L&T Technology Services Ltd
NSE:LTTS
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Ladies and gentlemen, good day, and welcome to the L&T Technology Services Limited Q4 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.
Hello, everyone, and welcome to the fourth quarter and full year FY '20 earnings conference call of LTTS. I am Pinku, Head, Investor Relations.Let me start this call with an apology for keeping you up so late on a Friday evening. Our Board meetings are usually scheduled to start at 4 p.m., but this time, because it was a virtual meeting, we had to move it to 5:30 p.m. in order to accommodate our Board members across 3 time zones.Now I hope you have had a chance to go through our investor release and financial statements. You can download the results from our website, www.ltts.com. This call is for 60 minutes. We will try to wrap the management remarks in 25 minutes and then open up for Q&A. The audio of this call will be available for replay on our website approximately 1 hour after this call ends. Let me introduce the leadership team present on this call. We have Keshab Panda, CEO; Amit Chadha, Deputy CEO; Abhishek Sinha, COO; and P. Ramakrishnan, CFO. We will begin with Dr. Panda providing an overview of the company performance and the commentary on the business outlook. Amit will talk about our large deal wins and the deal pipeline. And finally, PR will walk you through the financial statement. Let me now turn the call over to Dr. Panda.
Thank you, Pinku, and thank you all for joining us on the call today. We are sorry about extending your Friday working hours, so we'll try to keep the management remarks concise. I hope all of you are safe and stay safe. Let me start with an update on how we are coping up with COVID-19 crisis. Since we last spoke with you on the investor call held on March 26, I'm happy to say that all our employees continue to be safe and healthy. The health of our employees has been our priority from the Day 1, and we have been very proactive in ensuring they get all the support from the company. We also work aggressively to minimize the disruption in our flow of business and proactively communicated our BCP plan to our customers somewhere around mid-March. The response from customer has been broadly positive. And with their approval, we have been able to shift even labs to home what we call as home labs. This is a very interesting concept, and this was -- this is -- many of our customers wanted to imitate that for their business as well. This has allowed us to move the threshold higher than what we would have otherwise been possible in terms of work-from-home for engineering services.On our last call, we communicated that we were about 80% in terms of work-from-home enablement. And our target was to take it to 90% plus. We did face some challenges in the final stretch, which impacted our productivity in last week of March. But today, we are at about 93% of offshore billable employees. We are working on new models for the future called work-from-anywhere, which is called WF&X. That will simplify processes and policy for employees to connect with the company network. We also reached out to all our customers globally to find out how we can support them in this time, especially with our top 80 customers with whom we have a CXO connect. While longer-term priorities remain unchanged, customers are having near-term business challenges around supply chain, reprioritizing their product lines, inventory management, et cetera which they have to solve immediately. We are working on multiple proactive proposals with the customer at this time, and we have seen a very good response so far during the last 6 weeks.Now let me talk about our Q4 performance. We declined by around 1% in constant currency in quarter 4. This was below our expectation at the start of the quarter for 2 reasons. The first is on account of COVID, both supply side constraints and demand side challenges, we lost some productivity as we tried to move up work to the home. There were also some project ramp up delays, follow and pause requests, especially in transportation and industrial products as we all indicated in our March call.Secondly, in Plant Engineering, we had to face abrupt project closures. This all happened in second week, third week, fourth week of March, it happened then. And in the upstream -- this happened only in oil and gas segment -- subsegment due to collapse in oil prices. Our deal win traction continued. We closed 9 deal wins across sectors, which include one deal with TCV of $30 million plus and 3 deals of TCV in the range of $10 million to $20 million.Let me provide a brief summary of our performance in each vertical before providing the overall outlook. Starting with transportation. We had a sequential dip of 2% on account of furlough and some productivity loss in transportation segment. We continue to be positioned strongly in the areas like electric cars, safety and ADAS in auto and avionic software in aerospace. There is a temporary pushback in some of the long-term projects, but we are looking to assist customers in their near-term priorities around shifting supply chain, inventory management and shop floor line transport, as we speak.In the telecom and hi-tech, we had almost flat quarters in telecom. Our expectation was that we would show growth in quarter 4, but we were held by deal ramp up slowdown as onboarding at the customer end was delayed. Some renewals also got hit due to uncertainty in the environment. We had solid wins in the quarter winning 4 large deals, and Amit will take us through on these wins.Semiconductor and media entertainment will clearly benefit from this crisis with more demand on chipset and entertainment. We believe we are in a good position to benefit from this. In the Plant Engineering, we lost some of the strong momentum in this segment due to few abrupt project closures in oil and gas in upstream segment, which was a growth area in FY '20. This is, of course, as a result of unprecedented collapse in oil prices, with oil future going to be never before seen negative territory. The focus