L&T Technology Services Limited (NSE:LTTS) Q2 FY23 Earnings Concall dated Oct. 18, 2022
Corporate Participants:
Pinku Pappan — Head of Investor Relations
Amit Chadha — Chief Executive Officer and Managing Director
Rajeev Gupta — Chief Financial Officer
Abhishek — Chief Operating Officer & Whole Time Director
Analysts:
Mukul Garg — Motilal Oswal Financial Services — Analyst
Sandeep Shah — Equirus Securities — Analyst
Aditya Karanam — Metaverse Equity Fund — Analyst
Mihir Manohar — Carnelian Asset Management — Analyst
Vikas Ahuja — Antique Stockbroking Limited — Analyst
Pratap Paliwal — Mount Intra Finance — Analyst
Bhavik Mehta — JP Morgan — Analyst
Akshay Ramnani — Axis Capital — Analyst
Shradha Agrawal — AMSEC — Analyst
Sulabh Govila — Morgan Stanley — Analyst
Abhishek Shindadkar — InCred Capital — Analyst
Arvind Chetty — Max Life Insurance Company Limited — Analyst
Karan Uppal — Phillip Capital — Analyst
Sameer Dosani — ICICI Prudential AMC — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to L&T Technology Services Limited Q2 FY ’23 Earnings Conference Call. [Operator Instructions]
I now hand the conference over to Mr. Pinku Pappan, Head of Investor Relations. Thank you, and over to you, sir.
Pinku Pappan — Head of Investor Relations
Thank you, Faizal [Phonetic]. Hello, everyone, and welcome to the earnings call of L&T Technology Services for the second quarter of FY ’23. I am Pinku, Head of Investor Relations. Our financial results, press release and investor release have been filed on the stock exchanges and are also available on our website www.ltts.com. I hope you have had a chance to go through them. This call is for 60 minutes. We will try to wrap-up the management remarks in 20 minutes and then open up for Q&A. The audio recording of this call will be available on our website approximately one hour after the call.
Let me introduce the leadership team present on this call. We have Amit Chadha, CEO; Abhishek, COO; and Rajeev, CFO. We will begin with Amit, talking about the company performance and giving an overview of the outlook, followed by Rajeev, who will walk you through the financial performance.
I now hand over to Amit.
Amit Chadha — Chief Executive Officer and Managing Director
Sure. Thank you, Pinku, and thank you all for joining us on the call today. I hope all of you are keeping healthy and safe.
With that, let me start with the key highlights for our Q2 performance. I would first like to share that LTTS, we at LTTS are very proud to have achieved the $1 billion annualized revenue run rate on a constant currency basis this quarter. This is a milestone that we had set for ourselves last year to reach it by Q2, Q3 of this fiscal and we are happy that we have crossed $250 million in constant currency in Q2. I would like to take a moment, thank all our employees that have come together on this journey, as well as our Chairman, Vice Chair of Board, the entire Board and our first CEO, Dr. Keshab Panda for having shown us the vision and had the confidence in us.
Our momentum continued into the second quarter with a 4.5% constant currency growth led by Transportation and Plant Engineering. The growth was accompanied by sound operational execution with Q2 being the fifth consecutive quarter of 18% plus EBIT margins. Total deal TCV remains healthy and our large deal wins include 16 million-plus deal and a deal of TCV more than $10 million.
Let me now provide the segmental performance and outlook. Starting with Transportation, we had a stellar performance with 9.4% Q-on-Q growth in constant currency that was broad-based across sub-segments of auto, trucks & off-highway and aero. Our differentiated EACV offerings have helped us get into strategic engagements with customers yielding us large deal wins. Consistently, a 60 million deal in Q2, on the back of a 50 million deal in Q1, and a 120 million deal in Q4. The demand trends in Transportation are supportive of our growth. Customer preference for electric cars is rising and increasing. Semiconductor shortage in auto are starting to ease. Global air travel has increased by 150% versus July ’21 levels, leading to more aircraft orders and a rising backlog at manufacturers and Tier ones.
And electrification initiatives are picking-up strongly at trucks & off-highway and aerospace. We continue to invest in EACV to highlight one in connected cars we have invested in a next-generation digital cockpit domain controller solution that is currently being deployed at a customer production program. Last quarter, we talked about deals we were pursuing in the connected and autonomous space as you would have seen our press release in Q2 we have announced a deal with BMW to provide engineering services for their suite of infotainment consoles. To sum up, we see a good pipeline of deals with many in the 10 million-plus, 20 million-plus range, that gives us confidence about our growth prospects.
In Plant Engineering, we had a strong quarter with nearly 6% Q-on-Q growth in constant currency, that was broad-based across FMCG, O&G and chemicals. Clients in all the three segments are investing, either in greenfield, brownfield expansion, or in asset management and digital twin programs. In Q2, we won a large deal from a chemical giant to implement a digital twin for one of its flagship sites in the US. We will create an analytics data platform that will help in sustenance through the plant lifecycle. This is for one of their sites and we expect the program to be expanded to multiple sites to the customer.
Sustainability is again a priority with customers wanting to invest in waste management setups. Processing and refining of plastic waste to make it reusable is another area where we are working on. Now some of the large deals stabilized. Q3 is likely to be muted for Plant Engineering. The deal pipeline in the US and Europe continues to be healthy that will drive growth for us in Q4 and beyond.
