Moonlighting is fine as long as it is unrelated to what we do for our clients, says L&T Tech

• L&T Tech, one of the IT services subsidiaries of conglomerate L&T, announced that it has achieved $1 billion annualized revenue run rate in Q2.
  
• At a time when moonlighting is generating a hot debate in the IT sector, L&T Tech says that it is fine with it as long as it is unrelated to the primary job.
  
• The IT services company also bagged a 5-year multi-million-dollar deal from carmaker BMW and said it expects its bookings in Europe to double in FY23.
  
• Business Insider India caught up with the company’s CFO Rajeev Gupta and COO Abhishek Sinha to understand what the future looks like for L&T Tech.
  

At a time when moonlighting has become a hot-button debate in the Indian IT sector and majors like TCS, Infosys and Wipro have said they are against it, IT services firm L&T Tech revealed that it is fine with moonlighting as long as the second job is unrelated.

L&T Technology Services, the IT arm of the multinational conglomerate L&T, announced its September quarter earnings, reporting a sequential growth of 4.5% in its revenue in constant currency terms, while its net profit increased 2.9% to ₹282 crore during the quarter.

However, shares of the company fell 3.8% on Wednesday while the Nifty IT index was down 0.4% as of 10:30 a.m.

While the company raised its guidance for FY23 to 15.5-16.5% revenue growth from 13.5-15.5%, it also reported that its attrition numbers worsened to 23.2%, with net employee additions of 572 for the September quarter.

The company also announced it has achieved its target of $1 billion annualized revenue run rate, which it had initially projected to happen sometime in Q2 or Q3 this year.

Business Insider India caught up with Rajeev Gupta, CFO, and Abhishek Sinha, COO, L&T Tech, to understand what’s working for the company and what its outlook for the next few quarters is like.

Moonlighting is fine as long as it is unrelated

Moonlighting has been a sensitive topic in the past few weeks, with most IT majors either actively discouraging or making it known that they don’t approve of it. The only notable exception has been Tech Mahindra, which said it is fine with the practice.

However, Sinha took a more nuanced position. While he says that the company is against the practice, it is fine with it if the second job is unrelated to what the employees do at the company.

“I mean, if an engineer wants to teach students and enters college after hours or wants to do CSR work or wants to do work unrelated to the work we do for customers, there's nothing wrong in that. In fact, we would encourage that and that's absolutely fine,” Sinha explained the company’s stance on moonlighting.

Moonlighting is the practice of taking up a second job, usually in secret, apart from the primary full-time job.

On attrition rates – ‘it’s a cyclic problem’

The September quarter has seen several headwinds growing stronger for the Indian IT sector – from recessionary concerns to elevated attrition rates and wages, the past few months have been difficult for the IT majors.

But crucially, L&T Tech’s attrition rates have worsened, from 20.4% in the previous quarter to 23.2% in Q2. Sinha said this is a cyclic problem and that he sees it going down in the next quarter.

Despite the margin pressures that high attrition rates can cause, Gupta sounded optimistic and said it could become a tailwind going forward, since he expects attrition to come down and the company has been able to manage its 18% EBIT margins in the current environment.

‘Deal pipeline looks robust’

L&T Tech added a new $60 million client to its list in Q2, and the company believes that its deal pipeline looks robust – the company says that it now has the visibility of doubling its bookings in Europe in FY23.

Explaining how the company has been able to maintain its EBIT margins above 18% for the fifth consecutive quarter, Gupta said, “The pipeline is robust in terms of pricing and I would probably respond that - more in terms of the six big bets that we have and most of the wins that we've had are in these areas, so our ability to command better pricing has been maintained.”

‘Cautiously optimistic’ about growth prospects

Despite warnings from the IMF and World Bank about a looming recession, Gupta says he is “cautiously optimistic” about L&T Tech’s growth prospects.

“Given that we are in the engineering services space, we tend to look at spends from customers in two areas. One is of course, growth-related capex and the other is maintenance-related capex. Now, for any customer to continue to manage their operations, they will always continue on maintenance capex. So, we believe despite whatever the situation, the spend on maintenance capex will continue,” Gupta explained the rationale behind his optimism.

Amongst L&T Tech’s primary revenue contributors is the transportation vertical – the company just bagged a 5-year multi-million-dollar deal from car maker BMW for high-end engineering services for the infotainment consoles in its hybrid cars.

With the transportation vertical contributing to over a third of the company’s total revenues, it is understandable then that it is one of the company’s big bets.

“EV is a huge wave right now and that's where our big bet is well positioned and we see at least over the next 18 months, if not more, a good tailwind in terms of spending in transportation,” Gupta added.

Sinha said that while the semiconductor chip shortage is still not resolved, the problem is easing out, explaining why the company sees transportation spending – its biggest revenue driver – as a tailwind over the next few quarters at least.

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