Larsen & Toubro Infotech Limited (LTI) Q4 FY22 Earnings Concall Transcript

Larsen & Toubro Infotech Limited  (NSE: LTI) Q4 2022 earnings concall dated Apr. 19, 2022

Corporate Participants:

Sunila Martis — Head of Investor Relations

Sanjay Jalona — Chief Executive Officer & Managing Director

Anil Rander — Chief Financial Officer

Sudhir Chaturvedi — President and Executive Board Member

Analysts:

Vimal Gohi — Union Asset Management Company Private Limited — Analyst

Sandip Agarwal — Edelweiss Securities Limited — Analyst

Nitin Padmanabhan — Investec — Analyst

Abhishek Bhandari — Nomura — Analyst

Vibhor Singhal — PhillipCapital India — Analyst

Sandeep Shah — Equirus Securities — Analyst

Manik Taneja — JM Financial Services Ltd. — Analyst

Mohit Jain — Anand Rathi Research — Analyst

Dipesh Mehta — Emkay Global Financial Services Ltd. — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to LTI Q4 FY ’22 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Ms. Sunila Martis, Head, Investor Relations, L&T Infotech. Thank you. And over to you.

Sunila Martis — Head of Investor Relations

Thanks, Stanford. Hello, everyone. And thank you all for joining us today to discuss LTI’s Q4 and full year FY ’22 earnings.

The financial statements, press release and quarterly fact sheet are all available in our filings with the stock exchange, as well as at the Investor section of our website. Today on the call with us, we have Mr. Sanjay Jalona, CEO and Managing Director; Mr. Sudhir Chaturvedi, President, Sales; Mr. Nachiket Deshpande, Chief Operating Officer; and Mr. Anil Rander, Chief Financial Officer.

Sanjay and Anil will give you a brief overview of the company’s performance, which will be followed by the Q&A session. As a policy, LTI does not provide any specific revenue or earnings guidance and anything said on this call, which reflects our outlook for the future or which can be construed as a forward-looking statement must be reviewed in conjunction with the risks that the company faces.

With that, let me now invite Sanjay to talk about our results.

Sanjay Jalona — Chief Executive Officer & Managing Director

Thank you, Sunila. Hello, everyone. I hope all of you guys are doing well and not missing the IPL match way too much.

FY ’22 has been a special year for us in more than one way. Earlier this month, we marked the 25th year of our company. We have now been solving for 25 glorious years, and I would like to thank all our stakeholders for their support, faith and trust. FY ’22 saw us cross the $2 billion revenue milestone. It’s a matter of great pride that we were able to accomplish this feat by delivering our highest ever revenue growth this year. Personally, it’s been a lot of fun taking the company to $1 billion and now to a $2 billion. Even as we remain focused on our long-term goals, we are pleased that our consistent performance reflects a resilient enterprise that has been able to outperform the industry in this volatile, uncertain, complex and ambiguous world.

The ongoing conflict in Europe has added to the complexity and uncertainty that we all have been dealing with post the pandemic. Like billions of people all over the world, we hope that this violence and loss of — senseless loss of people and lives comes to an end quickly. LTI is supporting humanitarian efforts, with the doors of our offices in Poland being open to anyone in need of food, shelter, or just a bit of warmth. Our team in Luxembourg has donated to Ukrainian refugees in Slovakia, and I was touched by the heartwarming gesture of a fellow LTI who drove from Denmark to help, support and bring back refugees from Poland to the host families in Denmark.

In other milestone as part of our localization strategy, we have expanded our presence in the U.S. with a new Engagement Center in Hartford. The city of Hartford is an incredible hub for employment opportunities due to its access to some of the best educational institutes, and we look forward to engaging with local community to scale up our presence.

Moving to our results. Our Q4 revenues come in at $570.4 million, up 3.6% quarter-on-quarter and 29% year-on-year in constant currency. This performance is on the back of two consecutive quarters of 9% growth. Customers spend on business transformation initiatives continue to be the key driver for demand. Revenue conversion from these bite-sized projects requirements require fulfillment with the right skills. Industry-wide high attrition and supply chain constraints have not helped. I’m extremely proud that our teams have been able to execute despite high onsite attrition that has resulted in a near flat onsite volumes in Q4.

Our efforts to address this onsite supply challenge in conjunction with the large deal announcements in Q4 and healthy pipeline give us the confidence on visibility for FY ’23. On a full-year basis, we ended FY ’22 with revenues of $2.1 billion, 26% growth in dollar terms. This is our strongest growth as a listed company. The Board of Directors at their meeting held today have declared a final dividend of INR30 per share, amounting to a total dividend of INR55 per share for the year.

I would like to call out some highlights for the quarter and the year. We added over $430 million of revenue — incremental revenue over the year. This is almost three times of what we added in FY ’21, and more than what we have added in aggregate across FY ’21 and ’20. BFS, our largest vertical has grown at over 37% this year. Our High Tech and Media & Entertainment vertical also grew over 37% for the year, while the Others vertical, which includes some of our marquee clients and services sector grew over 34% for the year as well.

Moving to our service lines. All our service lines grew over 20% for the year, with our Analytics, AI & Cognitive services growing 35% and Enterprise Integration & Mobility growing 38% for the year. All our geos had strong growth in FY ’22 as well, with North America, Europe and India having the highest growth rate since our listing. We have added three clients who are $50 million bucket. Six to our $20 million bucket and over 30 clients to our $1 million bucket.

