L&T Technology Services Ltd (NSE:LTTS) Q3 FY23 Earnings Concall dated Jan. 19, 2023.
Corporate Participants:
Pinku Pappan — Head, Investor Relations
Amit Chadha — Chief Executive Officer
Rajeev Gupta — Chief Financial Officer
Abhishek Sinha — Chief Operating Officer
Analysts:
Bhavik Mehta — J.P. Morgan — Analyst
Kawaljeet Saluja — Kotak Securities — Analyst
Mukul Garg — Motilal Oswal Financial Services — Analyst
Vibhor Singhal — Nuvama Equities — Analyst
Ravi Menon — Macquarie — Analyst
Sulabh Govila — Morgan Stanley — Analyst
Mihir Manohar — Carnelian Asset Management — Analyst
Akshay Ramnani — Axis Capital — Analyst
Presentation:
Operator
Ladies and gentlemen. Good day and welcome to L&T technological Services Limited Q3 FY23 Earnings Conference Call. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Pinku Pappan, Head of Investor Relations. Thank you and over to you sir.
Pinku Pappan — Head, Investor Relations
Thank you. Faisel. Hello, everyone and welcome to the earnings call of L&T Technology Services for the third quarter of FY23. I am Pinku, heading Investor Relations. Our financial results, investor release, and press release have been filed on the stock exchange and are also available on our website www.ltts.com. I hope you had a chance to go through them. This call is for 60 minutes. We will try to wrap the management remarks in 25 minutes and then open up for Q&A.
The audio recording of this call will be available on our website, approximately one hour after this call ends. Let me now introduce the leadership team present on this call. We have Amit Chadha, CEO; Abhishek, COO; and Rajeev Gupta, CFO.
We will begin with Amit providing an overview of the company performance and outlook, followed by Rajeev, who will walk you through the financial performance.
Let me now turn the call over to Amit.
Amit Chadha — Chief Executive Officer
Thank you, Pinku, and thank you all for joining us on the call today. I hope all of you are keeping healthy and safe. Let me start with the key highlights on our Q3 performance. Our deal wins were strong this quarter with five deals greater than $10 million in TCV and a significant empanelment from Airbus, for which we have also issued a press release today.
From a revenue standpoint, sequential growth was muted this quarter due to seasonality and higher than expected impact from furloughs, especially in Plant Engineering. In spite of this, we have improved EBIT to 18.7% and crossed the INR300 crore milestone in net margins per quarter.
From a technology standpoint, we surpassed the 1,000 patents filing mark as an acknowledgment of the Tech Paris of LTTS.
Let me now provide the segmental performance and outlook. Starting with Transportation, we had a good performance with 4.4% Q-on-Q growth that was broad-based across Auto, T&OH, Trucks and Off-Highway, and Aero. In Auto, demand is being driven by electrification connected cars and next generation digital cockpits. We are also seeing increased demand for cybersecurity as part of the software development platform work that we do.
For Trucks and Off-Highway, similar trends of electrification and platform development continue to provide us good opportunities. One of our five $10 million deals is from this area. In Aero, driven by the rise in air travel, we are seeing demand for Avionics. I want to highlight our selection by Airbus as a strategic engineering partner. This empanelment is significant contribution and recognition of our digital engineering capabilities and aerospace domain knowledge. The growth in transportation will continue into FY24.
In Plant Engineering, we were expecting a muted quarter as we had indicated in our Q2 commentary. However, the unexpected furloughs at some of our top customers led to a weaker than expected performance in Q3. I want to highlight that this is a one-off and not a reflection of the demand environment. We see growth coming back from Q4 onwards. Key drivers of demand are localization of supply chains, sustainability in operations including energy, water and waste management leading to greenfield, brownfield expansions.
In the ONG-Chem segment, a sub-segment, many of our customers are continuing to change their product mix, leading to design and digital engineering projects for us. One of our $10[Phonetic] million wins has been in this area. We see a strong deal pipeline in both U.S., Europe and Middle East that will help drive growth for us in Q4 and beyond.
At Industrial Products, we had a good growth in the quarter led by Electrical Machinery, Power and Utilities. For quarter three, three of the five large deals that we won were in Industrial Products in the area of digital twin and sustainability driven, product development, innovation, and research. We see good demand in digital manufacturing to support automation and software development platform to improve equipment performance and viability. These in turn will become annuity contracts. We’ve been talking about energy transition, including green energy initiatives using hydrocarbon and hydrogen as a fuel, creating new opportunities for us. Overall for Industrial Products, we see growth continuing to be driven by digital manufacturing and sustainability led new product and process development.
In Telecom and Hi-Tech, we had a challenging quarter due to the weakness in ISV, consumer electronics and Semcon where customers are spending less and frozen hiring. We did offset some of this weakness from better 5G spends. We are seeing growth in 5G Lab as a Service, network engineering, and cyber security. With SWC, we now have an end-to-end capability that will give us an edge in the market. As customers look to squeeze efficiency, we are also seeing cost takeout deals in the pipeline. These could give us an opportunity to consolidate and provide greater value to our customers. Overall, we expect the pace in Telecom and Hi-Tech to gradually pick up as the environment improves.
Lastly, in medical, we had a soft quarter, which has had more to do with customers shifting their spend to 2023. Demand is being driven by connected devices and digital health platforms, cybersecurity, regulatory compliance and [Indecipherable]. In Q3, we won a large deal from a global OEM to assist in Engineering Solutions for their medical devices on annuity basis. We see growth in medical in Q4 picking back up based on our wins and good pipeline.