indicates oil price will stabilize by Q2 of FY '21 as demand picks up. However, the other 2 segments at present are doing well. CPG is not affected and chemical -- the specialty chemical standalone companies are not impacted. So we believe this is going to be a positive for us for Plant Engineering. Across the plant industry, we are seeing a shift in the customer mindset. They are looking at a lower cost of operation for run and maintain part of the plant, and there are some interesting proposals in the pipeline we have been talking to customers.Industrial product. Q4 performance was impacted by lower demand in oil and gas machinery side, which is a part of industrial product and some factory shut down. There continues to be demand for value engineering as customers look to make products, which are smarter and cheaper. As we speak, we are discussing some of the product lines, which we can do, which at current scenario is going to be beneficial to customers. This is going to be a different game altogether. In Medical, the reported growth of 7% quarter-on-quarter would have been better, if not for the COVID-related impact from delayed elective surgeries and revenue disruption for hospitals. We expect the upside in this segment to only improve because of higher health care spending, especially on diagnostic devices and remote patient monitoring where we are very strong. Let me now discuss briefly FY '20 and then the outlook. We closed FY '20 with 9.3% constant currency growth despite multiple headwinds. Our broad-based portfolio helped us achieve this growth as we had 20% plus growth in 3 segments namely Medical, Transportation and Plant Engineering. I'm particularly happy with the progress we made in the Medical segment, which grew by almost 50% year-on-year and is now 10% of our revenue and is growing. We remain very focused on being our customer strategic and preferred partners and getting to 93% work-from-home enablement in engineering services, an achievement, given the complexity involved. My compliments to the team, and I would thank my customer for that.While there is going to be a period of uncertainty in the near term, we believe the current crisis only like to accelerated longer-term trend of consolidation of engineering spend to a stronger and established vendor. We believe I think this is an opportunity for us in the future. Our large deal engine continues to churn wins. Right during the midst of lockdown we won 2 large deals in April -- in the month of April and May, and one of them is $30-plus million, and the other is $15-plus million in terms of TCV. So during the lockdown, when the customer is not good off, still I think this is a solid win for us. We continue to invest in technology and quickly pivot our offering to meet customer needs. For example, we have i-BEM Shield for companies looking to transform workplace post COVID. This is going reasonably well, and we have been in multiple discussions going on, is going well. Another example is our Frugal Manufacturing offering to help enterprise transfer or prioritize their manufacturing and products online. At this point of time, we are unable to provide a guidance, given the lack of clarity on when the effect of pandemic will start reversing. As we see, situation is 4.6 million people impacted globally, multiple countries impacted. We are looking at this very carefully. There are various predictions of economy recovery. But based on our conversations with customers, we expect some recovery in quarter 2 following a dip in quarter 1. As restriction are slowly lifted and many cities and many countries started opening slowly and business activity and demand starts recovering. Developed countries' economies are likely to take a hit this year. The consensus forecast currently for the U.S. economy is to decline. It's declined nearly 5% in 2020 as we see now. The U.S., as you know, is our biggest market with 60% contribution there. And we are carefully looking at the impact to every industry and exploring opportunity for growth and market share expansion in our biggest market. Before I hand over, let me take a moment to congratulate Amit Chadha on his elevation to Deputy CEO. Amit joined us, LTTS, earlier it was L&T IES, in 2009. I've been working with him for a very, very long time and he has been working with me since then. His elevation is a part of the succession planning of the company, and I wish him the best for the future. Now let me hand it over to Amit.
Thank you so much, Dr. Panda, for your wishes and support. Good evening, and -- to all of you. I do wish and trust that you and your families are safe and healthy. Allow me to share with you our approach, the conversations we have been having with customers, details of some of the wins in Q4 and the pipeline and outlook as we see today. In response to the pandemic, we created growth streams and resilient streams amongst the entire leadership team of this company, right from March onwards. The resilient streams have been focused on bench management, retailing and collections, led by our COO, Abhishek Sinha. I have been leading the growth streams with some of our senior leaders across the organization. This is made up of 5 broad areas, proactive large deals; Medical growth; high-tech growth; Frugal Manufacturing and digital repositioning. If you go to our website, you can see some of the new offerings in context to the current situation that we have launched. COVID did have an impact on our pipeline and conversions. We also saw furlough notices and some cancellations in the transportation, industrial products and oil and gas area. But we have been -- we have seen an uptick in the pipeline value in May. It has returned to pre-COVID levels after dipping in March and April. The conversations in the last few weeks have turned cautiously positive, and clients are receiving and discussing our proposals with us. Let me give you a segment-wise update. For Transportation in Q4, we won the 2 deals we had spoken about last quarter, one in the construction equipment and one with an auto OEM. In May, that is the current quarter, we've been awarded