L&T Technology Services Ltd

NSE:LTTS

Earnings Call Transcript 2020-Q3

[Operator]

Ladies and gentlemen, good day, and welcome to the L&T Technology Services Q3 FY '20 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Pinku Pappan, Head, Investor Relations. Thank you, and over to you, sir.

[Pinku Pappan, Head of Investor Relations]

Thank you. Hello, everyone, and welcome to the third quarter FY '20 earnings conference call of LTTS. I am Pinku from the Investor Relations team. I hope you have had a chance to go through our investor release and financial statements. If not, you can download them from our website, www.ltts.com. This call is of 60 minutes. We will try to wrap the management remarks in 20 minutes and then open up for Q&A. The audio of this call will be available for replay on our website right after the call ends.From management team, we have Keshab Panda, CEO; Amit Chadha, President, Sales & Business Development; Abhishek Sinha, COO; and P. Ramakrishnan, CFO.We will begin with Dr. Panda providing an overview of the company performance and a commentary on the business outlook. Amit will provide an update on the large deal wins and the deal pipeline. And finally, PR will walk you through the financial statements.Let me now turn the call over to Dr. Panda.

[Keshab Panda, CEO, MD & Whole Time Director]

Thank you, Pinku, and thank you all for joining us on the call today. Let me start by wishing you all of you a very happy and prosperous 2020. And let me also thank you for your continued support and encouragement during the last so many quarters. I will start with the highlights of Q3. The overall performance was consistent with our expectations. Growth was very strong, in excess of 20% year-on-year in 3 of our verticals: Plant Engineering, Medical Devices and Transportation. Digital & leading-edge technologies, the growth drivers for ER&D, contributed to 41% of Q3 revenue and grew 29% year-on-year.Operationally, we executed well. We did -- with the help EBIT and net profit margin almost steady from the previous quarter. Our deal win traction continued. We closed 9 deals wins across sectors, which includes 2 deals each with a TCV of USD 30 million plus.Let me provide a brief summary of our performance in each of the verticals before providing the overall outlook. Starting with Transportation, we had a good quarter, and the pipeline continued to be exciting. We continue to see multiple large deals in our strength areas, areas of electric cars, autonomous driving and avionics that helped us sustain the strong growth trajectory. In telecom & hi-tech, while the performance in Q3 was softer than what we expected, we believe that worst is behind us, and quarter 4 onwards, we'll see the growth in segment. We see deals that play -- deal that play to our advantages, especially in the areas like VLSI chip design, new age media and hi-tech, and we expect the pace of growth to gradually increase as we win there.In Plant Engineering, where we have a strong competitive advantage in the domain knowledge, our solid performance has been on track of continuously expanding the scope of the deal and winning large engineering value center deals. We are partnering our customers in newer areas, like digital transformation, cybersecurity and plant automation.In Medical, we continue to see strong growth prospects. Regulation, digitization and new product development are all driving growth.In industrial products, as communicated last quarter, there was a bit of a slowdown in spending at some of the large accounts due to budget constraints. The smaller accounts have been ramping up very well. We are seeing good opportunity in area like IoT, smart building consultancy and so on. I'm happy to share with you, Microsoft has acknowledged LTTS as a innovation partner in developing low-carbon solutions. We have an ongoing engagement with them to develop sustainable small campuses -- building and campuses.Talking of our products and solutions, we are working on creating a new structure based on the recommendation we received. We see a lot of potential in scaling up iBEMS -- with 2 platforms, iBEMS and engineering connected platforms, and we'll share with you more details as we take better shape. We are also working on a couple of pathbreaking solutions. For example, in the medical domain, how the diagnosis with chest x-ray images using AI technology improve speed and accuracy of diagnosis. Another challenge we are trying to solve in the agriculture domain using AI, machine learning, imaging and robotics for weed removal and crop health management.Let me now discuss the outlook. We are on track to meet our revenue guidance of 10% in USD terms for FY '20. While it is premature to talk about FY '21, we are optimistic on the growth as the market opportunities and deal size we see are significant, and our competitive positioning has only got stronger. Growth continue to be our focus, and we are investing in competency building and broadening our presence within each of our segment. In Q3, we opened a design center in Rockford, Illinois in the U.S., that will cater to digital engineering, avionics design and aftermarket services for aerospace industry. Investments like this will help us work closer with our customers, enable us to be the preferred partner in their ER&D programs and drive sustainable growth for us.I now hand over to Amit.