Now a few highlights on our Digital Engineering and Technology progress. On the innovation front, our engineers continue to innovate and have filed 25 patents for us and 30 for our customers in Q3. We have been able to maintain this pace of about 25 plus 25 patents per quarter for seven quarters now. We are also proud that we have crossed 1,000 patient filing mark.
Let me now discuss the outlook. As we highlighted last quarter, there was a caution on spending, which played out in our Hi-Tech segment. Coupled with the furloughs in Plant Engineering, we had a muted Q3 in terms of growth. However, we are optimistic about growth coming back in Q4 on account of the five deal wins and a significant empanelment with Airbus that we won, a growth bounce-back at Plant Engineering in Q4 with the furloughs behind us.
We are now looking at FY23 USD revenue growth to be around 15% organic on constant-currency, using Q4 FY22 currency rates as a baseline. Finally, as we start the new year, we are having conversations and deal discussions. And these have picked-up pace over the last few weeks, and therefore, quarter four will see us adding at least 500 net head count in order to get ready for FY24, as well as service quarter four.
I now request Rajeev to walk you through the financials.
Rajeev Gupta — Chief Financial Officer
Thanks, Amit. Good evening to all of you and hope you’re doing well. Overall, our Q3 FY23 performance showed another quarter of double-digit revenue growth on year-on year basis, good operational execution resulting in improvement of EBIT margin and crossing a new milestone of INR300 crores in net profit.
Now, let me take you through Q3 FY23 financials, starting with the P&L. Our revenue for the quarter was INR2,049 crores, a growth of 2.7% on sequential basis. Our double-digit year-on-year growth trajectory continues with Q3 revenue up 21.4% on year-on-year basis. EBIT margin at 18.7%, increased by 60 bps compared to quarter two FY23. This has been the sixth consecutive quarter of 18% plus EBIT margins. During the quarter, we had benefits from improved [Technical Issues] productivity, better offshore mix and exchange gains, offset by a slight increase in SG&A percentage.
Moving to below EBIT. Other income came at INR62 crores, higher on sequential basis due to higher foreign-exchange gains compared to previous quarter. Effective tax-rate for Q3 was 31.5%, higher due to conclusion of certain past year assessments. We expect this to stabilize in the 27% range going forward.
Net income touched a new milestone of INR304 crores at 14.8% of revenue and up 8% on sequential basis, driven primarily by operating margin improvement.
Moving to balance sheet. Let me highlight the key line items. DSO improved to 77 days at the end of Q3 compared to 78 days in Q2. The combined DSO including unbilled improved to 94 days compared to 96 days in Q2, in our target range of less than 95 days.
Let me now talk about cash flows. Our year-to-date cash flows — free-cash flows of INR826 crores at 96% of net income. Our cash and investments rose to INR2,652 crores by end of quarter three FY23. Moving to revenue metrics, on a sequential basis, dollar revenue was flat on constant currency basis and up 0.4% in reported terms, mainly led by Transportation and Industrial Products segments. The segmental margin performance was better in all the five segments on a sequential basis, led by Plant Engineering and Medical Devices.
Now, let me comment on operational metrics. The onsite-offshore mix has shifted towards offshore and is at 57%. Our aspiration is to improve this ratio to 60% level in the medium-term. In respect of client profile, which indicates the number of million dollar plus accounts, this has shown a sequential improvement in the $10 million, $5 million, $1 million plus category. The client profile numbers have seen an improvement over the past few quarters and this trend will continue in the coming quarters.
In respect of client contribution to revenue, all three categories, top five, top 10, and top 20 have shown a slight decline as compared to Q2. This is due to stronger growth in top 20 to 30 accounts. Headcount improved sequentially by 175 employees while attrition moved down to 23.3% and is showing signs of softening. We continue various employee engagement measures to manage attrition. Realized rupee for Q3 was around INR82.6 with the dollar, a depreciation of over 2% compared to Q2.
I would now like to hand it over to Amit to spend a few minutes on our recent SWC acquisition. Over to you, Amit.
Amit Chadha — Chief Executive Officer
Thanks, Rajeev. I hope we are clear, where there seems to be some disturbance in the line, so I just push on. The SWC acquisition is a significant move that is deliberative and thought about and thought through. Add capabilities, solutions, technology and most importantly, pre-qualifications that help us getting qualified for large deals in the communications segment.
Post our call on the 12th where we shared initial details and rationale of our acquisition, we received feedback and queries from you. We would like to acknowledge and thank you for the feedback. The queries were in three broad areas. One, how are we going to achieve the turnaround of shifting the business to services. Second, what are our integration plans? And third, what is the roadmap for revenue margins for this business and the company.
I shall address the first one and Rajeev will address the subsequent ones. Starting with how will we achieve the turnaround. We go down to basics. SWC business is broadly three parts, communications, smart cities and cybersecurity. On communications, which is a space in which LTTS has a solid presence with a customer base of six of top 10 telecom-infra OEMs and four of top 10 telecom operators in North America and Europe, we are going to leverage this customer base and our global sales engine and reach to sell these capabilities.
Let me divide the target market into two sub parts; Enterprise and Telecom, which includes the operators and Telecom-Infra OEMs. Within our Enterprise customer-base, there is a demand for soft, not private 5G and localized datacenters. The competition is also fragmented here and the spending is also increasing. SWC now fills a critical gap of soft notch and a greater and stronger 5G capabilities. I wrote to our top 100 clients about the acquisition after we announced it. And 55 plus clients have confirmed interest in our expanded service offering. In addition, we will leverage our partnerships with Qualcomm, NVIDIA, and Mavenir, as well as our other hyperscaler relationships to penetrate the market cluster.