Moving on to Industrial Products. We had a healthy growth of 3.5 Q-on-Q CC [Phonetic], which was led by Electrical Machinery and Power and Utilities. There is strong demand for digital manufacturing programs as customers see immediate and certain ROI. We have developed connected factory solutions that help customers implement digital factory and enable factory automation. In Digital and NextGen product development, we won a deal to help the global lighting manufacturer revamp and re-engineer their suite of products. Across our industry customers, we are seeing an increasing number of sustainability led conversations about clean-energy and carbon footprint reduction and we’re building solutions to capture these spends [Phonetic]. We do believe that an energy transition is in-progress.
Our home grown solution, Energy & Sustainability Manager has been awarded the Frost & Sullivan Product Leadership Award in energy optimization and sustainability management. The US government recently announced a 7 billion funding for clean hydrogen as it aims to [Technical Issues] energy-intensive industries. This is leading to many of our customers starting programs on clean energy transition. We have creative solutions around battery storage, hybridization, energy management that will allow us to participate in early stage conversations. Overall, for Industrial Products, we see growth continuing to be driven by digital products and manufacturing, sustainability and value engineering.
In Telecom and Hi-tech. On constant currency terms, we had a flat quarter as the growth in Semcon and Telecom was offset by weakness in consumer electronics, equipment and Hi-tech side. In semiconductor, demand trends are positive as customers look to scale up offshore labs that will help in better speed-to-market for the new technology chips. We recently signed a partnership with Qualcomm, where we will leverage our chip-to-cloud expertise to develop and deploy solutions for the Global 5G Private Network Industry. These solutions are aimed at accelerating digital transformation for the smart manufacturing industry and tied in with our digital manufacturing big bet.
On the media side, we are seeing large deal possibilities with vendor consolidation and cost optimization being the key drivers. As I highlighted last quarter there is softness in the high-tech space with companies being cautious and spends, however, we are optimistic about some of the recent technology, large technology companies that we have started engagements with. Overall, we expect the pace in Telecom and Hi-tech to pickup as 5G and media deals in the pipeline close. Our play in this segment is very broad, which gives us the ability to target different areas of growth.
Finally, in Medical, we had a soft quarter as customers recalibrated spends on account of inflation and supply-chain issues. Quora [Phonetic], remediation, our digital health platforms are seeing spend continues. Our investments in software based diagnostic devices are expected to yield us better traction in the coming quarters. The large deal traction in pipeline is looking up. In Q2, we won a large deal from our global healthcare provider in Quora, product remediation and to build a data engineering platform to accelerate productivity and reduced training costs. We see growth in Medical in Q3 post the recalibration of spend with our customers.
Now, a few highlights on our Digital Engineering and Technology progress. On the innovation front, our engineers continue to innovate and file 25 patents for LTTS in Q2. We have been able to maintain this pace of about 25 patents per quarter for a few quarters in a row. I would like to call [Technical Issues] that Everest has rated LTTS as a Leader in connected medical services and in Industry 4.0.
Let me now discuss the outlook. Across our six bets, we see customer investments continuing unabated. I am very confident that the solutions that we have developed across our six bets, which are helping us win deals. I talked about the domain controller and EACV, the digital thread in digital manufacturing, the Energy and Sustainability Manager in sustainability. Like we highlighted last quarter, there is caution at customers when it comes to newer business lines where this line-of-sight for revenue and profitability are stretched. The focus on immediate ROI is therefore creating cost and value led deal opportunities across segments in addition to the speed-to-market opportunities, where digital is the key driver.
We expect Q3 to have the seasonal furloughs and plant shutdowns, however, growth should rebound in Q4. Our FY ’23 USD revenue guidance is now narrowed to 15.5% to 16.5% in constant currency. With that, let me end by wishing you all very good health, a very Happy Diwali in advance.
And I would like to hand over to Rajeev, now. Thank you.
Rajeev Gupta — Chief Financial Officer
Thanks, Amit. Greetings to all of you. I am pleased to share our Q2 FY ’23 performance. It has been another quarter of good results with revenue growth and operational execution.
Let me take you through Q2 FY ’23 financials, starting with the P&L. Our revenue for the quarter was 19,951 [Phonetic] crores, a growth of 6.5% on sequential basis. Our double-digit year-on year growth trajectory continues with Q2 revenue up 24.1% on Y-on-Y basis. Glad to share, that despite the headwinds, we have been able to maintain EBIT margin at 18.2% in line with our aspirations and this has been the fifth consecutive quarter of 18% plus EBIT levels. During the quarter, we had higher employee benefit cost on account of wage hikes, which were largely absorbed by better employee productivity, SG&A leverage, cost optimization measures and rupee depreciation.
Moving to below EBIT. Other income came at INR26 crores, slightly lower on sequential basis due to relatively lower foreign exchange gains compared to previous quarter. Effective tax rate for Q2 was 27.2% closer to our target range of 26.5% to 27%. Net income for the quarter stood at INR282 crores, which was 14.2% of revenue, up 3% on sequential basis, driven primarily by revenue growth.
Moving to balance sheet. Let me highlight the key line items. Q2 DSO improved to 78 days versus 80 days in Q1. Q2 unbilled days improved to 18 days versus 22 days compared to in Q1, resulting in combined DSO including unbilled of 96 days, which is an improvement of six days compared to Q1, and just shy of our target range of less than 95 days.
Let me now talk about cash flows. Our year-to-date free cash flows was INR452 crores, which is 81% of net income. Our cash and investments rose to INR2,436 crores by end of Q2 FY ’23. I am glad to share that the Board has approved an interim dividend of INR15 per share.
Moving to revenue metrics. On a sequential basis, dollar revenue growth was 4.5% on constant currency basis and 3.1% on reported terms led by Transportation and Plant Engineering segments. The segmental margin performance was better in three out of five segments on a sequential basis with improvements in Transportation, Industrial Products and Medical Devices.
