L&T Technology Services Ltd

NSE:LTTS

Earnings Call Transcript 2022-Q3

[Operator]

Ladies and gentlemen, good day, and welcome to L&T Technology Services Limited Q3 FY '22 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Pinku Pappan, Head of Investor Relations. Thank you, and over to you, Mr. Pappan.

[Pinku Pappan, Head of Investor Relations]

Thanks, Nereev. Hello, everyone, and welcome to the third quarter FY '22 earnings conference call of LTTS. I am Pinku, heading Investor Relations. To those of you who have joined from India, thank you for participating at this late hour. Our financial results, investor release, press release have been filed in the stock exchanges and are also available on our website, www.ltts.com. I hope you have had a chance to go through them. This call is for 60 minutes. We will try to wrap the management remarks in 20 minutes and then open up for Q&A. The audio recording of this call will be available on our website approximately 1 hour after the call ends. Let me introduce the leadership team present on this call. We have Amit Chadha, CEO; Abhishek, Chief Operating Officer; and Rajeev Gupta, CFO. We will begin with Amit providing an overview of the company performance and outlook; followed by Rajeev, who will walk you through the financial statements. Let me now turn the call over to Amit.

[Amit Pal Singh Chadha, CEO, MD & Whole Time Director]

Sure. Thank you, Pinku, and thank you all for joining us on the call today. First, let me wish all of you a very happy and prosperous new year and hope that all of you are safe and healthy. While many of us are still operating in a virtual environment, 2022 will hopefully be the turning point where the world will return to the new normal. With that said, let me start with the key highlights of our Q3 performance. In USD terms, we had a sequential revenue growth of 4.2% in constant currency, which was broad-based across all 5 segments. In line with our long-term growth prospects and strategy, we've added a record 2,100 plus employees in quarter 3, which is the highest ever net add for the company. We also delivered an EBIT margin improvement to 18.6%, again, a new high. Our deal pipeline continues to see good addition. In Q3, we won a $45 million deal, along with 2 other deals greater than $10 million. We also won 2 significant empanelments. The first with one of the world's largest technology companies and the second with a global aircraft manufacturer. These empanelments mark the strengthening of our relationship with the customer as we become a preferred partner. We see potential of $50 million each in revenue over the next few years. Let me now provide a segmental performance outlook for your consideration. Starting with Transportation. We had sequential growth of 5.1%, led primarily by auto, followed by trucks and off-highway and aero. In auto, we are seeing a strong traction in ES EV, the highlight being a $45 million deal we won with a U.S.-based auto Tier 1 to be their strategic engineering partner for their electric vehicle portfolio. This is the third deal we are winning for this customer over the last 3 quarters and the combined TCV adds up to $90 million plus. As part of the latest deal, we are setting up an R&D center in Krakow, Poland that will help us expand our global footprint as well as ES EV delivery. In ES EV, in addition to auto, we are engaged in the high-end research projects aimed at expanding electrification to the heavy equipment and aero segment. At our EV lab, engineers are doing feasibility studies for high-voltage topologies. This gives us the ability to work on complex projects. Case in point being the complete design of a high-voltage electric powertrain for a U.S. trucks and off-highway customers, amongst others. In aero, the spend environment is seeing a gradual pickup which spends in areas like digital platforms and solutions for traditional OEMs and electrification and hybridization for a new age innovative companies leveraging alternative propulsion technologies. Summing up, we expect the growth momentum to continue in transportation across all 3 segments. In Plant Engineering, we had a good quarter with 4.4% Q-on-Q growth driven by FMCG and oil and gas, followed by chemicals. In oil and gas, we see a good pipeline of opportunities in establishing high-value engineering centers for our customers. We are also in early discussions with our customers on priorities like alternative energy, carbon capture and product mix changes, all of which are choices that are required to make significant engineering-led transformation of the business. In FMCG, demand is being driven by CapEx, both greenfield and brownfield. We won a large deal with a global CPG major for the greenfield expansion in Europe, and we're looking to support that expansion in Americas as well. Under our sustainability big bet, we are working on a few innovative solutions for an oil and gas major, our plant engineers recommended engineering design changes across the refinery value chain from valves, HVAC pumps, process treatment to ensuring compliance with existing and probable future government regulations, while at the same time minimizing disruption and downtime to existing operations. We believe with tightening of regulations post COP26, we will see much