We shrank to grow; scale doesn't scare us: L&T Infotech CEO Sanjay Jalona 

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#Business, #interview, #L&T Infotech, #Sanjay Jalona

Sanjay Jalona, CEO & MD, L&T Infotech

The second quarter of fiscal year 2022 marked two key milestones for IT firm L&T Infotech — it crossed the $2 billion milestone in its annual revenue run rate and clocked constant currency growth of 8.9 percent — the highest ever since its listing.

But L&T Infotech is not a one quarter phenomenon. Analysts covering the stock refer to the company and its CEO Sanjay Jalona as Mr Consistent, as it has clocked a steady operating performance over the last few years. According to Jalona, the company would have grown faster had it not been for supply side constraints and growing attrition, which stood at 19.6 percent.

In this interview with Moneycontrol, Jalona talks about the factors that made this growth possible, the company’s next milestone, and what L&T Infotech is doing to ease supply side constraints. Edited excerpts:

L&T Infotech has crossed the $2 billion annual revenue run rate. This is also your best-ever quarter in terms of the constant currency growth rate. What were the factors that helped? 

We did our first $1 billion in FY18. In the last four years, the team has had a jolly good time adding the next billion. What we are seeing is a once-in-a-lifetime kind of opportunity — what we call a great restructuring. After the Great Depression and the recession we ourselves saw in 2008-09, this is the lifetime of a change in the future of the workforce, as well as workplaces. It has created tremendous opportunities because every vertical, industry, and company needs to adapt to the new normal.

One of the auto OEMs I talked to basically believes that by 2040 their entire line will be electric vehicles. That is a major change. Electrical vehicles typically cost a lot more than commercial vehicles. In that scenario, for them to maintain profitability, they need to reimagine everything. Like, will you have dealerships? How will your channels work? How will you service the vehicle or how will you do the supply chain? All of that is being rethought. This is where technology comes in as a big enabler in making that imagination come true. This is why there is a lot of demand that you see in the marketplace for the entire range of IT services.

The second thing that is happening is the world has become more conscious. So, there are new areas that are coming up like ESG (Environment, Social and Governance), where you have to measure what you are burning, consuming, and how you are governing. Customers are looking at cyber security and cloud security, a practice that did not exist in the past. So, there are new demand engines that have come in there.

Lastly, in what the world is calling a ‘Great Resignation’, the US itself has a million openings. Unemployment is only at 7.5 percent. So, the deficit in talent availability is causing them to have huge attrition. Our customers are seeing double-digit attrition numbers and they’re looking to partners like us. They are also automating a lot of things because of the shortage of labour. All of these three things put together are creating a need for more tech services and jobs. We are just happy to be here participating in this with our customers.

One thing that also stands out about L&T Infotech is its consistency and operating performance over several quarters. This is not a one quarter story or a post-pandemic story but something that began before that. Analysts have come to rely on L&T Infotech (LTI) to deliver a consistent performance. What is driving this consistency? Give us a sense of what you have fundamentally changed about LTI.

What we have done is we shrank to grow. We let go of many verticals and focused on a few things that we wanted to do. There is enough opportunity in all the verticals and we don’t have to be everywhere for a company of our size.

The second thing we did was invest tremendously in capability building. That has helped. A good example is Snowflake, which is the hottest technology for cloud. That is because you catch it young, and then you invest disproportionately, which creates new momentum.

Third, we invested in and thought about building capabilities and leadership strengths — not for the $800 million company six years back, but for $2.5-3 billion. All of us have seen companies of this size, so scale doesn’t scare us at all. Now, we have to start thinking about how we can build leadership for $4 billion. I should not forget the seven acquisitions we have done. Each one of them has been very small — the maximum is $15 million revenue, which is a rounding error when you look at a 2-billion run rate. But the capabilities that they bring in are important, and we can take them across all customers. We should never forget the strength that we have gotten from Larsen and Toubro, as well.

Back in December 2020, LTI created two business units separately for cloud and data products. You had then said that you’re looking at a $1 billion opportunity over a three-year period. It’s almost been a year, so can you share where you are on that journey?

Cloud is a true business transformation on steroids; it is all-pervasive. So, if you look at our fact sheet, the revenues that we show are only for infrastructure. Cloud, for this quarter. has also grown faster than the company. It is growing very fast. No discussion either starts or ends without a discussion on cloud. That is one. The second thing that we talked about was all of the data products. In today’s time, the amount of data that is being spit out from everything around us, how do you help your customers move from data to decisions? We are very excited about both of these things and they will help us even more.

Are you on track to reach the $1 billion revenue target in three years?

It is very difficult to articulate. But the message that we were trying to convey is: there is going to be disproportionate growth. I don’t know whether it’ll be $1 billion or $2 billion. That’s the sense that we wanted to give to the market. The expenditure is on cloud apps, the sales force, success factors, cloud infrastructure, and native app development for customers. That’s the sense we wanted to give you and that is how the market is playing out right now.

Your attrition stood at 19.6 percent for Q2 FY22. This is also one of your best quarters, crossing an annual revenue milestone of $2 billion. Would you have grown faster if not for the supply side challenges?

The entire industry is facing a (talent) shortage. This is predominantly because academia and industry did not create talent in the last four years. We grew by close to 10 percent last year and we were able to capture a lot of talent that was available in the marketplace. Over the last three quarters if you are to look, Q4 we had a net new 2,000 people, Q1 we added 2,300 people and this quarter we have new additions of 4,000 people. We will continue to do that. When I talked about three areas that are driving demand, I think we could have grown even faster if we could find more people. We will continue to be diligent on the quality of people that we have, and will continue to focus on going to the right places. But the market is very hard. So yes, you’re right, we could have grown faster.

I think there is demand and I think the industry could have grown faster, but it will take four to six quarters for the industry to ramp up the supply side. We are hiring 1,000 more freshers now, taking the total fresher hiring to 5,500. We are also looking at upskilling all our employees in newer technologies on top of whatever we have found. Lastly, we will look at alternative people who do not have tech backgrounds. We are evaluating how we can train them and create talent ourselves.

Will L&T Edutech help you in this direction?

Absolutely. So, we are already doing all our processing through L&T Edutech. We are using the platform to train and keep employees ready. With the L&T Edutech launch last week, we will obviously push a lot more through the platform and see how it helps us scale even faster.

You have been able to deliver four consecutive quarters of 4.4 percent growth even in the absence of large deals. But is the lack of large deals a concern?

Let me try to articulate why large deals are missing by and large for everyone. This is not to say that we are not focusing on large deals — we announced one large deal of $30 million with a high-tech customer in continental Europe. There will be times in the future, hopefully not too far, where we will announce a lot more. It is not that large deals are completely disappearing. But look at what these large deals typically do — they are consolidation deals, where you are transitioning from one supplier to another in a defined way. But what are our customers’ priorities today? It is: how do I deal with digitisation needs for my survival today. It’s about becoming more competitive in the marketplace and how do I do things faster. How do I launch the ability to save costs on an EV model? How do I create an online system and deliver by the curbside — all of these have far higher priorities. Consolidation is a little lower in the priority for them.

We’ve done a lot of mid-size deals and we report large deals only after a particular size. There are a lot of mid-size deals helping customers go through this transformation journey, and that’s what is actually happening.

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