Larsen & Toubro Infotech Ltd
NSE:LTI
Larsen & Toubro Infotech Ltd
NSE:LTI
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Ladies and gentlemen, good day and welcome to LTI's Q3 FY '22 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.I would now like to hand the conference over to Ms. Sunila Martis, Head, Investor Relations. Thank you. And over to you Ms. Martis.
Thanks, Faizan. Hi, everyone, and thank you all for joining us today to discuss LTI's Q3 FY '22 earnings.The financial statements, press release and our quarterly fact sheet are all available in our filings with the stock exchanges as well as the Investor section of our website. On the call, we have with us today, Mr. Sanjay Jalona, CEO and Managing Director; Mr. Sudhir Chaturvedi, President, Sales; Mr. Nachiket Deshpande, Chief Operating Officer; and Mr. Anil Rander, Chief Financial Officer. Sanjay and Anil will give you a brief overview of the company's performance to start with, and this will be followed by the Q&A session.As a policy, LTI does not provide specific earnings or revenue guidance and anything said on this call, which reflects our outlook for the future or which can be construed as a forward-looking statement must be reviewed in conjunction with the risk that the company faces.Let me now hand over to Sanjay to start with our results.
Thank you, Sunila.Hello, everyone. I wish you all a very Happy New Year, and I hope you and your loved ones are staying healthy and well. It was good to see you guys in December for our Analyst Day. Since we recently talked about our view on the market and 6 reasons why we are confident about the future, I would not dwell much on these today.Let me quickly walk you through our Q3 numbers. We are happy to report 9.2% quarter-on-quarter and 30.1% year-on-year revenue growth in constant currency. This translates to a growth of 8.7% quarter-on-quarter and 29.3% year-on-year in USD. This is our best ever sequential growth since listing.Our Q3 performance once again brings to fore the strength of our portfolio as we have witnessed wholesome growth across verticals, service lines as well as geographies. While we are seeing increased inflation, supply chain challenges, Omicron spread leading to shortage of people for companies globally as we read and hear, our optimism is still underpinned by conversations we are having with our customers on their digital transformations.Let me now -- some highlights -- send you some -- tell you some highlights from Q3 that exemplifies our optimism. BFS, our largest vertical continues to show strong growth with over 38% Y-o-Y growth this quarter. Our manufacturing vertical grew over 30%. Our High-Tech and Media and Entertainment vertical grew over 44% Y-on-Y, while the others vertical which includes some of our marquee clients and services sector grew over 37% Y-o-Y.On the service line front, our Analytics, AI & Cognitive service line grew over 37% on a year-on-year basis and Enterprise Integration & Mobility grew at 36% on the year-over-year basis, with the rest of the service line also growing in double digits on a yearly basis. All our geos also grew over 25% on a year-on-year basis. Our Europe geo has turned around very well over the last few quarters and has grown 30% on YTD basis. We added 27 new logos this quarter, including one Global Fortune 500 logo, taking the total Global Fortune 500 count to 72. On a YTD basis, this is the highest number of new logos we have added since our listing.We also opened a new logo in our pharma vertical in North America with a large deal TCV of $32 million. All top client buckets, whether it's top 5, top 10 or top 20, grew by about 25% year-on-year basis and we have added one more client to the $50 million bucket. Our hiring engine continues to drive our growth momentum. We increased our fresher intake to INR 5,500 for FY '22, and we have proactively hired around 1,000 hire, train, deploy, or HTD people in Q2 and Q3 in the 1 to 2 years’ experience bracket.Post the 3-month training on the new age capabilities like data and cloud, these 1,000 HTD resources are now ready to support our growth plans in Q4 and beyond. We continue to hire ahead of the curve, while balancing our utilization to capture the robust demand we see in the market.Moving to the performance of our verticals, BFS continues a strong near double-digit growth at 9.7% quarter-on-quarter. This vertical has seen holistic growth during the quarter across all geos and service lines. We talked in detail about key growth drivers and how banks are responding to the Great Restructuring during our Analyst Day.On Insurance, we saw 2% quarter-on-quarter growth. This vertical has traditionally been a laggard in the last few quarters -- several quarters and saw some pickup in the last quarter with a 5.5% growth. Even so, some work still remains to be done on this vertical. Manufacturing saw a growth of 18.3% quarter-on-quarter. H2 was stronger for this vertical due to the presence of higher pass-through in one of our India engagements. Our reported company level revenues of 8.7% quarter-on-quarter includes about 2% quarter-on-quarter growth on account of these pass-throughs.Energy & Utilities grew at 6.7% quarter-on-quarter. While this has been a good quarter and all prices are high, we expect cyclicity to continue in this vertical. CPG, Retail & Pharma grew at 7.2% quarter-on-quarter. We see a consistent trend of leveraging data and supply chain resilience for our optimism.High-Tech and Media grew at 3% quarter-on-quarter and has had a strong year-on-year growth of 44.5%. Others, which largely include professional services, Government of India ministries and other global enterprises and public services, registered 10.7% growth quarter-on-quarter.Let me now move to outlook. FY '22 is shaping up to be one of our highest growth years since listing. Where we are today, we continue to be excited about our conversations with our customers, the pipeline, revenue momentum and broad-based nature of our performance. We remain confident to deliver on our promise of being on the leaders quadrant for growth with a stable PAT margin of 14% to 15% band.Now let me hand it over to Anil for further comments.