[Amit Pal Singh Chadha]

Good evening, and thank you, Dr. Panda. I will cover large deal wins and our deal pipeline by vertical.So let's start with the Transportation segment. We spoke about pursuing 2 deals in auto and 1 deal in aerospace in the last quarter call. I'm happy to share with you that we've closed all the 3 deals. One of the auto deals is in the area of fuel injection optimization, and the second one is on modeling and developing safety systems for passenger vehicles. The aero deal is in the digital IoT for aircrafts and improving user experience. All these deals are net new business for us. We do see ongoing traction for auto in the areas of electric vehicle, autonomous driving and mobility solutions. And in aerospace, we are seeing a further consolidation of suppliers, which should work in our favor. We are pursuing multiple deals with 2 significant ones that should close in quarter 4.Moving on to Medical. We continue to see traction and growth based on regulatory compliance and digitalization of devices. We have incrementally increased penetration in our accounts and added new accounts this quarter. In Q2, we had spoken about one large deal we were pursuing that we have now closed. This involves developing a new IoT platform to provide remote monitoring solutions for their life sciences products for this client installed globally. We are pursuing further 2 more deals for closure in the current quarter.In the Plant Engineering area, we closed 2 deals in Europe: 1 in mineral and metals, which is a new subsegment within Plant Engineering that we've expanded into; the other deal is in the oil and gas industry, which we have won because of our hydrocarbon domain expertise, and we are helping the client to increase the utilization of their refinery asset. Both these net new projects have kicked off in quarter 4, and we expect them to run over a period of 3 years in one case and 12 months in the other. We've also renewed a large deal with a large O&G client in quarter 3.As we look at the next quarter and beyond, we are pursuing multiple opportunities in asset management services, engineering value center deals that will incrementally add to our trajectory for this segment.Now for the industrial products vertical. We are seeing this segment continue to offer opportunities in digital and product development and sustainment services. We had spoken last quarter that we are in discussions with 3 deals in the area of electrical drives and industrial machinery. We've been able to close one of these deals where the client has started their engineering center with us in the last week of December, and the other 2 deals have moved for a closure to the current quarter.Finally, the telecom & hi-tech segment. We did see a decline in the last quarter. We are pursuing 5 deals -- we were pursuing 5 deals in the areas of Semcon, media, hi-tech and ISV. While 4 of the 5 deals slipped to a Q4 closure, we did close the media deal. In this deal, we are responsible for end-to-end chip design for the client to enhance security and authentication for their video and broadband delivery product. This leverages our expertise from our centers in Israel, in India and is a testament of our VLSI design and security capabilities. Like Dr. Panda spoke earlier, we are expanding VLSI design services to non-chipset companies.Moving on to traction in this segment. We are pursuing 5 deals in the area of VLSI design, media sector and ISV. Though we did see the decisions that were delayed, we do see these closing in the current quarter. Finally, to sum up, in Q3, we did close a large TCV -- larger TCV than Q2, and we see that trend continuing in Q4 and beyond. Our large deal engine and pipeline continues to expand and grow. And our differentiators in digital innovation and cross vertical expertise are continuing to help us in increasing client penetration in our T30 and next 50 accounts.I would now like to hand over to PR.

[Parameswaran Ramakrishnan, Chief Financial Officer]

Thank you, Amit, and good evening to all of you. I will summarize the Q3 performance of LTTS. You must have seen the advertisement which was filed in the stock exchange, which lists out the performance. And also, I believe you must have also seen the earnings fact sheet. I will try to give an overall high-level summary of our performance.The revenue for Q3 FY '20 we have posted at INR 1,423 crores as compared to INR 1,402 crores for the previous quarter, having a 1.5% growth. In dollar terms, we had a revenue for the quarter ended 31st December at $199.3 million, registering a 0.6% -- roughly around 0.8% in reported currency terms and 0.6% in constant currency terms. Our EBIT margin for the quarter stood at 16.8% as against 17% for the previous quarter. The net profit for the quarter has been reported at INR 204 crores as compared to INR 205.8 crores for the previous quarter.In terms of giving a flavor of the other income because that is one important element which adds up to the profitability, on a -- both on a quarter-on-quarter basis, the Q3 other income aggregated to INR 35.4 crores as compared to INR 37.8 crores for the previous quarter.Our balance sheet size, as it stands as of December, is comprising a total balance sheet size of INR 4,023-odd crores, comprising largely of shareholder funds at INR 2,749-odd crores. We have, I would say, a very minimum borrowing of around INR 21-odd crores as we report the numbers.Our free cash flow for the 9 months ended has been at INR 423 crores, and I wish to tell you that Q3, our free cash flow for the quarter was around INR 234 crores.Coming to revenue by vertical. Transportation continues to be the leader in the pack amongst the 5 verticals, contributing to 35.8% of the total revenue for the quarter, followed by industrial products at 19.2%, telecom & hi-tech at 18.5%, Plant Engineering at 17.2% and Medical at 9.4%.During this quarter, both from a revenue and a margin perspective, from a margins perspective, industrial product, Plant Engineering and Medical Devices have been as per our expectations and maintained the margins more than the company threshold, whereas we have seen a dip in the telecom & hi-tech margins, primarily because of the drop in the revenue for the quarter, which was referred to by Dr. Panda in his speech.From a geography split of revenue perspective, North America, we have been always maintaining at 60% plus. So North America contributed to 61.2%, followed by Europe at 14%, India contributed to 13% and the rest of the world for the balance 11%.For the quarter, from a revenue mix perspective, we have been for this year in the 44%, 47% on-site revenue mix. So for the quarter ended December, our on-site revenue was 44% and offshore at 56%. In terms of project type, our fixed-price contracts as -- for the quarter was comprising almost 42.7%, where time and material stood at 57.3% for the quarter.Coming to utilization, we have improved the utilization by almost 1.4% for the quarter to end at 79.2% as compared to 77.8% for the previous quarter.Our employee head count for the -- as at 31st December was around 16,800 people, which was largely unchanged from that of the previous quarter.So to sum up, the Q3 performance has been broadly in line with our estimates from a growth perspective. And from a margins and a net income perspective, as whatever we have talked, is almost as per, I would say, more or less flat as compared to previous quarter. And coming to the segment performance, which I reiterated, telecom & hi-tech drop in revenue led to probably a little amount of decline. Otherwise, maybe margins could have been positioned higher.So with this, I have tried to give you a performance -- overall financial summary of our performance. And now it's back to -- for any questions you may have, we will be glad to answer that. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of Sandip Agarwal from Edelweiss Securities.