more of these engagements across geographies in the coming years. We are positive on the outlook for Plant Engineering and expect steady growth. In our Industrial Products, we had a soft quarter, although we continue to scale up our engagements across all 3 subsegments: electrical, machinery and building automation. This is -- there is good demand for platform development, digital twin and smart services, and our customers are wanting to leverage data and analytics to transform their business. In one of the large deals that we won in Q3, we will use engineering data analytics to develop a software platform that will improve the customers' manufacturing process lines. We are having conversations and early deal discussions in the areas of energy transition and storage as well as sustainability. The deal pipeline continues to improve, and we expect Industrial Products growth momentum to pick up in the coming quarters. In telecom and high tech, we had a good quarter with 4.7% Q-on-Q growth led by semi and telecom infra. We are seeing a good set of opportunities in the 5G space with our marquee customers and partners to take advantage of huge spends coming up on integrating various network components and implementing AI solutions as the 5G network gets deployed. In semi, we are seeing a pickup in new chip design work, especially in the 7-nanometer technology area. In high-tech, a key highlight is our empanelment as a preferred engineering partner to one of the world's largest technology companies. This is a very promising development, which should give us an opportunity to work on a wide portfolio of products and devices. In media, we continue to look at margin expansion. We will not be renewing few programs in the legacy areas. This is in line with our objective to improve telecom and high-tech margins by focusing on more value-added part of the value chain. Let me highlight one of our investments in solutions. Our engineers have designed a lightweight, small form factor sensor that works on advanced 5G communication and optimal for deployment in industrial mesh networks. Such innovation is possible only because of the multi-disciplined expertise in our company, where we combine 5G and NB IoT solutions, chip-to-cloud competency and industry forward or to knowledge. Overall, the demand pipeline is building up quite well in telecom, and we are winning deals. However, Q4 telecom performance will be muted because of the actions we are taking in the media subsegment to sustain growth and expand margins for the entire segment. Lastly, in medical, medical continues to grow, led by strong spending in digital platform and connectivity areas. We have built solutions in a digital robotic surgery space, which is finding good traction in the market. Many customers have drawn roadmaps for robotic surgery and we are participating in some discussions. I'm proud to share that our engineers in collaboration with IIT Madras have developed a sepsis detection device based on our microfluidics infection management platform. This is a portable device for real-time patient care, which is an area where many of our customers are investing in, including telemedicine. To sum up, the demand strength continues to be robust, and we see the pipeline improving in medical. Now a few highlights on our digital engineering and technology progress. Our digital engineering revenues were 56% in Q3 versus 55% in Q2. We see this trend continuing. On the innovation front, our engineers continue to innovate in 25 patents in Q3. Most of these filings are in collaborative and intuitive spaces in digital. We recently won CII's prestigious innovation award of top 25 most innovative companies across all sectors in India. We see this as an endorsement of our focus on technology and engineering innovation through differentiated solutions and offerings. Let me give you an insight on one of the initiatives we are taking to build next-generation solutions. Our AI solution, AiKno, is now an integral part of new product development. For example, it has helped in enabling faster and accurate medical device compliance with FDA. We are investing in R&D for the next version that will leverage embedded AI. Now talking about our talent skill up. We have substantially increased the training intake to 1,900 plus in Q3, which augurs well for the growth prospects that we see in addition to helping us optimize the pyramid and manage attrition. We are able to achieve the scale by leveraging our global Engineering Academy that is focused on continuous training and upskilling. Let me now discuss the outlook. Our deal pipeline continues to see healthy addition and the demand outlook in U.S. and Europe remains strong. We continue to invest in our 6 big bets, which will allow us to participate significantly in our customers' transformation journey and win large deals. Attrition is a parameter we are keeping a close watch on, and we have taken several measures to address it. We do see attrition stabilizing from quarter 4 onwards. Finally, I am happy to reiterate that we are on track to meet our FY '22 revenue growth guidance of 19% to 20% in U.S. dollar terms. That said, thank you. I hand over to Rajeev, and we will take questions after he completes. Thank you.

[Rajeev Gupta, Chief Financial Officer]