Thank you, Sanjay. Hello, everyone. It is great to be back with you all with another quarterly earnings, and I wish you all safe and healthy days ahead.Let me take you through the financial highlights for the third quarter of the FY '22, starting with the revenue numbers. In the third quarter FY '22, our revenue stood at $553 million, up 8.7% sequentially and 29.3% on a year-on-year basis. The corresponding constant currency growth was 9.2% quarter-on-quarter and 30.1% year-on-year. Reported INR revenue of INR 41,376 million was up 9.8% quarter-on-quarter and 31.2% year-on-year.Now coming to profitability. EBIT for the quarter was INR 7,426 million, translating into an operating margin of 17.9% as compared with 17.2% in the previous quarter. The margin walk is as follows. Tailwinds of 40 basis points from growth and operational efficiencies and 30 basis points from currency. Reported profit after tax was INR 6,125 million this quarter, which translated into a PAT margin of 14.8% as compared with 14.6% margin in Q2. We remain comfortable with our guided margin band of 14% to 15% for FY '22.Moving on to the people front. Utilization without trainees was at 81.4% as compared to 83.7% last quarter and utilization including trainees was at 80.3% versus 81.6% in Q2. We continue to strengthen our workforce and during Q3, we added 1,818 people on a net basis.The total manpower stood at 44,200, of which our production associates were 95.4%. In this quarter, attrition is at 22.5% versus 19.6% last quarter on LTM basis. On ForEx and hedge book, our cash flow hedge book stood at $1,715 million as of 31st December '21 versus $1,586 million as of 30th, September '21, while the on-balance sheet hedges stood at $94 million versus $88 million last quarter.Moving on to DSO in Q3. The billed DSO stood at 66 days as compared to 61 days last quarter. The DSO including unbilled revenue was at 100 days compared to 98 days last quarter. For the quarter, the net cash flow from operations was at INR 4,303 million, which was at 70.3% conversion of the net income as compared to 91.3% conversion we had in Q2. This is largely impacted by the licenses which were booked on the last day of the quarter, leading to increase in DSO.At the end of the quarter, cash and liquid investments stood at INR 36,142 million as compared to INR 38,403 million last quarter. The effective tax rate for the quarter was 25.6%. This was same as Q2. Earnings per share for the quarter stood at INR 34.9 as compared to INR 31.5 in Q2. The diluted earnings per share was INR 34.9 versus INR 31.4 last quarter.With that, I would like to open the floor for questions.
[Operator Instructions] The first question is from the line of Sandip Agarwal from Edelweiss.
And congratulation to the whole team for excellent execution and a Happy New Year. Just a simple question, like if you compare supply side issue right now, which are there in the industry and the level of urgency which client has to implement the projects, where do you see this both metrics [ matching ]? Is the urgency of the client to implement the project much higher than the supply side constraint, which is there in the industry? So basically want to understand how open the client is to take the cost -- additional cost on their books and allow the execution to happen? So that was number one.And number two, another simple question which I would like to ask is, where do you see from here next 2 years to 3 years? I'm sure the environment right now is very good. But when you see the kind of costs which the clients are incurring on developing the IT infrastructure, what is your sense? Is it very longish at least 10 to 12 quarter kind of thing, which you -- which it will take to complete those projects? Or it is more like digital projects where the durations are shorter but very frequently the deals are coming. So what kind of activity you're seeing on that front?