[Sandip Kumar Agarwal, Vice President]

Dr. Panda, you although explained a little bit on the weakness which we saw and you called out clearly that the worst is behind in the telecom segment -- telecom & hi-tech space. What gives you to make -- what gives you the confidence to make this statement because -- is it based on your deal pipeline or is it based on your interaction with that client, number one? Number two, do you think that the worst of the trade war, if at all they would have impacted this space, is behind? And finally, I understand that the sharp drop in revenues in telecom would have impacted your margins, but still I would say that -- is the correlation so sharp that we have not been able to achieve what we anticipated? Because we knew this is coming. So that is part 1 on the telecom & hi-tech space. And I would also like to know a little bit on that IoT growth. If I understood correctly, you mentioned 29% growth and now it forms 43% of the revenue. Is it also little lower and impacted by some kind of indirect influence of the telecom & hi-tech space?

[Keshab Panda, CEO, MD & Whole Time Director]

Yes, I think you asked 2 questions. Number one is on the telecom & hi-tech, are we -- on what basis you are saying quarter 4 is going to be flat? If the quarter 4 has to be flat, we have to win orders. And the customer downside which whenever happened there, that is stabilized. So order, we already own a few of them, already on hand, and we always calculate about how much is going to be contributed to quarter 4 and beyond. We have few orders. If you recall last quarter, I talked about a few deals we are working on and Amit spoke about. There are some deals we already own and some deals are in pipeline, and we expect to close that soon. So based on those pipeline and orders we own -- already own, taking that into account, we believe that quarter 4 is going to be a good quarter for us. I would say, at least there won't be de-growth, and there'll be growth on the telecom & hi-tech.On IoT front, there's one correction though. It contributed 41% of the revenue in quarter 3 and growth of 29% year-on-year. If you see last quarter, it was 37% or so, I think, 37%. So 37% of this growth, what happens is, when you say digital and leading-edge technologies, this is not for one segment alone. It is segment for all the 5 business segments where we use that extensively. So telecom de-growth has nothing to do with impacting this, that is for sure. And we believe the impact and the investment we did in creating this will continue to be -- coming quarters continue to help. And on the margin front, I don't think margin has gone -- we remained flat. Last quarter, this quarter, we remained almost flat. And I think there is no margin impact because of this. Only thing is you can see that telecom & hi-tech, there is revenue de-growth from Q2 to Q3. It has a marginal impact on that. Beyond that, I don't think anything -- any concern on the margin side at all.

[Operator]

The next question is from the line of Sudheer Guntupalli from Motilal Oswal Securities.

[Sudheer Guntupalli, Research Analyst]

So if I look at your $50 million-plus engagements on a year-on-year basis, it was 2 in Q3 of FY '19 and has come to 0 now. So one loss we understand in the semiconductor space earlier. So can the second loss also be attributed to the telecom & hi-tech vertical? Is there an engagement loss? Or is there a client loss here?

[Keshab Panda, CEO, MD & Whole Time Director]

No, I think -- you're right, I think the 2 were in telecom & hi-tech. And there's no loss -- client losses are there. They have dropped to, you see, $30-plus million account, it dropped to that level. It is not -- we never lost that account, okay? So I think both are in telecom & hi-tech segment. Yes, you are right.

[Sudheer Guntupalli, Research Analyst]

Sure, sir. And in the semiconductor space, so is this expected to be a transient thing because earlier also we were expecting this issue largely driven by disruption in the mobile supply chain, so on and so forth. So is this expected to be a transient issue? Or is it because of more, let's say, structural reasons like the shift towards open sourcing which is happening in the chipset ecosystem?