This year also has seen the highest new logo additions of 100, since our listing for the year itself. We hired strong talent across the globe with net additions of over 10,600 people during the year. Over 2,400 of these people were added in Q4 itself. To put this in perspective, we added more people in FY ’22 than we have in the prior two years and thus increased our headcount by 30%.

Let me now give you some color on demand, deals closed this quarter and our pipeline. We are happy to have closed four large deals with TCV of over $80 million in Q4. As you will recall, we only give incremental — net new incremental, large deal values to you. So, this is $80 million worth of four large deals of net new TCV. Three of these deals are with existing Global Fortune 500 clients and one is with a new logo. Vertical split of these deals is as follows. Two in BFS, one in CPG, and one with a key government body in the public healthcare space. The scope of work in three of these is primarily in the space of data and analytics, and the fourth one pertains to middleware transformation.

During our Analyst Day in December, we spoke to you about our overall large deal pipeline of $2 billion. Our current large deal pipeline continues to be at the same level, but has changed as in the following. We have already announced four large deal wins this quarter. 50% of our current large deal pipeline TCV is in late stage, and four deals are actually in the contracting stage itself. 40% of our large deal pipeline is coming from new logos, which validates our number one challenger position in the marketplace. We continue to see broad-based demand in the pipeline across all verticals and geographies. The combination of these factors is driving significant growth for us in the coming quarters.

We have also planned our supply ramp up to deliver on this demand and growth. We started FY ’22 with a plan of hiring 4,500 freshers and we ended up with 5,200 freshers during the year. Our current floor plan for FY ’23 is to hire at least 6,500 people — freshers. We have also rolled out salary hikes for majority of our employees effective 1st of April. On attrition, our quarterly annualized attrition has started to cool off in Q3 and it has dropped further by 200 bps in Q4. This drop is much sharper in offshore, while as I mentioned earlier, our onsite attrition needs addressal. We still think that we have few quarters before attrition comes down materially low [Phonetic].

Before we move to the performance of our business verticals, let me share few updates with you on the recognitions we have received this quarter. LTI has been recognized by ISG as leader across all six quadrants in its AWS Ecosystem Partners Report. The leadership position showcases our comprehensive AWS competencies and cloud transformation capabilities, and is a testament of our investments and expertise. LTI has once again been ranked as number one challenger by Everest. This would be four out of the last five times they have done since this report has been published. They have also recognized us in the Top 10 IT Service Providers list ahead of several global consultancies and companies.

Our data products are getting market validation as well, as well as recognition in several of the latest reports from Gartner and Forrester. In many cases, our data products are creating a new category of innovative solutions. We feel very good that we are in the right direction here. Our customer endorsements and retention rates have been very strong here. I’d request you all to visit fosfor.com, f-o-s-f-o-r.com, to check out the traction in our data products business and see the roster of marquee clients, named clients that we have been able to sign up in a short span of time.

Let me now provide you with the color of quarterly performance of our verticals. BFS, we grew over 35% year-on-year. We continue to see holistic growth across all geos and service lines. Two of our large deal wins that we announced this quarter also belong to BFS. We remain optimistic about sustaining the momentum — growth momentum here.

On Insurance, we saw 17.6% year-on-year growth. This vertical has grown below company average, but our traction is opening new insurance logos that should help us in FY ’23. Manufacturing grew 26.5% year-on-year, driven by ramp-ups in our new logos, as well as successfully mining existing clients. Energy & Utility grew 23% year-on-year. Though we have seen a spike in energy prices recently, we continue to be watchful of conversions of that and increased IT spend.

CPG, Retail & Pharma grew 21.9% year-on-year. We are seeing good demand here from our existing clients. One of the four large deals we announced is also from this vertical. High-Tech and Media & Entertainment grew over 27% year-on-year. Our large deal announced in the past have ramped up well here. Other segment has reported a strong year-on-year growth of over 30%, as our marquee services customer continue to ramp up.

Let me now move forward to outlook. FY ’22 has been an exceptionally strong year for us. The world continues to change rapidly around us. Economists around the globe continue to be divided on GDP growth estimates, inflation forecasts and the interest rate trajectory. After rapid recovery, there is a skepticism on certain economic slowdown. We also need to acknowledge the uncertainties given what may be a more volatile macro situation as compared to last year. While we have not seen any slowdown in demand for our services, we are noticing a level of caution due to rising input costs and geopolitical matters.

We remain confident of our strong momentum. We are entering FY ’23 with strong tailwinds in terms of Q4 exit run rate, large deals closed, robust pipeline, including large deal pipeline, highest number of new logos and headcount additions. All the pillars of our revenue growth strategy, that is growth accounts, invest accounts, new account openings and large deals are on a strong footing. Our continued proven ability to execute in a challenging and changing environment gives us the confidence that we will be in the leaders quadrant for growth in FY ’23 as well, with stable PAT margin in the range of 14% to 15% band.

With that, let me hand it over to Anil.

Anil Rander — Chief Financial Officer

Thank you, Sanjay. Hello, everyone. It is great to be back with you all with another quarterly earnings.