On the first question on the urgency that we are seeing witnessing our customers, across verticals, we have seen a lot of serious efforts going in because the world is not the way it used to be. This is where following Great Depression, Great Recession, we have coined the term of Great Restructuring for the industry because the nature of every industry has changed, because the way you and I are operating is very different than what we ever did in our lives. The future of work, workforce, workplaces everything has changed. To work in place of people coming to work, work is moving towards people, right? And every industry has to adapt itself to that, otherwise they'll perish and I've given many examples in the past. But the simplest example that all of us deal with in a simple way is, if the companies did not have the ability to order online and pick up at the curb side, you will actually face extinction. Now -- so that urgency continues to be there.We are seeing -- on to the second point and in order to deal with that urgency, we all need to scale up. There is a lot of demand. We need to hire a lot of people. That's where you see the demand really going up in the marketplace. Market industry has not created enough people in the last few years. So that's why I believe in the next 3 quarters, 4 quarters, it will take all the supply to really come together. That's why we took our call of hiring, hire, train, deploy, 1,000 odd people in Q2 and Q3, right, so just to create the pipeline for ourselves to meet the ever growing demand that we see in our marketplace.And the second question, how long do we see this demand to be there? Look, I'm not one [ forecasting ] because our industry changes very, very quickly. But what we had maintained to say, based on 3 reasons that we gave in Analyst Day, one, Global Restructuring; second, new areas of spend that is coming to marketplace AKA ESG, which is nothing else but workflows and data, business growing in a meaningful way. And the third thing is, great resignations because the customers are also facing double-digit attrition and they believe that we need to support them and do more work from offshore. Maybe that's why you're seeing offshoring increase for every organization as well. So these are reasons we believe that it gives us the confidence over the next 3 years to 5 years, definitely, there will be this continued demand as the companies cater do their digital needs.
The next question is from the line of Vibhor Singhal from PhillipCapital.
And congrats on a great quarter yet again. Sir, I think there isn't much doubt left in these 2 condensed numbers that we have delivered all on the revenue margin spend. There is just one question that I had. And this is basically, I think which is something which we are seeing across the board for almost all the companies and for ourselves also.One is that the on-site offshore mix, of course, in terms of the effort mix is more and more going towards [ FRB ], offshore charge. In this quarter also, we have around 84%. So just wanted to basically pick your brain on, where do you think eventually stabilizing at, let's say, 2 or 3 or 4 quarters down the line? Do you think these numbers are sustainable? Or do you think they'll go back to pre-COVID levels or be still somewhere in between?And similar kind of question is on DSO days. We have seen the DSO days for ourselves and of course, we have, almost the entire all other companies as well increase over the past 2 to 3 quarters. Of course, our number in this quarter was also an outcome of the license sales, which [ Faruk sir ] mentioned at the end of the quarter. But overall, there is no increase in DSO days over the past 2 to 3 quarters. Is it something to worry about in terms of, I mean, we are growing so fast from not may be making those payments on time and something that you believe is something that we should be concerned about? Or do you think those also should come back to their gradual normal level in maybe a couple of quarters time?
Okay. Let's talk about onsite offshore mix. I think we are very comfortable with where we are. Just remember, Vibhor, if you were to ask me before 2019, if the world will continue to operate and we'll continue to grow like we have done now for IT services, all industry has grown, I would have said, absolutely not, right? No one ever imagined that the world will work as seamlessly.People will actually communicate on these tools and platforms that do not go down, right, whether it's Teams, whether it's Webex, whether it's Zoom and there are many collaboration tools, right? If you just recollect 2 years, 3 years back also, the world said the new age full-stack developers and projects can only be done when people are sitting together, right? And all those myths we have been breaking. We have always talked about, you can do these full stack work also with offshore if you have the right sets of tools, if you make infrastructure investment and so on and so forth. And I think today that is what is happening.Actually, people are working. In our case, maybe from 40,000 offices, right, because everyone is at their own house, right? So why can't it continue to be in there? So we are very comfortable with where we are. There is obviously a lot of merit to people. We are a social -- people are all about social fabric. We need some time to go back to meeting people, but I hope we don't go back to the model of a lot more travel because these platforms has sort of one thing that these are the good things that we need to continue is to talk more people using these platforms and customers are ready to do that. That's why I think we're comfortable with the offshore mix, and I think it can still continue to move a little bit more offshore.On the DSO days, I think, just again to bring it back, this actually change -- actually started in 2007-2008 time frame, when after the financial crisis, people started to increase the payment terms, right? And that problem is what has continued. I don't think it's a recent phenomenon at all, right? So that's why if you look at DSO, it's been more or less stable for most of the companies.