[Parameswaran Ramakrishnan, Chief Financial Officer]

So as you rightly said, we did see 2 accounts that were 50-plus drop down. And in one case, which we had talked about earlier in the year that this was because that there was ownership change and they had in-sourced a part of the activity, right? In the second case, it's been a situation where the client has gone ahead and shut down that particular business unit that has built us this loss. Having said that, we continue to see opportunity in the segment. We do see it in the ISV space, in the media space as well as in the Semcon space. So there's none of that broad-based across. There has been some delay in decision-making where some of these deals take a little bit more time, but that's where I would put it. I do not see this weakness going forward into next quarter or beyond.

[Sudheer Guntupalli, Research Analyst]

Okay, sir. So we can expect stability in this segment going forward unlike it happened in the case of FY '20?

[Parameswaran Ramakrishnan, Chief Financial Officer]

We do see growth in Q4.

[Operator]

The next question is from the line of Madhu Babu from Centrum Broking.

[Madhu Babu, Research Analyst]

Sir, we are talking about market share expansion in aerospace, I mean, in terms of wins, and we opened a new center in Illinois. So could you talk more about what are the areas we are targeting? Or what are the cross-sell we're trying to do in the aerospace side?

[Keshab Panda, CEO, MD & Whole Time Director]

We did say in our press release when we -- this is -- you are talking about the Rockford center, which we have opened recently?

[Madhu Babu, Research Analyst]

Yes, yes.

[Keshab Panda, CEO, MD & Whole Time Director]

A lot of work data, when we say customer-specific data cannot be taken out of country, it is mostly aerospace and part of it on the defense side. So the areas is critical to the customer, and it has to remain close to the customer. We do that. We have -- the center Rockford can do 130 employees. That is a center what we've built. On the aerospace side, there are multiple things we do. Air traffic management is one of the areas we work. In-flight entertainment, we are working on it. Is there any way -- customers are very, very receptive to the idea about having a center close to them. And then that center connects to our center in India. So I think that model is working out reasonably well. When you are doing a mission-critical project for the aerospace area, it is always important that we connect with the customer there -- from Rockford. So I think multiple things you do. Digital -- Amit talked about digital areas, which you heard, aerospace, and we talked about the in-flight entertainment and all these areas, aerospace focus areas. And some of the system design we do for the customers in our aerospace area that we -- partly we deliver from there and partly we deliver from our center as well in India.

[Madhu Babu, Research Analyst]

Yes. Okay. And second one on the exit rate, this year is going to be again weak. So this year, we're going to do 10% kind of growth. So for us to move back to 13%, 14% kind of momentum for next year, so what should work well? Is it some new deal wins or the semiconductor stabilization? Or what is the key trigger for us to move back to the 14%, 15% kind of growth?

[Keshab Panda, CEO, MD & Whole Time Director]

I think some of the deals we already own. I think if you see 9 deals we own and 2 of them $30-plus million TCV we announced that and there are a few in pipeline what we have, it gives us comfort about -- I think we'll talk more about in quarter 4 some of the deals we are going to close. The only thing we do is -- happening in the market is, I don't think any way of losing those. We are going to make those deals. Decision-making getting delayed, that may impact to some extent. Other than that, I think I've not ruled about FY '21, what deal size pipeline are seen in multiple segments as a whole. You can imagine telecom segment would have remained flat. Three of our segments have grown excess of 20%, right, Plant Engineering, Medical as well as Transportation Engineering. If there's no de-growth in telecom & hi-tech and -- the number what you're asking for would have done more than that. So I think that's the only problem as long as it remains flat and the pipeline what remains -- what we have on hand. And this -- as Amit said, we have a -- we are seeing quarter 4 onwards, it's not only remaining flat, we see a growth trend happening in that segment. With -- all this gives us to -- we conclude with confidence that FY '21 should be a better year.

[Operator]

The next question is from the line of Tarun Shetty from Haitong Securities.

[Mukul Garg, Research Analyst]

This is Mukul from Haitong. The first one was, again, on the telecom & hi-tech decline this quarter. This seems to be coming from your top client right now, which was a $50 million plus. And you mentioned that this has been because one of the units kind of shut down. So was there also an element of the Q3 seasonality furloughs which played part in this and you expect this account, ex of this unit, to kind of improve going forward? Or is there -- is the growth pickup going to come from other deal wins which you have acquired in this space this quarter?

