L&T Technology Services Ltd
NSE:LTTS
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Ladies and gentlemen, good day, and welcome to the L&T Technology Services Limited Q1 FY '19 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference call to Mr. Pinku Pappan, Head, Investor Relations. Thank you, and over to you, sir.
Hello, everyone, and welcome to the First Quarter FY '19 Earnings Conference Call of LTTS. I am Pinku from the Investor Relations team. I hope you had a chance to go through our financial statement and earnings release. If not, you can download them from our website, www.lnttechservices.com.On today's call, you will hear from Keshab Panda, CEO; Bhupendra Bhate, COO; and P. Ramakrishnan, CFO. We will begin with Dr. Panda providing an overview of the results and a commentary on the business outlook. Bhate will provide an update on the margin performance and operational leverage. PR will walk you through the financial statements. We will then open the line for questions. Let me now turn the call over to Dr. Panda.
Thank you, Pinku, and thank you all for joining the call today, and good evening to all of you. First, let me walk you through the highlights of Q1. In terms of revenue, we had a strong Q1 with 5.6% quarter-on-quarter revenue growth in constant currency. Growth was all around, and we won 5 multimillion deals across 5 of our segments. We have scaled up 2 clients to $50-plus million in annual billing. Our top 30 clients continue to do well, and revenue stands at 56% of revenue. Profit. In terms of profitability, our EBITDA margin improved to 17% in quarter 1. We continue to drive operational margin improvement, and the initiatives we started are on track. I would make no [indiscernible] in Q1 double year-on-year because of a better EBITDA margin and higher other income. Let me now talk about our 5 industry segment verticals. Transportation consist of auto, truck and off-highway. We had a good growth of 4.3% quarter-on-quarter in transportation, which was raised by auto and truck. While the aerospace had a flattish growth, on the auto side, we are seeing demand finally in 3 areas; RF, electric vehicle and volume of products. In RF, we are developing autonomous middleware. Electric vehicles, we are working with the clients in areas like battery management, power electronics and body electronics. We are working with a newer technology like modernist design.Let me also talk about one of the deals we announced, a Smart Manufacturing deal for the U.S. auto OEMs. Here, we are developing a system that will continuously monitor failure within video monitoring and self-learning algorithm developed by us. This deal was won because of our strength in Smart Manufacturing. Equally important was the long-term relationship we [indiscernible] with this customer and good understanding of the processes and product line we have with new customer. Within truck and off-highway, growth in areas like benchmarking; digitization, which involves IoT-enabled equipment, that also we are seeing the growth. We were fully dedicated to oversee with the Japanese major in the off-highway segment in our Chennai office. It was the only design center outside of Japan for this customer and will work on design, the relation, benchmarking of product for a multi-market as well as the smart product design. In the aerospace segment, coming to aero, the last in-flight entertainment deals we won with the local aero major have started ramping up now, and we expect growth numbers from next quarter onwards, which was announced in -- earlier. We have announced this last quarter. We are seeing a good pipeline in avionics, manufacturing engineering services [indiscernible] air traffic management in the aerospace segment. Even though we disclosed our [indiscernible] Q1, we expect Q2, this segment is to do development results. Coming to medical. Medical grew 2% quarter-on-quarter. Growth was led by some of the -- some of our mid-sized accounts, which are showing a lot of promise. I would like to highlight our work in medical segment, where we are transforming health care using automated image processing algorithm to activate patient diagnostic. This is an innovative work. I think this has been as a result of our investment in earlier quarters. Pharma is a new area we have entered into. We are creating mobile apps for drug monitoring and patient support. Similarly, design and development of smart inhalers, which is also gaining traction in the market. The pipeline is encouraging. We are seeing opportunity in value engineering, product design and validation and a [indiscernible] support. In medical devices, IoT digital work is also increasing. This is the encouraging -- quite encouraging for us. Industrial product. In the industrial product, we grew sequentially, although not at the pace we would have liked. But we have grown sequentially. We are seeing some conservatism in extent, although the outlook is promising in segments like renewable energy. We expect growth to pick up after the next quarter. Our building side. On the building side, our IDM platform is giving us good visibility and is opening up indoors into new areas with some of our [indiscernible] clients. We expanded the scope of this platform, IoT designing platform, into the experience management for campus management. This is a really exciting service for us. IoT and sensor aviation is a priority for customer, and they are investing in terms to maintenance. In missionary, we are seeing good traction with all India equipment, manufacturers, and this segment is growing [indiscernible] industrial product. On the power side. Again, demand is on the IoT side. Customers are trying to improve serviceability of machines and so on. Solar energy capacity addition is growing fast, and we are working with the clients to increase efficiency of panels and on energy storage and power electronics, which will be a growth area for our industrial segment, which we believe that will do [indiscernible] 3 quarter so it will be [indiscernible] of growth. Process industry. Process industry has come back and the growth indeed for us with 14% quarter-on-quarter growth in Q1. This is, I think, the growth in [indiscernible] market differentiator for us. We are excited about that. We are seeing encouraging signs in the CapEx cycle globally. What works for us is that we are critical partners for so many customers in the CPG industry, oil and gas and specialty chemical. Within 3 subsegments, demand is strong in specialty chemical and oil and gas, which we are seeing a lot this quarter, and we'll see that in subsequent quarters as well. In Europe and India, a few quarters back, we did some fine-tuning to our operating model to capture bigger opportunities using a low-cost pattern ecosystem and forming a team of experts, which should help us. Europe, in the oil and gas space, we were earlier participating in downstream projects