Thank you, Amit. I wish you all a very happy new year, and hope you and your families are keeping safe and healthy. I'm pleased to share our Q3 FY '22 performance. It has been another quarter of strong results with improvement across all parameters, revenue, EBIT and PAT. With that, let me take you through the Q3 FY '22 financials, starting with the P&L. Our revenue for the quarter was INR 1,688 crores, a growth of 5% on a sequential basis. Our double-digit year-on-year growth trajectory continues with Q3 revenues up 20% on a year-on-year basis. We touched a new high on EBIT margin at 18.6%, making it the sixth consecutive quarter of operating margin improvement. During the quarter, we had gains from operational efficiency measures, including pyramid optimization and rupee depreciation. This was partially offset by lower utilization and higher travel costs. Moving to below EBIT. Other income was higher on a sequential basis due to the dip in Q2 because of the onetime reversal of SEIS income. Effective tax rate for Q3 was 26.6%, broadly in line with our full year ETR expectation of between 26.5% to 27%. Net income for the quarter stood at INR 249 crores, which is 14.7% of revenue, up 8.2% on a sequential basis, driven primarily by higher revenue and operating margin. Now moving to balance sheet. Let me highlight key line items. DSO was 84 days at end of Q3, 1 day improvement over Q2, while unbilled days increased to 21 days in Q3 compared to 15 days in Q2. The combined DSO, including unbilled, stood at 105 days, which is above our target range of less than 95 days. We expect improvement in the coming quarters. Let me talk about cash flows. Our free cash flow improved to INR 725 crores for year-to-date, a healthy 104% of net income. Our cash and investments rose to INR 2,143 crores by end of Q3 FY '22. On capital return, I am pleased to share that the Board has recommended an interim dividend of INR 10 per share, taking the total FY '22 dividend so far to INR 20 per share. Moving to revenue metrics. On a sequential basis, dollar revenue growth was 3.6% in reported terms and 4.2% on a constant currency basis, with all 5 segments growing as highlighted by Amit. Growth was led by transportation, telecom & high-tech and plant engineering segments. The segmental margin performance was better in 2 out of 5 segments on a sequential basis. As Amit mentioned, in telecom & hi-tech, we will continue to look for margin expansion by reviewing the portfolio of deals. Now let me comment on operational metrics. Utilization was at 75.9% in Q3. This is because of the strong net addition done, keeping in mind long-term growth prospects and pyramid optimization. Going forward, we expect this to gradually move up to stay within the 78% to 80% bank. The on-site/offshore mix has shifted slightly towards on-site due to the delivery initiation of new deal wins. Offshore percentage now stands at 58.7% versus 59.2% in Q2. The T&M revenue mix increased to 71% in Q3 and is likely to stabilize around these levels. Client profile, which indicates a number of million dollar plus accounts has shown a sequential improvement in $30 million and $10 million-plus categories. The client profile numbers have seen an improvement over the past few quarters. This trend will continue in the coming quarters. Client contribution to revenue. We have seen improvement in the top 5 and top 10 clients. Headcount increased sequentially by 2,135 employees to end at 20,118 employees. While attrition moved up by 100 basis points to 17.5%, reflecting the industry-wide trend. We are proactively taking various employee engagement measures to contain attrition. Realized rupee for Q3 was nearly 75 to U.S. dollar, an adverse movement of 1.3% versus Q2. Before I conclude, let me give some visibility on the EBIT margin trajectory going forward. Our aspiration is to maintain a sustainable 18% plus EBIT margin consistently, and we will balance the likely headwinds such as intermittent wage hikes in a high attrition environment, higher travel costs with levers such as growth, quality of revenues and operational efficiency. Thank you, and wish you all a safe and healthy 2022. Moderator, we can now take the questions.

[Operator]

[Operator Instructions] The first question is from the line of Mukul Garg from Motilal Oswal Financial Service.

[Mukul Garg, Research Analyst]

So Amit, just wanted to start off with the impact of the media, which you have highlighted, what -- can you help us quantify what impact it can have on Q4 revenues? I'm just trying to understand the factors behind the lower end of the guidance, which you have maintained for FY '22 because it implies lower than -- less than 2% Q-on-Q growth. Or is this just a case of you keeping it unchanged irrespective of the media impact?

[Amit Pal Singh Chadha, CEO, MD & Whole Time Director]

So Mukul, we had come out last quarter. And as you are aware, every quarter, we've continued to provide you an outlook as close to what we will be able to do. So when we gave you the outlook of 19% to 20% revenue growth in U.S. dollar terms, we had factored this in that we will have -- may have to take this -- we were not sure at that time, but we were thinking we may have to take action. So I would stick to the 19% to 20% and leave it there for now. But I can assure you, and like I have told you in the past as well, we continue to work and strive to see what best can be done. So please do not take the lower end.

[Mukul Garg, Research Analyst]

Fair enough. The second question was on the demand environment. Have you seen any movement either up or down during the quarter? The employee addition obviously was really strong, but at the same time, you are also seeing attrition stabilizing. So how should we see the employee addition vis-a-vis the demand environment? Will it continue to ramp up at this scale, which we have seen this quarter? Or should we expect it to ease off?

[Amit Pal Singh Chadha, CEO, MD & Whole Time Director]

So Mukul, I do believe that the demand in CY '22 is robust. And early signs are very encouraging as we see it. And I'll give you 3 data points, right? I mean this $45 million win that we talked about that we have had is actually the third win from the same customer in 3 quarters. And if I total it up, it is more than $90 million of net new win from a single client, right? Close to the $100 million we had signed in December 2 years ago, right? So that's just one data point. Second is that -- so we have taken about 3,000 freshers now, right? 1,100 plus 1,900. We will take some more in quarter 4. But the big haul will again start in quarter 1 or quarter 2 onwards, depending on when the students come out of college. And I can confirm to you that the plans right now are to have similar intake of freshers in FY '23 as FY '22. The second data point. Third data point is that we are excited about setting up Krakow, Poland, and we're saying we will potentially ramp up to about 300 people in 3 years in that location, maybe more. So I do feel the demand in transportation, the demand in industrial demand in telecom with 5G and 7-nanometer coming along. The demand in medical. The demand in plant with product changes, et cetera, will continue as we move forward.