Within Telecom, the second part, there are huge spends around network engineering where are we now can have both scale onsite-offshore model to offer cost arbitrage and back record of pre-call as it’s known in this — in that particular industry, which is extremely critical in discussions and large deal processes. We will also work with our Indian customers and offer a more service-led model around code and ran capability with the expertise that SWC and LTTS together possess.
In summary, for communications, the LTTS heritage portfolio of around 60 million combined with about 100 million from SWC will together be 160 million business unit, hence fore referred as Next-Gen communication. Both portfolios will grow going-forward. The Heritage LTTS portfolio will see accelerated growth as we offer SWC capabilities while SWC portfolio will keep growing at a slightly less pace as we change positioning to port services for which the current pipeline and client relationships gives us a lot of confidence.
The joint power of solutioning 5G use cases across a broad-spectrum and technical assets like the GH datacenter, 5G Lab as a Service gives us the confidence that the combined portfolio will be transformed to be largely service led.
Moving to sustainable spaces. First, SWC brings capabilities in efficient campuses and cities, utilities, mobility, public safety and environment while we have expertise in smart buildings. LTTS has tie-ups with Microsoft and other hyperscalers. We have consulted exports who have validated that there is a sizable spending due to COP-27 commitments from governments in U.S., Canada, and Europe. We also spoke to our top 100 clients who have expressed interest in our joint capability that they would like to leverage in their plants to improve their sustainability and digitization quotient. SWC’s fusion platform, coupled with our i-BEMS and UBIQWeise platforms along with their software foundry in Hyderabad, will help us accelerate solutions that can be commercialized for customers.
Additionally, their integrated command and control centers that have been built for cities is a real differentiator for us. We will take SWC solutions in the U.S. and Canada and select countries in Europe, Middle East and Asia, leveraging our existing footprint. We will have a direct sales team, as well as leverage our extensive partner network to expand these markets. We will have a combined portfolio of around INR40 million, which is INR30 million from SWC and INR10 million heritage LTTS. We expect an accelerated growth for the combined portfolio as we target our Enterprise customers and new markets that are ready for such solutions at scale and transform from a master systems integrator to master software solutions player in this space.
Finally on cybersecurity, we will leverage the Sach in Chennai from SWC along with the talent that both the companies have recruited in respective companies. We have multiple ongoing engagements in cybersecurity and SWC team and leadership is a shot in the arm at the right time. With SWC, we will be uniquely-positioned to offer full lifecycle content management, OT product, IIoT and Enterprise security.
We are looking at almost tripling our combined revenues of INR10 million currently over the next two years. So, the key messages that I want to leave you with around the ability to turn this around and grow is, number one, we have done our diligence, consulted experts, and engaged with our customer base on how our expanded capabilities can help them. Our global reach, existing strong relationships with Telecom operators, and Telecom Infra OEMs gives us confidence of growth.
Two, we will transform the SWC business from being a master systems integrator to a master software solutions player.
Third, both SWC and LTTS portfolios will grow year-after-year and together, we will grow the combined portfolio at a pace faster than company growth.
Four, another added synergy benefits that we will be able to leverage is a 360 degree partnership that will help us expand our relationship with Industrial Product customers or Discrete Manufacturing Customers as they are vendors who are sustainable with this business.
Finally, I would like to confirm that we have the leadership bandwidth to take up this integration and are excited to take this opportunity forward. I would now hand over to Rajeev to address the integration plan and our revenue margin roadmap. Rajeev. Thanks, Amit. Let me address how are we planning the integration. So the pre-integration exercise has been kicked off. The senior leadership team of both companies are planning for joint delivery and go to market. We will run an integration program for the next 180 days that is focused on six areas, topline, service line, technology roadmap, enabling functions. bottom-line, working capital, and cash flows. We are setting up an integration management office with a full-time integration leader reporting into me. The integration management office will be responsible for ensuring readiness on day one, preparing the roadmap for synergy realization and supporting various function leaders in planning and execution. Now, let me address the medium-term aspiration of revenue and margins. On revenue, with the acquisition of SWC, we reconfirm our aspiration of $1.5 billion run-rate by FY25. LTTS EBIT margin in Q3 stands at 18.7%. In Q1 of FY24, there could be an immediate impact of 180 basis to 200 basis points on EBIT margin resulting from consolidation of SWC. With the transformational levers that Amit has earlier discussed in respect to SWC acquisition, we aspire to get back to 18% EBIT margin by H1 of FY26. Thank you. And with that, I hand it over to the moderator for Q&A session.
Questions and Answers:
Operator
Thank you very much. [Operator Instructions]. The first question is from the line of Bhavik Mehta from JP Morgan. Please go ahead.
Bhavik Mehta — J.P. Morgan — Analyst
Thank you and Happy New Year to the management team. A couple of questions; firstly to Amit, if I look at what happened in 3Q, was it just a function of furloughs or whether also [Indecipherable] lets say a lot of the deals who had gone over the last eight to nine months. They didn’t ramp up as per your expectations and how should we look at 4Q? Then, what are you hearing from clients when it comes to conversion of those deals into revenues? So that’s one.
And secondly, to Rajeev, in 3Q performance and margins despite lagged growth, outside of SWC, can we expect 18.5% as a new base of margins going forward or do you think that 18% is the normal range to look at outside of SWC? Thank you.