Let me take you through the financial highlights for the fourth quarter for FY ’22 as well as financial year 2022, starting with the revenue numbers. In the fourth quarter FY ’22, our revenues stood at $570.4 million, up 3.1% sequentially and 27.5% on a year-on-year basis. The corresponding constant currency growth was 3.6% quarter-on-quarter and 29% year-on-year. Reported INR revenue of INR43,016 million was up 4% quarter-on-quarter and 31.6% year-on-year. Revenue for FY ’22 stood at $2.1 billion, growing [Technical Issues]

Operator

Excuse me. This is the operator. Sir, we can’t hear you. Participants, we request you all to please stay connected while we check the management’s line. Thank you.

Ladies and gentlemen, thank you for patiently waiting. The line is reconnected. Sir, you may go ahead.

Anil Rander — Chief Financial Officer

Yeah. Apologies. We had a technical challenge. So, we are back.

In the fourth quarter FY ’22, our revenue stood at $570.4 million, up 3.1% sequentially and 27.5% on a year-on-year basis. The corresponding constant currency growth was 3.6% quarter-on-quarter and 29% year-on-year. Reported INR revenue INR43,016 million was up 4% quarter-on-quarter and 31.6% year-on-year. Revenue for FY ’22 stood at $2.1 billion, growing at 25.9%, which corresponds to a constant currency growth of 25.8%. In rupee terms, the full-year revenue was INR156,687 million, registering a growth of 26.7%.

Now coming to profitability. EBIT for the quarter was INR7,445 million, translating into an operating margin of 17.3% as compared with 17.9% in the previous quarter. The margin walk is as follows. About 40 basis points increase in employee cost was offset by SG&A leverage. Balance 60 basis points is due to working days impact and business mix. For the full year, operating margin was INR27,035 million at 17.3% against 19.3% of the previous year’s.

Moving to PAT. To remind you, Q4 FY ’21 other income included a write-back of certain earn-outs payable towards an earlier acquisition amounting to INR571 million. If we exclude this PAT margin, PAT margin for Q4 FY ’21 was 14.9%, and full-year FY ’21 was 15.2%. Reported profit after tax for Q4 FY ’22 was INR6,375 million, which translated into a PAT margin of 14.8%. Our full-year PAT stood at INR22,985 million, helping us to deliver a full-year PAT margin of 14.7%. We remain comfortable with our guided PAT margin band of 14% to 15% for FY ’23.

Moving on to employee front. Utilization without trainees was at 81.5% as compared to 81.4% last quarter, and utilization including trainees was 80.1% versus 80.3% in Q3. Full-year utilization including trainees stood at 81.3% as compared to 80.5% last year, and without trainees at 82.6% as compared to 82% last year. We continue to strengthen our workforce. And during Q4, we added 2,448 people on a net basis and for the year, it stood at 10,657, which translates into 29.6% growth in headcount for FY ’21 — from FY ’21.

The total manpower stood at 46,648, of which our production associates were 95.5%. In this quarter, attrition is at 24% versus 22.5% last quarter on LTM basis. Our cash flow hedge book remains at $1,715 million as of 31 March, 2022, while the on balance sheet hedges stood at $112 million versus $94 million last quarter.

Moving on to DSO in Q4. The billed DSO stood at 65 days compared to 66 days last quarter. The DSO including unbilled revenue was at 99 days compared to 100 days last quarter. For the quarter, the net cash flow from operations was INR6,233 million, which was at 97.8% conversion of the net income. For the full year, the net cash flow from operations was INR16,520 million at 71.9% conversion of the net income versus 123.8% in FY ’21.

At the end of the quarter, cash and liquid investments stood at INR39,139 million as compared to INR36,142 million in the last quarter. The effective tax rate for the quarter was 25.8%. The Board of Directors at the meeting held earlier today have recommended a final dividend of INR30 per equity share for the financial year FY ’22, amounting to a total dividend of INR55 per share for the year. Earning per share for the quarter stood at INR36.34 as compared to INR34.95 in Q3. Diluted earnings per share was INR36.27 versus INR34.87 last quarter.

Before I end my presentation, I wanted to highlight that LTI has received Gold recognition from EcoVadis for its ESG practices, including environment, labor and human rights, ethics and sustainable procurement. This rating is a strong acknowledgement of our deep commitment to the responsible and sustainable growth.

With that, I would like to open the floor for questions.

Questions and Answers:

Operator

Thank you very much, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] The first question is from Vimal Gohil from Union Asset Management. Please go ahead.

Vimal Gohi — Union Asset Management Company Private Limited — Analyst

Yeah. Thank you for the opportunity. Sir, my first question is on our cash flow generation. We have seen some bit of a weakness, or I would say a reduction in cash flow this year. So what is our outlook on the cash flow generation going forward? And the related question to that would be, our capex number is slightly elevated for this year. What has — what is that regarding? That’s my first question, sir.

Sanjay Jalona — Chief Executive Officer & Managing Director

Sure. Anil?

Anil Rander — Chief Financial Officer

You see, we had a strong cash flow conversion this quarter at 97% plus and earlier quarter, we were at 70%. I think primary reason is also is better working capital construct, which we had in this quarter. We expect to continue in the same range. Also, in terms of capital, which you said has gone up primarily, we’ve also invested in our own building, which is coming up as a center in market, which is likely to go live this year. And bulk of the investments will be invested in the infra here.

Sanjay Jalona — Chief Executive Officer & Managing Director

So this Mahape facility will be a large facility and it can seat 7,500 people. So, we are investing for the future.

