ESG is emerging as new area of enterprise spend: Jalona

ESG and cloud security are emerging as new areas of spend for global enterprises, said Sanjay Jalona, CEO and Managing Director of Larsen & Toubro Infotech (LTI), which crossed an annualised revenue run rate of $2 billion in the quarter ended September 2021.

ESG—environmental, social, and governance—criteria represent a set of standards that socially-conscious investors use to screen potential investments in large and fast-growing enterprises.

"There is long runway for growth in these emerging areas. ESG has started playing a key role in business decisions and strategy," Jalona told analysts during its earnings call on October 18.

LTI reported revenue of $509 million in the second quarter of FY 2022, which was 8.3 percent higher sequentially, and 25.8 percent higher on a year-on-year basis.

LTI's consolidated profit after tax for the quarter ended September 2021 grew nearly 21 percent over a year ago to of Rs 552 crore, and by 11 percent sequentially. However, its EBITDA margin dipped from 22.9 percent in September 2020 to 19.5 percent in September 2021.

Jalona alluded to the increasing cost of talent for system integrators and enterprises alike. It had an attrition rate of 19.6 percent in the quarter ended September 2021, as against 15.2 percent in the first quarter of FY 2022.

"This is the first time our clients are facing shortage and attrition of this magnitude, which we have always faced in our industry," he noted. "It is creating opportunities for scale-up of IT services, and also leading clients to turn to tech solutions like automation to solve for supply-side constraints."

Apart from the growth momentum from the first quarter of FY 2022, LTI witnessed broad-based growth across all segments. BFS (banking and financial services)—its largest segment with 32.5 percent contribution to revenue—grew 9.6 percent sequentially. Manufacturing, which accounts for 15.6 percent of revenue, grew 12.4 percent quarter over quarter.

Among the major deals signed in the September 2021 quarter include an engagement with a European company to provide digital marketing solutions, and end-to-end IT managed services for a North American manufacturer of golf cars and utility vehicles.

"I don't think size matters at all," Jalona told analysts, referring to how mid-sized IT firms are delivering standout results amidst competition from larger peers.

"What matters is the capabilities we bring to the market, the investments we make to be a trusted advisor to customers, and how we take our people along," he said, adding that the L&T legacy also provides LTI with priceless differentiation it is taking to the market.

LTI completed the second quarter of FY 2022 with 463 active clients.

In terms of geography, North America—its largest region—grew nearly 9 percent sequentially, while Europe grew just over 5 percent over the previous quarter.