[Operator]

The next question is from the line of Abhishek from Incred Capital.

[Abhishek Shindadkar, Analyst]

Congrats on a good execution. I'm just trying to understand that it seems that eliminate rationalizations has probably impacted our growth it appears so. And so could you just elaborate whether the understanding is right? And was it typically in any particular vertical? And the second question is, is this rationalization of pyramid happening more in the telecom hi-tech space? And with many freshers getting onboarded, is there a scope or there is a good margin lever both in the segment as well as at the aggregate company.

[Amit Pal Singh Chadha, CEO, MD & Whole Time Director]

So Abhishek, there are 2 or 3 parts here. There is no pyramid rationalization that is happening, right? What is happening here, Abhishek, there are 2 or 3 things. I mean, we went through a very bad patch, and we had not taken freshers, number one. Number two, and I had shared this maybe last time, on the previous time, we do want to improve our fresher intake so that we can, one, broad-base the pyramid and make it the right pyramid right size it. Second is that a lot of times people say innovation stops at 30, some people say 40. I say it never stops or than people say, so you get the younger workforce, it gives you newer ideas, gives you new talent, et cetera, right? Fourth is that it gives us the flexibility that we need and some kind of attachment. So I would not put a pyramid rationalization, I would more put it as newer areas, newer technologies, et cetera, and gives us an opportunity to refresh. Having said that, we are also hiring laterals. So it's not like we are not hiring laterals. What you should keep in mind is, though, that quarter 3 is always impacted, one, by the number of working days. This time, there was Diwali, extended Diwali, and then there was Thanksgiving. There was New Year. So all of that in the same quarter, right? Second, so number of working days, vacations that people took right? That is, again, seasonal with it. So that's how I would look at it more than anything else. And I am confident, I'm fairly bullish about as I look at quarter 4 and beyond.

[Abhishek Shindadkar, Analyst]

That's helpful, sir. And could Rajeev just comment on the recovery on the margins as the [indiscernible]

[Rajeev Gupta, Chief Financial Officer]

So Abhishek, to understand your question. I mean, of course, we've improved margin, right? Our EBIT is now at 18.6% in Q3 relative to 18.4% in Q2, right? So there's an improvement. I think, going forward, as I said, our aspiration is to maintain a sustainable 18% plus EBIT. There are always going to be factors which are the headwinds and the tailwinds to manage. In terms of the tailwinds, both in quality of revenue, I think productivity improvement and operational efficiency. This is something that we've been talking over the past 5 or 6 quarters, and you've seen a bit improving over the past 5 to 6 quarters, and we will continue to do so using operational efficiency as one lever. On the tailwinds -- sorry, on the headwinds, and I may have mentioned this in the past earnings calls also, with improving economic recovery, we'll see more of travel and facility-related spend come. And it indeed has been a high attrition environment, so we will see the wage hikes, right, to manage some of the attrition that we are seeing in the recent past and of course, going forward for a few more quarters. And last of all, the organic and inorganic investments. We're an innovation-led company, so we will make these investments. So those are the headwinds and tailwinds that we'll manage. But having said that, we have shown consistently over the last 6 quarters, an EBIT margin improvement.

[Operator]

The next question is from the line of Apurv Prasad from Elara Capital.

[Apurva Prasad, Analyst]

Amit, can you comment on the large deal pipeline? You did highlight the $45 million deal, but are you seeing any deceleration in the large pipeline?And I asked this guys, if I look at the number of 10 million plus wins, it just seems to be tracking lower over the past couple of quarters. And so I just tie this to the midpoint of the Q4 guidance, your perspective would be helpful there.

[Amit Pal Singh Chadha, CEO, MD & Whole Time Director]

So we have not seen any deceleration when it comes to deals and pipeline. In fact, pipeline has improved -- has continued to improve quarter-on-quarter, right? In fact, if anything, I see that going up. I acknowledge the number of $10 million deals in quarter 3 have been lower than quarter 2. But I do believe that quarter 4 onwards, you will see some of that come back up if you ask me Apurva. There were some of these decisions that moved beyond December to January. And I am talking to you with the wisdom of January that has passed so far that you will see that coming back.