an autonomous driving deal from an European OEM for whom we have been engaged already to execute the entire software integration and build management for their engine control units. We are in conversations with our clients in U.S., Europe and Japan for 4 more deals in the areas of powertrain, connectivity and autonomous driving in the auto segment and in electronics, hardware and software in the aerospace segment. Moving on to Plant Engineering. This segment for us did very well last year, but has been impacted by oil prices tanking and subsequent budget cuts by our clients. We did manage to close one deal in Q4 in the oil and gas segment, and that is underway. We have also been trying to grow the CPG segment where we have had one win in Q4. We are pursuing some engineering value center and digital factory deals. This segment will take some time to come back to normalcy. Talking about industrial products, our differentiated offerings in digital towards cloudification of products and services, Frugal Manufacturing and home labs have seen traction with clients. We have closed 2 small deals in quarter 4. And like Dr. Panda mentioned, we just signed a large deal a week ago. In this large deal, we will help our client provide technology solutions, including software and data analytics platform for the oil and gas upstream industry. We are in the process of discussing other proposals and hope to make continued headway in this segment. In the Medical segment, we have repurposed some of our offerings to address the ongoing situation in areas like certification of equipment and supply chain rejigging. We closed 2 deals we were pursuing in Q4. There are 4 more deals in the pipeline that we expect to close in this quarter. Moving on to the hi-tech segment. We've seen continued traction. If you will recall, we were pursuing 5 deals when I spoke to you last time, happy to share that we have closed 4 of these 5 in Q4. The largest deal that we have closed was a complete managed services deal for a media and entertainment customer. We will be involved in the development and deployment of new features as part of a road map to support 60 end customers across North and South America. We see traction of the telecom operator space, semcon space and media entertainment space in the areas of product support, vendor consolidation and cloudification of products. Summing up, we faced notices and deals delay in the early part of the current quarter, but our growth stream organization, while focused, we've been able to bring back some of this pipeline. For FY '21, we expect the strong momentum in Medical to continue. We see a path for growth in telecom and hi-tech. We will try to recover quickly in Transportation and Industrial products while Plant Engineering may take longer to come back. Like Dr. Panda mentioned, on the back of our strong client relationships, we do see several consolidation and product engineering CAE opportunities and 7 of the 9 deals we have won in quarter 4 were of this nature. We stay committed to returning to our growth trajectory soon. I now hand over to PR. Thank you.
Thank you, Amit, and good evening to all of you. Thanks to you for having taking us the call on a Friday late evening weekend at 8:30 p.m. You must have heard from Dr. Panda and Amit on the way the performance has been. I will try to summarize the financials for the year ended 31st March '20, and also give highlights for the quarterly performance as well. So we closed the year FY '20 with a revenue of almost INR 5,620 crores, almost a 10.5% plus growth year-on-year. In dollar terms, we had a dollar million revenue of $786 million, which is roughly a growth of around 9% compared to FY '19. The net income, that is the PAT was reported at INR 819-odd crores, which is almost a growth of 7% and the net margin being maintained at 14.6% for the year.When it comes to quarter-on-quarter, our revenues, we reported at $195.4 million for the quarter, which is roughly a decline of 2% Q-on-Q. And in constant currency, a decline of around 1%. We -- our profit after tax for the quarter, 31st March, 2020, has been reported at INR 205 crores, which is roughly keeping the net margin at 14.2%. You must have gone through the financial statements and that pertains to the press release, just to take you through there. Coming to the overall numbers from a margin perspective, our EBIT margin for the quarter has been at 15.2%. And I request you to -- all the people to take the attention that during this quarter, we had a onetime spend in terms of contribution to PM CARE, which was roughly around INR 18.3 crores. If I take that amount then -- if I have to take that amount and adjust it for that onetime payment, then the EBIT margin would be improved to almost 16.5% more or less equal to the previous quarter. Having said this, during this quarter, the company did take the benefit of a sharper rupee down move in terms of almost, I would say, INR 3.5 in realized exchange rate, which benefited the EBIT, but that got partly offset because of lower revenue, which we generated during the quarter. Coming to income tax rate. We have been -- throughout this year, we had at around 26% to 25.7% income tax overall rate and that's continued. Now coming to other income. For the quarter, we have almost INR 52 crores we have shown. And roughly, that comprises majorly on account of foreign exchange gains because of translation and transaction of debtors, partly offset by losses on our hedge covers, which we show against in this particular hedge. As I told you, we also managed to get the licenses, which we had filed, the export licenses for the previous year during the current quarter, and that's one of the shown -- major amounts, which is shown as government incentive, almost around INR 32 crores for the quarter, thereby taking the overall other income at net INR 52 crores. The other income also includes a finance charge because of Ind-AS 115, which is more or less an adjustment because of -- as Ind-AS 115, the rent is now substituted by way of higher amortization charge and also higher finance costs. Otherwise, the debt at