Vimal Gohi — Union Asset Management Company Private Limited — Analyst

Got it, sir. Understood. Sir, the second question is on the overall demand environment. While you sounded very confident, the hiring numbers are pretty good. So any first signs from your clients regarding the geopolitical uncertainty that you’re seeing? Because what we heard and saw across FY ’21 and ’22 is that technology spent is now transitioning into much more structural sort of nature, where the business models or the revenue is getting impacted because of technology spent. So in case of any macro uncertainty creeping up will just have a direct impact on technology spent. If yes, any magnitude that you would want to highlight?

Sanjay Jalona — Chief Executive Officer & Managing Director

Look, the world has become a very dichotomous and accomplished. And I — this week, I learned this term called VUCA, right? So it’s obviously a crazy world out there. But I can only tell you looking at the pipeline that we see, the large deals that we have been able to close, the four large deals, four large deals that I mentioned for the first time, which are under the contracting stage, looking at the exit velocity run rate that you’re seeing us go from Q4 and the overall pipeline and most importantly, the conversations that we have with our customers, right, most of us are very front-facing customer facing guys. We like to be in front of the customers. Everything is indicating to a lot of work still needs to be done. So — but when I see the market, when I read any other newspaper, I also read the same thing. So that’s why I gave the context and brought this in this speech. But today, if I look at the demand, if I look at the pipeline, I don’t see any signs of anything getting delayed at all. So it continues to be strong and we feel good about the demand.

Vimal Gohi — Union Asset Management Company Private Limited — Analyst

Right, right. No, I’m going to try my luck here. So basically, in terms of growth, what — as investors what we’re expecting is that growth is going to be structural, growth is going to be higher than pre-COVID levels and sustainable for quite some time. Does that change because of the uncertainties?

Sanjay Jalona — Chief Executive Officer & Managing Director

I think your assumption is good. Good try. And you’ve got an answer also, surprisingly.

Vimal Gohi — Union Asset Management Company Private Limited — Analyst

Right. Thanks. Thanks a lot, Sanjay. All the best.

Sanjay Jalona — Chief Executive Officer & Managing Director

All right, Vimal.

Operator

Thank you. [Operator Instructions] The next question is from the line of Sandip Agarwal from Edelweiss. Please go ahead.

Sandip Agarwal — Edelweiss Securities Limited — Analyst

Yeah. Hi, Sanjay, and team. Excellent execution and good commentary. Sanjay, just wanted to check two things. One, on the demand environment. While I understand that there are lot of things which are moving in different directions, but if I have to continue with the previous question of Vimal and we are not trying to at least get any quantitative data from you, or any kind of forward-looking statement. But the point I’m trying to understand is that we are not in 2010 era, or that period of time where IT spends did not have very direct relation with the revenues and margins and profits. What I think and when we speak to lot of clients of yours, what they say is that the COVID has taught one thing that touch everything, but don’t touch the technology spend.

While the commentary, which you started with in the remarks was a little cautious on that front, I understand that you don’t want to bet against the, what, global economics and others are saying. But if you think from practical aspect and you’re running this IT business for a long, long time, and the way things are changing, do you think that even if there is some problem on the global economy side and others, IT spend, will at all see any cut? Because in my view, that the only way to survive in a cut-throat environment or in a more competitive environment will be to spend more on technology to get that edge rather than cutting?

And secondly, the projects which have been started, particularly on the backend infrastructure and transformation side, do you think that they can be stalled even if there is a challenge in the global economy side or where the numbers come little — for the global growth comes a little lower than what was anticipated earlier. Can those projects be stalled? And can those tech budgets be cut at all? So, what are your thoughts on that front? There is no intention to get any quantitative data or guidance from you. Thank you.

Sanjay Jalona — Chief Executive Officer & Managing Director

You are a very smart dude anyway, Sandip. So, you will try to get all kinds of information with data and your intelligent questioning. But, as I said, Sandip, it’s a dichotomous world. So, I read the same newspaper, same articles that I read — that you read. And you’re absolutely right. Board today are not only saying, how are you keeping the company safe, right? That was the — probably the main question that Board used to ask throughout the entirety on how you use security, cybersecurity, etc, as they say. But today, technology, especially during COVID time has come out as the sole reason for companies to exist and to flourish in the newer ways of doing business. So technology has become mainstream.

Now, the world is also very highly connected in there. And that’s why I said the world is a very dichotomous place, because I — we are seeing lots of challenges. But when we see the — when we have the conversations with the customer, I am not seeing anything stopping. The second thing which is also important, if you look at the results of all the companies, everybody is more profitable. Every industry’s revenue growth is there, right, for our customers. So unless — and I — and also in the nature of the business that you talked about, lot of growth has been driven based on these bite-sized projects as well. So it’s not as if they might deprioritize one thing or the other, but their wish list of what needs to be done immediately is very high. Because Board is asking, our CEO is asking technology guys to tell them, how can you help me not only sustain or survive, but how do you help me create new models of growth? That is where the opportunity lies. And that’s what we are seeing.

Sandip Agarwal — Edelweiss Securities Limited — Analyst

No, that’s very helpful. And a slightly — one question on the attrition side. So, Sanjay, while I understand your pain of recruiting people at such fast pace and particularly when the industry is not getting any real supply in, but it is more of poaching from one another and is a very, very difficult situation. But in the hindsight, don’t you think that if — this attrition also is a very strong signal of very strong demand, which is in the pipeline and probably once supply comes in, then this very high attrition probably will pull off, but it will not go to pre-COVID level. And it is, in a way, a good sign that if it goes to pre-COVID level, then our growth also falls much lower. So, probably, this level of attrition is very, very unhealthy and it is just pushing our costs up and taking away management bandwidth. But once supply comes in, this attrition, if it comes to 15% to 18% or 19% range, that should not be at all detrimental to the industry. What is your thought on that?