[Vibhor Singhal]

That's helpful. And my second question is on medical devices, I need additional comments here. And the context here is that it again seems to be slowing down versus prior period growth rate. And Also, if I look at competition, it appears to be probably gaining share out there. And also since I've missed any specific mentions in the key deals in this segment, so your commentary would really help.

[Amit Pal Singh Chadha, CEO, MD & Whole Time Director]

So it has more to do with our clients' programs and the life cycle they are in, right, one. As that changes, things continue to change. In fact, the good news is we have added a couple of very marquee logos in the last 3 quarters in this space that will see more expansion as we move along. The one thing that we have done differently this quarter, you will notice is that we have called out empanelments separate from deal wins and that is that the client is not willing to commit to a sizable volume, but is there a potential, so we turn that into we call it an empanelment where there is a committed -- there's almost a confirmed revenue, but we're not willing to sign the order line. He says this is my estimate. So we've seen some smaller ones in medical, but I do believe that as we move forward, this will start coming back. Some of the differentiated assets that we have built up in sepsis detection, be it digital front or be it just Chest rAI as well as some QARA-related algorithms that we have built, I believe, along with AiKno will help us in terms of coming back in this space.

[Operator]

The next question is from the line of Vibhor Singhal from PhillipCapital.

[Vibhor Singhal]

Congrats on a good quarter. So Amit, a couple of questions from my side. First, of course, is that revenue growth in this quarter was that on the software side versus our expectations. I know the analysts can drive very high expectations from the company, which you tend to beat every quarter. But was the numbers in this quarter also slightly missed on your expectations too? And if yes, is there any specific reason that you would like to call out for that?

[Amit Pal Singh Chadha, CEO, MD & Whole Time Director]

So Vibhor, there are 2 things here. One, that 4.2% constant currency, and we have tried to maintain that we will be in that range as we move forward. So we've done that, of course, compared to 5.x, it is lower, right? But Vibhor, there is 2 realities in our business that you will see over and over. One is there is this quarter 3 where the number of working days are lower than quarter 2. And if Diwali, Thanksgiving and or Dussehra and Christmas come in the same quarter, it's a double banging, right? So I mean I'm not saying you should not have festivals, but maybe better off doing it in 2 quarters than 1 quarter. So that is -- it's a reality, right? And people one. Second, we were tracking the number of leaves people have taken, Vibhor. So one way you know is happy people are taking leave, work-life balance. But the reality is the number of people that took leave in this quarter 3 as opposed to last year, quarter 3 was higher. And it's a onetime impact, right? And people do that, take leave will be regenerated by the time they come back, right? Also -- so those are the 2 points that I would say. We continue to strive for performance that will get us to that range of growth right, profitable growth as we move forward, and that's been our continuous endeavor. One more thing, and I didn't answer Apurva, thought I'll mention it also again. See, one thing we are also seeing is, in some of the cases, like in this particular client that was -- that gave us this deal of $45 million and the previous 2 were about almost about $50 million, so the total was about $90-plus million. They broke the deal up in 3 parts. So that is a reality in our industry where people do that. Though we continue to strive for $50 million plus, $100 million plus, this is the reality in our business. So though I didn't answer it, so I will answer that. But Vibhor, to answer your question again, I believe that we -- looking at the seasonality, I think we did well. I am confident of delivering the guidance that we talked about in the last quarter. And then we look forward into FY '23. And the freshers we have hired, 3,000 in this year so far, we'll hire more in quarter 4. I do believe are a signal that we are fairly comfortable with our growth prospects in the next year.

[Vibhor Singhal]

Got it. Got it. My second question was actually, if I just basically want to basically pick your brain on, the performance that we had in this quarter, or let's say, where we are today vis-a-vis there even pre-COVID. So let's say, if I look at this quarter's revenue around 2 25 million dollars. And if I go 2 years back around 8 quarters back, Q3 FY '20, when COVID had not struck. So we are ahead of that number by around 13%. And if I compare the vertical wise, I think our industrial products, telecom as well as medical devices, have grown much beyond what the numbers were 2 years ago. But our revenue in transportation and plant engineering today is almost at similar levels as it was around 8 quarters back. So I know these are the 2 verticals which are probably the most impacted because of COVID. So would you just may be able to particularly just take us to basically, what is the composition of the revenue? How is the composition of the revenue different at this point of time? So if I look at it, transportation was say, around $71 million, then and today as well. So how is that this $71 million different from that in terms of, let's say, maybe higher exposure to auto than aerospace? And a similar kind of about breakup if you could probably show for planting, which is probably at around $34 million, which was almost a similar number on 2 years back.