largely. We are now extensively entering to upstream and midstream area as well, which is, I think, a growth area for us moving forward. India, we are participating in new greenfield investment projects by Thai manufacturers and chemical companies, which is again a good growth area for us. And we have a strong [indiscernible] presence in engineering value chain in the segment. Digital engineering work, EPC services, plant operation, maintenance and smart plant design, this is making a difference. The ramp-up of the 2 large deals we won last year, the German chemical company Covestro and ExxonMobil, which is the newest company, have started now. We expect to scale up over the next 2 quarters these 2 segment -- these 2 projects. In terms of investment, we have started competency building to lead IPO -- IPD, or integrated project delivery, and we have been awarded our first project in quarter 1 this year. Overall, the pipeline in processing industry is looking very healthy, and we expect the growth momentum to continue.Telecom & Hi-tech. On the silicone techno side, we are participating in development and validation of 5G devices. This is again is going to be a differentiator for us long term. Building 5G IoT solutions is a priority for many customers. In mission division, communication is going to exponentially increase once the 5G is rolled out, which has already started doing in FY '18 onwards -- year '18 onwards. The connectivity platform deal that we won with a large chipset manufacturer has ramped up very well. As part of this deal, we had set up labs and offshore for design and validation. We won an extension to this deal, with the customer adding one more product line to the program. We have started an engagement with a large U.S.-based phone manufacturer on the connectivity side. With the phone manufacturers designing their own chipset, we see an opportunity to leverage our semiconductor skill in this particular project. Overall, in semiconductor, while the pipeline is good, we might see some opportunities in near-term revenue as some of the large projects enter into steady state. In media and entertainment segment, we have leveraged our engineering -- engineers in Israel and Bangalore to win a deal with a broadcasting and media solutions side. And here, we can set up lab and offshore to support the existing broadcasting platform of the client. We are in conversation with multiple clients to develop OTT applications for both smart TV and set-top boxes. This space will set a lot of traction as manufacturers look to standardize set-top boxes using Android platform. As you know, media entertainment is one of our newer verticals as a part of Telecom & Hi-tech. We are now being recognized by Juno the first time in their 2018 media entertainment report. We are placed in the list [indiscernible]. And the short time, I think we have been available to achieve that. Platform and solution update. We continue to build competency in emerging technology and investing in the creation of new lab, which we have been doing for last few quarters as well. We have grouped our platform and solution reports under [indiscernible], our Chief Technology Officer. The team under him is today focusing on new areas like autonomous vehicle, vehicle middleware, smart building and campuses using the [indiscernible] framework, architect [indiscernible] framework for industrial sector and product development and 5G networking space. This is a dedicated focus for -- in the Chief Technology Officer's organization. As an update, we recently launched [ I Know ], which is our AIE -- which is an AIE framework for industrial engineering, design analytics and process. It is our own framework. Also last month, we launched our NB-IoT protocol stack called nBon, which can be used for smart vehicles, fleet and waste management. Let me conclude by providing the outlook on the business going forward. The common trend across all segment is that business is prioritizing digital engineering spend and new technology to be more competitive by getting products and services faster to the market. Combination of indirect and artificial intelligence, which we are the leader, making a difference, which is helping us -- digital leading-edge technology up 30% -- 31% of our portfolio today, and this grew nearly 80% year-on-year. Based on the deal wins and pipeline that we see, FY '19 growth is likely to be more balanced across all the segment. Our report have been to boost growth in high-margin business, like industrial product and process industry. While process industry has done well, we are trying to take industrial products growth to a double-digit this year. Telecom & Hi-tech growth will moderate this year versus last year on the account of the high base achieved last year. Overall, the demand pipeline is healthy, and our positioning in the industrial segment are very strong.As I said, our biggest asset is our top customer, the 48, 49 customers, which are spending more than INR 1 billion plus. We believe lots more opportunity exist with these customers to mine this customer, and we continue to focus on this customer -- our top customers to grow our revenue. In quarter 4, we have given a guidance at up at least 16% of any growth in FY '19. Based on the backlog and pipeline we see, we believe we can do better than 16% year FY '19 and then compared to FY '18. Thank you, and I will now hand over to Bhupendra Bhate, our Chief Operating Officer.
Thank you, Dr. Panda. On the operational front, we have executed reasonably well. Over Q1, EBITDA margin is 17%, which is an improvement of 19 basis points quarter-on-quarter. Let me take you through the margin movement from quarter-to-quarter. The tailwind for the margin first. The better offshore revenue mix, which has increased to 50.6 percentage in Q1 versus 50 percentage in Q2. Secondly, the improvement in the business mix is our higher-margin business, like process industry grew faster in the Q1 quarter. Currency depreciation benefit, which gave us 120 basis point on the EBITDA margin. Some of these gains are offset by higher pressure intake in Q1, which led to our utilization dipping by almost 200 basis point quarter-on-quarter. Additionally, the wage hike cost has an impact of around 60 basis point on the EBITDA margin. Also in Q1, we did not have any significant revenue from the sale of IP, whereas in Q4, we had the platform sales. In terms of margin outlook, the offshore revenue mix can improve further, and we are working on that. Also, our pressure intake will increase in FY '19 versus last year. The build rate improvement is a continuous exercise, which is going on. In Q2, we will also have a wage hike, which will be covering the large part of our workshop. We hope to mitigate the impact of the same through operational improvement. Overall, we believe that we are on track with respect to our operational margin initiative. I hand over now to PR.