Sanjay Jalona — Chief Executive Officer & Managing Director

So, your attrition point, I am absolutely in agreement that industry did not have. That’s why, as you would — you would have heard me last quarter, we hired, if I believe, 1,500 HTD people, what are hire, train and deploy because you can’t find perfect people and keep poaching from one another. So, you need to create new talent pool on that new technologies that the demand is coming in. And that is exactly what we did, because we wanted to be in positive thinking mode. And we wanted to create new talent pool and we will continue to do so.

Now if attrition cools down, I don’t know how the demand will come down, right? Demand is there. It’s a totally different thing. I think it will ease things and help us grow in a more resilient, more sustained way and probably reduce the costs as well of operations as well. So it should be all good and good. So, we need to bring — we are in people business. Our assets walk out every night and we worry and I’m paranoid about high attrition. Especially right now, the big problem is attrition at onsite for us. India, we have been able to control and this is where you see the — I hinted in my speech, the onsite volume has reduced or remained flat. And that is what — it’s probably led to probably growth not being even higher than what you’ve seen in the Q4.

Sandip Agarwal — Edelweiss Securities Limited — Analyst

Okay. Thanks. That’s very helpful. And best of luck for the current quarter.

Sanjay Jalona — Chief Executive Officer & Managing Director

Thank you, my friend.

Operator

Thank you. The next question is from Nitin Padmanabhan from Investec. Please go ahead.

Sanjay Jalona — Chief Executive Officer & Managing Director

Hey, Nitin.

Operator

Mr. Padmanabhan, we can’t hear you.

Nitin Padmanabhan — Investec — Analyst

Am I audible?

Operator

Yes, you are.

Sanjay Jalona — Chief Executive Officer & Managing Director

Now, you are audible.

Nitin Padmanabhan — Investec — Analyst

Okay. Great. Wanted your thoughts on the onsite supply challenges. One, if you could give us some color in terms of maybe two or three perspectives. One maybe in terms of how much do you think it possibly impacted growth for the quarter maybe in a way. And two, maybe if you could give some color in terms of how is it maybe versus same time last year. And third is anything that helps us understand how difficult is the situation there may be in terms of the cost of hiring these people or availability, or even the sheer attrition versus now versus same time last year? Anything that sort of throws up some color on onsite, right. And also on a going-forward basis, when do you see this sort of cooling off? So that was the broad question.

Sanjay Jalona — Chief Executive Officer & Managing Director

So Nitin, I’m — right now I — somehow I didn’t prepare and have enough data points. So, I’ll remember from whatever is the top of my head. Look — and I’ll specifically talk of U.S. U.S., there are 10 million — about 10 million, I think a quarter back, some 10 million jobs, 7.5 million people who are available. And that, too, not everyone wants to work, right? Global resignation as a theme, their people, their mortgages cases are — not mortgages, where homes prices are sky high and they feel they don’t need to come back to work. So overall, you know, first time in my life, I haven’t done anything else but tech work all my life, 35 years of doing the same old thing.

First time, I think the customer of ours are facing attrition in double-digit numbers, high-teens, mid-teens, overall as well and technology — technology portions of the largest banks in the world, for example are facing, even high-teen number, right, for attrition. This has never happened. Now — and it could — it could be because of n number of things, including immigration, etc. That has been very low for many, many years now. Now, this is again, there are two things that you can do. You can keep poaching for one another. We believe that we need to create new talent pools. So that’s why we inaugurated and created a center in Hartford. We have populated our centers in the U.S. elsewhere as well. We will hire new talent from the schools.

We’ll hire local talent there. We might not get perfect fit. So, we will put training mechanisms in place for us to get the talent ready. We will invest what is right way. If you grow fast, you have the ability to invest back in people and get them ready for the future business. How long will it take? I think it’s a precarious situation. We typically — I don’t remember. You look at the facts, you will yourself be able to figure out, Nitin, how much, typically, our onsite volumes growth. I can’t remember. 2% to 4% is what I’m told now. If you look at in — for previous quarters, if that had been there, you’re a wise man, much smarter than me to do the calculations on how much revenue could have been done. But I think it will take probably one or two quarters for it to totally be solved. But this has to be solved. This is a big solve that we have taken up currently.

Nitin Padmanabhan — Investec — Analyst

Do you think we should — broadly, are you worried about inability to sort of execute even in the over the next two quarters because of what you saw this quarter?

Sanjay Jalona — Chief Executive Officer & Managing Director

Not at all. So what we did was, look, in today’s world, it doesn’t really matter where the people are. That’s why you’re seeing our — we further ramped up our offshore percentages and the volumes there. You know what it reflects, right? You got to have one person at onsite is like four people at offshore, right? So that obviously gives in the revenue side of things. But it’s a fault. But we are executing projects. We are not — there’s no dilution in the quality. We still — our CSAT is the best in the last five years, which we do it externally. We just — we have actually a presentation tomorrow. I got a preview today. I think it’s moving in the right direction. We just have to make sure we keep putting extra checks and balances, which Nachiket and team have done well to keep this in check. Quality always lead to good — and growth in our business. And our current hiring and fulfilment is also back to the levels by March end, right? So, we will continue to move forward and ramp it up further.