the company at closing of 31st March, '20, is around INR 30-odd crores. Coming to the balance sheet size. Our balance sheet for 31st March, '20, is around INR 4,300-odd crores, which is roughly around, I would say, almost INR 1,000 crores increase compared to 31st March, 2019, primarily because a major part of that is because of the Ind-AS adjustment where you can see in the property and plant and equipment, there is a huge increase because we're bringing the right of these assets. And again, that is creating a current and a nonline current liability of lease payable. Having said this, one important thing, which I mean -- we see that another increase is because of the accounts receivable almost around, I would say, INR 300 crores, this has been the increase, and that is one of the reasons for the increase in the overall balance sheet price. Our free cash flow for the year has not been as good as it was in the previous year. We had a roughly free cash flow of around INR 487 crores, which is roughly around 60% conversion of PAT to free cash flow, largely driven by the fact is that we could have collected almost $30 million by the month of March in terms of our receivables, and because of the COVID situation, there were some delays. And as we speak, some of those shortfalls have been actually recouped in the current quarter. And as we speak going ahead, I think, this year, especially the first 2 quarters, a lot of emphasis will be done to improve the overall realization. And as we speak, we don't see any great headwinds from non-realizability of receivables as we speak now. The return on equity for the year has been taken at around 31% as compared to 34.18% of the previous year. Coming to the revenue by verticals, since already Dr. Panda and Amit gave you a color of the vertical performance for the year, but just to give a perspective, the overall revenues, Transportation continues to hog the major share, almost 35% of the yearly revenues accrues to Transportation, followed by Industrial products and telecom and hi-tech, both of them are at 20% share each. In fact, as Dr. Panda talked about, Transportation, Plant Engineering and Medical devices are the 3 segments, which actually had almost 20% growth year-on-year. But was actually offset by de-growth in telecom and industrial products. So the share of revenues in telecom and Industrial products remains at 20%, Plant Engineering at 16%, and Medical is almost up 10% as against 7% in the previous year. Coming to revenue share by geography. We still continue to see overall share in North America having a major share of revenue in excess of 60% revenue from North America customers, followed by Europe at 15%, India and rest of the world are at 13% and 11%, respectively. In fact our on-site/offshore revenue mix, for the quarter, we did see a slightly higher on-site component from 44% in Q3, it jumped to 47%. And hence, the overall yearly on-site/offshore revenue mix is at 45-55 approximately. And in terms of the revenue by fixed price and time and material contracts, we still -- we have not seen a major change. I would say that around 40% in terms of its price and 60% is on time and material contracts. The rest of the statistics in terms of client contribution and utilization are there for everyone to view through. In the interest of time, I would probably close at this level and we are ready to take questions now.
[Operator Instructions] We take the first question from the line of Laxmi Narayanan from ICICI Mutual Fund.
I have 3 questions. First question is, what is your FX mix on-site/offshore this year and how it was last year, full year? Second question is, what has been your revenues from new clients for this year? The third question is that do you get any synergy from Mindtree in case if there are some clients of Mindtree, which you can actually mind? These are my 3 questions.
The first part, I think I would request PR who will answer that. And the second part, let me answer this, the new customers. If we look at it, we always focus on 80 customers, top 30, next 20 and next 30. And consistently, FY '18, FY '19, FY '20 is a similar trend. Top 30 customer contributes anywhere between 58% to 61%. And top 80 customer contributes 83% to 84%. The trend remains the same. Then we always -- when we look at the numbers, we always look at it what happens to our top customers and how they are doing it and then other customers. So I think we always focus on these 80 customers without fail, we must continue to maintain the percentage of what we do and grow. And in absolute number also, that number is growing, okay? So about the synergy for Mindtree. When you see, yes, of course, we are looking at, if there is a possibility of working together. Specifically, when you see some of the areas like the new IT and opportunity engineering, of course, we look at that. There are a few areas we are bidding together. And there are few areas where they're planning and we are planning. But the only thing is, you'd remember, we need to have arm's length distance. We need to have a different MSA. We need to have clarity clearly at the beginning itself, and that governance is in place and that seems to be working fine. About on-site/offshore, we have improved, our offshore increased compared to FY '19 to FY '20. I think it's in a healthy condition right now. PR, can you give the numbers? Last year, FY '19, FY '20 on-site/offshore.
Sorry, Dr. Panda -- Laxmi, I'm sorry, whereas we have been always giving the on-site/offshore revenue mix perspective, we don't have a practice of disclosing the FX part of it. So I think -- we only disclose the revenue side.
[Operator Instructions] We take the next question from the line of Pankaj Kapoor from CLSA.
Dr. Panda, my first question is to you. If you look at your business portfolio, how much of it could be called discretionary? I mean, for example, related to, say, new product development, et cetera, where the disruption in supply chains can have an impact for an extended period. And conversely, how much of it would be [indiscernible] recover relatively quickly once things start normalizing?