Amit Chadha — Chief Executive Officer
Bhavik, a very Happy New Year. So, number-one. I am confirming that quarter three. See normally if you look at — if you look at the quarter, quarter three, it has a lesser number of working days, right. I mean that’s what if any, it would be exact, [Indecipherable] will be exact. So, about 3% lesser working days are there, right. So, we know that. So and that’s how we had said we will have a muted quarter. We got hit by additional furloughs as we call it because there were customers that came back and said that they would like to slow down the projects, etc. in Plant Engineering. But the good news is that they have since come back and they confirmed the time when they were slowing down that it will come back up January 2nd onwards. First is a holiday and it did ramp back up from Jan 2nd. The team started again.
So therefore, it was a furlough impact more than anything else. And that’s how I would leave it.
From a deal velocity standpoint, I will say similar PCV three-digit of total deal closures that we have had. We are happy to share that this $10 million plus deals that we have had. So three of those clearly in Industrial Products, which is a high margin business for us. One of them in Plant Engineering, which is again higher-margin. And the firth one in T&OH for us, so, which is Transportation. So we have had that plus there are multiple $5 million deals that we’ve signed in Medical, in Telecom. Hi-Tech, right, etc. So deal velocity is similar. And we talked about the empanelment as well and that also came through last quarter.
So, I do see that — in fact, I do want to say that other than Hi-Tech, which we have called out in my commentary, right, three sub segments over there, we are seeing project approvals, etc., and continuation of teams etc. In fact, we’ve done well on utilization last quarter. So what we’ve done is that we’ve again — we’ve given you a number, quantified the least possible increase in head count. So, we are fairly comfortable at this stage. Back to Rajeev, margins?
Rajeev Gupta — Chief Financial Officer
I wish you a very Happy New Year. In respect of margins, Bhavik I just would like to say a few things. One, if you look at across all the five segments, we are certainly showing improvement in terms of EBITDA. I think the operating model that we’ve been talking about in the past, including the economies of scale, have played out quite well for us. We remain fairly comfortable that we should be able to hold for LTTS, the margin improvement that has come about. I did indicate that with consolidation of SWC in quarter one FY24, we should see a dip of 180 basis to 200 basis points. But that’s something that would have been with any acquisition.
But to sum it all, the operating model, the economies of scale have played out well for us. That gives us the confidence in terms of maintaining the margin going-forward. Thank you, Mr. Mehta, may we request that you return to the question queue for follow-up questions. The next question is from the line of Kawaljeet Saluja from Kotak Securities. Please go ahead.
Kawaljeet Saluja — Kotak Securities — Analyst
Yes, hi everyone. Happy New Year. Just a couple of questions. The first is on demand. You know, Amit, you did mention that the demand impact is the furloughs, but when look at your guidance, the guidance cut is $5 million to $15 million in revenues whereas basis of furlough impact — the impact should not have been more than $2 million to $3 million. I was just trying to reconcile some basic numbers behind the guidance got. Is there more to it rather than just furloughs, which would have led to a change in your guidance. That’s the first question.
The second question is more on relative comparison. Now, that’s something which I hate relative comparison, but tempted to ask for the first time. When I look at a company based in Delhi — company, which has a business mix and portfolio similar to yours, it seemed to be doing better on a far larger scale on growth, whereas LTTS, despite strong win enhancement, has had continued moderation in growth rate. Is there any, I mean, shift in share or lack of share, which one needs to contend or worried about in your case? So, yeah, those are my couple of questions. I would appreciate if you can answer them. Thank you. Sure. Kawaljeet, Happy New Year. Thank you. So the change in guidance, we are saying we will deliver 15%, is basically based on our muted Q3. So that’s where that is and that’s where that stands. Now, in terms of comparison, it was a specific Plant Engineering issue that I believe has since resolved. But of course finally proof is in the pudding. So you will see that in end-of-quarter four when we come back and declare that to you. I would unpack, say that our market share and our size that we’ve got going on, I think we are expanding with our clients. In fact, if I look at the total number of clients itself, if look at it year-on-year, I would say we’ve gone from 318 clients to 343 and you’ve seen number of clients growing in the one million bracket, the five million bucket, the 10 million, the 20 million, as well as the 30 million. I also would add that, I have visibility to the current run-rate that we think we will end up in quarter four. And I can confirm to you that market share has expanded rather than it declining. There were a — we were not getting invited to certain Telecom specific RFPs in network engineering given the size of the deals and what we had as capabilities in spite of buying OT and growing organically. So, we went in for this. I do believe that we stand at a position now having crossed one billion revenue in constant currency and with Smart World, I do believe that we are head to head with a lot of people that are there and our aspirations to get to $1.5 billion as confirmed by Rajeev by FY25 remains.
Operator
Mr. Saluja, do you have more questions?
Kawaljeet Saluja — Kotak Securities — Analyst
I guess I have more questions, but you are restricting it two, so, I’ll come back later.
Operator
Thank you. We’ll take the next question from the line of Mukul Garg from Motilal Oswal Financial Services. Please go ahead.
Mukul Garg — Motilal Oswal Financial Services — Analyst
Thank you. Amit, I just wanted to follow up on the guidance part only. We have seen historically, you tend to be fairly conservative when you provide your revenue growth guidance and generally not — like to kind of cut it back as you had to do this quarter. There is obviously this is happening in the backdrop of the macro constraints, which you are seeing across the board. Are there any signs, which have now started becoming visible, whether the increased furloughs in Q3 also were a factor of the macro pressure and does this increase the risk to how you are kind of visualizing qualitatively FY24 spend from corporates.