[Amit Pal Singh Chadha, CEO, MD & Whole Time Director]

So very well put. I should say that because I continue to have a chart here in front of me where I say who recovered when. And I think you've done a very good job in putting that. So let me say this to you. See, you are right, PE and transportation have finally come back, right? Like you said, see the color of transportation, let me start with has changed. There was not so much of electric. That was -- there was not so much of connected. There was a lot of infotainment at that time. So the amount of electric and amount of connected revenue that we are generating is higher, number one. Second, sub-bullet to that is, that the hardware, software work that we are doing now is higher now as opposed to pre-COVID. So that is another reality that we have seen that has happened. And third is in terms of subsegments, Aero fell very badly for us. So there's more of auto now, there's more of now than -- I mean if you look at the same composition. But having said that, with this entitlement we've had in aerospace plus other deals we are working on, on newer technologies in aerospace, I believe that cylinder should also fire going forward, right? Now if I go to plant engineering, the revenue that you saw pre-COVID, there was a lot of oil and gas revenue in that, right? And now if I look at the revenue, and there's oil and gas, chemicals and then CPG. Now if I was to separate it out, there is CPG, oil and gas and chemicals. So oil and gas has come back slightly, but not to the level where it was. So that's the difference in composition. So there's a lot more plant reengineering, capacity expansion, I want to call it, what is the right word to use, product mix changes, kind of plant engineering work, corrosion testing and corrosion value analysis work happening as opposed to what was pre COVID. So there's a little bit of a change. You are right, and that's what we have seen. Going forward, I do see these oil and gas coming back. I do see as well chemicals and CPG growing. We move ahead.

[Operator]

The next question is from the line of Vikas Ahuja from Antique Stockbroking.

[Vikas Ahuja, Research Analyst]

Amit, congrats on a good quarter in execution. My question is, how should we read the hiring numbers for the second quarter -- second consecutive quarter the hiring is much higher than the growth. Is that the strong demand you foresee and you want to have enough buffer and obviously, training pressure also takes time. or we are expecting attrition to remain elevated for some more time?

[Amit Pal Singh Chadha, CEO, MD & Whole Time Director]

So Vikas, hiring is higher because there are a couple of things here that we're looking at, right? One is you're trying to broad base the pyramid, and we are planning for future growth. I mean that's how I would put it as number one. And number two is the kind of skill set required for our future will be slightly different from what was there 2 years ago. So we're refreshing that as well and getting ready. So that's broadly where we are. I should tell you in advance, the net hiring in quarter 4 will not be as high because we had shared last earnings call, that we will see a onetime big jump in numbers in quarter 3. That was the plan the way we had done it. Now you should probably see a jump, similar jump in maybe Q2 of FY '23. So we've created a full plan, operational plan to take it forward.

[Vikas Ahuja, Research Analyst]

Sure, Amit. I mean initially, you made a comment around some partnerships. Sorry, I completely missed that. You said there are a couple of partnerships, which has a potential size of $50 million. If you can just repeat that.

[Amit Pal Singh Chadha, CEO, MD & Whole Time Director]

So there were 2 things I talked about. One was that there are 2 empanelments, 1 with a big technology company to work with them on hardware and software of their devices they're launching. And the second one is in aerospace OEM, where we have signed a partnership or customer vendor contract to be their -- one of their primary vendors as they move forward. So both of these, we believe, can give us a $50 million each in the next few years. So those are 2 empanelments. Then I also talked about partnership that we announced, I think, about maybe a month or so ago, we announced a 5G partnership with NVIDIA, Mavenir and us. So that is what I was alluding to. And that is in the areas of Oran and 5G, where we are setting up a lab in Munich around test cases for the discrete and process manufacturing segment. So that was the partnership. So there's both of those.

[Operator]

The next question is from the line of Vimal Gohil from Union Asset Management.

[Vimal Gohil, Research Analyst]

Amit, my question is a reiteration of what Apurva asked on medical devices, just an extension of that, really. If I were to look -- observe your margins in medical devices, they are probably upwards of 30%. Do we have any scope of leveraging these very high margins in order to be slightly more aggressive and give some preference to growth here? That's my first question. And the second question is on autos or the transportation. Within transportation, we have auto. I wanted to know, would it be fair to say that a dominant portion of your automotive mix would be OEMs and Tier 1 suppliers would be a smaller portion there? And lastly, just wanted to reiterate your guidance that you gave in your Analyst Day -- recently concluded Analyst Day of reaching a $1 billion run rate by Q2, Q3 FY '23 and $1.5 billion run rate by FY '25, those stay intact. Those are my 3 questions.