So again, we have drawn -- many times, I draw the pyramid, look at it. And that 40% of the business is consulting and design work, and 60% is what is called skill based engineering which is annuity business, right? That's how we do as of now. Now when you go up the product engineering, the discretionary business, when you talk it changes from industry to industry. What is discretionary in automotive segment is different from what we do for high-tech segment. So today, if you see what is discretionary and is discretionary impacted there, there are some segments which are not impacted at all. But there are some segments because of supply chain, the auto industry, for example, has taken a hit. But at the same time, we also, because of the supply chain issue, we also won a few orders. The orders we talked about, the recent win what we have, we have been able to successfully winning this. So in my view, overall, when you see the pyramid, 100% when you look at it, it's a minimum percentage which impacts on the discretionary path. It all depends on like medical areas, the product which we were working earlier, customers come with the new ideas, can you put that project on hold and this project can we start and complete by this day. So I think it keeps changing in a way it is from segment to segment. That is where I think the current situation is.
Understood. And Amit, your comment seems to suggest that there appears to be some normalization in the decision-making on these deals in the recent weeks. So just wanted to understand, you have seen any release of the deals? Or have you seen any higher execution from the clients on price of these deals? If you can clarify, please.
If I heard your question correct. The question was, if there has been any -- level is the same, then you were cutting off.
Yes. Let me just repeat the question, yes. So what my question was that in your comments, you are suggesting that the deal decision-making is now getting normalized to some extent, especially in the last few weeks. So just wanted to understand if you have seen any rescoping in these deals? And has there been any higher aggression from clients on pricing in such deals?
Okay. So number one, we are -- so where we were in early March and onwards from there where people in April -- early April where people were bothered about survival and life. We do have clients talking to us and say 75% of our meeting would basically be focused on COVID. We have clients talking about their supply chain disruption, how it's going to change. They're talking about their plans in the new environment, and they are positively receiving proactive proposals that we are making. So that's for sure happening. Now is the speed of decision-making back to pre-COVID levels? The answer is no. They are taking longer to make those decisions, right? Third, do we see price point pressures? The answer to that is that, again, it's a mixed bag because there are areas that we're getting engaged in like the ones that we have won, where we have won them at pre-COVID levels. We have not had to make any room there. But there are conversations that we are doing in consolidation, et cetera, which requires a little bit of aggression. But again, a mixed bag. It's not one sign that you're getting to give up rates, et cetera.
Pankaj, like segment-wise, when you look at it, telecom, high-tech and medical which is even though people were in panic condition earlier, and that will have impact in quarter 1. But what we see is at the end of quarter 1, some of the deals we win is coming back. So telecom, hi-tech, and medical segment, I think will come back faster than other segment. Now coming to Plant Engineering segment. If you see Plant Engineering, CPG food beverage industry and chemical industry. That is going to pick up faster than the oil and gas segment. Oil and gas, we don't know, it might go to quarter 3, quarter 4 as well. So it's not going to come back in quarter 2. So again, when I divide this one by one, and look at the transportation. Transportation, auto segment. Auto segment in particular area, we won a deal recently. We won a deal again when crisis is going on and customers are sitting at the home, still decision made, a sizable deal we won. Because that is a priority for them, the supply chain, the way they were managing now -- earlier, they want to change that. They are saying a company like us, we can play a better, bigger role there than they have been doing there. So we won a deal there. But at the same time, in the automotive segment somewhere, there is a furlough, in bigger type of work, we are doing it, there's a furlough there. So it's a combination business, segment by segment, and timing point of view. What we are saying is at least communication when we were sending March, beginning of April, customers are not available to have a dialogue, now the proposal -- proactive proposal and the business model we are proposing to them, the response coming back from them saying, let us have a dialogue. It's -- this is something you guys are in the right track, let's talk about it. At least that's happening. This gives a hope and the recent wins, fewer wins we had. Like yesterday, we won a deal somewhere in Germany. We won a deal there. That's a very high level of design work, which we do, chip design work on semiconductor segment. So this is something, the same customer, e-mail we were sending in earlier, we thought we will close in March end, but it happened yesterday. So this gives it -- but at the same time, in the half of March -- April, half of April, there was no communication -- when you send a communication that was one-sided only. We are talking about -- as Amit said, we were talking about COVID-19 only. We were talking about how they are doing, how their employees are doing, how their family is doing. Business discussion happening, which gives us a comfort that some segment is going to come back sooner and those segments we are prioritizing so that we can bring back our revenue growth.
The next question is from the line of Abhishek from Elara.
Yes. Just a question on the deal activity. You sound -- your commentary sounds little optimistic in terms of the deal wins in the quarter as well as the pipeline and what you're seeing on the ground. Could you elaborate as to what -- why -- or how are you winning this? Is it the activities progressing faster than you anticipated? Or some clients are kind of aggressively closing the deals?