Thank you, Bhate, and good evening to all of you. I will summarize this call from the management portion by giving you overall highlights of the financial performance for the quarter. As you may have seen, our revenue numbers reported at INR 11.52 million crores for the quarter, shows a 9.2% growth quarter-on-quarter and a 40% plus Y-on-Y growth. In dollar terms, the revenue in constant currency in dollar terms has grown at 5.6% Q-on-Q and 33.2% Y-o-Y. We -- the Q4 EBITDA margin was 16.1%. And to date, we have closed Q1 at 17% EBITDA. As Bhate talked about, the improvement in EBITDA to the extent that exchange rate has helped us almost by 1% to 1.2% in the moment. Then coming to net income. Our profit PAT for the year is INR 109 crores for the quarter. First quarter is INR 198 crores, almost double that of the previous quarter of Q1 FY 2018. I'll explain to you into -- the improvement in the PAT, how it has happened. The first improvement in PAT is because an absolute improvement in EBITDA itself, the growth in EBITDA. And then if you see the other income schedule, which is a major increase. Last year first quarter, we had other income of roughly INR 26-odd crores. And this quarter in the current year, we have increased it to around INR 98 crores. And just to take the point, and this we had also communicated during our -- May that is the Annual FY '18 Earnings Call, there is a one transaction which is a nonrecurring other income, which has attributed to almost $12 million, which in rupee terms roughly translates to around INR 78 crore, has been recorded into other income. So of course, that is being factor why people see the numbers.Coming to the overall and the asset side. I would say that our balance sheet continues at the net worth of around INR 2,000 crore plus. And what is more important to convey is that we had a very healthy cash flow conversion in the current quarter. The operational free cash flow has been around INR 240 crores as compared to INR 362 crores of the full year FY '18. Having said that, this INR 240 crores also includes the amount which came across the $12 million other income, which has accrued during the current quarter. And so the free cash flow to net income has almost crossed 100%.Coming to the vertical. Transportation continues to be the major share of the vertical mix of stack. 31% of our quarterly revenues attributed to transportation, followed by Telecom & High-tech at 29%, then process -- then industrial products at 20%, process industry at 14% and the remaining accruing to medical. In terms of revenue by geography, the mix has largely remained unchanged, with 56% to 57% coming through North America; 19% in Europe; and India and rest of the world contributing to the balance, 24-odd percent. Bhate covered our on-site/offshore revenue mix. That we have seen a slight improvement in our revenue mix to offshore now growing by almost 0.6%. So it's at 49.4% to 50.6%. In terms of the fixed price and time and material contract, there is a temporary -- we have this quarter a higher proportion of revenues coming through some of the fixed-price contracts. And hence, it has stepped to around 40% plus. We expect that in the quarters to come we will come back to the 35%-65% range of what we have been. We have total [indiscernible] 2 clients. And as Dr. Panda talked about that this year, on a trailing 12-month basis, we have 2 clients who will probably cross $50 million run rate in the current year. Just to communicate the -- our overall spread of clients. We have top clients contributing to around 28% of our revenue, and the top 30 clients contribute to 66% of our revenue. The utilization has been a share lower when compared to Q4. That's largely because of intake in the lower rate in terms of trainings. So there will be some amount of utilization drop, which will be seen. So the overall utilization stands around 79% -- 78.6% for the quarter. Headcount we increased. Our own total headcount was, previous quarter as of March, was 12,300-plus. Now we are at 13,000-plus, so roughly around 700 people added into the company's employee headcount. Exchange rate. Our realized exchange rate is INR 68.21 as compared to INR 64.94 for the previous quarter. Coming to -- we will expect -- we do have a couple [indiscernible] for wage hike going into Q2 that will be impacting to some extent, and we believe that increased volume of business will be partially mitigated to offset the wage hike. And before I conclude, we are proposing an Analyst or an Investor Day in Mumbai on 30th of August 2018. The details will be integrated shortly on our website. So with this, I conclude -- I mean, from our side, we conclude the earnings call, and now it's over to you for questions and answers.
[Operator Instructions] We have the first question from the line of Pankaj Kapoor from JM Financial.
My 2 parts in the question. First, on the outlook for the year. You said you are looking at doing something better than 16%. Would you be able to quantify how much better because the current movement terms looks very strong? So if you can give some base to what kind of outlook that you are looking for the full year revenue growth.
Pankaj, the only thing I can say is that we'll see a momentum in this segment. It will continue to grow. At the same time, we'll continue. The only thing that I will -- I'm not -- I want to give you a number right now, but definitely better than 16% is what I'm talking about. Maybe next quarter we'll have more clarity, and we'll be able to give you. I don't want to give you a number. Beside I, myself, am asking. But one thing for sure, though. Every quarter, we have a strong pipeline. And every quarter, we'll continue to do well. So that one I can tell you that. But numbers are maybe, I think, next quarter we'll be able to quantify.