Now let me comment on operational metrics. The onsite-offshore mix has shifted towards onsite due to new-build ramp-ups. Offshore percentage now stands at 54.9%. We expect this to gradually improve to 57% range going forward as large deal ramp-ups stabilize. The T&M revenue mix was 73% in Q2 and reflects momentum of digital and leading edge deal wins.
On the client profile, which indicates number of million dollar plus accounts has shown sequential improvement in the 30 million-plus, 20 million-plus and 10 million-plus categories. The client profile numbers have seen an improvement over the past few quarters and this trend will continue in the coming quarters. On client contribution to revenue all three categories, top-five, top 10, top 20 have shown a slight decline compared to Q1. This is due to stronger growth in top 20 accounts to 50 accounts.
Headcount has increased marginally on a sequential basis as we added 500-plus freshers to support ramp-ups for new deal wins, while we have optimized on non-billable headcount and support staff. Though attrition moved up to 24.1%, we believe attrition will likely soften in the coming quarters due to various employee engagement measures to manage it. Realized rupee for Q2 was around 80.8 [Phonetic] to US dollars, a depreciation of over 3% versus Q1.
Let me give some visibility on the EBIT margin trajectory going forward. We are watchful of the headwinds from the current economic environment and like in the past few quarters will continue to balance headwinds with opportunities on revenue growth, quality of revenues and operational efficiencies. Summing up, we remain cautiously optimistic and our aspiration is to remain in the 18% EBIT trajectory in the medium-term. We thank all our stakeholders for their continued patronage and wish you all a very happy festive season in advance.
With that, I now hand it over to the moderator for Q&A session.
Questions and Answers:
Operator
Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Mukul Garg from Motilal Oswal Financial Services. Please go ahead.
Mukul Garg — Motilal Oswal Financial Services — Analyst
Yeah, thanks. I just wanted to get some sense on the deal flow. So have you seen any moderation in the TCV number, the larger TCV count has come down this quarter. And while you mentioned that there are number of deals in the pipeline, is this something to do with increased portion at the client end or is this just of timing issue? The other question was on the guidance. Just wanted to — whether should we see this guidance in the context of last quarter’s 14.5% to 16.5% number, which was as of Q4 end. But is this FY ’23 over what you can see FY ’22 just wanted to have some clarity given the volatility in the currency movements?
Amit Chadha — Chief Executive Officer and Managing Director
Great. So Mukul, thank you. Number one, on the deal flow. I do want to confirm to you that our pipeline as it stands today is slightly better than what it was last quarter and that was slightly better than it was previous quarter, right. Year-on year, there is a double-digit increase in pipeline.
Now in terms of deal closures, we have been closing three-digit deal wins for the last few quarters in a row now. So, if you remember quarter four was a 100 million win, quarter one was a 50 million win, and this quarter there is a 60 [Phonetic] million-plus win, right. So deal wins continue that they are. I would not read too much into that 10 million-plus because there are deals that are in 9 million that closed. So that’s — we want to maintain the quality of reporting that we do. So therefore we have singled out the 10 million and I haven’t called out the 9 million. But at this stage I am not concerned with the deal flow or the deal closures as we speak, right. That is two.
Third, I do want to call-out that Europe for us has had a significant amount of wins this quarter as they go through three items: one, a cost challenge; two, an energy challenge; and third, to stay ahead in technology. So I do see that it was the opportunity as we stand today. So that’s where we are on the wins. I do hope when I come back in January, I should be able to announce for the wins for you and give you the confidence that this continues on. As far as guidance is concerned, I’m going to turn over to my colleague, Rajeev to answer that question [Phonetic].
Rajeev Gupta — Chief Financial Officer
So Mukul, on your question related to guidance, I would say that you need to read the 15.5% to 16.5% guidance relative to 14.5% to 16.5% that we shared in the previous quarters. So like Amit said, we have now narrowed down the guidance which means we have better predictability to be in a narrow range.
Mukul Garg — Motilal Oswal Financial Services — Analyst
Thanks. And that’s helpful. Just one question, Amit, on the Hi-tech side, we have heard some of your services peers [Phonetic] speak about weakness in Telecom and Hi-tech space, despite the 5G provisions [Phonetic] is going on, while you gave some color, but if you can just kind of move a little bit deeper into the Hi-tech vertical and how we should think about over next two quarters to four quarters?
Amit Chadha — Chief Executive Officer and Managing Director
Sure. So Mukul as far as Hi-tech is concerned break it up into six parts; Semcon, Operators, Infra, Media Entertainment, and then Consumer Electronics, if I may, and ISV, right, six sub-segments if I may. So I would say that we have seen across the spectrum, other than operators, we have seen others come back and look at deals and look at spends and question whether those will provide topline or bottom line expansion improvement in the near-term. And if they are not then those deals are being questioned again and again and therefore it is delaying some of that. So Hi-tech I had maintained last quarter as well that we were finding it a little tight. And I maintain, we’re finding it tight right now also.
Now if I was to double-click, the biggest, shall I say tightening that I have seen, that we have seen is in the ISV space. And then after that followed by consumer electronics, shall I say, Semcon, then Infra, then Media Entertainment and finally Operators. So that’s the order we have seen. And of course there are people of the peer group that is there. They may be seeing different things is what we’re seeing. Second, because Semcon is not just delivering to Hi-tech, but also living to auto and others that part of the business is continuing on in the Semcon companies. Third, 5G spends look at it as spends in US and in India because both these countries have got clear roadmaps, while others are coming along. And we have not seen the trickle effect of 5G coming right now. I do believe it will take a couple of quarters for it to be seen by engineering providers like us.