[Keshab Panda, CEO, MD & Whole Time Director]

It's a seasonal issue, as you know, I think quarter 3 is always a case, and that has impacted -- a small impact, I would say. And let me correct one thing, this is not shutdown. The customer decided to sell part of a business there, and that is one part. And second part is, customer decided not to do that business and they got rid of that business. They did not get rid of it, again, they sold it to somebody else. Both the situation, divesting the business to the new party, that had some impact. And as we -- we see that the one company where -- the part of which they divested and the company who acquired them, they are keen to continue to work with us. It will take some time. I would say it's a temporary impact for some time. And I think whatever value we created is supposed to come back again. So...

[Mukul Garg, Research Analyst]

Understood. And the second question was on the -- your qualitative view on FY '21. Earlier, you had stated that you see a lot of opportunity in this space, and you would like to kind of grow at high teens to 20% type of growth rate. Because of the disruption which you have seen recently, FY '20 was a bit weak. Do you expect to kind of revert back to your growth rate in FY '21? Especially, in light of decision-making, I think, is it still kind of a bit dodgy?

[Keshab Panda, CEO, MD & Whole Time Director]

I think our intent is always to do better than what we do now, right? I think it's always the case. As we stand today, we are always looking at it what opportunity on hand is going to be FY '21 we're going to do. And when we have been able to deliver 2 years consistently that number, telecom & hi-tech, this issue wouldn't have been there, maybe we would have been in a different place altogether. But there is something we control, something we don't control, right? And our intent is if you -- we have been able to deliver those numbers earlier, and our intent is how quickly we do that. Intent is always there. We are working towards that. We'll have more visibility at the quarter 4, end of quarter 4. We are working on how FY '21 looks like. As we see -- as the clarity comes, we'll share with you.

[Operator]

The next question is from the line of Pritesh Vora from Mission Holdings.

[Pritesh Vora;Mission Holdings;Vice-President]

I have a general question on the employee headcount, which has decreased Y-o-Y by 12%, and utilization rate has gone up. So if you adjust utilization rate, then also there is a 10% decrease in the headcount. Vis-à-vis the constant currency growth has happened at 7.5%. So has the new -- net billing rate has increased? What is the -- or is it due to mix change? If you can give some color on it, that will be much better.

[Keshab Panda, CEO, MD & Whole Time Director]

One correction though, there is no year-on-year increase in employees. There is an increase in year-on-year employee -- only thing what happened is, quarter-on-quarter remained flat. There is no -- only 2 employees less than Q2 to Q3. And today, the business we are in, the technology which is coming in now, we are using it now, the equation earlier depending on number of employees or revenue that equation doesn't hold entirely. So I think it is difficult to calculate that how many employees I should add to get this revenue. No, that's not true. Can you do more with less number of employees and deliver more value to your customer and more value to your investor. That is how we look at the model right now.

[Pritesh Vora;Mission Holdings;Vice-President]

Right. So you are saying better productivity and higher account per employer has happened this year?

[Keshab Panda, CEO, MD & Whole Time Director]

Yes. See, only point is year-on-year -- what I was telling you is, year-on-year, there's an increase in the number of head count. It has increased. And then last quarter to this quarter, only 2 employees less. And imagine 2 employees less, but we are able to give revenue growth, right? And so we want -- intend to continue to do that as and when required. We always plan -- the resource planning we do in a way because you can imagine technology -- the way technology is changing now, what was there last year, this is different. And the quality of employees we need and the types of employees we need, we always work out. And then we'll have -- fourth quarter, maybe we'll have more employees joining there. So addition of employees is going to happen, absolutely going to happen, but number -- how many numbers we are going to hire, that's a question, I think, we are always working on. I'm always challenging the team saying that can you deliver more with less number of employees? Can you -- are using robotics? Are you doing 3D printing? Are you doing this or AI as a platform, can you use it a bit more? So I think various options we have, and we debate that. And what is used for medical may not be true for industrial, may not be true for semiconductor. So every segment we look at it and different answer for different segment. That's something we do.

[Operator]

The next question is from the line of Ritesh Rathod from Alchemy Capital.

[Ritesh Rathod, Research Analyst]

Hello, can you hear me?

[Keshab Panda, CEO, MD & Whole Time Director]

Yes, we can.

[Ritesh Rathod, Research Analyst]

My question was, on your agri side, what's the outlook now given the deal which has been signed by China-U.S. to import the agri commodities from U.S.?

[Amit Pal Singh Chadha]

So at this stage, it's too early to say where we're going to go with that. We are hopeful that it will actually mean good things for the industry and, therefore, for us.

[Ritesh Rathod, Research Analyst]

Okay. And second, on the deal pipeline, how has that grown from last year versus this year, like, in terms of whether it would be 1.5x, 30% up or 2x of what was the number in the pipeline last year at the same time, too?

[Amit Pal Singh Chadha]

So we have seen 2 things here: number one, our pipeline as it stands today, is bigger than where it was year-on-year as well as quarter-on-quarter, a; b, Our TCV of deal closure has also increased from Q1 to Q2 to Q3. And like Dr. Panda said, we continue to be very focused on this to see how we can continue to grow this and continue the growth momentum.