So anything, Dr. Panda, to you, which is a kind of -- which is of a concern, which is the reason why you are holding back on this? Is this something which, on the macro side, which is something of a concern?
No. We are not -- no. So there is no concern in the number. Only thing is I think I want to make sure that the number I give must definitely exceed that number. Is that going to be 20%? Is it going to be 22%? Or is it going to be 19% or 18%? That number, I'm still working on it right now. Maybe half year, when it comes, there is more clarity. If you see last year also, first quarter, I did not give the number. Second quarter, I did not give the number. Then we gave the number. So I think I want to make sure I can tell you this. There is no something to worry about it. I can tell you that much. Not to worry about just something going to down or something. That's something we don't see now. Only the exact number of the positive growth which I have to give, I need to do some work on this. That's the reason we are holding. There's no concern at all.
Sure, sir, I understand. And just on the macro side, do you see any risk from the tariff, like the confrontation which is going on? I understand it's a little bit too early. But any client conversation you had or you see any client holding on to their new product launches or having a review of that because of these tariff confrontations which are happening globally?
I think, Pankaj, this is something just 2 days ago, the Financial Minister Meeting was there and talked about tariff and this federal growth through America, Europe and the same thing in China. But I think a company like us, I would really -- they wanted to roll out a product anywhere -- develop it anywhere, I think we should be able to deliver from that geography. We are not specific to one particular geography, which you worry about. So far, there is no indication of a customer coming back to us and saying that because of this tariff, I think we are not going to -- we are going to cancel this or we are not going to roll out a product to this particular geography. That has not happened. And I would think it's very unlikely they go to the level of, I think, impacting the business -- our business at this time.
Sure, sure. And PR, on the margin side, do you have any quantification of the wage hike that we are proposing and what kind of impact it can have in the second quarter numbers?
Pankaj, it will be in the range of around 1.5% that will be the indication on the margin. But as I indicated earlier, we are working hard enough to ensure that the volume growth in the Q2 will partially offset this wage hike.
Sure. And the pressure intake that you mentioned we had in the first quarter, do you think some more pressure journeys are likely to come over the next 2, 3 quarters?
Yes. So as I mentioned, our intake of the pressures compared to last year, we have significantly improved and increased. With that, obviously, our pyramid will improve, and some part of the impact of the compensation cost will also get mitigated by the pressures.
There are 2 things we are very concerned. Number one is the adding pressure in India. We are also adding pressures in the U.S., where some of the experienced engineers can be changed, hiring -- recruiting the local undergrad and grad school. So that initiative we are taking very aggressively the first time, and that is giving us dividend. And we believe that it's going to be -- a lot of engineers who are there for long term can be replaced by the engineers if they can be in some areas, where these guys can be released for working on large deals, working on new customers and so on. That's the lever, and we are very aggressively looking at it. And one thing to remember, though. This quarter 1, we also had a visa cost part, which we have -- in spite of visa cost, we absorbed the growth in EBITDA, that is again 0.6% almost there. So looking at 0.6% this year, this quarter, we have been able to do that and saw the EBITDA growth. And that 1.5% over quarter 2, what we are going to do, we have the levers to work towards that, and that's our goal today.
The next question is from the line of Apurva Prasad from HDFC Securities.
So my first question is pertaining to Telecom & High-tech vertical. If you can talk about the [indiscernible] in the pipeline that you said and the steady state of some of the projects that we're getting into. Is it fair to assume a flattish sort of growth sequentially from the current rate for the Telecom & Hi-tech vertical?
Not really. The only thing is last year, if you see, we got through a large deal to possibly the growth what you saw don't have to stabilize. But Telecom & Hi-tech, there are 3 components: consumer electronics, semiconductor and telecom. So we are very aggressive on the semiconductor side. And you'll see now, any of this today, we have made huge investment and getting competency in terms of usage of the semiconductor design for the IoT application. And earlier, we're working on a hardware design and a software design on the -- in limited sense. Now we are capable of having end-to-end operations here, increase on what we did, integrating with our own -- the team in LTTS. So I think when we say Telecom & Hi-tech, the possibility of growth, the only thing -- what I'm trying to communicate is the possibility there is growth to what we saw last year, we have largely the same possibility that has happened. But it is not going to be flat. It's going to grow in maybe a different number. That's all we say. But we are continually doing well. Semiconductor continue to do well, and telecom could remain okay. And media and entertainment, the new area which I talked about, that area, the 2 customers -- the new customer I talked about is writing -- winning a new customer in media and entertainment. And this is an area we are building more and more and investing on this. This is also going to be -- this is a growth engine for us for this particular segment.
Great. Dr. Panda, that's helpful. Just to clarify on that. So you expect flattish to at least growth in the quarterly rate?
Can you repeat the question again?
So I meant in the Telecom & Hi-tech vertical, are you trying to say that we can still expect growth on a sequential basis from the current quarterly rate?
We will continue to grow sequentially. There is no doubt about that. That is absolutely clear. There's no doubt about that.
That's very helpful. And finally, on the margins. With the headwinds -- wage headwinds, what sort of tailwinds do we have to sort of leverage? If you could talk about that, please.
There is no headwind, though. PR, I want you to -- yes.