Operator
Thank you. Mr. Garg, may we request that you return to the question queue for follow-up questions. 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. Just a clarity —
Operator
Sorry to interrupt you, Mr. Shah. Please use the handset mode. The audio is not clear from your line.
Sandeep Shah — Equirus Securities — Analyst
Yeah. Is it clear now?
Operator
Yes, sir. Please proceed.
Sandeep Shah — Equirus Securities — Analyst
Yeah. Just to achieve the guidance of 15.5% to 16.5% in constant currency terms, just wanted to clarify the ask rate which I’m getting is 0.6% to 1.7% Q-on-Q in the next two quarters in constant currency to achieve the revised guidance. So the question is whether this calculation is correct? And second, if it is correct, it shows a slowdown. So it’s largely factors furloughs or some client specific issues because of the deteriorating macro as well, because the first half, the Q-on-Q growth has been in the range of 4.5% to 4.7% Q-on-Q in CC terms.
Amit Chadha — Chief Executive Officer and Managing Director
Sure. So the way I would look at it, right, is not from quarter three, quarter four. See quarter three generally is a soft quarter because of furloughs and vacation. This time as you are aware, Diwali and Dussehra both along with the entire Thanksgiving and Christmas and New Year, everything is coming in quarter three. Generally, Dussehra normally comes into quarter two and the other comes in quarter three. This time everything is in quarter three. It’s a festive season. So this will be a little muted, while we expect quarter four to be back at our standard growth rates. So we have factored in all that. But having said that, we’ve always been very, very — we want to be able to deliver to you what we commit. So as things change we will update you again.
Sandeep Shah — Equirus Securities — Analyst
So just wanted to clarify is there a higher-than-normal [Phonetic] furloughs being factored into or as of now clients are not indicating the same? And whether my calculation on our ask rate to our achieved guidance [Phonetic] is correct, 0.6% to 1.7%?
Amit Chadha — Chief Executive Officer and Managing Director
No. I’m not going to comment on that 0.6%, 0.8% [Phonetic]. I want to be able to think bigger and better as and think that so I won’t. But as far as furloughs are concerned there are some clients that are planned for it. There are others that are talking about it. So we are a little cognizant of all that.
Operator
Thank you. Mr. Shah, may we request that you return to the question queue for follow-up questions. The next question is from the line of Aditya Karanam [Phonetic] from Metaverse Equity Fund. Please go ahead.
Aditya Karanam — Metaverse Equity Fund — Analyst
Hello, sir. So my question is sir in the aftermath of Ukraine-Russia war, as well as the geopolitical condition in China. So how will the business strategy change prior to the war and post? As well as I also wanted to add about the Europe’s recession part. So what would be the changes in strategies?
Amit Chadha — Chief Executive Officer and Managing Director
So, thank you. See we are seeing three broad or four broad areas with the Ukraine war that we have seen emerge in the US as well as Europe. Number one, countries — largest countries, but states in larger countries are starting to think of localized supply chains. And that does offer opportunity for people like us. Second, people are looking at — so last year, same time, cost was not such a big consideration, technology advancement was, but now cost along with technology advancement that could either help the topline or bottom-line, like I said ROI is a concern.
Third, there is a transition in energy sources happening. It’s happening quietly, but it’s happening. People are moving from gas-fired to oil-fired, oil-fired to coal-fired plants. People are looking at alternative energy sources. Companies are doing it, governments are doing it, states are doing it. So I do believe that again provides once in a lifetime opportunity as this shift happens over the next five years to seven years. Electric vehicles is a part of that. Wind energy, solar panels et cetera is a part of that. So I do believe that we are in a fairly volatile world and these offer opportunity as long as we can be agile and we can continue to marshal our resources to retrain people, to move people around, as well as — and adapt to latest technology trends.
Aditya Karanam — Metaverse Equity Fund — Analyst
Okay. Thank you, sir.
Operator
Thank you. The next question is from the line of Mihir Manohar from Carnelian Asset Management. Please go ahead.
Mihir Manohar — Carnelian Asset Management — Analyst
Yeah. Hi, thanks for giving the opportunity. Sir, I just wanted to understand on the — I mean it is pretty much clear about this particular FY ’23, but just wanted to get a sense you know how are you seeing the next year having any conversations with clients, specifically to client budgets. Some color over a two-year period, your sense, how are you seeing the two-year period now? What you were seeing last quarter [Indecipherable] two-year? That was the only question.
Amit Chadha — Chief Executive Officer and Managing Director
So, thank you so much, Mihir. So, number one, we do believe, so we had given you guidance that we will hit a $1 billion run-rate last year September is when we had told you. So we did achieve it in this quarter. We are reiterating our guidance of getting to a $1.5 billion run rate by FY ’25. That has not changed and that’s our goal from here on as we move forward.
Mihir Manohar — Carnelian Asset Management — Analyst
Sure. And any conversations with client around next year’s budget?
Amit Chadha — Chief Executive Officer and Managing Director
Yeah. We continued to talk to clients, Mihir, converse. In fact, this is a time when we sit down and do workshops with some of our larger clients and strategic clients. We sit and do workshops on next year projects and work, programs, they want to roll-out, sustainable — sustenance engineering that we’re doing, how many changes do they want? What kind of patterns we are seeing? So all conversations and the entire sales delivery of solutions team, everybody is running around meeting with client. So all of that is going on.
Mihir Manohar — Carnelian Asset Management — Analyst
Sure, sir. Just lastly on this — any quantitative understanding of the budget would be very helpful [Phonetic], sir.
