Demand outlook robust; attrition to cool off in Q3 FY23: L&T Infotech COO

This should be the last quarter as an independent entity, merger to complete between November-December, said COO Deshpande

The demand outlook is robust across all customer segments and geographies, while attrition will come under control in Q3 FY23, said Nachiket Deshpande, whole-time director and Chief Operating Officer at Larsen & Toubro Infotech Limited.

The multinational IT services and consulting company announced its Q2 FY23 results on Saturday. The firm reported a 23.2 per cent rise in its net profit. The profit rose to Rs 679.8 crore in the quarter that ended on September 30, against Rs 551.7 crore a year ago. The company’s revenue from operations grew by 28.39 per cent to Rs 4,836.7 crore from Rs 3,767 crore in the same period last year.

“We see an all-round growth, almost all of our customer segments have seen growth both year-on-year (YoY) and on a sequential basis. We also see a good deal trajectory with four large deals we have announced this quarter. The next quarter is expected to be as good as this one, if not better. There will be the same momentum continuing. The demand outlook for Q3 remains robust across all our customer segments,” Deshpande said.

The constant currency revenue from the company’s key vertical, Banking and Financial Services (BFS), recorded a jump of 29.1 per cent. The company’s Europe and North America regions led the revenue growth, which grew 29.8 per cent and 21.1 per cent in constant currency, respectively.

The four deals during the quarter took the tally of large deals signed in FY23 to 13. However, the firm reported an uptick in attrition rate, taking it to 24.3 per cent. This came after the attrition slightly eased in the June quarter.

Deshpande said, “Attrition is marginally higher and that is seasonal. Typically in Q2 every year when new courses begin in colleges, attrition spikes up as we have people leaving for higher education. If we take out people going for higher education, our attrition has been stable. If you look at resignations that are in the system today, it gives a confidence that the worst is behind us. At least for Q3, the attrition will cool off.”

Operating margins contracted 1.1 per cent against the same period a year ago. The margins for the quarter came down to 16.1 per cent, the company said. Deshpande said increased employee costs diluted the margins in the quarter.

“Across the industry, the margins have dropped YoY in this quarter. Replacement costs for the resources have reflected on the margins due to higher attrition. We are starting to see that pressure easing a little bit with attrition coming under control. We have also proportionately done the fresher intake so that will take our average costs down. In select areas, we have been able to pass on the cost inflation to customers through rates while making newer deals or deal renewals," he added.

The firm reported a net addition of 2,200 employees in the quarter, taking its headcount to 50,981. Deshpande said LTI would continue this trend for the next quarter. “Going into Q3, we are not altering any of our hiring plans. We have targeted that at least 5,500 freshers will be onboarded during FY23. We are not changing that target as well.”

Merger with Mindtree in final stage

Larsen & Toubro acquired a controlling stake in Bengaluru-based Mindtree in 2019. In May this year, a merger of LTI with Mindtree was announced to create an entity, which will exceed $3.5 billion in combined revenue.

“We are in the final stage of approvals; most of them have already come in. Currently, we are expecting that Q2 will be the last quarter where we declare results independently. It should be a combined entity and combined results from the coming quarter onwards. Sometime in November or December would be the day one of our combined entity," said Deshpande.