Listen, Abhishek, I think what's going on in the world, the reality is 4.6 million -- 4.5 million people are impacted. 300,000 people died. And 190 million people globally are unemployed, and America has 37 million people unemployed. So reality, we don't forget it. What we are trying to do is -- in the reality, what opportunities we can get. And we also have issues like there are furloughs, and SoWs getting canceled and there are somethings like that. I think when you see overall, it gives us a very -- at this particular time, when you go through, you'll hear negative news, you'll hear positive news. It gives us comfort that what we intended to do as a company, as a leadership team, some of the proactive proposals, some of the new ideas we are sharing, customers are listening to that. And I did write -- all of us, we continue to write to customers. We have video conferences. There is one customer we had video conference in the last few days, and he was telling, I think, let's not wait for it. And okay, this COVID will continue, but I have the problem that what I was doing for supply chain for the country, our labor, what we were doing earlier and I believe I want to do something different in India, can we do a center for me there. So those issues also, supply chain also, can clearly impact -- positive impact for us. So the way we are saying is, there are drops, negatives happening. We talked about that. And positive happening at today's time in April, May, when you win a $15 million engineering deal, $30 million engineering deal. This is definitely a positive thing. And we wanted to give you that -- I think this is the only way we can come back. And only way we can see what we see in the market. And our -- we have to be optimist. Otherwise, you can't continue to live, what's happening, everyday morning you wake up and see 2,000 people died in America. So I think this is -- we don't never forget, oil price going to negative, this never happened in decades. It happened now. So keeping that in mind, what are the business opportunities for us, and we believe the technology and domain knowledge, what we built over years, the innovation, what we did, it is time for us to stay strong and hit back. And that seems to be working. That's all I would say.
That's helpful, sir. And just a short data question. My apologies, if it's a repeat, but would you quantify the drop in the Q4 to demand challenges and the execution challenges? And second part is to PR. PR, the realized rate for the quarter is substantially higher. Anything you would like to highlight?
Demand and supply part, I'll answer the first one, you take the second one, PR. See what happens is, we did work-from-home. When we started working, I did communicate on March 26, the work-from-home which we did, but when you work-from-home, the productivity for work-from-home, even though -- and there are some cases, customer approval came, some cases where the fixed bid project, which we thought is going to be completed, customer approval got delayed. So supply demand is -- I think demand was there. The customer project is not canceled. For us to perfect this delivery from home and being as productive as in office is what we visualized, that has not happened. So that had an impact in quarter 4. That's number one. Number two, there are some cases which happened here. We thought we are going to close, usually in engineering, the last part of it, we will have 10% to 15% of our business we close later because we are selling something for new start and we start billing it, right? So that got delayed. So that's what's meant by this. And second part, I would ask PR to answer.
So thank you. Abhishek, the answer to that is that I did tell, while I was explaining the numbers, that there was an increase of almost INR 2.50 in realized exchange rate as compared to Q3, Q4 that obviously added to our top line and profitability. But also, you'll see that our Q3, Q4, there is almost a drop of almost $4 million top line. And plus the other aspect is that our on-site/off-shore revenue mix also went into more into on-site centric in Q4. That's one of the reasons that we were just able to manage the margins as what we have given. I hope I have answered that.
The next question is from the line of Ashish Aggarwal from Principal Asset Management.
I just wanted to understand a couple of things. There was a sharp increase in on-site revenues, any specific reason for that? And secondly, how should we look at your margins going forward into FY '21?
PR, can you take that, please?
So the on-site/offshore revenue mix, historically, I think we have been always saying that you can expect from an engineering services company like us that on-site/offshore revenue mix will range from 45-55 to 55-45. It depends on the type of projects we get during the quarter, and which goes into maximum amount of execution. For a large part of the last 4, 5 quarters, we have been seeing on-site/offshore revenue mix hovering between 45-55. This is one quarter where the number has undergone a slight change tilting in terms of favoring -- going into more of on-site side, almost 3% from 44% to 47%. But I expect this is not something which is going to change also in the near future. We will operate in that 48-52 or 52-48 band in terms of revenue mix, okay? And secondly, when it comes to margin, I guess, we don't give a specific margin guidance, but all of you are aware of those facts, and that is also demonstrated. If you can see the segment results as part of it. Margin is directly, I would say, more a function of where the business comes from. And if the business seems to be coming from a particular 3 segments where the margin profile is slightly higher, and when it comes to maybe transportation and telecom, I think the growth comes from there. Obviously, the margin sits at that case almost 15%, 17%, which is 15% at constant currency rate that we see today. So I guess we are not here to talk about in a sense that we will chase only revenue -- margin dilutive revenue growth or margin accretive value growth. I think it's a question of what kind of growth opportunities come, and we will take that. And that will obviously have the related margin consequence. Having said this, yes, there are margin levers in terms of utilization now, which we continue to work upon. And hopefully, I guess, we should be in a position to maintain in a sense that based on constant currency and constant growth as a way we are talking about. Otherwise, there will be an impact.