Amit Chadha — Chief Executive Officer
So, Mukul, thank you for the question. You’ve always been very deliberative and I want to give you a longest answer, if you don’t mind here. So let’s go segment-wise. I look at Transportation, right, we have not seen any moderation in spend. In fact, you’ve seen the growth in that as well in spite of, shall I say, smaller quarter seasonally. And we do see new programs kicking-in, etc. That’s across Auto, Aero, T&OH.
Industrial Products is spending in specific areas of digital manufacturing, as well as digitization of their products and that continues to happen and we don’t see any slowdown. You’ve seen that in the growth, as well as our commentary for quarter four. Now, Medical that you have has always been traditionally the work we do, a very conservative sector. But given the [Technical Issues] pressures that they’re under and notices they are receiving from various agencies and their need to check that, etc., as well as digitization. We are seeing spend and you will start seeing that grow, right.
Fourth is Hi-Tech. I will say this that there are five sub-segments in Hi-Tech. There is ISV, there is CE, there is Semcon. There is M&D and then there is Telecom, right. We have not seen any cutback in Telecom, which is infra and OEMs and M&D. However in ISV, CE and Semcon, we’ve seen fair degree of caution that they are exercising last quarter also, this quarter also. But we believe that the growth in Telecom & M&D should be able to overcome that.
In Medical, actually, I forgot one thing. Healthcare is investing, right. Finally come to Plant. Like I said, again Plant was a one-off issue in the quarter since addressed. I would assure you that Plant will come back in quarter four and beyond. We are actively hiring, ramping up in Baroda, in Chennai, as well as in the U.S. and Europe for this particular sector. So that’s how I see this. Finally, other than ISV, CE, actually part of Semcon or maybe even ISV, CE, Semcon also, mostly you see a company-specific cut if you see in terms of spending, but not a sectorical. So I’m still cautiously optimistic about CY23. Thank you, Mr. Garg. May we request that you return to the question queue for follow-up questions. We’ll take the next question from the line of Vibhor Singhal from Nuvama Equities. Please go ahead.
Vibhor Singhal — Nuvama Equities — Analyst
Yeah, hi, good evening, Amit. Thanks for taking my question. So two questions from my side. Amit, you mentioned. I mean, we saw a very strong growth in the Transport division in this quarter and we also had deals with the Airbus as well. So just wanted to basically understand the traction that we are seeing in the aerospace division. We’ve seen the travel rebound significantly across the globe. And is it that kind of leading to more traction in this division. And do you think it can sustain going forward in the next — not just for us, I mean, as an industry, do you think there could be more a similar kind of deals, either for us or for the industry as a whole in this segment over the coming quarters given that most of the airlines, hospitality and other guys are basically now into the green again and they might spending again on both the fronts.
Secondly, my question was just a quick basically — quick clarification on the [Indecipherable] margin feel. As it was mentioned that the first-quarter of next year, we will see a 180 basis-point to 200 basis-point impact of margins, would there be any non-recurring impact of that as well or is it just the integration, which is going to reset the margin to that level and then gradually we are going to ramp it up as the growth comes in and as we basically rationalize the operations. So that’s the two questions from my side.
Amit Chadha — Chief Executive Officer
So, aerospace. Thank you for asking that question. One on Airbus. I do want to acknowledge one thing. Dr. Bandhav [Phonetic] as you’re aware is an aerospace engineer, very close to the — kind of close to the hear. So we did start trying to pursue this while he was CEO and I am happy that after years, we got a panel, first as a provider and then got selected. In fact, he was in our Board meeting today and he saw it, one thing you’ve delivered, very nicely done. It has been a dream. I do want to say for an aerospace engineer getting Airbus and panel for digital manufacturing etc., is a dream. So, I do think and love people to thank complement, etc.
Having said that, I’ll tell you aerospace, the spend that is coming back is, one, there are design cycle that is starting again for the Next-Gen aircraft, right. People are looking at smaller aircraft. They are looking at single-aisle. There are people that are talking about it. You can read the press on that. There is a hybrid aircraft that people are talking about, etc. So those design cycles, concept cycles are starting. These are generally about all seven to 10-year cycles, right. So that is starting up. So that’s a good news, number one. They are not just us, everybody. So you will see more spend coming out for structure, for Avionics, etc. Second, what’s happening is there is a technology conversion happening from mechanical to electric power electronics, etc., within the existing aircraft. That again is a smaller cycle that’s about maybe a five-year cycles. So that’s kicking off as well. So that’s number two.
Number three is the digital manufacturing part that they are bringing to the shop floor for a more integrated delivery full lifecycle system as they deliver aircrafts and people take deliveries. So that is what is happening. So you will see spends in Aero growing as you move forward, right. So that’s — in fact, one more thing was that you remember at one time, Japan, they were trying to do something and they stalled it because of COVID, they are again starting to have conversations and it should come back, etce. So lot of positivity knock on wood in that sector that I believe gives a lot of breather to a lot of people.
Rajeev Gupta — Chief Financial Officer
Let me take the question on the consolidation impact. So in the previous analyst call, I did indicate that the SWC margin is in the range of 8% to 10%. So quarter one truly is the impact of consolidating the two financials and of course the impact in terms of acquisition, etc. But from thereafter, it is going to be progressive improvement looking at both revenue synergies and cost synergies. So what we believe is quarter on quarter, you will see that progressive improvement coming through, which is where our aspiration is to come back in terms of 18% EBIT in H1 of FY26.