Amit Chadha — Chief Executive Officer and Managing Director
Yeah. See, the bets that we have taken. The one thing we did and I didn’t put it in my comments, I want to share it, because you are our community, you are our stakeholders. So in the last three weeks, we have started a review of the bets that we have taken 18 months ago, and said are these relevant? Are they still relevant and can we change? I am happy to share that the six bets that we took on electric autonomous connected vehicles, sustainability, digital manufacturing, all three have already fired and are showing results and there are further solutions being developed in these areas. In fact, happy to share that we inaugurated our EV charging station with our own home-grown, home-built energy — hybrid energy controller in Vadodara on Friday. And so a lot of stuff happening in that area. We do believe that 5G and Med-tech are areas that we will have to further strengthen and take it forward as we move along. So we do believe that we have the relevant bets for engineering and technology services to take forward.
Operator
Thank you. Mr. Manohar, may we request that you return to the question queue for follow-up questions. Thank you. [Operator Instructions] The next question is from the line of Vikas Ahuja from Antique Stockbroking. Please go ahead.
Vikas Ahuja — Antique Stockbroking Limited — Analyst
Hi, thanks for the opportunity. Just one clarification regarding the guidance. We have changed the guidance because last quarter we reported in USD terms, now it’s constant currency, and we did that leads to the constant currency in the call last time. What led to changing the currency dynamics from USD to constant currency, because currency was equally volatile in Q1 also. And secondly, when I look at the peers, the transparency impact is still there to between 250 basis points to 350 basis points, is it similar products [Phonetic]? Thank you.
Rajeev Gupta — Chief Financial Officer
So, Vikas, this is Rajeev. Let me answer to that. So when you talk about the guidance that we have provided, we have narrowed the guidance to 15.5% to 16.5%, and this is comparative to 14.5% to 16.5% that we provided in the previous quarter. Both were in constant currency. And as you would appreciate and also trying to clarify to most of the other participants, dollar has been extremely volatile, right, and it is an environment which is really had us to think through that a guidance can be really managed on constant currency basis as opposed to on reported currency basis because of the volatility. So that’s one part of the response.
The second part of the response, yes, the dollar indeed moved up. For us, there seem a tailwind of close to about 80 bps to 100 bps in terms of managing the margin performance. So that is how it has translated for us in terms of our performance in Q2.
Vikas Ahuja — Antique Stockbroking Limited — Analyst
Sure. Thank you.
Operator
Thank you. The next question is from the line of Pratap Paliwal from Mount Intra Finance. Please go ahead.
Pratap Paliwal — Mount Intra Finance — Analyst
Hello, am I audible please?
Operator
Yes, sir. You are audible.
Pratap Paliwal — Mount Intra Finance — Analyst
Yeah. Thank you. So thanks for taking my question. So I just had a question around the Transport segment, in particular. So as we see in the Transport segment, particularly in the auto space, a lot of the strategic programs are kept in mind with — the next few years kept in mind when it comes to programs around connected mobility, autonomous, shared mobility. So as you said with the quick ROI demand coming through from clients, so is there any possible change in the multi-year deals and the deal sizes going ahead? How would this trend actually play out in this sector, which is supposed to be showing strong tailwinds? Just had a question around that. Thank you.
Amit Chadha — Chief Executive Officer and Managing Director
So one, we do see Transportation segment looking at clearly moving to energy efficient vehicles, right, be it auto, be it trucks, be it off-highways, be it skid steer loaders, et cetera, backhoe loaders, et cetera, et cetera. So much so that even floor cleaners people are trying to get a hybrid or an electric version out, right. So there is a massive shift that is happening in that direction. These again, can’t we — it’s not a magic wand that can happen in the six-month period. These are versions of programs that run for anything between 18 months to about three years and the addressed family of vehicles. So say, somebody would look at our small sedan and do it and then do it for a larger sedan and then also do it for an SUV. Now these three family of vehicles will require different kinds of wattage, voltage to be going in, right.
So therefore there is R&D to be done. I mean there are — there is a particular large program we are working on for a skid steer backhoe loader. And in that case the kind of wattage that we’re talking about is, is about maybe six times or eight times and we talk about for a car. So there are different, different parameters. So these are — so long story short, these are not start-stop programs, these are programs that run over a period of time. And therefore they provide repeatability of revenue, predictability of revenue and constant potential growth opportunities for us. And most of it is done offshore and that I think is coming out in the transportation margins that we have released.
Pratap Paliwal — Mount Intra Finance — Analyst
Okay. So just to confirm, we don’t see any real change in the nature of work that we’ve been getting from this segment going forward. There is no real change around it?
Amit Chadha — Chief Executive Officer and Managing Director
The kind of work we were doing 24 months ago to what we are doing today is different. And for the next 24 months, at least, I can confirm to you we see the same. Like I said, we will again do an analysis of our bets in about another 18 months and see if those are relevant or should we change them or modify them. So at that point of time maybe there is something new that comes up that will allow us to change. But for 18 months to 24 months I believe same kind of work will continue.
Pratap Paliwal — Mount Intra Finance — Analyst
Okay. Thank you, sir. That’s it from my side. Thank you so much.
Operator
Thank you. The next question is from the line of Bhavik Mehta from JP Morgan. Please go ahead.
Bhavik Mehta — JP Morgan — Analyst
Yeah. Thanks for the opportunity. So I have two questions. Firstly to Amit. Amit, you talked about the client cautiousness on spends. So is it broad-based across your verticals? Or are some verticals better place than others when it comes to decision-making? And secondly to Rajeev, how should we look at the margin trajectory for the second half given the fact that the biggest headwind of wage hike is behind you now. So what are the incremental headwinds and tailwinds you see for the second half of FY ’23? Thanks.