Nitin Padmanabhan — Investec — Analyst

Perfect. That’s helpful. Maybe lot more questions on pricing and everything else, but I think I’ll let others ask. Thank you so much. All the best.

Sanjay Jalona — Chief Executive Officer & Managing Director

Okay.

Operator

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

Abhishek Bhandari — Nomura — Analyst

Yeah. Hi. Good evening, Sanjay and Anil. Sanjay, I’ve been noticing your SG&A cost have been consistently coming down as a percentage of sales partly because some of the costs have not yet fully come back. But going forward, as things open up and travel resumes fully, what do you think is a sustainable level of SG&A expenses?

And secondly, if you could also give some of the headwinds and tailwinds on the margins. While I understand, you’re keeping 14% to 15% PAT guidance, but at the operating level, what do you think could be the biggest headwinds and some of the tailwinds going into next year?

Sanjay Jalona — Chief Executive Officer & Managing Director

I think let me take the SG&A. There is a good part and probably a part that should always be controlled. You want to — we as a company has always said we want to grow faster, so we can invest back in business. Invest back in business is investing in capability, investing in consulting capabilities, investing in sales and marketing and trusted advisory kind of roles where we make an impact and try to solve for the customer’s problem. Now, we are — obviously as attrition has gone up, so have we lost people in delivery as well as in sales. So, there is a program that we are running, which I’m sponsoring, do a weekly review of that, which is to hire 100 people by the end of Q1, Sudhir, that’s what we said?

Yeah, sales people — 100 sales people additional in the U.S. itself. So, we are extraordinarily going to increase our sales cost because we see growth, we see demand, we see opportunity and you’ve got to mind all the hundred logos that you have created in the year and the demand that we see in the marketplace. G&A on the other hand, we have to continue to try as the base increases. We have to continue to try to bring it down. And all efforts are continuously made by Anil and team to keep doing it.

Now, I have lost track of your second question.

Abhishek Bhandari — Nomura — Analyst

The headwinds and tailwinds for operating margins next year?

Sanjay Jalona — Chief Executive Officer & Managing Director

So, I think the biggest — we have given a salary hike on 1st of April. The impact will be around 290 bps in Q1 itself. Now we got to — and that’s the biggest one that we need to deal with. The other headwind is the attrition. We need to bring it down, especially onsite attrition as well as attrition overall. And the biggest lever that I see and we keep challenging, Sudhir, for that is we have to go faster than everyone else. Growth is the biggest lever for margin expansion.

Abhishek Bhandari — Nomura — Analyst

Right. Got it. Thanks, Sanjay. And all the best for the year.

Sanjay Jalona — Chief Executive Officer & Managing Director

All right. Thank you, Abhishek.

Operator

Thank you. [Operator Instructions] The next question is from Vibhor Singhal from PhillipCapital. Please go ahead.

Vibhor Singhal — PhillipCapital India — Analyst

Yeah. Hi. Good evening, Sanjay. Thanks for taking my questions and congrats on great execution once again. Sanjay, just to pick up from what you said just a few minutes ago, that right now U.S. corporates are all sitting at probably highest levels of profitability. So, I think we’ve been — the entire industry has done really well this year. But I think the paramount concern right now with us and the entire investor community is that the inflation, which is high today, will probably lead to lower profitability tomorrow and might lead to lower tech spend day after tomorrow. So, I think while today maybe in your conversations with clients and the deeper numbers might not reflect the kind of [Technical Issues] assets quarters down the line, will lead to a lower tech spend in some manner. Or do you think the tech upgradation cycle this time, the entire destabilization [Phonetic] and qualification [Phonetic] thing is so very paramount for the business that companies will have to find money to be able to do that?

Sanjay Jalona — Chief Executive Officer & Managing Director

Look, the way to look at this, the way I look at it is, you got to know everything, you got to look at all the parameters. But at the end of it, when the rubber meets the road is when the customer conversation actually happens on where they are spending money, what is the cycle they are going through, how much work that they have to do. These are the basic — and which results in our pipeline, in our CRM and so on so forth. When I look at all of this — and I worry about all the things that you have mentioned, Vibhor, and it will be foolhardy for anyone to not look at those and see what happens and what could go wrong. But this is why I see there is a dichotomy. And when we have these conversations, we are seeing nothing of this sort happening.

Our consumption spend, obviously, with inflation and interest rates going up, you don’t see as much. The housing market, while the 30-year percentages have gone to 5%, we are not seeing anything right now. People still have a lot of money to play in the stock market. So, there are lot of things that I cannot answer for you today because I’m not an expert. And I just hear both sides of the story. But for me the most paramount and important thing is what are customers saying. We’ve all spent 120 days on the road, meeting customers. Customers are still spending money. Customers still have a lot of things to be done. And we will keep running, keep monitoring the situation and these impacts and we’ll see how many times Fed does interest rate hike and we’ll see where it goes. But currently, there is a positivity in the demand that you see.

Vibhor Singhal — PhillipCapital India — Analyst

Got it. Got it. Thanks a lot, Sanjay, for that detailed explanation. And wish you all the best.

Sanjay Jalona — Chief Executive Officer & Managing Director

Thank you.