[Amit Pal Singh Chadha, CEO, MD & Whole Time Director]

So thank you so much, Vimal. I'll answer the last question first because that is my favorite. So I am unequivocally reconfirming that LTTS will get to a $1 billion run rate by Q2, Q3 of FY '23 and get to $1.5 billion, as stated in our guidance, in the earnings -- in the Investor Day, no change. Absolutely no change. Now I'll answer your second question. So second question was transportation. So transportation, we are working with OEMs as well as Tier 1. It's a mix. See what's happening is that as people have gotten to electric vehicles and connected vehicles, there was work that 3 years ago, we would farm out to a Tier 1, they picked that up themselves. Earlier, they used to only do integration. Now they also deliver key components. They may actually say, I will do the platform, let the detail be done by the Tier 1. So the kind of work that an OEM and Tier 1 is doing is changing. The skills are almost the same. And I can reconfirm to you that there is a healthy mix of OEMs and Tier 1s that we work with. In fact, we work with marquee customers in both of those areas, right? So that's earlier, potentially maybe Abhishek here is helping me here. He says earlier software was at about 50%. Now software work has gone to 70%, so that is a change for us. And with Abhishek's background, from where he comes from, I think he has been driving this himself with our leaders in the transportation segment, right? Now go back to the first question on medical. We -- I mean, like I talked about the subsegment of media, where we tried to see if we could improve margins, and we finally felt we could not, and we are taking some judicious calls. In the medical area, we are working with all the marquee customers. I mean you name our top OEM, we work for them. It is just -- it takes a little bit of time, and that's all there is to it. It is also the youngest of our verticals and still being nurtured. I mean if I go back to 11 years ago when I joined this company, or 12 years ago, we nurtured automotive. We nurtured aerospace, right? I mean Dr. Mana was very, very passionate about this area, and he nurtured that. So similarly, we are nurturing medical at this stage, so I would not read too much into this at this stage.

[Operator]

[Operator Instructions] The next question is from the line of Salil Desai from Marcellus Investments Managers.

[Salil Desai]

Amit, could you talk in a little more detail about this automotive Tier 1, where you are now $90 million of business? 3 deals over the last 12 months or so. You tell more about the journey, what do you guys do to keep getting a larger share of business? Are these like similar projects? Or were they upstream or long stream of what you were doing originally? Or completely new areas? And whether it was to be replaced or displaced some other vendors? Just about anything about the relationship would be good to know.

[Amit Pal Singh Chadha, CEO, MD & Whole Time Director]

Sure, sure. So this particular Tier 1 automotive that we're working with, we had been working for them for some time, but in a much smaller scale and they have known of us from the industry, right? The small world, they had known of us. So when we invested last year in our big bet E.S. EV, we actually set up our EV lab. And I remember we did a press announcement, et cetera, et cetera. Everybody looks at LinkedIn all the time. So we did all that. And as a result of it, we got inbound inquiries around power management, remote diagnostics, charging infrastructure, onboard electrical stuff that people talk to us about and said, "is that something that you would be able to do to help us?" Right? And do you have the wherewithal and the people available. There were some model-based design work they wanted us to do. There was software work they wanted us to pick up and they said, "Can you do it?" So with the global training academy that we had got on upskilling our -- and reskilling engineers, we went in and spoke to them. We showed them the result. So they said, "Okay, why don't we give you a part of the product that we are developing. And why don't you try it out. And the first deal, I think, was Pinku about 25? About $25 million they gave us. And they said, why don't you see what we can do and let's see the results. So for about 3 months, we ramped up the team, we had the team ready. We had made some investments and got some people ready. So we deployed them. They saw the work. So as you were ending, coming to month 3, and they actually signed another deal, similar size. And they said, now we wanted to look at the power management side is a little more tough because you will talk about topology, et cetera, et cetera. And let's see you try and do that work. And that, again, we've been able to help them and be able to expand in the software area. And once we have done that, I had a hidden agenda if you ask me that I wanted to set up something in Eastern Europe. If some of you remember, we had talked about it a number of times that we should develop something either in Ukraine or we should develop something in Poland or we should do Hungary. And I remember some of you have been asking these questions and we had been saying you were looking at it. So as you develop this relationship, we sat down with them and we said that, look, we're trying to develop something in Krakow, Poland. We know that you're trying to set up your own center. Why don't you let us do it for you? And we'll take the responsibility, we'll develop it for you, et cetera. And one thing led to another, and they have signed this deal with us where we already -- so already, we've hired a first set of people. The head of the Poland center has been hired local. In Krakow, location has been identified. People have been made offers. Some people have joined as well. So it allows us to be able to -- shall I say, address 2 points at the same time. One, expand in Eastern Europe, that will help us overall in -- with European customers and U.S. customers; and second, expand the E.S. EV footprint. So I believe that's how this has progressed forward. Again, we continue to pursue this and others. I also want to make another point. Somebody asked a question on OEM and Tier 1. See, around 18 months ago, as COVID hit, we took a calculated risk and said, let's go after the new autonomous companies because they will expand. So we set up added infrastructure people as well as capabilities in the Bay Area. And that has helped us sign up some new age auto companies. And that, again, is like truckers helping us with the Tier 1s because we have the credibility and the names and it's helping us with the competency with OEMs. So it's a win-win game.