Operator
Thank you, Mr. Singhal, may we request that you return to the question queue for follow-up questions. The next question is from the line of Ravi Menon from Macquarie. Please go ahead.
Ravi Menon — Macquarie — Analyst
So two questions. First, within transportation, would you say that at least this year, automotive[Technical Issues],
Operator
Sorry to interrupt you, please use the handset mode. The audio is not clear.
Ravi Menon — Macquarie — Analyst
Can you hear me better now?
Operator
No, sir.
Ravi Menon — Macquarie — Analyst
Still no. I think [Technical Issues].
Operator
Yeah, this is better.
Ravi Menon — Macquarie — Analyst
Yeah, within transportation, would you say that automotive is the fastest-growing this year followed by maybe Off-Highway with aerospace a little further behind. You know, that sort of the way you sorted, it looks like Aerospace is going to pickup. So how should we think about growth with the Transportation overall for CY23.
Amit Chadha — Chief Executive Officer
Ravi, can you repeat that please.
Ravi Menon — Macquarie — Analyst
I was saying with transportation over this year, would you say that automotive was the fastest-growing and maybe followed by Off-Highway and Aerospace farther behind. And how should we think about CY23.
Amit Chadha — Chief Executive Officer
So, Ravi, thank you for that. Number one, Transportation did grow, right. And let’s wait for April to conclude, which grew the fastest and slowest. But I will say this to you that for CY23, see, there are four trends that we definitely see happening. One is a lot more electrification of automotive. So that will continue. A, companies, however, have to remain profitable to be able to spend, right. B, T&OH, Trucks and Off-Highway Is seeing added automation — what you call autonomous, as well as electrification and connected spend coming in. So that is definitely happening. See, Aerospace, we believe we starting a design cycle. B But, more than mechanical, we believe this will be more avionics and electrification, etc. led and digital manufacturing led. The reason I make that point is that the earlier design cycles used to be a lot more mechanical led this time, we are seeing a change in that. And we believe that we are well-positioned in that area, because we are more electrical embedded driven than mechanical driven in this area. So overall, do I see the growth. I absolutely see good growth coming in this area continuing in CY23.
Ravi Menon — Macquarie — Analyst
And a follow-up on the Telecom and Hi-Tech. I think you mentioned that in ISV, there was some pressure. So, how should we think about this — will ISV, shut down some of these older legacy products, should we say it a hit or do you think that more shift offshore will actually compensate for that or maybe even provide some growth.
Amit Chadha — Chief Executive Officer
For those that have followed us for years now and talk to us, ISV is one of our smaller sub-segments, right. So our exposure to ISV is fairly limited from a hit standpoint. Having said that, ISVs are reconsidering their spend. There was a lot of pie in the sky ideas and projects that we’re getting talked about. All that definitely is taking a back — shall I say backbench because they also want to start delivering profits. They want to look at, etc., etc. So that’s there.
But Telecom, Hi-Tech, I do want to say that 5G spends are up and will continue to do that. Second, ISVs are trying to stop some area spending. But, they are starting to spend in devices with their building that will work with 5G and then tomorrow 6G, Wi-Fi6 etc. So, I do believe that that part will continue to grow. I am hopeful Semcon will definitely come back because the amount of semiconductor required in Auto that required in datacenter is there. Yes, the number of people buying laptops has gone down because all of us have purchased the laptop that we wanted to going back to work now.
But having said that, I think that is temporary, because if you look at the kind of production capacity that companies are building ad design they are talking about, I do believe it will come back. Overall, I do think that the Hi-Tech recovery may start in second quarter calendar year and then go up from there. That’s how I broadly see it.
For us, specifically though, my commentaries hold that I do see our quarter four Telecom, Hi-Tech being better.
Operator
Thank you, Mr. Menon, may we request that you return to the question queue for follow-up questions. We’ll take the next question from the line of Sulabh Govila from Morgan Stanley. Please go ahead.
Sulabh Govila — Morgan Stanley — Analyst
Yeah, hi, thanks for the opportunity. So couple of questions from my side. One is on the Auto vertical particularly, which has been doing well for us, as well as industry as a whole. There seems to be. No major wins listed this quarter, but — so just wanted to understand, has there been a change incrementally in the way clients are awarding deals or is it just a timing issue in this quarter.
And the second is on the 30 million client bucket, there is a moderation in that number, Q-on-Q. So is that also related to the Plant Engineering furloughs or that’s related to some other client.
Amit Chadha — Chief Executive Officer
Hi, thank you so much. The number-one, Auto not having a single $10 million deal. Again, I’ve said this to some of you once that engineers. think like engineer. They don’t think like business people. They don’t know that $9 million is not counted and $10 million is. So, I would confirm to you that there are deals in automotive as well. In fact, there are incremental deals. I don’t know whether we made it, press or not, there was a couple of new ODCs inaugurated in this last quarter. May be, we have not asked us for names to be published so we didn’t. But there are couple of new ODCs that have been published. There were earlier wins that have ramped up in Auto as well. There are some deals — exciting deals in progress in Auto as well.