The next question is from the line of Shashi Bhusan from Axis Capital.
In verticals, wherein we are seeing weaker environment like oil and gas and Plant Engineering? Is it pricing that is under pressure that is aggressive stance may help gaining wallet share? Or is it that there is complete freeze on decision-making with cancellation of projects?
See, plant -- oil and gas is a part of Plant Engineering. Okay? And some part of the product, if you see oil field services, some product go through industrial product. If oil price goes down, the customer who were willing to invest on a new project in upstream area that is getting delayed. There is no -- pricing pressure doesn't come here. Opportunity goes away because that's our opportunity deferred because they wanted to -- the project you are doing today, there's investment required, we did thought they're going to do in upstream area, it is going to be beneficial to them in 3 quarters or 4 quarters, that they stopped. They said let's stop this, we'll discuss this after a few quarters. There's no pricing pressure there. So in Plant Engineering, that is again 3 segments, right? One is the oil and gas. Then other one is CPG and food beverage industry. And the third one is chemical industry. So chemical and CPG is not impacted. So we see this is an area where, again, there's no pricing pressure or not impacted as high as what we see there in oil and gas. So it could be deferred but I think this is going to, again, is going to come back faster than other segments in Plant Engineering. That's what it is.
Sure. And how do we see Q1 evolving as we are already 6 weeks into the quarter? Would the decline be similar to this quarter or steeper than...
Listen, I think every day is a new day. And I guess, I have the answer to give you today in the current scenario. Some cities are open. Some plants are open. Some plants are not open. Even if it's open, it's going to be 25%, 50% -- 30% is going now and sales people, all the communication goes through video and audio. In this current scenario, whatever is happening right now and then the people who completed the project, they can't fly to India. In India, commercial flights are not there. Government has started doing that now. So I think a lot of questioning, things to be answered. I think overall point of view, either going to be a dip, I think we said that, Q1 is going to be a dip. We are making assessment. And also, we are trying to do the new deals we win, how much is going to recover. And how many deals we are going to do quickly, the effort where the customers are there, how quickly we can do, so that we minimize that dip. So that's where we are at this time.
The next question is from the Madhu Babu from Centrum Broking.
Yes. Sir, captives have been impacted substantially in this lockdown in terms of logistics et cetera. So how do we see the market share moving within captives because engineering anyway has the largest number of captives. So are we seeing market share gains on the captives, and second, are there any captives, which will be on the block and we would look for acquisition?
Listen I think we are looking at it right now. One thing we did well compared to -- I don't have the data to say for sure, the work-from-home and moving the lab or the engineering center to home, I think we did very effectively. Some of the BCP plan when you send to our customer, who have captive in India. They said, "You guys have been able to do, we couldn't do it." So I think, as we speak, we are looking at all the captives in India, and we think there is a possibility of doing more than what we do today. Some of them are customers as well globally, including captive. But one thing you want to be careful about, are we going to do acquiring a captive for what? Do I get technology? Or do I get people? Or do I get revenue? So I think it is important for us, if a captive working on a particular segment only, and that segment is going to be impacted long term, we may not be interested in doing that. So I think as we speak now, there are -- absolutely, we are looking at few opportunity in captive area, which has potential and synergy for us for future growth and taking these people is going to be helpful. We are always looking at it. We did a small-scale 1 or 2 we did, neither is bigger scale. We did -- already did that last few months. Are you going to look at the bigger ones? And if you do bigger ones, what is the value I get for a long-term. We always debate on that. Yes, there is an opportunity on that.
[Operator Instructions] The next question is from the line of Mukul Garg from Haitong Securities.
So Dr. Panda, based on your previous comments, it seems like you are seeing a fair number of clients coming back to discussion table in last few weeks. Now if you look at overall global macroeconomic environment that continues to remain quite weak, and usually, despite people's desire to maintain R&D, that's an area which sees decent amount of cost reduction. So how -- why is this time the kind of discussions with client a bit different versus what we have seen in past? Why are they more willing to continue spending on R&D instead of cutting costs?