Okay. When I talked about the wage hike increase, as Dr. Panda collaborated to the earlier -- to answering the earlier question that in Q1, the margin of 17% has been reported, taking into account almost 60 basis points on account of that onetime impact of the visa charge, which should not clock in Q2. So to that extent, that is one more, and you can take on a like-to-like basis. Secondly is, as Bhate talked about, we believe that the percentage revenue share from our field work will be slightly more as we have started demonstrating more and more offshore revenue coming in. And last, but not the least, we expect that the -- that type of revenue should accrue in Q2 from the other verticals like plant, process industry or industrial production, will be more. So overall, offset the -- or mitigate the impact of the wage hike. So revenue mix across -- balanced across verticals, which we have already demonstrated in the current quarter, and some part of the revenue is coming more from the process industry. So balanced revenue mix, plus absence of the onetime visa cost, which you talked about, and taking intake -- pressure intake and conversion of more offshore revenue opportunities are the margin levers, which we expect to accrue during Q2 and the subsequent quarters.
Next question is from the line of Abhishek S. from Equirus Securities.
Just wanted to understand that one of your top customers is -- has seen a change in the management. Now does that worry you in terms of this think patterns getting [indiscernible] for FY '19?
No, I think -- we don't comment on specialty customers. I can tell you that, I think when we do business, we don't do it one person, right? I don't think that's the issue at all. A company up to triple billion dollars, we work in every business unit and every geography of the customer. I don't think that matters enough.
Okay. That's helpful. And second, PR, if you can just update us about what's your thought on FY '19 guidance in terms of margin versus '18, that would be helpful.
Abhishek, I think last quarter also, when we talked about this question came up, and we have clearly indicated that we expect that we'd give a guidance of a 16% minimum top line growth. And we have talked about the levers, which will facilitate the margin expansion. So some part of that, we have seen it in Q1. I just now talked about the cost structure, we recommend what mitigants we have. So at this stage, we believe that we have the levers to improve the margins or to sustain the margins at this current exchange rate.
The next question is from the line of Ravi Menon from Elara Securities.
So I just want some color on year-on-year top 6 to 10 customers. If I look at it, looking at -- taking out the LTM revenues from last 4 quarters and looking at this quarter's revenue numbers, it seems like there is a slight decline to your Q. So if you first [indiscernible] projects coming to an end, and then we're just in wait and hold. Or should we worry about this a little bit more?
Yes, I don't think -- I think this is something, when you say this is not IT and engineering, what happens is there are some customer in that particular way. I can only tell you that every customer, every region has done reasonably well. And this particular customer range now, it could be -- it's just a temporary thing and is going to again come back there. So I don't think you need to worry about that.
Great, sir. And just a clarification on the last deal that you won in India. Should we expect that this is in line with company average margins?
Yes, we don't think business with our top line growth. It is not profitable in the same level as company, what we expect. We do not want to take [indiscernible] of margin. So it is in the same level. But one thing to remember, though, the company -- what we do for India, also most of the time are for global customers. So we have a build rate only there. Many of the work, even though India we do, we still do in dollar billing. So that should be clear for the global customers. And Indian customers, rupee billing, we do very minimum. It's not that something to worry about in terms of margin.
Great, sir. I just wanted to check that this is not really, I'd say, investment currency over in a particular area, something of that sort. For strategic reasons, you might have taken on a deal for [indiscernible]
Oh, not really. I think this is not something which we have done. This is our regular work. What we have do we have a degree of projects. There is more investment required from our side for this particular customer.
Any subverticals where you think yet you do need to build credentials a little bit more of? Where you see some sort of investments necessary, whether it be platforms or it be in some sort of strategic deals?
Yes, I think some of the exciting thing we have been able to bring this time of Smart Manufacturing for the auto OEM. That is again -- this is something where we grow a customer, which is globally present. And we are doing now in the U.S. with our one factory. It can roll out to qualified factories around the globe. So this is again a growth area, and [indiscernible] areas what we did; 5G investment what we did; NB-IoT, Narrow Band IoT, what we did. So these areas are very, very important component of growth in Smart Manufacturing work, what we do. So I think overall point of view, it will see the different segment, differential vertical focus. And when you say, when we look at transportation, in addition to auto segment, where our investment in autonomous vehicle, electric vehicle are not what we do, off-highway is doing very well. The growth in off-highway, taking the learnings from auto to off-highway, that is doing well. So I would think, aerospace, which it did not do well last quarter, even sluggish, and again showing growth last quarter, next quarter, quarter 2, they will do well. So it's a segmental -- but having most of the segment, when you say [indiscernible], will continue to do well. We own some few customers. We're going to do well. Semiconductor, the investment we did in semiconductor, we believe, future is all on the chips, right, whether we do it in medical devices or we took -- take it in automotive or in the aerospace. So I think every -- when you look at technology company, they are building their own chips now. If they're my customer, can I work with them? Do I have the high level of [indiscernible] design? Can I take them from design to software to hardware to products? And can I be a part of that journey along with them? Do I understand application [indiscernible]? Will I get application [indiscernible] because it keeps all that into a like [indiscernible]? Also, these are the areas where we are making investment, we believe, that of the future. And on the energy, battery management, battery storage, that area is again a growth area for us. So that's something which we have investing weekly in our solutions, which is going to grow. One platform area, [indiscernible], which is a platform we started with us back on [indiscernible] so we expanded to smart campus management. That's a growth area. There are multiple areas. I think we got an award in Australia. We got a contract in Australia. That is under progress. The smart campus, we're doing in Israel. And last quarter, we got another for a campus in Bangalore in India; and for a customer, which is U.S.-based headquarter customer. And we still -- there are 2 big orders, which we were discussing about rolling of that platform for 2 different countries. So we are -- that is something which is a big differentiator for us. And 5G, which as you know, this is something we started now. And 5G is going to be -- make a big difference in IoT world or what we intend to do for the communication world. That is again, a big areas, which we believe one of our investment we've created in the engineering world, that is going to make a difference. There are multiple areas. And on the medical device -- medical side, for example, we -- there are some innovative work we do for a Japanese customer. Revenue number could be small now. But I think if we are successful in doing those innovative work, I believe that is going to be a big differentiator in terms of revenue moving forward.
