to the topline growth of close to 30% in last nine months. So, your thoughts would be helpful.

Sanjay Jalona — CEO and Managing Director

So SG&A is not what we want to increase. What we want to increase is sales and marketing, first thing, right. So there, and you need to as you grow as SG&A portion has to logically keep coming down and as we drive efficiencies and stuff that has to continue. So our investments has been as per the plan in cloud data products as well. We could have done even more but talent scarcity is everywhere not only in delivery but finding right talent anywhere is a challenge, but we are continuing and committed to investing in all these new things that we talk about in times to come as well. So the way to look at it is, our sales and marketing is going up. G&A we keep trying to bring it down and as our revenue base increase G&A is expected to decrease anyway as a percentage.

Abhishek Jain — Nomura — Analyst

Okay, got it. Sanjay my second question is, you know, some markers towards your towards billion-dollar ambition on cloud which you wanted to achieve in next few years time, at the end of FY.

Sanjay Jalona — CEO and Managing Director

Yes, we are progressing well towards that Abhishek.

Abhishek Jain — Nomura — Analyst

Okay. Just one small request Sanjay you said at the start, that the cloud classification of services for me it does not give the correct picture. Maybe if you could correct it, it will help us to know how this vertical is progressing.

Sanjay Jalona — CEO and Managing Director

See, we will be able to give you something more on that effective Q1, but it will still not give you the full picture because cloud is also embedded and Enterprise Solutions and a whole bunch of thing. Let us see, it will be a gradual process. I will say Abhishek but we’ll definitely be able to add cloud engineering, which you don’t see it at all in our report today. Right. The major portion of growth has gone into ADM.

Abhishek Jain — Nomura — Analyst

Okay. Got it. Thank you and all the best sir.

Sanjay Jalona — CEO and Managing Director

Thank you sure.

Abhishek Jain — Nomura — Analyst

Thank you, Sanjay. All the best for the year.

Sanjay Jalona — CEO and Managing Director

What discussion is ever does not even start or finish without talking about how do we use cloud to drive growth and expandability for an organization. Across any of our service lines or vertical or customers share. It’s a must. Thanks Abhishek.

Abhishek Jain — Nomura — Analyst

Thanks Sanjay. Have a good year.

Sanjay Jalona — CEO and Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Debashish Mazumdar from B&K Securities. Please go ahead.

Debashish Mazumdar — B&K Securities — Analyst

Hi, sir. Thank you very much for taking my question and good evening to everybody. So I had in my question first related to attrition and second, related to the pass-through revenue. So although we have seen on the LTM basis our reported attrition and the percentage has gone up. I wanted to understand that whether actual number of churning of people has stabilized or reduced how we have seen in the last few months and as a percentage that I want to get that whether we are close to peak, as well as the attrition percentage is concerned.

Sanjay Jalona — CEO and Managing Director

See if you look at obviously LTM basis that shows what it shows in the factsheet. But if you look at quarterly annualized the number has just marginally gone down from the previous quarter, but I wouldn’t take anything to the bank as yet because typically two things — for two things, one, in the Q3 traditionally because of the holidays because of Diwali, because of Christmas, New Year traditionally organizations go a little slow in hiring, number one. Number 2, an event like Omicron spread also puts people in a shell and they go to the natural secured working with existing company, but obviously the numbers have marginally come down, so only the next two quarters will determined which way it is — it is actually moving. So I don’t know what else to say, except that we have intensified engagement with our clients. We have also gone ahead of the problem to hire people in advance in Q2 and Q3, right, would hire, train, deploy model and increased number of HTDs to be prepared in case that problem continues. But today as we stand Q3 quaterly number has gone down. We will know more in Q1 and Q2 — in Q4 and Q1.

Debashish Mazumdar — B&K Securities — Analyst

Okay. The second question I had with around pass through the 2% increment of growth that you have spoken about. So, is it a kind of contingency or it’s like a one-time pop-up that we got in this quarter and it will not continue in Q4, how one should read it?

Sanjay Jalona — CEO and Managing Director

It’s seasonal. If you’ve been following us it’s there every year for the last six years, it continues. It comes in every Q3 and Q4.

Debashish Mazumdar — B&K Securities — Analyst

Excellent, Sir. Thank you very much for answering my questions.

Sanjay Jalona — CEO and Managing Director

All right, thank you Debashish.

Operator

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

Sanjay Jalona — CEO and Managing Director

Thank you, guys. Thank you for being in the call. It was great to see again all of you in December. Thank you for joining the call today and we hope that you and your families will continue to stay safe — stay safe. We look forward to seeing you next quarter. Till then take care, god bless, be well.

Operator

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