Amit Chadha — Chief Executive Officer and Managing Director
Okay. So, Bhavik, one, I don’t think the caution — see, but again, step back, in terms of, you know, every time there is a negative commentary, you think, right. Are you headed in the right direction, that’s the reality. But having said that, see Transportation, the tailwind in electrification and the tailwind in autonomous connected is something that is — that’s a measurable tailwind, one. Second, for industrial and the process, digital manufacturing and energy, can I call it, rather than sustainability I’ll call it energy conversion or — right or alternative energy et cetera. Are valid things that are — again tailwinds that are required that are going-forward.
And they again go back to basic laws of human nature. Number of workers are less. They need start to be automated and digital. The energy costs are high. They need to find alternative sources to keep the raw material costs down and their input costs down. So all that put together, these three clear tailwinds that we see. Having said that, Hi-tech there is or tightness that we see measurably across Hi-tech. And even in medical on new product development, unless it is something that is related to more healthcare compliant, FDA compliant et cetera, we are seeing a little bit of a question being raised.
Because again, I want to give a little bit of color here. See if we look at doctors, once they come out of college and they have learnt on a certain several devices because of the amount of regulation it goes into recertify our device, it will be — it takes time for new devices to come out and stuff to happen. I mean I’m happy to have a longer conversation on this with you. But therefore we see a little bit conservatism in medical always, and then, of course, Hi-tech. So that’s where we are.
Rajeev Gupta — Chief Financial Officer
Bhavik, I’ll take the second question in terms of the margin trajectory. So I will wane [Phonetic] a few things over here, right. So if I look at really the plus and the minus factors, in terms of plus factors clearly growth in revenues, better quality of revenues. In fact, when I touch upon better quality of revenues there are some aspects to that, right. One, if you look at the growth that we’ve seen across segments there have been three segments where margins have improved. So we are indeed seeing growth come in segments that are having better profitability and that’s essentially helping us out and meeting in terms of the margin performance.
The third aspect is also on the scale benefits. If you look at in terms of G&A cost, we’ve kept it almost flat, that’s kind of played out well for us. We believe going forward as well, we will be able to see scale benefits coming in. In terms of factors or other headwinds the current economic environment, rather one more aspect that I will add in terms of the positive which is around the rupee depreciation. That’s being of course the tailwind in the current situation.
Now talking about some of the adverse factors, the current economic environment is such that like I said we will be watchful and we will try to balance out some of the positive than the negatives. So one that we will try to tread cautiously over the next few quarters until we see the environment stabilize. Attrition, we believe that we have reached a peak. Going forward, it should normalize. And in that sense, yes, it is going to be a positive factor, because it will take-off the load in terms of hiring, rehiring and of course the in and out in terms of the salary factors. So that should be a positive as well.
And like you said, of course, Q2 had the maximum impact in terms of wage hikes. We believe there may be some intermittent wage hikes, but that’s something that we should be able to counterbalance. So, of course, these are all the factors that we feel we should be able to balance out while maintaining the EBIT trajectory in the medium term for an aspiration of 18% levels.
Bhavik Mehta — JP Morgan — Analyst
Okay. Got it. That’s very helpful. Thank you so much.
Operator
Thank you. The next question is from the line of Akshay Ramnani from Axis Capital. Please go ahead.
Akshay Ramnani — Axis Capital — Analyst
Hi, Amit. So I wanted to check on the guidance which you shared of the achieving the $1.5 billion run rate by FY ’25. So we are at $1 billion run rate currently, and the difference to achieve that is amongst 50-odd percent over a two-year period. And when the demand environment or to say there is some caution in the environment from client side, what gives you this visibility over the next two, two-and-a-half years still maintaining that aspiration of achieving that number. That was part one. And the part two is that how should we think about the organic and inorganic component within this two-and-a-half year journey? So those two parts in that guidance one [Phonetic].
Amit Chadha — Chief Executive Officer and Managing Director
Okay. So here is how I would see it, right. Our $1.5 billion includes three things that we have factored in this; A is, we expect that some points, right now like I admitted to you that about three-and-a-half bets out of the six bets are firing. We expect the remaining two-and-a-half to fire as well. And for a period of time, we expect that all six bets will fire. We’ve done a modulation based on that. And then, of course, you know maybe one of them will fall-off and et cetera, et cetera, but there will be a period of time between now and the next by FY ’25 that all six bets will fire, A. B, we are considering some amount of large deals that we will be able to execute, sign, execute. So our large deal engine continues to fire and very active. And you’ve seen that expect to continue that. C, there is a little bit of inorganic built into it. And so that’s the third part that we expect will happen. So that is what is the build-out that we have done for the $1.5 billion.
Akshay Ramnani — Axis Capital — Analyst
Okay. And so on the large deal side, so, over the past few years, I think we — over past few quarters, especially we have been continuously winning these larger deals. So I wanted to get a color on the large deal pipeline. So we’ve seen you report those deals, but over the past two years, three years, do you see that large deal pipeline growth has been stronger versus what you have seen historically? And if yes, then what exactly is driving that trend? Your thoughts there.
Amit Chadha — Chief Executive Officer and Managing Director
Sure. Akshay, in fact, one of the litmus test for us when we announced $1 billion, we announced three things, last September; $1 billion, 18%, $1.5 billion. So crossing or touching $1 billion run rate in constant currency was very important for us, because it was a litmus test. The 18% and staying to 18% for the five consecutive quarters has been a litmus test for us. We are finally engineers, right. And therefore we have confidence in the $1.5 billion.