Okay. Just for basically -- just a follow-up with both these parts. For the first part, as you mentioned, you are comfortable with the kind of on-site, offshore mix that you have today. Do you believe there is -- do you -- with your conversations with the clients, do you see them also probably been comfortable with, if not just the similar numbers maybe slightly lower numbers, but then changing their mindset and becoming more and more comfortable with this higher offshore mix? And the follow-up to the second question was, what I was talking about in the next 2 to 3 quarters.
One by one, Vibhor. Vibhor, I can't remember so many things. One by one. I'll give you another option, to Anil Rander. Right? So your question is what? Your line is a little unclear. Are clients okay with offshore percentages being as high as what it is today?
Yes. So that was my question.
So Vibhor, work is moving to people. That's what I said. Future of work is changing. In place of people moving to work, work globally is moving to people. That is the fundamental change that has happened, right? So I think customers are more than happy. That's why everyone is growing.
Got it.
What's your DSO question? Second question?
Yes. On the second question, what I actually meant to ask was that, yes, the DSO days have been gradually increasing, but I think we've seen a sharp increase, not just for ourselves, but for the industry over the past 3 to 4 quarters. So just wanted to tie this up. Is it somehow related to the COVID part? Or is it something that you think is a normal course of business and like we are basically correct?
Vibhor, I don't want to comment on others. But for us, we are at the same level as before, if not a little better from pre-COVID to now. So I don't want to comment on anyone else. You need to look at their data and ask their management.
So overall net-net for us, at least, the COVID hasn't led to any change in payment terms or deterioration of any of the payment cycle?
That is absolutely right.
The next question is from the line of Mayur Patel from IIFL Asset Management.
Congratulations for excellent set of results. Execution has been really good. Just one question. It was just more inclined towards the revenue growth from India? And is there any specific reason around that?
Sorry. Say that again. I was trying to figure out something. Tell me. Say that again.
The revenues from India as a mix in the overall scheme of things, is it higher in this quarter? And what is the reason behind it? Just wanted to understand.
Okay. So this is what -- so around 2% is coming from our traditional -- this is the time in Q3 and Q4, we have pass-throughs. So this amount is 2% of our growth is coming and which is also associated with manufacturing, also associated with India, okay? In addition to that, we have seen growth in not only India projects, but some other services to companies that are classified and contracts are with banks, which are having contracts with India, which are also in our models classified under India. These are global banks.
Okay. Sure. And Sanjay, when we say specifically some numbers around the cloud business, that is in addition to the cloud-related work, which is being done in individual verticals, right? Is my understanding right?
So yes. So this is what we explained to you guys last quarter also. But I think we will give our new -- we'll have a reclassified service line breakup effective Q1 onwards. But right now, I'll request Nachiket to explain what we explained last time also.
So as you rightly said, the revenue reported under CIS service line largely captures only the infrastructure part of our business. If you combine the overall hyperscaler business in LTI, it is actually growing faster than the company average and we continue to see very good demand driving growth for us in quarters to come.
The next question is from the line of Sulabh Govila from Morgan Stanley.
And congrats on a good set of results. So I had a couple of questions. First is on the pricing bit. Do see that incrementally coming in and supporting growth rates for you in the coming quarters, something which is echoed by peers as well and if there has been a positive realization impact on revenue and margins in this quarter, which was not there earlier?
So pricing more or less is stable. We have seen pockets where there has been price increase. As the demand is much higher than the supply, it's logical for us to have the flexibility to have a positive impact. But broadly as we keep saying, we are a growth company. Look at us as a growth company. This is the time when we want to capture as much market as we possibly can. Yes -- but we have -- pricing, you take it, it's stable with a positive band.