[Operator]

The next question is from the line of Sandeep Shah from Equirus Securities.

[Sandeep Shah, Director of Research]

Just further to the last question. I wanted to understand this 3 deal, which combined to a TCV of $90 million. Just wanted to understand how sticky these deals are? Is it once the platform being launched on say U.S. EV, some portion of these revenues will go off? Or do you believe even after the platform launch, there would be a requirement in terms of some amount of verification, upgradation maintenance, which will help you in terms of maintaining this kind of a revenue with a new age area on the U.S. EV as a whole? Second, who are the competitors in terms of getting these kind of deals within your space? And the last question, in terms of a media portfolio restructuring, do you believe it will have a bigger impact in FY '23? Or it doesn't -- won't have a big impact to disappoint you as a whole?

[Amit Pal Singh Chadha, CEO, MD & Whole Time Director]

So Sandeep, let me answer the 2 questions, and I'll ask you to repeat your third one. So number one, that are these deals sticky? So Sandeep, we believe in relationships, right? We don't call our account managers, account managers, we actually call them relationship managers, right? Now and it takes time to build credibility, right? Because you're finally going in, you're trying to do engineering, core engineering, ER&D takes time. So the $25 million, the first 2 $25 million each were over a 3-year period. This one is $45 million in 5 years. So as you can see, and they are already talking about trying to see how will they continue on and on because see, if you look at the E.S. EV segment, you are not talking about developing, say, one particular area and then getting out, right? I mean there are different components that have to be built. They keep on coming out of newer products. So maybe they'll start with chargers, then they will go to alternatives. They may go to inverters. They may go to a better battery charging, they may go to other things. So they continue to come up with newer products. And these are not -- we are not signing the deals just to develop 1 product. It's a family of products. And so we believe that these are sticky. These continue. In fact, case in point, if you look at our client pyramid, it has improved over the last quarter. I can assure you next quarter also it will improve. So these are sticky relationships that get built over a period of time and knock on wood, they continue to expand, right? So that's how I would do say. Competition, you add the usual suspects, I'm sure we all know who plays in the automotive space. So there have been companies. What they definitely saw in us, which I will definitely mention, well, I don't want to talk about what others do because everybody has a business to run, I respect competition. Is that the EV lab that we set up, the kind of technology areas we invested in, have helped us in terms of winning this, I would say, equally important to the relationship that we've been able to develop. Can you repeat your third question, Sandeep? I got lost.

[Sandeep Shah, Director of Research]

Yes. Just in terms of the media portfolio restructuring, which you called out starting from 4Q, will have a bigger impact in terms of a growth shave-off in FY '23? Or it won't have a big impact?

[Amit Pal Singh Chadha, CEO, MD & Whole Time Director]

No. It's a single-quarter impact. We're taking it on the chin and moving forward. It will not have an impact on FY '23.

[Operator]

The next question is from the line of Sudheer Guntupalli from Kotak Mahindra Asset Management.

[Sudheer Guntupalli]

So how do we read the quality of growth during this quarter? So if I exclude the strong growth in the Indian geography, the rest of the portfolio growth over there seemed to be a little underwhelming, especially in the core geographies like North America and Europe. So how do you read? And anything happening in these geographies? And anything that happened in this particular quarter? Or it's just some sort of a blip?

[Amit Pal Singh Chadha, CEO, MD & Whole Time Director]

So I should say, to the year that our North America and Europe revenue actually grew very well. ROW for us has been very tepid. I think what you are referring to is the builder currency, and that's how we do it. But if I look at the growth that we have had, our North America has done very well. Europe has done very well. And it's basically ROW, if you ask me, the India part where it's been very tepid. So the other way around, and we'll be confident in these geographies as we move forward.

[Sudheer Guntupalli]

Now just looking at the sequential growth in constant currency terms. I understand year-on-year growth rates are very high. But in this quarter, it seems to be largely driven by India and other geographies don't seem to have contributed in a large way to the overall company growth that.

[Amit Pal Singh Chadha, CEO, MD & Whole Time Director]

Sudheer, it's more related to and maybe you can do a follow-up with Pinku later on this. This is more to do with build invoices from where it came from more than anything else.

[Operator]

I now hand the conference call to Mr. Pinku Pappan for closing comments.

[Pinku Pappan, Head of Investor Relations]

Thank you all for participating in our earnings conference call for the third quarter. We hope we have answered most of your questions. Please write to me in case you have any queries. I wish you a great day, and we will end the call here. Thank you.

[Operator]

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