Now second, in terms of the kind of pipeline. I do think our pipeline year-on year, quarter-on-quarter continues to improve. We continue to size out deals, areas, which we’ll go in. The one big change we’ve made is that we have been running the large deal, shall I say the process of thinking and ideating and all that is a continuous process running across the company in different parts, at different times, so that it becomes like a wave that comes and everybody once in a while gets to the wave again and again. So we are doing that. There are some other fundamental changes we have made in terms of how we think about large deals and what we think is the scope and size of those, et cetera. So it’s definitely expanded. Our closures have been in three digits net-new, more than $1 million for the past few quarters and we expect that, that will continue. And we want to sign bigger deals and we’ll continue to provide an update.
Akshay Ramnani — Axis Capital — Analyst
Thanks, Amit.
Operator
Thank you. The next question is from the line of Shradha from AMSEC. Please go ahead.
Shradha Agrawal — AMSEC — Analyst
Hi, sir. Just a few question. The Plant Engineering segment shows that 200 bps declining margins despite the strong growth of 5%-plus [Phonetic]. So what’s relevant behind margins in the present [Phonetic]?
Rajeev Gupta — Chief Financial Officer
Shradha, this is Rajeev. I will take that. So two parts to that. One, of course there have been quite a few new deals that have started in this segment, which of course, when you start any new deals you tend to see margins coming down in the initial period and then you sort of catch-up on that. The second is also that when you have these new deals starting, you may invest in subcontractors. So those are the two key reasons why we’ve seen margins slightly come down in Plant Engineering, but we believe that we should be able to improve as quarters go by.
Shradha Agrawal — AMSEC — Analyst
Okay. Sure. Thanks. And my second question, Rajeev is, you did mention that SG&A looks flat on a Q-on-Q basis, but when I see SG&A as a percentage of revenue, it is apathetic [Phonetic] quarter low number. And despite — in case of travel and other expenses that we’re seeing for other companies, are the SG&A expenses have been looks flattish. So what is revenue [Phonetic] in SG&A, and how do we see that trajectory going ahead?
Rajeev Gupta — Chief Financial Officer
So Shradha, two, three points on that one. One, when I say flat, it is flat in absolute terms, right, which is leading to of course, a percentage reduction to revenue. Now as far as investing on sales side, I think we continue to believe that’s the way to grow. So we will look at that more constructively on the G&A side. And I think we’ve been fairly conscious a few quarters ago, understanding that yes, the economic environment is tough. So we started to put measures in place, so that we can optimize costs. While we have come at about 11% on SG&A, I would guide all of you to take SG&A to be in the range of 11.5%, while we’ll counterbalance some of this, but that’s how I will sort of guide in terms of projecting SG&A.
Shradha Agrawal — AMSEC — Analyst
Right. And the rationalization of the SG&A stuff that we see, is it more to do with the G&A team, or you’re seeing some rationalization in the same people as well?
Rajeev Gupta — Chief Financial Officer
It’s more to do with the G&A team.
Shradha Agrawal — AMSEC — Analyst
Right. That’s helpful. Thanks, Rajeev.
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. There are couple of questions from my side. I want to begin with Amit. Just wanted to compare the macro comments related to the last quarter. So would you say that the dynamics have been similar to what we saw last quarter or has there been a change? Because the two verticals we mentioned remains same, but just wanted to understand the intensity of questions within that.
Amit Chadha — Chief Executive Officer and Managing Director
So Sulabh, what we saw last quarter is what we’re seeing now. There is no deterioration. There is no improvement. It’s basically the same.
Sulabh Govila — Morgan Stanley — Analyst
Sure. Understood. And second is to, Rajeev. Rajeev, you mentioned puts and takes [Phonetic] for margins this quarter. So would it be possible for you to quantify those puts and takes, the margin walk for the quarter?
Rajeev Gupta — Chief Financial Officer
We would not be able to do that. But you know if you want to pick an offline conversation to get any clarity, feel free to touch base with Pinku, so that you can have a more elaborate conversation on this.
Sulabh Govila — Morgan Stanley — Analyst
Sure. I’ll touch base. Thank you.
Operator
Thank you. The next question is from the line of Abhishek from InCred Capital. Please go-ahead.
Abhishek Shindadkar — InCred Capital — Analyst
Hi, sir. Thanks for the opportunity, and congrats on a good execution. Just one question from a demand perspective. What are you seeing on the ground from captives given the challenges in the Europe? What are they doing? Are they also relocating or looking to ramp-up capacities in India? And is that changing the competitive intensity in the market? Thank you for taking my question.
Amit Chadha — Chief Executive Officer and Managing Director
Sure. Abhishek, thank you so much. Abhishek, if you would have asked me this question 10 years ago, I would have said captives are competition. But honestly, Abhishek, it’s a coopetition model. So you work with them and there is a core contextual that the client defines core done by them, contextual done by us. What they define is core changes, what they define is context changes. So that’s how this flux happens. We have seen a little bit of a pause on — as far as Hi-tech is concerned, and as far as medical is concerned, we are seeing a slight pause from own employees being hired by captives, right. And so that we have seen. And we see that potentially as an opportunity because we can flex up, flex down, et cetera. So that’s definitely there.
As far as auto is concerned, which has got — our transportation has got huge capital here. They continue to expand as we see it. And so does parts of industrial. Plant doesn’t normally have a lot of captives here, but yeah we see that. See the good part, another thing I wanted to point out Abhishek, again 10 years ago, captives would mean China, captives would mean India, it would mean Eastern Europe and Latin America. Today, China is off the table. So it’s basically between India, part of Eastern Europe, because part is as you are aware offline, and part of it in Latin America. So we believe that we are well-positioned from that standpoint.