Okay. Got it. And then the other bit is that if you could provide some qualitative color around the book-to-bill ratio in terms of how it is trending for you guys over the past several quarters? How has the trend been on that front?
Okay. Can I request Sudhir to comment on this?
Yes. So I think as we explained even during our Analyst Day, right, so the pipeline is up significantly over last year. It's north of the company growth rate comfortably, which gives us confidence. I think the key thing that Sanjay also mentioned is that the changing nature of demand, especially for 3 verticals; banking, insurance and High-Tech, tends to be -- is becoming a lot more POD-model oriented. So these POD teams of ten. A POD is usually made up of 10 people.So that model, which is essentially a people requirement-based model in PODs to deliver a stream of essentially transformation projects, there is a differing nature of demand compared to -- we've talked the typical RFP-based demand. So I think when you combined the 2 demand, right, overall pipeline as well as the resourcing demand with PODs, that is significantly ahead, which is reflected in Sanjay's commentary also on where we see confidence in the -- that there is growth in the environment for the next 3 years at least that we can foresee.
The next question is from the line of the Dipesh Mehta from Emkay Global.
And congrats for strong execution. Couple of questions. First, about the one new logo in pharma which you said. I missed the number you said. If you can provide more detail about nature of work, which we are likely to do for the client. That is first question.Second question is about the related to -- large deal related thing. Earlier we indicated, we are having very strong pipeline and H2 is expected to be better. Do we think those pipelines are getting converted? Or you are still seeing clients are deferring some of these decisions and we are seeing good flow? But from large deal perspective, it might be likely to remain relatively less than what we might have expected maybe 3 months back?
So I'll answer your second question. I'll request Sudhir to answer the first question and give you details on the new logo on large deal data, et cetera. Look, first thing, pipeline is not necessarily equal to large deal. Analyst Day, we tried to explain to you the changing nature and every call we are telling you the changing nature and I'll tell you one -- something a lot of debate went in.Previously, we used to report large deals in [ my quote ] itself. I intentionally did not report it because the importance of large deal, while it continues for the industries, the major demand has changed so dramatically. That is one of the things that drives it, not necessarily the only thing that drives it, right? So it is continuing to be there. Pipeline is very, very strong. Large deals also continue to be there, right? But that is not necessarily the only way to grow in this market today. It's about capturing the market of digital transformation, which is coming in small and discrete projects and PODs, which Sudhir talked about and that's what we are trying to capture.Sudhir, why don't you answer the first question?
Yes. Sure. So the large deal is with a company, which is a subsidiary of a very large global organization. This is a multi-year deal for infrastructure management services. In addition to this, this is the -- so the $32 million is all net new TCV for us. So this is a new logo addition. So we are making an entry into this account as well. This company is embarking on a multi-year transformation program in addition to this outsourcing program, where they are looking to modernize their infrastructure and move to the cloud as well as modernize their application infrastructure. So we see headroom for future growth beyond what we have already contracted also in this account.
Understand. And what typical kind of competition, let's say, in new logo we encounter and how we differentiate ourselves, if you can provide some perspective because of...
I mean, it varies, but on this particular deal, it was the 2 largest companies in the IT sector.
And so what played out in favor of LTI, if you can just help me there?
Yes. You come over, I'll spend a day with you. I don't know how to answer this. Look, everyone is looking for a very customized solution for their needs. And this is where if you understand, listen to them, be disruptive, challenge status quo, show the urgency and help them meet the urgency that they have in the marketplace. I think these are some of the differentiators that we bring to bear.The strength of solutioning is very important. Focus on a few customers, few verticals is very important because you cannot do digital transformations on a generic vertical that you don't operate at. So these are the things that continue to operate and differentiate us in any deal and nothing is different here. And this is how we are able to open some of these large Fortune 500 companies as well because customers are also not sourcing for scale but for expertise, right? That is what differentiates.
The days of people providing these predictable cookie cutter outsourcing solutions are over. You need -- as Sanjay said, you need to provide a highly customized solution delivered at speed and I think that changes the game significantly when it comes to the new age of outsourcing deals.
Understand. And considering the changing nature of demand, do you think some of the metrics, which you might start providing us as a lead indicator, maybe either total deal intake or anything, which you think maybe from next fiscal year onwards because the demand dynamic is changing?