And I believe that some of them have either already closed or work through the current quarter. So, I would not be worried about not announcing a deal in Auto. I was focused more on making sure that we get because last quarter we got feedback on this. The nine is nine. It’s not 10. So, we have made sure that there are some deals between ten and actually nearly close to $20 million also. But we haven’t called them out as $20 million because we believe in the practice of being a little conservative on these things, But. I would not worry about automotive. I would — all I would say is that we continue to grow in this area, expand higher, etc. Now, it we will be doing walk-ins in Munich. So anybody who has friends can even recommend people and Bangalore and Mysore.
Now let me go on to the $30 million. I agree with you that that $30 million, there was one client in fact less in the sequential LTM, just see please. So this in fact not just $30 million, we were flat in $20 million as well. The $10 million-plus, it grew on sequentially and $5 million grew on sequentially. And of course, $1 million grew $8 million. So, I have access to quarter four data, which I expect we’ll do. And you will see some of this furloughs do have an impact on across, right with everybody, there was shorter quarter, etc. So what I can confirm to you is that this will correct itself as we move forward or focus on account mining stays and continues to be laser-sharp so that we can expand.
Sulabh Govila — Morgan Stanley — Analyst
Understood. Thank you.
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. Largely, I wanted to understand on the North American geography side. I mean, North America hasn’t grown for us this particular quarter. So any signs of demand moderation across this particular geography. May be your comments with respect to this geography, that will be helpful.
And my second question was on this Airbus notification that we made. I mean, earlier also we were like our strategic engineering partner and now we are there for advanced capabilities. So, I mean, I just wanted to understand, given the fact that our penetration and our capabilities are improving on the Aero side, so, I think, what kind of spends could be there for us specifically over the next year from the Aero side. I mean, could it be like a $5 million kind of spend per quarter. Could that be the potential opportunity. So wanted to understand that. And my third question was on the guidance that we have given. I mean, the 15% constant-currency guidance that we have given, Amit, implies 4.5% to 5% kind of a growth for balance part of the year. So, Amit, what does bring us that confidence that, you know, given a muted growth this quarter, we are still hopeful of having 4.5% to 5% growth for the balance part of the year. Yeah, those were the questions. Okay, so, Mihir, here are the answers. Number one, you can see that North America actually, there is a 0.7%, the growth it shows here, because of this revenue, the way we count currency. But India shows 6.4%. I can confirm to you that we don’t work in India, right. I mean, largely our India revenue that we report is actually I&R billing, but it is done for U.S. and European customers. So, I would like to confirm to you that Europe, North-America both of these and ROW have grown. The India growth that you see, you should actually count it towards the three geos because India for India, we do very little. Maybe, some million, $2 million per quarter. So that to that extent, right, $3 million. So, I would not, so please read it like that. In fact, next year we will review this and see if there is another way to present this because we get asked this question every quarter. So we will review this. Second, Airbus. So see — please understand, Airbus is a very, shall I say — I want to find the right word to you. They were very process-oriented methodical and parliament exercise, etc. So what happened last year when we announced it was we have been chosen by Airbus for Skywise platform. And they had empaneled as a vendor and given us the MSA etc. and signed globally, which was earlier only in India MSA. Now what they have done is, specifically in digital manufacturing and other area, they have qualified a spend. And said we will spend X amount of money. And we have been empaneled as one off — I again can’t give a number. We are not at liberty by Airbus to do that, but one-off say N number of suppliers and N it is not — N is a very small number, right. So the real spend that $XX amongst those very little vendors in those two particular areas. They have in fact given us a ramp-up plan, etc. The reason I’m again not quantifying it is because we are — the discussions we’ve had with Airbus on. But I’m fairly confident that it will ramp-up. We actually started recruiting, training, etc,, etc., as well as building team organization structures, etc. I will actually request my colleague, Abhishek, our COO to talk a little bit about the process he does to get ready for such ramp ups. Third, [Indecipherable] we see growth, yes. In Avionics and Digital Manufacturing. Lastly, guidance. 15% constant-currency amounts to more than 3% growth as far as we are concerned and a point was asked earlier we will be slowing down. So, see, we were at about the 4% growth rate in last year and we had done that whatever 19%, 20% that we grew last year — last year. This year, we’ve been on that 3% range, plus percent. Quarter three was muted, right. And next quarter, we see has not played out yet. That’s why we give guidance and that’s why. we don’t give a firm number. We still have to bill. We still have to invoice, We have to collect. So I can assure you that it will be greater than three. Will it be four. Will it be more is to be seen. Abhi, would you like to add on Aero specifically. What we’re doing in terms of ramping up.
Abhishek Sinha — Chief Operating Officer
I think you all would have heard about the center we opened in Toulouse about four months back. And no one invests in a center in France if they don’t have the confidence of growing in the region and it was for Airbus. And that’s the reason we opened that center. If you look at, I mean, of course, we can’t share numbers, but if you look at our growth of Airbus in the last couple of quarters, it has been actually one of the fastest-growing account for us. And this is all in the backdrop of a very structured academy program that we have training program that we have created in partnership with Airbus. All our training material, the baby go about it, there is an engine running on how we hire people, recruit and train them, internally move people into the account. Our relationship with Airbus is at a very advanced, very good strategically placed. We have even won some awards. Again, can’t share details,
But, I think we’re in a good space and ship that Amit spoke of that we won, the empanelment, I think that augurs well for us in the digital manufacturing space, especially. Thank you. Mr Mihir, may we request that to return to the question queue for follow-up questions. We’ll take the next question from the line of Akshay Ramnani from Axis Capital. Please go ahead.