Great, sir. And one last question on the attrition. That seems to be up about 200, 210 basis points compared to last year. So what do you think -- is it any specific area or any specific country or something like that or just...
Actually, if we look at it, attrition happens in this particular quarter for any company locally because this is the time where we -- some of the employees go for higher studies. This is a time where they do changes in school that -- because I think attrition, even the numbers, what you see is overall LTTS number. But attrition in different location: Mysuru is less; Airoli, less; Bangalore is high; and Mumbai is there in the medium level. So I think this is the trend we see every quarter. We don't believe this will continue in next quarter. Or is there any reason for higher attrition? No, that is not the case. But you see, this is the case for every company in this particular quarter, Q1. It only really comes down in quarter 2. And what we hope, we are going to do the same thing as well. And we analyze the data, attrition data that we do. Our HR makes -- looks at around the business leaders, looks at it every competency, who are the people we want them to stay at the living. So those -- that's where we create, and we analyze internally among ourselves. That's something, I believe, we're under control.
[Operator Instructions] The next question is from the line of Dipesh Mehta from SBICAP Securities.
Just 2 questions. First is, can you help us understand about higher depreciation environment, which we are seeing this quarter. Last quarter, there were some one-offs. But how would that look? Whether it is some one-off or not, this is the normal run rate? And second question is, can you help us understand about IP revenue, how we expect it to grow? Because that is one of the area where we're very positive. So if you can help us -- what is the progress we made on IP revenue stream?
Okay, Dipesh, this is PR. If you see the numbers, the depreciation at overall level, first quarter previous year was around INR 15 crores. And then we had Q4 at around INR 45 crores. And then current year, we had INR 26 crores also. As I explained in the earnings call over when we concluded the year, some part of the increase in depreciation rate was because of the change in the accounting policy, which we did with respect to -- wherever we acquire intangible assets as part of our overall mergers and acquisitions portfolio, we did a change in the policy by which the impact -- or by which the intangible assets, which are taken and which we used to amortize over a period of 7 years, we reduced it to 4 years. And in the current year, with respect to purchase of software we generally -- we have been amortizing over a period of 6 years, we have changed the policy in line with the requirements to 5 years. So this has resulted into increased charge-off for roughly around 36-odd crores because it takes into account a onetime correction for the existing one. Going forward, we expect that the depreciation should be in the range at -- and also, there has been a lot of increase in CapEx during Q4 of last year so that some impact of that will flow. So our expectation is that at steady state, we will be probably in the range between 22, 25 every quarter in the current year. Okay, so I will request Dr. Panda to answer the question on [indiscernible].
I think we have created good traction now. Last year, I think we did close to 0.5 billion or so. In one to one, we -- see, there are 2 things happens, IP then we have service revenue along with IP. If you don't have that IP, we don't get service component. Last year, even though whatever source, small IP we sold, and that has given a service component of 3.5 million also. And this year, in quarter 1, we did reasonably well. Some component, we started selling it. We believe, actually, so we'll do better than what we did last year on IP sales. And during the equivalent of 5x of IP sales on the services side. So IP sales seeing good traction now. Some of the platform is doing well in the IoT. 5G stack, we sold. We sold a stack in [indiscernible] is doing very well. So we believe a good [ 0.19 ] on the IP sales.
Just to -- because earlier, I think, we sometime indicated it would be the one of the growth area, where we're looking for reaching in couple of years, double-digit kind of run rate. So we are broadly expecting that to play out in next couple of years.
Okay. Double-digit growth will not come from IP. Double-digit growth is a different thing. Growth in revenue...
[indiscernible] absolute number.
Double-digit absolute number in a year, that's possible to do that. I think this year will be mid to single digit only, will not be double digit. If I do better than what I did FY '18, that is possible. That is for sure. But is that going double digit this year? It may not be. So that may not happen. It might take some more time. Because what happens in the platform, whatever you do, we sell it. And this platform, we have 2 functionality, 3 more to be added. It takes time to mature those platform. We are happy that we have been able to sell the platform and will continue to, as long as quarter-on-quarter, we'll continue to add those revenue growth for quarter-on-quarter. And I think we should be able to do that.
The next question is from the line of Shyamal Dhruve from PhillipCapital.