Dipesh, we'll just do better. We will provide you better revenues.
Fair enough.
Faizan, let's move.
The next question is from the line of Sandeep Shah from Equirus Securities.
And congratulations on a solid quarter. Just Sanjay and Sudhir, both in terms of interaction with the clients entering into CY '22, any color in terms of IT budgets where you believe there could be some [ shear off ] related to pent-up demand in CY '21? Or when you say 3 years to 5 years, the growth momentum what we have seen in FY '22 has the potential to continue for the industry as well as LTI as a whole? Some initial colors will help us to understand the nature of the demand. Is it more pent-up or is it more structural, which will help in terms of a multi-year growth?
So Sandeep, I shared this data with you during the Analyst Day in December that -- and this is a Gartner forecast. So the Gartner forecast is that, we are going to see a budget growth of north of 6% this year across all sectors. And in the key sectors that we operate in, the budget growth is -- our largest sectors is between 6% and 10% actually. So that is the Gartner prediction.Now of course, we haven't seen anything right now that changes it, but I think there are a few factors that are emerging from a global macro perspective. And I request Sanjay to also add to this, but there are concerns around inflation that is it's very high right now in both in the US and in Europe in key markets. There are issues even still with supply chain predictability and that is impacting some sectors.And the third thing is that this Omicron is still a relatively -- we are still to see what exactly the impact will be. Right now, of course, things seem to be getting better, but we will have to wait and watch. But I think clients, the transformation journeys they are undertaking are these multi-year journeys. So the nature of that work will continue. And like it continued during the pandemic year, it will continue this year as well, but there are certain macro factors to look out for.
I'll just add a few things, Sandeep. Your question was pent-up versus new. I don't know whether you can call this the traditional. For the last 30 years, we've talked about pent-up demand in budget flushes. Those don't apply anymore. This is the nature of the way the world is operating in the new normal, and there is a lot of work. Everyone is still discovering what is the best way to connect to customers who are operating differently. How do you talk to millennials who just don't want to even own a car, right? So how do you communicate to them?Their investment philosophies are very different. The way they take insurance is very different. So that work will continue to be there for some time. And these 3 things that Sudhir talked about, these are not new as well, right? But one has to be watchful because these will have an impact in the marketplace. But based on the conversations that we are seeing, we still believe there is a positive bias towards the spend continuing to be strong for the next at least 3 years to 5 years.
Okay. Thanks, Sanjay and Sudhir.
[ I don't know ] how to help you model this anymore, man.
Yes. Just last thing on a bookkeeping. Treasury income generally used to be between INR 40 crores to INR 60 crores per quarter. This time, if I'm not wrong, it is INR 28 crores. Anything to read as an aberration in terms of the FMP-related investment income booking, which happens on a volatile basis?
Anil?
No. There is no aberration as such. Actually, our COP has reduced slightly, as I said, I mentioned in my speech itself, where our cash and liquid investments stood at INR 36,142 million versus INR 38,403 million last quarter. And there has been hardening of yields by this end of the quarter. So it also has an MTM impact on the revenue report.
The next question is from the line of Manik Taneja from JM Financial.
Sanjay, basically just wanted to get your thoughts on the trend towards expansion in Tier 2 and Tier 3 locations by company. And while we have seen significant offshore expansion, there is concern around the increase in cost of talent in India as well. So with the increasing shift in terms of delivery centers in Tier 2 and Tier 3 locations, do you think that helps negate some of the cost pressures and probably provides some margin leverage to the industry as a whole?
See, I'm going to let Nachiket answer this question. But I think you've got to look at this answer more from cost perspective and you have to look at it more from, where is the good talent going to be.And Nachiket, why don't you explain it?
So I think as Sanjay said, right, the whole work moving to talent phenomena is happening within India as well or within all geographies as well. And especially in the current climate, I think the location of people is becoming irrelevant data point, right, because people are still working from home in whichever city they are already in. So for us, we've also looked at where people are, who are already working with us and where we have a good supply of talent. We have invested in bringing our new facilities in Coimbatore that we inaugurated just a few weeks back. We've also inaugurated a facility in Hyderabad and we're also expanding in Kolkata.So for us, we are also going -- and for us, the strategy is largely driven by, where we see our existing employee base where we are already operating today, what's the preference that people are -- the employees are talking about. And we want to provide that flexibility to them as we start to operate in our hybrid model. So we have expanded into these 3 cities and we will continue to reach out to multiple locations in India as we roll out our hybrid model.