Operator

Thank you. The next question is from Sandeep Shah from Equirus Securities. Please go ahead.

Sandeep Shah — Equirus Securities — Analyst

Yeah. Thanks for the opportunity. Sanjay, most of the questions have been answered. Just a couple of questions. Generally, first quarter is seasonally weak because of the pass-through actions with generally high in Q3 and Q4. Whether the same pattern may continue in FY ’23 or you believe because of the large deal wins, plus four contracts in a signing stage, plus the onsite volume which got impacted in the fourth quarter may come back in the first quarter as a whole? The seasonality may not be true in the first quarter of FY ’23 as a whole. And just a clarification, you said 2% to 4% Q-on-Q volume growth got impacted because of the onsite attrition in this quarter.

Sanjay Jalona — Chief Executive Officer & Managing Director

Yeah. So let me answer first question first. I think, when I gave such positive comment on demand, obviously, pass-through, I don’t even remember what is the percentage of revenue that it accounts for. Around 2%. We will still grow over that. So it will not be anything like flat or forget about negatives. We don’t think negative these days. So it will be positive for sure. And yes, pass-through will not be there for — around 2% of our revenues.

What was your second question, Sandeep?

Sandeep Shah — Equirus Securities — Analyst

Yeah. You also in one of the questions, you commented 2% to 4% volume growth on onsite got impacted because of the onsite attrition going up, which may get addressed in the first quarter itself.

Sanjay Jalona — Chief Executive Officer & Managing Director

I think it takes time. So, I think you probably have to give two quarters. We will — we are — while we are back to March levels, we are yet to see what happens. We’ve just rolled out salary hikes. We will see what is the impact with that. I would — it would be wise to wait for Q2. By Q2, we want to be back to the full steam of 2% to 4% volume growth at onsite also.

Sandeep Shah — Equirus Securities — Analyst

Okay. Okay. But Q4 volume got impacted because of onsite attrition and the quantum could have been 2% to 4% volume growth. So that’s the right way of looking at it and that is one of the reasons for slightly lower growth?

Sanjay Jalona — Chief Executive Officer & Managing Director

That’s right.

Sandeep Shah — Equirus Securities — Analyst

Yeah. Hello?

Sanjay Jalona — Chief Executive Officer & Managing Director

That’s right. We look at all the quarters as — yeah, here you’re right. Go ahead.

Sandeep Shah — Equirus Securities — Analyst

Yes. Okay. And Sanjay, last question is, in terms of tailwinds, you spoke about the growth, but you do not expect the pricing to be a tailwind on margin for FY ’23?

Sanjay Jalona — Chief Executive Officer & Managing Director

I do, but he asked me the biggest levers. So, I answered to the biggest levers. Pricing is also there and we are increasing pricing in pockets and we’ll continue to do that. But, again, as we say, you consider as a growth company. I give only one guidance for the year, which is the margin guidance. We will not fault on it unless we want to deliberately make investment, which we’ll tell you in advance. But today, there is nothing. So today, we are confident of doing 14% to 15%. And that’s how we look at it. We will invest back into business. That’s the whole idea.

Sandeep Shah — Equirus Securities — Analyst

Okay. Thanks. And all the best.

Sanjay Jalona — Chief Executive Officer & Managing Director

Thank you.

Operator

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

Sanjay Jalona — Chief Executive Officer & Managing Director

Hey, Manik.

Manik Taneja — JM Financial Services Ltd. — Analyst

Am I audible?

Sanjay Jalona — Chief Executive Officer & Managing Director

Manik, no, you are not.

Operator

Mr. Manik, your voice is breaking. We’ve lost the line for Mr. Manik. We take our next question from Mohit Jain from Anand Rathi. Please go ahead.

Mohit Jain — Anand Rathi Research — Analyst

Hi, sir. Two clarifications. So did I hear it right that the fresher hiring for next year is 6,500?

Sanjay Jalona — Chief Executive Officer & Managing Director

Fresher base, at least we’ll have 6,500. As I was saying, last year, our number was 4,500. We hired 5,200 people and now we will hire — this time base number is 6,500. So, we’ll definitely do more.

Mohit Jain — Anand Rathi Research — Analyst

Okay. And the second was on the capex side. You guys spoke about this new campus coming up in Mahape, so that’s INR900 crore odd capex that we have done in this year. Any outlook for next year? Like, is it complete done? Or should we assume higher capex for next year as well?

Sanjay Jalona — Chief Executive Officer & Managing Director

Anil?

Anil Rander — Chief Financial Officer

So, I think we will have a reasonably good capex because this — the premises actually will go live by mid of this year, mid of this financial year. So, I think the trend for capex — we’ll continue to invest in infra and new facilities.

Mohit Jain — Anand Rathi Research — Analyst

So like we should assume around INR500 odd crores for ’23 as well? Is that a correct number or..?

Anil Rander — Chief Financial Officer

Mohit, we don’t give any guidance on capexes. So — but as I said, we will continue to [Speech Overlap].

Mohit Jain — Anand Rathi Research — Analyst

I just — actually, these are like estimate because in ’22, it was exceptionally high. That’s why I was asking. Should we revert back to the original number that you guys used to do around 2021 in that timeframe? Or should we assume one more year of way too high number and then revert back?

Anil Rander — Chief Financial Officer

Okay, Mohit. We will continue to invest in our facilities and infra and also on our own facilities. So the trend will continue.