It is Shyamal, yes. So just a small clarification. In opening comments, Dr. Panda had mentioned about the softness in aerospace. So is it what -- how he described it?
Yes, it's correct in this quarter, I said. Only this Q1 softness, I said. And we said quarter 2 will be better than quarter 1 in aerospace. Because the new deal we won last year -- last quarter, is ramping up now it's going to give you -- give us revenue in subsequent quarters. That's what I said.
And on the top 5, 10 and 20 clients, we had some reclassification in this quarter. So it is more of a changing client in this quarter? Or it is something other than that? Because in the...
This is Pinku. Yes, we have restated that the client bucket, as soon as the first [indiscernible] revenue contribution to LTM basis. This is just keeping in line with industry standard.
Okay. And just last from my side. In presentation, we had mentioned that we won 5 large multimillion-dollar deals. So can we get the idea about how large? I'm not asking for the exact numbers, but it is like of a ExxonMobil type of deals? Or it is less compared to that? Any quantitative idea?
Yes, I think these deals have -- there are some deals where we're in the Phase I and get to Phase II and so on. The range of these deals from $5 million to $200 million.
The next question is from the line of Priyankar Sarkar from Motilal Oswal Asset Management.
Sir, I just wanted a broad split between the mechanical and the embedded part of it -- what would be at the overall level? That's question one. And second is, what kind of -- what are the qualification of these fresher that you're hiring? I mean, are they mechanical engineers? Or are they software engineers? I mean, how do you get that talent at a fresher level?
Changing our mechanical, I think it's reducing in embedded, and software is increasing now. We are 60% and 40%: 40% mechanical, 60% in embedded and software. Okay. [indiscernible] Now the engineers, we hire in multiple areas. When you talk about working on IoT algorithm, there's algorithm development and engineering, we need good engineers with good software skills. So those engineers working like recently, we hire engineers from IoT. There are few of them. And they've been working on futuristic technology under Chief Technology Officer, CTO [indiscernible] full-time on some of the platform development, new technology development. They'll be working full time. We recently did an event called TECHgium, where 62 people, engineers, who are driving winners around all across the world -- India they came from different engineering schools, from IIT to [indiscernible] to other engineering colleges. We made offer to 62 of them. And these 62 of them, working on new technology only. So I think there is the same type of hiring process. We hire engineers, mechanical, electrical, civil, production engineering. We hire electronics and electrical, every engineering, instrument of engineering that we talk about. But depending on -- the percentage of mechanical is going down, the percentage of electronic is going up. For example, if you see off-highway, earlier, our main difference in off-highway, because our earlier commercial joint venture, we [indiscernible]. We work with John Deere and so on. So now in addition to hydraulics now, we need engineers more on the electronics side. They are developing more on the IoT front. They are getting into more [indiscernible]. So those areas, in addition to mechanical, we have more electronic engineer working in those areas. So I think our goal is going to be more and more on the embedded specific, which we are strong. Already, we have been doing it. We continue to build on that. And when you are looking at the software, it doesn't matter what engineering degree he's got. Concept of engineering with strong programming knowledge he's got in engineering side as well as programming, we take those engineers as well.
The next question is from the line of [ KU Shah ] from [ MK Global ].
Can you guide me about the CapEx number for FY '19?
It would be in the range of almost INR 22 crores, INR 25 crores per quarter from Q2 onwards.
[indiscernible] And you said there will be growth that you would see in aerospace segment of your business. So what kind of growth? Any ballpark quantum you can give us or any percentage?
I did come forward, last quarter, I said 16% minimum or 16% growth we are going to. This quarter, I extended that beyond, I said we will do better than 16%, I said. Only thing, number, we will not say. You'll recognize one thing, we have 5 segment -- winner segment. Every segment has done well this quarter. We do not see anything slowing down. They're going to grow in subsequent quarters as well. The indicating number, what really is going to be that number, hopefully, next quarter, we'll be able to indicate. But I think there's nothing to worry about it. We'll do around 16% growth is what I said, and that's where we leave it there at this time.
The next question is from the line of [indiscernible] from [ Shupgah Ventures ].
Sir, I have 3 questions. One, just a clarification in the large deal that we won this quarter. What would be the duration of the deal?
With [ fine ] economy then, some deals to be delivered this year itself, next 12 months; some deal to be delivered in next 24 months. So between 12 to 24 months is to be delivered.
Okay. And just in terms of -- you alluded to the fact that the band for IoT -- for the development on IoT would be 5G. And your customers, since you are present both on the handset side as well of the operator's side, what's the status in terms of the discussion with your customers here in terms of the rollout as well as the -- around kind of new technologies? Where do you think are we positioned currently in terms of a stage in terms of prior develop or in terms of the CapEx that we might be doing for the rollout? Could you give us some clarity on that?
Listen, I think we have to come out of this. 5G is not just for the telephone or for the desktop. It has gone much beyond that. When you talk about IoT, application of 5G in areas like energy management, areas like factory of future, process control automation, areas like media entertainment, the 5G application has gone beyond the telecom -- what we talked about telecom, traditional telecom and desktop area. It is much beyond that. We're talking about communicating systems, device to device, and the [indiscernible] which we communicate. So I think it is not just the telecom and limited to this. It's much beyond that. That's what we are talking about.