Mukul, if you go through, what is R&D? R&D is not research and development in a true sense when you go to a customer, right? When you go to a customer, he has a product already there. He has to take out the cost -- cost takeout he has to do more than what he was doing before. He has less money now, he has to do it. He has a product now where the people are there right now working on it, and then there's a cost pressure, he wants to do with less money. He does not want capital investment. We already have a lab. He already have people. He wants to do that. So this is -- when the difficulty comes, I think I always tell this when I am addressing team employees globally, I was talking about, see any crisis brings opportunity, that's 2001, 2007, '08 when you go and starting from World War II, if you go through, we believe -- see, we were -- in March -- end of March, April, when we were trying to look at it when do we get a follow or we get a SoW cancellation, and then we analyze that. Why is the cancellation happening there? So customers were looking at that time, saying that we are not sure what's going to happen to our liquidity position, which are the projects we can stop it. And I still believe if engineering -- industrial company or telecom hi-tech company or a company like a Plant Engineering -- FMCG company, the core thing is, unless they do product, unless they manufacturing outflow comes, what else comes? How can they run it? So I think minimum, when you say what is going to be impacted in engineering is this, if I'm thinking about new ideas, which is going to have a market, I'm going to roll it out 2 years from today. I'm doing an innovative project. Then I look at my bank balance, do I have money to invest for 2 years? Those projects are put on hold. They're not going to do it. Now there are projects we have heard from customers saying, this project was supposed to be delivered in 3 quarters, can you do in 1 quarter? I'll go and hit that in the market quickly, can I do that? Same, this is product development only. The product development is happening there, whereas the projects which I am doing it, which is supposed to have a plan for working for long term, that's put on hold. So I think multiple things happening. And in the literal sense R&D means research development there, why should I do it. There's no question of research and development. This is survival issue. A customer is to survive, he has to do product. Customer is to survive, the manufacturers outflow is to go, it has to be more efficient. And it has to be a smart product, they have to do it. And customer decided to roll out the product, see, for example, they want to go to new geography. If they go on to a new geography, do I go now, or I delay by 3 months, 6 months, look at how market is going on, my liquidity condition, then the banking, whatever they have debt condition, all that they look at it. So that's where it is. There is nothing that says, but I still believe temporary impact, of course, is going to happen. I wouldn't say because I think this is something nobody has seen in the world, lifetime, people have not seen, and it's not going to remain long term. I would -- I think -- but at the same time, I still believe it will do this right with the technology and the vertical segment, what we have is an opportunity. If you play it well, you can have a temporary dip, but we will be able to come back.
The next question is from the line of Sandeep Shah from CGS-CIMB.
Just the experience in terms of the deal wins, which has happened in Jan, Feb, March and also in the last few weeks, which you have said in April, May, are they ramping up as per your expectations? And your expectation of 2Q bouncing back in terms of the growth, is it on an assumption that there could be some normalization of COVID? Or is it largely in terms of the deal wins which has happened? The third question is just in terms of what you said in April and May, one large deal of $30 million and second was $50 million 5-0, and that is largely a new business. And PR, are you saying in the coming years, the margins could be flattish in a constant currency? Is it what you were trying to say in a previous reply?
I will take the first and Dr. Panda I will take...
Yes, go ahead.
So what I talked about was that I told that we don't give specific margin guidance. I also told that margin for us is dependent largely on the fact how the revenue grows, which comes from across the 5 segments. So if you see revenue mix coming from the higher profitable segment, obviously, margins would be higher. And I also told that if at constant currency and constant revenue, whatever we had, I don't see why margins cannot be maintained. But that is -- obviously, it's a mathematical equation, which we are trying to talk about. So for us, it is -- the margin profile primarily depends on growth, is coming from which segment, will determine our margin profile on a normal scenario.
Okay. One correction though. I think you said $50 million, that's not correct, $15 million, 1-5. That's what I talked -- we talked about, all these -- what Amit spoke and I spoke, $30 million and $15 million, April and May. Amit, can you answer the other one? What gives comfort in Q2? That first question. Can you answer that, please?
Sure. So the way we look at this, and I've given commentary vertical by vertical. The way -- the reason we are -- we think that our quarter 2 onwards, we will be able to start our trajectory is because: One, in the Medical segment, though, it is small for us, we're seeing continued demand. We see that in hi-tech also, we're continuing to have positive conversations. Though transportation, industrial and Plant Engineering were hit. Transportation, again, people are coming back. People are starting to buy cars, and there is positivity in terms of discussion going on there and so is Industrial. Plant like Dr. Panda talked about will take some more time. So I mean, we already covered that, but I'm happy to take any specific item that you may have in this area.
Yes. Can you throw some light in terms of aerospace as a whole? And is there any systematic risk in any of your top 20, 30 clients as a whole?
So from an aerospace standpoint, we work in avionics space. We do not work with airlines, right? I mean that's not our business. We are more with the aerospace companies, avionics, et cetera. And Dr. Panda had also shared with you, I think last time we had the earnings call that we had set up this center in the U.S. focused on ITAR and defense. So though there is a hit on these areas, we do expect these to bounce back sooner. There are conversations going on in this area. So we do expect avionics -- the work that we do is very specialized, and we do see that, that will come back sooner. So that is one. You had another part of the question.
Thank you. We'll take that as the last question. I would now like to hand the conference back to Mr. Pinku Pappan for closing comments.
Thank you for joining us on the call today. We hope we were able to answer most of your questions. If you have any follow-up queries, please reach out to me on email. Wishing you a very safe time. Goodbye, and have a great day.
Thank you very much. With that, we conclude today's conference.
Thank you.
Thank you for joining us, ladies and gentlemen. You may now disconnect the line.