[Ritesh Rathod, Research Analyst]

Yes. My intention was asking, like, how the pipeline has improved or expanded is more to get a sense on what are the adjacent areas which you are addressing in your client wallet, which would get, in a way, reflected in your pipeline. So if it's gone up by 50% or 70%, which means, in a way, your capability addition which you have done, you are able to go and target those deals in your client's wallet.

[Keshab Panda, CEO, MD & Whole Time Director]

The answer to this is every vertical, there is a different answer, right? And we always look at it when we get to the customer, it could be industrial, it could be transportation and say which are the areas we are focused where I'm going to be relevant long term and grow. So I think this is something -- and what technology I have. Customers are today asking for, "I know engineering design you can do it, you have successfully done that for the last few years, and what else you can do? What technology you can bring it to me from adjacent industry, which is going to help me, I'm going to be more competitive? What you can do so that my customer experience increases?" So those aspects of it for every segment we look at it. The one example we talked about, we have created a new group called Digital Advisory Group, right? So Digital Advisory Group go into customers. Some of the customers we are still struggling today, which direction they're going to take. Our advisory group goes and talks to them about, I think, we understand your industry well. We have been doing design for you, and we have been doing manufacturing for you, and this is what you should be taking first step. This is what you should be doing this quarter, this year and beyond. I think that is helping in a big way. And I think when you start doing -- digital or the newest technology when you talk about, you start with a pilot. You do for 1 plant. You do for a few number of assets, then try to expand that. So as long as you are in at the right time, because we are already -- we have been working with them for some time and it's going to grow. And some of the customers could be traditional engineering. When you look at a customer of $40 million -- $40 billion or $20 billion, we are servicing them only for $7 billion or $8 billion for opportunities in other areas. For other areas, the technology we have, the knowledge what we have, can I take it and deliver, I think that makes a lot of difference. So I think the answer is, this is what is our job. Every day, we look at it. Every week, we review this and see what changes you are going to do in terms of strategy and investments so that is going to be -- going to continue to grow.

[Ritesh Rathod, Research Analyst]

Okay. Fine. My intention was, is there any quantitative way we can measure that how you're expanding that addressable -- like reaching to that addressable market?

[Keshab Panda, CEO, MD & Whole Time Director]

We do -- every time when we say customer satisfactory interest index what you get, then we look at it, what is the win ratio, what you have. I would be more worried about if I lose an order to somebody else. So that's happening, number one. And number two, measurement. When you say customer, customer is spending X million in their ER&D or $1 billion in ER&D, what percentage of that I get today. I can talk about technology, I can talk about NAV. And what percentage is that, am I missing out something where I should have done that. That's the analysis our ADM and ARM with leadership are seeking together. That's the exercise we always do it. So market share from that customer what I got and how do I improve on that, that's the metrics we always measure.

[Ritesh Rathod, Research Analyst]

Okay. So 2 quick questions would be on margins. Given we'll recover growth in telecom, margins will have a business mix headwind because telecom is relatively low margin. But at the same time, we have utilization which is down year-on-year by 200 bps. So how is your margin guide and outlook from here onwards?

[Parameswaran Ramakrishnan, Chief Financial Officer]

Okay. So we don't specifically give a margin guidance. But as I have indicated, as always, that margin is a function of the kind of revenue mix which we get and also the exchange rate. Obviously, a bump into telecom & hi-tech growth segment, obviously, will probably improve the margins as what we have reported for the segment in Q3. But yes, we are working on all levers possible, which is essential to at least ensure that the overall company margins is protected in and around these levels at constant currency.

[Ritesh Rathod, Research Analyst]

And quickly, the L&T Treasury, which we had given, actually that has been redeemed, I think, last time when [indiscernible]. Is that still right [ size with you ]?

[Parameswaran Ramakrishnan, Chief Financial Officer]

Okay. So in fact, I -- thanks for taking that point. As I had indicated, that particular whatever we had advanced as a loan or intercorporate deposit, it goes on a loan, but it was intercorporate deposit short term to a group company has been completely paid off, and we have no exposure in terms of any assistance to the parent or any of the group companies outside of LTTS.

[Operator]

The next question is from the line of Shradha Agarwal from Amsec

[Shradha Agrawal, Analyst of IT and Textile]

Within telecom & hi-tech, how big would semiconductor be for us?

[Keshab Panda, CEO, MD & Whole Time Director]

So we don't give out specific subpercentages, but it is a significant part of our hi-tech sector. To the tune of about 40% plus is what we could do today in hi-tech area.

[Shradha Agrawal, Analyst of IT and Textile]

Right, sir. Given the fact that Gartner has talked about 12%, 13% decline in worldwide semiconductor revenue, how do you see that space playing out from a medium- to longer-term perspective for us? And also, given the fact that we were close to $200 million run rate -- we had close to $200 million revenue coming from semiconductor last year, which has now come down to $150 million, $160 million, how long will it take to get back to that original number of close to $200 million in that space?