Abhishek Shindadkar — InCred Capital — Analyst
Great. That answers my question. Thank you.
Operator
Thank you. The next question is from the line of Arvind Chetty from Max Life Insurance. Go ahead.
Arvind Chetty — Max Life Insurance Company Limited — Analyst
Yeah. Hi, thanks for taking this question. This is more on the headcount on the sales and support side. So while our aspiration for FY ’25 is about $1.5 billion run rate, which essentially means 4% to 4.5% compounded growth from now. With that aspiration and near term expectation of large steel engine firing, our sales support has gone down by about 5% on a Q-o-Q basis. So is that more of an aberration, or it’s more indicative of near-term trend.
Amit Chadha — Chief Executive Officer and Managing Director
So, look — look at enabling functions, sales support as of labs structure, right. You need a certain set to make a certain number and then you have a range and then you again, you continue to do that. So I would not be worried. I mean, $1.5 billion in FY ’25 is we are right now in FY ’23, so there are two years to go. So we will see that. We are mindful of it, is all I would say at this stage. I would not worry about it. And I would not take it as a lead indicator or anything like that. On — yeah.
Arvind Chetty — Max Life Insurance Company Limited — Analyst
Yeah. So just a follow-up on that, how do we look at this number going forward?
Rajeev Gupta — Chief Financial Officer
We don’t give guidance on sales support numbers going forward. Of course our sales head wants more, others also wanted to see.
Arvind Chetty — Max Life Insurance Company Limited — Analyst
Got it. Thanks.
Operator
Thank you. The next question is from the line of Karan Uppal from Phillip Capital. Please go ahead.
Karan Uppal — Phillip Capital — Analyst
Yeah. Thanks for the opportunity, So, Amit, two questions from my side. So in the Auto segment within EU, ADAS, Connected [Phonetic] and Infotainment, which of these subsidiaries are having the maximum contribution to your deal base? And is the demand equally strong in the European OEMs and US OEMs? And how does the pipeline looking? And second question is on — just a follow-up on the hiring parts, so litigation has been soft in Q2, so what’s the outlook for FY ’23 [Phonetic]?
Amit Chadha — Chief Executive Officer and Managing Director
So, I would request, Abhishek, our Chief Operating Officer to answer the first question on, how does he see auto, which sub-segment, and which region? Abhi?
Abhishek — Chief Operating Officer & Whole Time Director
Sure. So, if you look at these three segments, clearly, at least, at this point electric is where we are seeing the highest traction followed by connected and then autonomous. And as for the region is concerned both US, Europe traction is equally strong at this point. And also both automotive and tier ones. No, I mean OEMs and tier ones, no automotive space. But also, of course, seen traction on interestingly on EV connected side on the Trucks and Off-highway segment as well, which also is starting to pickup.
Amit Chadha — Chief Executive Officer and Managing Director
Looking towards on Europe or US, so that’s both, right. Okay, we answered them. Very good. Can you repeat your second question, Karan?
Karan Uppal — Phillip Capital — Analyst
Yeah. Just on the net addition side. So Q2 net addition has been a bit soft. So just wanted to check what is the hiring outlook for FY ’23?
Abhishek — Chief Operating Officer & Whole Time Director
See the net adds, we knew, I think Amit and even Rajeev mentioned that earlier this was tight quarter for us given that this was the quarter when we give increments. So we’ll have to be very cautious on how we run operations this quarter. Having said that we have continued to hire freshers in this quarter also. And we will continue in the coming quarters as well. From a people perspective, we had enough and more people to deliver for the quarter and we have reasonably good plans for the coming quarters as well. So please don’t read too much into the headcount front because it was a move that we had to do this quarter from an operations perspective.
Operator
Thank you. The next question comes from the line of Sameer Dosani from ICICI Prudential AMC. Please go ahead.
Sameer Dosani — ICICI Prudential AMC — Analyst
Yeah. Thanks for the opportunity. I just wanted to understand how is the utilization moved in last two quarters or three quarters. I mean, and this is also in the context of headcount addition, do we have enough room for increasing our utilization from that at this of time or we’ll have to hire more?
Rajeev Gupta — Chief Financial Officer
So, this is Rajeev, I’ll take part of the question, and I will also request my colleague Abhi to add to it. So like we’ve said in the previous quarters, we have stopped reporting utilization because of course there are areas of revenue that are not directly linked with utilization. But I can certainly give you directionally the utilization has been improving, right. And that’s part of what Abhi mentioned earlier that we’ve looked at Q2 revenue and we’ve tried to optimize on parameters that could eventually help us in terms of delivering the quarter. I will also request Abhi to add-on to this please.
Abhishek — Chief Operating Officer & Whole Time Director
Yeah. I think the same point utilization definitely has improved for us this quarter without picking on any specific numbers. Broad based, if I may, our goal is to operate between the 78% to 82% levels that is the range that we’re comfortable with, anything above 82% because we are an engineering company, is a red flag and below 78% also is a red flag, but the reason more than it was a red flag is because we want to continue to invest in R&D and engineering work for our customers and for our people. So that’s the range we plan [Phonetic].
Operator
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Pinku Pappan for closing comments. Thank you. And over to you, sir.
Pinku Pappan — Head of Investor Relations
Thank you, everyone for joining us on this call today. It was a pleasure interacting with you and we look forward to more such interactions during the course of the quarter. From all of us at LTTS, it’s a goodbye and wish you a very happy festive season for the coming days. Thank you. Bye-bye.
Operator
[Operator Closing Remarks]