So do you think that provides some sort of a cost leverage to the industry as a whole? Or it's just the ease of finding talent and ease of delivery?
See, the one easy way to look at this is, when people are drifting towards their hometown, so to speak. If people are in Bangalore, people in Mumbai, people in Pune and their commute is killing them, right, in many of these places. If somebody has for whatever reason the last 2 years have shifted to Indore or Lucknow or Calcutta or if Coimbatore for all matters, right, what typically happens is they like a better lifestyle. They're closer to their families. Their attachment to the city is a far, far stronger on many, many fronts and that gives longevity for them in the company itself, right? So the attrition levels hopefully are going to be a lot less as well. So those are the things which definitely should help. But right now, focus is on where the talent is going to be and where do we want to be, how do we actually get that talent because there is so much demand. That's what our focus is.
[Operator Instructions] The next question is from the line of Madhu Babu from Canara HSBC.
So there have been a spate of acquisitions in the recent 6 months from Indian IT companies, especially Tech and Wipro, even in the mid-sized [ present ] persistent. So we have been a bit slower on that front. So what are your views there and any targets we are chasing?
Okay. So Madhu, we have done in the last 6 years, 7 acquisitions. We have always said we will never do acquisition for revenue. They will all be capability driven. These are the acquisitions which have created really, really cool pieces of work products on data, for example, the data products on Fosfor that we launched. They have created great capabilities on Middleware and digital integration capabilities. They have given us the ability today. We are the world's -- the most -- the Partner of the Year for Temenos, for example, strong partner and alliance, et cetera, continue to be there. Last acquisition we did was last year as well, right, with Cuelogic coming into our [ berth ] and these are just a bunch of 300 people, right? All about digital engineering, lots of different ways of supporting, enhancing the ability that we take to our customer.At any given point of time, we are always looking at capabilities that we lack and we will continue to do that. But our focus will always be on shareholder value. This is not our personal money. This is shareholder money. We will be wise and making sure do all analysis to find what is the way to build the capabilities that we need to do. If acquisition is the right way and we find an asset, which is at the right price point, we'll definitely look at it. We are continuing to look at it. I spend significant time on it. We're evaluating the company's, all the niche things that you hear us say and talk and where customers are spending and we'll continue to look at it, but only way done if we get our right price for it.
Sir, second one on the fresher hiring. So how are we seeing the trends on the freshers who are joining? I mean is the attrition higher in this bunch, I mean especially considering that they are working from home? And I mean -- so how is the, I mean overall attrition now in the freshers, especially in that one to -- zero to 2-year category in the last?
Nachiket?
Yes. So we're not seeing any specific spike or any specific pattern on fresher attrition. It's not picked up at all. It's in a way similar. We are actually seeing typically a higher attrition in 3 years to 6 years bracket for us and probably for all of the industry, no specific pattern on the fresher.
The next question is from the line of Abhishek Shindadkar from InCred Capital.
And congrats on a great execution. Just one question. Sanjay, you referred to spending after the earlier recessions and one of the data points is the uptick in the multi-sourcing, which happened post GFC or any other point. So anything on the ground that you are seeing differently from clients today? Those comments could be helpful.
So you're saying whether we are seeing anything about -- is there are ways the customer still doing multi-sourcing or some other way? Is that what the question is, Abhishek?
So Sanjay, one of the data points which ISG reported is the increase in multi-sourcing by customers, especially after a downturn. Are you witnessing anything this time is my question.
So this is where I -- we use the term that customers who used to typically choose sizes and the scale as the ways and means to source their partner and multi-source model as well, has moved away to sourcing for skills and expertise, right? So this is why it makes -- and I think this is what ISG is also trying to say in their own ways. This is where -- because the project sizes have shrunk, its expertise driven on verticals. This is why companies like us are able to record number of new logos as well. That's what is helping us. Speed of execution et cetera, agility, et cetera, all makes a difference in today's time and is very critical in there -- is a critical factor in the revaluation on who they want to partner with.
The next question is from the line of [ Abhishek ] from Nomura.