[Keshab Panda, CEO, MD & Whole Time Director]

What Gartner talks of semiconductor segment and what we talk about the segment is different. I think we're talking about designing a chip, which can be used for Medical, designing a chip, which can be end-to-end, VLSI design -- chip design and the one we own, I think, I spoke in my talk, and this chip design which you do, it is for a medical application. The chip design we do for automotive application. So I think when they talk about semiconductor, you can't correlate one to one. And because this has to happen. And the customers have to buy, and the customers are not taking ownership of designing their own chip. You're aware of that. So I think this -- of course, I think if you see the semiconductor segment in the U.S., they're all reporting back -- coming back again. This is not as bad as what it was 2 quarters ago. It is much better than today. But I think we look at this way. There are very few companies, when you say a chip design end-to-end having a domain knowledge in multiple business areas. There are a few companies in the world who can do that. And we are positioned in that area that we believe that's going to be a growth area for us.I think one more point I would -- I think Amit talked about, we are designing a security solution we are doing in Israel. And we are creating a chip design with security into -- taking into account the Israel center plus our Bangalore center plus our California center together, working together to create one. That's a unique proposition what we have.

[Amit Pal Singh Chadha]

The customer is not a semiconductor client.

[Keshab Panda, CEO, MD & Whole Time Director]

Customer is not a semiconductor client.

[Amit Pal Singh Chadha]

Although it has driven some of our semiconductor VLSI practice. So when we talk about telecom, hi-tech and when we say semiconductor, it's not that our clients are the classic semiconductor companies only. It's also the practice which we do, which is largely managed from the semiconductor companies, but for non-Semcon companies as well.

[Shradha Agrawal, Analyst of IT and Textile]

Right. That's helpful. And sir, secondly, on the margin dip last quarter, we had talked about 4Q margin seen a dip because of transition costs on certain large deals. So do we stick with that statement that 4Q margins would see a further dip from the current levels?

[Amit Pal Singh Chadha]

So it depends on whatever deal intakes happen. So as we talk, I mean, till Q3, whatever deal intakes have happened are largely deals which are normal study stuff case. But as we go into any sort of a transition deal, hopefully, at that point of time, we will communicate it.

[Operator]

[Operator Instructions] The next question is from the line of Bharat Sheth from Quest Investment.

[Bharat Sheth, Head of Equities]

Sir, just understanding on the margin front, earlier, we were looking for 1% improvement EBIT margin Y-o-Y in FY '21. So where do we stand, I mean, in...

[Parameswaran Ramakrishnan, Chief Financial Officer]

So as -- I mean, as we talked about, the margin guidance which we gave as what our objective was on the fact that we will have a growth trajectory, which is across all the verticals which we cater to. So this year, in fact, despite the drop in the telecom, hi-tech, in terms of substantial drop from -- as against the -- I'm talking of -- I mean, last 12-month basis, you would have seen the revenues have dropped in the telecom & hi-tech segment. Despite that drop, it is not necessary that we have consequently removed people -- or in terms of -- because we believe the skill sets are very much required because our opportunity pipeline and what we understand there is going to continue. So despite taking that part of past still continuing, I guess, we have been able to maintain the margins, and it is also evident from the overall utilization we have been improving quarter-on-quarter. So I would say that our margin guidance or our margin trajectory depends on how the mix of revenues come across the various segments. And based on constant currency and other parameters, I say that we are trying our level best to ensure that, given the revenue mix coming in, we should be in a position to at least protect from where we are today.

[Bharat Sheth, Head of Equities]

Okay. And sir, can you share, I mean, 9 months TCV win?

[Parameswaran Ramakrishnan, Chief Financial Officer]

We usually -- I mean, we don't disclose that particular number. Whatever was told by Amit and Dr. Panda is what we can, at this stage, tell you.

[Keshab Panda, CEO, MD & Whole Time Director]

I think one point I want to tell you that Amit talked about. The order we own in Q1, Q2 and Q3, Q3 is higher than Q2 and Q2 is higher than Q1. That's a very important point Amit made. I think that's something you should make a note of.

[Operator]

The next question is from the line of Srinivas Seshadri from Mirabilis.

[Omkar Hadkar;Mirabilis Investment Trust;Analyst]

This is Omkar here. Just one question now for PR. Just on the SG&A line item, there has been a substantial increase if I see even in 3Q as well as in the 9-month...

[Pinku Pappan, Head of Investor Relations]

Can you speak a bit louder? We're not able to hear you.

[Omkar Hadkar;Mirabilis Investment Trust;Analyst]

Okay. Just on the SG&A line item, as you see in 3Q or in 9-month, there has been a substantial increase, even if you adjust for the Ind-AS part. So which are the -- what is this attributable to? How do we see this going ahead?