Akshay Ramnani — Axis Capital — Analyst
Hi, thanks for giving me the opportunity. So, first question was on offshoring. So, in opening remarks, you mentioned that we see offshore revenue mix going up to 60%. So wanted to understand what are the drivers of this trend and which are the verticals where we expect this to play out.
Amit Chadha — Chief Executive Officer
So let me start by sharing the verticals and then I will request, Abhi, my colleague and CO to address. The drivers for offshoring to increase, right. So, from a vertical standpoint, see, if you look at it, we expect it to be and I want to say this, you will see this across verticals. So it’s not a vertical or a second vertical. You will see this across vertical. I would also say that digital engineering, digital products and services, as well as embedded, testing, parts of digital manufacturing will see this a lot more, right. So it’s across. It’s not like it’s one or either. Abhi, would you like to give the drivers for offshoring additionally.
Abhishek Sinha — Chief Operating Officer
Yeah, so I think, when we looked at our operational strategy, while everyone knows utilization pressures, pyramid, these are all usual levers that you look at for margin growth. But offshoring is probably one of the biggest levers that we have as a company decided to work on. Our near-term aspiration is to go to 60% of our revenue coming from offshore. And we know that that’s a big lever from a margins perspective. One of the things we have done well this quarter and hope to continue in the coming quarters is a very high degree of focus on fresher utilization. So the freshers that we take every quarter, anywhere between 500 and 600 pitches that we take every quarter, how do we make sure that they are ready to get into billable projects. That helps in margins but more importantly also helps in pulling more work offshore.
The last point I would like to mention is,we have very actively started engaging with our customers. In pushing the work to offshore, we have kind of created an offshorablity index of our various service offerings. And we engage with the– we have started engaging with the customers actively on why a certain piece of work must be done offshore and, of course, leveraging the whole hybrid working model that the COVID has brought us to see if this work can be done from outside office, can be done from anywhere. So, the whole engine between sales and delivery has starting to show results. We have been working on this for some time and I expect this to continue.
Akshay Ramnani — Axis Capital — Analyst
Thanks for the detailed answer on that. Second one was on headcount addition. So this has been soft for the last quarters now. So would it be fair to say that our utilization, which came back to about 75% odd would have now normalized to our comfort range of 70% to 80% and hereon, we would need to add head count going forward. IIs that the situation in line.
Amit Chadha — Chief Executive Officer
Yeah, so number one, we did — so number-one was, yes, Q2 and Q3 saw us improving utilization, rationalizing pyramid, etc. I do want to confirm that quarter-four onwards, I do believe that headcount addition sequentially will come back. We have reached levels that we’re comfortable with because you know we are a tech company. We do invest in labs. We invest in people working in labs, people creating solutions, practices, widgets, etc. So, we are comfortable with the utilization that we see now. And therefore, you will see headcount increasing now sequentially as we move forward quarterly. Thank you. Mr. Ramnani, may we request that you return to the question queue for follow-up questions. We’ll take the next question from the line of Kawaljeet Saluja from Kotak Securities. Please go ahead.
Kawaljeet Saluja — Kotak Securities — Analyst
Hi, thanks for the opportunity again. My questions for Rajeev. Rajeev, now just doing some backup calculation on margin guidance. And it seems that, you know, the way you have given guidance implies you don’t know contribution of EBIT from the acquisition, SWC acquisition. Now, is this largely because of the amortization charge or do you expect the core organic margins also to deteriorate from that 18.5% you reported.
Rajeev Gupta — Chief Financial Officer
Kawaljeet, so, let me clarify, this does not bake in any deterioration on the organic margin. I did mention it earlier that given we’ve done 18.7% EBITDA in Q3, with all the operational levers and improvement in offshore and many of those things that we’ve talked about earlier, we do see a fair bit of comfort of sustaining this margin organically as we spoke. As far as the SWC acquisition, there is part of amortization also baked into it plus there may be some investments that we would have to make. And as you would appreciate, the strategy that Amit talked about in terms of Next-Gen communication, sustainable spaces and cybersecurity, we will bring in experienced leaders to be based in respective geographies where we want to drive growth, right, and be able to position this to the existing customers and also shall I say newer customers.
So part of that will be investments. But like I’ve said earlier that progressively, we should be able to see both revenue synergies and cost synergies play out.
Kawaljeet Saluja — Kotak Securities — Analyst
So when do you — can you try to give what would be the EBIT margin, let’s say, you have given the EBITDA margin for SWC, 8% to 10%. What would the EBIT margin be and how much do you think it trends down to before it starts recovering once the synergies kick in?
Rajeev Gupta — Chief Financial Officer
So, Kawaljeet, I can answer to what is the historical like I’ve said, there has an EBITDA range of 8% to 10%. In terms of EBIT, very similar. I mean, there is not much of cost between EBITDA and EBIT that that business entails. So that is where it is. To your specific question, I may have said this in the previous call also, as we get more color, we will certainly provide that when we come back in quarter one of FY24.
Kawaljeet Saluja — Kotak Securities — Analyst
Thank you so much, Rajeev. I appreciate that. Thank you, Kawaljeet.
Operator
Thank you. Ladies and gentlemen, that was the last question. I would now like to hand the conference over to Mr. Pinku Pappan, for closing comments.
Pinku Pappan — Head, Investor Relations
Thank you everyone for being present on the call today and we hope we have answered most of your questions. We’ll be happy to connect with you during the course of the quarter to clarify any other questions that may domain. With that, I would like to say bye and wish you all a very good day. Thank you.
Operator
[Operator Closing Remarks]