I have a question around your SG&A expenses. If I remember correctly, you had indicated last year that in your efforts to scale up your cloud and data vertical, you would be probably stepping up the SG&A expenses by 1 percentage point as a percentage of sales. However, if I look at last 9 month data, not only this quarter, if I look at last 9 month data, we are kind of flattish at 11.5%. Ways of working have not changed. Travel is still restricted. So I'm just curious to know, are the spends what you had planned on these 2 new vertical -- or focus verticals panning out in the way as they are? Even if I look from an absolute spending point of view, the SG&A expenses growth is only 20% compared to the top line growth of close to 30% in last 9 months. So your thoughts will be helpful.
Yes. So look, SG&A is not what we want to increase. What we want to increase is sales and marketing, first thing, right? So there are -- and you need to, as you grow, G&A portion has to logically keep coming down and as you drive efficiencies and stuff, that has to continue. So our investments has been as per the plan in cloud data products as well.We could have done even more, but talent scarcity is everywhere, not only in delivery, but finding right talent anywhere is a challenge. But we are committed to investing in all these new things that we talk about in times to come as well. So the way to look at it is, our sales and marketing is going up. G&A, we keep trying to bring it down and as our revenue base increase, G&A is expected to decrease anyway as a percentage.
Okay. Got it. Sanjay, my second question is, some markers towards your billion dollar ambition on cloud, which you wanted to achieve in next 3 years' time at the end of FY '21.
We are progressing well towards that, [ Abhishek ].
Okay. Just one small request. Sanjay, you said at the start that the cloud classification of services probably does not gives the correct picture. Maybe if you could correct it, it will help us know how this vertical is progressing.
We will be able to give you something more on that effective Q1, but it will still not give you the full picture because cloud is also embedded in enterprise solutions and a whole bunch of things. Let's see. It will be a gradual process, I'm afraid, [ Abhishek ], but we'll definitely be able to add cloud engineering, which you don't see it at all in our report today, right, which is a major portion of growth. It's going into ADM.
Okay. Got it, Sanjay.
Yes. Thank you. No discussion is ever -- does not even start or finish without talking about how do we use cloud to drive growth and expandability for an organization.
Yes, across any of our service lines or [ vertical ].
Or vertical or a customer. It's a must. All right. Thanks, [ Abhishek ].
The next question is from the line of Debashish Mazumdar from B&K Securities.
So I have the first question for -- first related to attrition and second related to the pass-through revenue. So although we have seen, on the LTM basis, our reported attrition as a percentage has gone up. I wanted to understand that whether the actual number of churning of people has stabilized or reduced, how we have seen in the last few months. And so the sense that I want to get that whether we are close to peak as far as the attrition percentage is concerned.
See if you look at, obviously, LTM basis, it shows what it shows in the factsheet. But if you look at quarterly annualized, the number has just marginally gone down from the previous quarter. But I won’t take anything to the bank as yet, because typically 2 things, for 2 things. One, in the Q3 traditionally because of the holidays, because of Diwali, because of Christmas, New Year, traditionally organizations go a little slow in hiring, number one. Number two, an event like Omicron spread also puts people in a shell and they go to the natural secured calm of working with the existing company. But obviously, the numbers have marginally come down, so we only the -- but the next 2 quarters will determine which way it is actually moving.So I don't know what else to say, except that we have intensified engagement with our clients. We have also gone ahead of the problem to hire people in advance in Q2 and Q3, right, with hire, train, deploy model and increase number of HTDs, to be prepared in case the problem continues. But today, as we stand, Q3 quarterly number has gone down. We will know more in Q1 and Q2 -- in Q4 and Q1.
Excellent. The second question I had is around pass-through, the 2% incremental growth that you have spoken about. So is it a kind of continuity or it's like a onetime pop-up that we got in this quarter and it will not continue in Q4? How one should read it?
It's seasonal. If you've been following us, it's there every year for the last 6 years. It continues. It comes in every Q3 and Q4.
Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Sanjay Jalona for closing comments.
Thank you, guys. Thank you for being in the call. It was great to see again all of you in December. Thank you for joining the call today, and we hope that you and your families will continue to stay safe. We look forward to seeing you next quarter. Till then, take care, God bless, be well.
Thank you. Ladies and gentlemen, on behalf of LTI, that concludes this conference. Thank you for joining us. And you may now disconnect your lines.