Mohit Jain — Anand Rathi Research — Analyst

Okay, sir. Thank you. That’s all.

Sanjay Jalona — Chief Executive Officer & Managing Director

Mohit, in addition to this, the benefit would also be in the lower lease cost. But I think what — I will request Sunila to come back with some idea on this to you people on what you should put in the model in terms of what to avail. It will go back to the previous or what other investments. Please understand, we are also investing in some other centers as well, Coimbatore and some other locations we are creating because we have seen a lot of people drift to these locations during COVID. And in place of bringing them into highly congested Bangalores or Chennais of the world, these people want to stay there. So, we are going to invest in our capacity in Coimbatore. And what else?

Anil Rander — Chief Financial Officer

Two years, we did a lot of headcount addition but didn’t add new seats.

Sanjay Jalona — Chief Executive Officer & Managing Director

So two years, we did a lot of headcount addition. We did not add seats. So that’s what is leading. Kolkata, also we’ll probably do something as well. It might be lease. We’ll see where it goes. Coimbatore definitely will be our own as well. But we will give some idea through Sunila to you on what the capex could be.

Mohit Jain — Anand Rathi Research — Analyst

That would be helpful, sir. Thank you very much.

Sanjay Jalona — Chief Executive Officer & Managing Director

No problem.

Operator

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

Dipesh Mehta — Emkay Global Financial Services Ltd. — Analyst

Yeah. Thanks for the opportunity. Just want to get sense about whether we find any differences when we have client conversations across geographies? Whether U.S., Europe, kind of any differences you are finding in terms of their commentary and their spending compared to maybe two quarters of their overall commentary? And even from deal intake, deal pipeline perspective, any trends which you are observing which is different than, let’s say, two quarters there?

Sanjay Jalona — Chief Executive Officer & Managing Director

Dipesh, if I hear your question, whether we are seeing any difference in the conversations or conversions of pipeline in U.S., Europe and Asia, it’s nothing different than what I have seen for the last 35 years. U.S. is the biggest and the most mature market, right? And the same conversations keep happening. So, we are not seeing any difference. The uniform thing is across verticals, across geographies, across everything. Everyone has to adapt to newer ways of thing. So we — I think there is a lot of readiness even in Europe and Asia Pacific to look at interesting work.

India, specifically, and some other geographies, we are seeing, there is a lot of fixed long-term big projects, lot of transformation of ministries, etc, which is happening. So that’s one thing which we have seen in the last five years, six years in a very defined way. But barring that, I don’t think there is any trend of anything being different from two, three quarters back in these geographies.

Dipesh Mehta — Emkay Global Financial Services Ltd. — Analyst

I was more referring from client conversions and whether — because you indicated some of the client…

Sanjay Jalona — Chief Executive Officer & Managing Director

Client conversion or client conversations?

Dipesh Mehta — Emkay Global Financial Services Ltd. — Analyst

Conversation.

Sanjay Jalona — Chief Executive Officer & Managing Director

Conversation. No difference.

Sudhir Chaturvedi — President and Executive Board Member

Yeah. In fact, if you look at our Q4 number and — we actually have a significant growth in Europe, in fact, the non-America geographies from a growth perspective. And we are seeing healthy pipeline. I think some — and Sanjay mentioned this earlier that it is — the way to tackle a lot of the issues which businesses are facing today is in technology. That is their first protocol. So, that will continue for some time to come. That level of investment is going to continue. And it’s amongst the last thing that people will touch in terms of how they manage their spend going forward.

Dipesh Mehta — Emkay Global Financial Services Ltd. — Analyst

So, no specific softness you are witnessing, even for European client, considering the uncertainties are relatively what they are currently facing.

Sanjay Jalona — Chief Executive Officer & Managing Director

That’s right.

Sudhir Chaturvedi — President and Executive Board Member

Yeah. Correct. See, we work — essentially, if you look at our markets, right, the Nordics, Continental Europe and U.K., Western markets, those markets continue, the global companies, they are continuing. If you look at their performance also, it’s continuing as before.

Dipesh Mehta — Emkay Global Financial Services Ltd. — Analyst

Understood. Thanks.

Operator

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

Manik Taneja — JM Financial Services Ltd. — Analyst

I hope I’m audible now.

Sanjay Jalona — Chief Executive Officer & Managing Director

Yes, Yes.

Manik Taneja — JM Financial Services Ltd. — Analyst

So, I just wanted to follow-up [Phonetic] on the margin commentary. You suggested that we are implementing wage (Technical Issues). So if you could give us some amount [Speech Overlap]

Sanjay Jalona — Chief Executive Officer & Managing Director

Manik, I can’t hear you again. I don’t know. Voice is not clear. It’s muffled. Stanford, can you hear him? I can’t hear him clearly.

Manik Taneja — JM Financial Services Ltd. — Analyst

Is this better now?

Sanjay Jalona — Chief Executive Officer & Managing Director

Yes. Yes, Manik. Now, I think we’ve lost him.

Operator

We lost the line from Mr. Manik. Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Sanjay Jalona for closing comments.

Sanjay Jalona — Chief Executive Officer & Managing Director

Hey, guys. Thank you very much for being there. Thank you for joining us. We look forward to seeing you next quarter. Till then, take good care of your health. Go back and enjoy the IPL. We’ll see you next time. Bye-bye.

Operator

[Operator Closing Remarks]