So in terms of this particular domain, given that it's now kind of an umbrella for the next generation of technology to develop, how -- where do you think is it in terms of when the ordering that could start coming in for it or in terms of product development for it across the various domain that you mentioned? When do you think that you could start getting a picture in terms of orders and in terms of new [indiscernible] coming in?
We already got the order, so one order. See, what happens is, this is not [indiscernible], right? This is [indiscernible] issue. 5G [indiscernible] has to happen. And you can imagine, 4G LTE to 5G differences. One, the average of per second, to go into 10 to 20 gigabits per second. It's a big transformation we are talking about, and imagine where you can do factory application, we do [indiscernible] application, we do in every application. We're connecting device to device, connecting device. So I think we have to have the right stack, understanding that how well we connected, what is that we need to create in terms of testing or in terms of managing -- creating our own platform. I think that's a difference. We already did that. There are already some customer where we sold it. It is not a big one. We did this for customer and [indiscernible]. Look at this. NB-IoT, this is a part of the same thing. NB-IoT and 5G transformation into IoT platform, this is going to be much more important, and we are building towards that. We are not looking at the Telecom & Hi-tech segment. We're looking more on that. For example, we are doing 5G simulator and automation test today for verification of 5G service functionality. This is something we have created. This is something we sold to a customer now, and this customer, we are doing POC. We deliver to them their readiness on 5G. There are multiple things going on. Once your platform is there, it is going to the next level and the next level. So this is a [indiscernible] issue. One has to know this, one has to create only IoT in different [indiscernible] NB-IoT. Now NB-IoT, using in a factory scenario, connecting from devices, device using NB-IoT, this is something we have demonstrated.
Right, right, right. And then lastly from my end, when is the time line by when the promoters have to bring down this 3% to [indiscernible]?
I would think September 2019. It is up to promoters to do that. That's something we're going to talk to. Have the CFO here. He'll give you more in terms about when they do it. But real point of view, September 2019, I think that's the date before this will do that.
Next question is from Madhu Babu from Prabhudas Lilladher.
So what is the time for the pressures to go into [indiscernible] for that?
6 months. It varies from 3 months to 6 months depending on the type of project they do. When we hire freshers, we give them training on our processes. We talk to them about engineering concept, what they know, and we tested them to all the factories we have in Larsen & Toubro, our parent company. We show them our last [indiscernible], give them [indiscernible] about this. We also tell them about our customer base, type of work we do. And depending on their interest level and what they are good at, there, I can tell you there are some engineers who come [indiscernible] 4 weeks itself. Immediately after training, they're at the level. There are engineers, depending on the type of work they do, they take anywhere between 3 months to 6 months. There are cases where it takes 6 months as well depending on type of training they have to go through. So anywhere, I would say, from 1 month to 6 months will be a period where they go through all this training.
Sir, and if rupee remains like at INR 68, or the capitals might pass on the benefit to the parent. So would that put any pricing pressure?
Are you referring to the exchange rate?
Yes, yes. If the rupee remains like that INR 68, I mean, the -- I mean, a lot of the engineering companies have their capital in India. So maybe capital might pass on the benefits to the clients so -- I mean, to the parent. So similarly, would that, like, put any pricing pressure on us?
Until now, Madhu, there has not been a single instance that we have asked -- we have heard from any client asking us to reduce rates. As Bhate did -- [indiscernible] in his speech, that we are also pursuing build rate increases in some of our accounts as part of our overall improving operating margin. So despite the dollar-rupee going to just -- we have not had any such cases so far.
Unlike in IT, where you are you doing any investment [indiscernible] where it goes through, that I think there is a question about customers coming back and saying -- asking for [indiscernible]. In this case, if you're accreting value, your innovation and [indiscernible] with them what we do, the last year, for example, we have been able to get a rate increase. And in some customer, we continue to pursue them. If we're accreting value, then we say, well, the billing rate has to increase. It has not become an issue so far, and I don't think that's going to be a challenge this year, at least.
The next question is from [ Akshay Goswami ] from SBICAP Securities.
Can you give the calculation of the margin difference in the [indiscernible]?
Could you make it louder, please?
Can you give me the calculation of 90 bps EBITDA margin improvement from Q4 to Q1?
In terms of margin, I already mentioned this, but I will again say that we had a better offshore revenue mix. So from 15.6% we had in Q1 versus 50% that we had earlier. Then there has been no change in the business mix. For example, our process industry grew faster, and that also added to the margin around 120 basis point. We had benefit due to the currency depreciation. But on the other side, some of the gain were also offsetted. For instance, our utilization dropped by 200 basis points, primarily because of the pressure because of the fresh engineers. Secondly, we had EBITDA cost impact impacting around 60 basis points. And also from a sale of IP revenue, Q1, we didn't have any significant revenue as compared to Q4. So this is where somewhere we gain, somewhere we also had the impact from a margin perspective.
That was the last question in queue. I would now like to hand the conference over to Mr. Pinku Pappan for closing remarks.
Thank you all for joining us on this call today. If you have any further questions, please feel free to e-mail me. Again, to remind you, we look forward to seeing you all on August 30 on our second investor day. Goodbye, and wish you a great evening.
Thank you.
Thank you.
Thank you.
Thank you very much. On behalf of L&T Technology Services Limited, that concludes this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.