[Parameswaran Ramakrishnan, Chief Financial Officer]

I think -- I mean, you are talking of the number what we show under our SG&A at Q2 at INR 169 crores and INR 181 crores, right? That's what you are talking about?

[Omkar Hadkar;Mirabilis Investment Trust;Analyst]

Yes, that's right.

[Parameswaran Ramakrishnan, Chief Financial Officer]

These are elements which will have some sort of quarterly impacts here and there. Largely, this quarter, we have had a slightly higher amount spent on CSR. And also, for stock options, which were granted in Q2, a larger part of that transaction has happened. So I would like you to -- on the SG&A side, I think the way we evaluate and see is trailing 4 quarters whether are we seeing any substantial changes here and there. If there are some specific line items as one-off items, be it as an expense or as an income, we will definitely tell that while we announce the results. And for this quarter, I don't see any specific one-off items in either of the expense side which merits an attention. So I mean, specific to your question, I would say, one of the elements is specific cost for the quarter was a higher CSR spend and ESOP, allocation for more 3 months pursuant to the stock grant, which was provided in Q2. But over 12 months, I guess, is as per what we believe should be.

[Operator]

The next question is from the line of Ashish (sic) [ Ashi ] Anand from Allegro.

[Ashi Anand, Director]

Just one for you. You mentioned that our top 2 clients as in the 2 which won the $50 million-plus bucket were from the telecom & hi-tech vertical. Just wanted to check -- can you share for the top -- for the 7 clients in the $20 million-plus bucket, what is kind of vertical split there? And additionally, just also wanted to understand in terms of these clients, what's the kind of potential to reach $50 million plus? Which verticals do you see the next bucket of $50 million plus coming from?

[Amit Pal Singh Chadha]

So one, we don't provide a vertical split on accounts, right? So we're going to say that. But having said that, if you've been attending our quarter calls, you would recall that Dr. Panda in one of the calls had talked about the account management program that we run for our T30 accounts and our next 20 accounts. And this is done as a regular process in the company, starts with ideation to help the client grow. So it is to see what we can help the client wins. And then it comes down to proposals, it comes down to areas and different subdivisions and geographies that we can work with our client wins. So that mining exercise of our client is key to our strategy and will continue to play out as we move along. If you look at it from Q2 to Q3, you will see that our $10 million client have also gone up. And so we see that as an indication of that. And if you look at it from quarter 3 of last year also, you will see a difference there. And that's an ongoing process that we'll continue to have in the company.

[Ashi Anand, Director]

Okay. Excellent. Without getting to specific verticals at the client level, just wanted to understand are certain of the verticals were predisposed towards larger engagements than others? Or that's not really true?

[Amit Pal Singh Chadha]

So the larger deals that we have -- that we are seeing today or that we have been closing are largely in Transportation and hi-tech and followed by Plant Engineering and IP and Medical. It's probably very broad-based, if we may. We see it across all the segments, but some of them are slightly better than others in a given quarter.

[Parameswaran Ramakrishnan, Chief Financial Officer]

I think the priority would be, I think, first, it would be Transportation followed by hi-tech and third would be Plant Engineering.

[Ashi Anand, Director]

Okay. Excellent. That's very helpful. And just lastly, you mentioned a couple of times in terms of the margin drivers and you mentioned business mix. I just wanted to understand if you could just share a bit more in terms of which are the higher parts of the business -- or higher-margin parts of the business and which are the slightly lower margin parts of the business?

[Parameswaran Ramakrishnan, Chief Financial Officer]

So just to, I mean, reiterate, if you see 3 segments that are industrial products, Plant Engineering and Medical Devices, their EBIT margins are almost 3% to 4% higher than what we have for Transportation, okay? So that's why I keep insisting that the revenue mix is a very important margin driver in terms of -- so it is very important for us to -- at the same time, it's not that we are only trying to pursue high-margin opportunities just because we want only margins because, at the same time, growth is important. So we are competitively positioned from a competency perspective across all the 5 segments, but opportunity is dependent -- depending on the underlying growth opportunities in those segments to which our customers cater to. So I would tend to say that there are 3 segments. Always structurally, we have seen that they are -- when you talk at an EBITDA level, they're about 20-odd percent and the other 2 segments are probably in the mid-teens. So that's the way we position this, and we are there to take the opportunity depending on wherever the activity is there.

[Operator]

That was the last question in queue. I would now like to hand the conference back to Mr. Pinku Pappan for closing comments.

[Pinku Pappan, Head of Investor Relations]

Thank you all for joining us on the call today. I hope we were clear in the way we communicated our performance. If you have any questions, please feel free to write to me. Let me all wish -- let me wish you all a very happy and good evening. Thank you.

[Operator]

Thank you very much. On behalf of L&T Technology Services, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.