LTTS - Legacy to Digital E R&D !

 LTTS is an engineering services provider incorporated in 2012, offers engineering, research and development (ER&D) and digitalization solutions to companies in the areas such as Transportation, Industrial Products, Telecom and Hi-Tech, Medical Devices and Plant Engineering.

The global ER&D market is expected to grow to $1.9 trillion in the next three years from the current ~$1.4 trillion on the back of R&D investment by global organizations and the increasing sophistication of the ER&D services industry

Revenue Split - Segment Wise (operating revenue) in FY 20
Transportation - 35%

The global customers of LTTS in this business vertical include top OEMs (original equipment manufacturers) and Tier 1 suppliers across the Automotive, Trucks & Off-Highway Vehicles and Aerospace sector. LTTS is actively involved in the future of mobility through its solutions for electrical vehicles (EV), advanced driver assistance system (ADAS), and autonomous drive (AD). The Company’s wide range of transportation engineering services enables clients to achieve their go-to-market objectives

Industrial Products - 19%

LTTS supports its global customers across industries such as Building Automation, Power & Utilities, Machinery and Test & Measurement through services in the areas of product, digital and value engineering.

Key partner for driving digitalization initiatives for a Swiss elevator and walkway manufacturer

Established a dedicated Global Engineering Hub to power a leading wind turbine manufacturer’s worldwide product roadmap

Telecom & Hi-Tech - 20%

In the Telecom and Hi-Tech vertical, LTTS offers engineering services and solutions for five key segments: Telecom, Consumer Electronics, Semiconductor, ISV and Media & Entertainment. Being a leader in this space, LTTS helps its customers engineer value across the product lifecycle: from design conceptualization to the deployment of products and services. LTTS’ team of experts work across the value chain to provide digital services and solutions for Communications Service Providers, Networking and Technology System Operators, OEMs and Chipset Makers

Medical Devices - 9%

LTTS helps medical OEMs speed up product development cycles and shorten the time-to-market. The Company works with global names in medical devices and healthcare to devise solutions around remote medical care, in-vitro diagnostics, patient mobility services, home healthcare and medical Internet of Things (MIoT)

Plant Engineering - 16%

The Plant Engineering business vertical caters to diverse industries, including Consumer Packaged Goods, Chemicals and Energy & Utilities.

Technology Trends • Digital Engineering • Contactless Manufacturing • Laser Scanning • Low-cost Automation

Eg Digital twin modelling for a chemicals and plastics major across 20+ sites in North America

3D modelling and digital twin services for a global oil and gas company across its worldwide asset portfolio

20:20:20 Vision (5-year Lakshya strategy)
LTTS drew up a blueprint that envisions a sustainable 20% annual topline growth, complemented by healthy EBITDA margins of 20% and 20 new technology patents annually, which will achieve the momentum necessary to drive growth to $1 billion by 2021.

Smart campus framework i-BEMSTM, its predictive maintenance platform Avertle and AI-based Chest rAITM analysis system to assist radiologists

6 strategic investment areas including EACV, 5G, Medtech, Digital Manufacturing, AI&ML driven smart offerings and Sustainability

Nurture an innovation-focused mindset which is reflected in our annual technology events, including TECHgium® and TechExpression®, and a portfolio of 650 patents

 Geography Wise Revenue Split

Clients –

1.      Airbus to provide technology and digital engineering solutions for Airbus’ Skywise platform as part of the ‘Skywise Partner Programme

2.      Amazon has selected LTTS as its engineering partner to support Amazon Alexa Voice Service (AVS)

3.      Collaboration with Microsoft Corporation and launched its latest and enhanced version of the i-BEMS™ platform on Microsoft Azure to transform buildings into future-ready smart campuses.

4.      Partnered with Aspen Technology, a leader in asset optimization software

5.      Secured a milestone deal valued at over $100 million from a global Oil & Gas major.

6.      A leading European auto components manufacturer was looking to establish a sustainable and scalable technology framework for its Electric Powertrain division.

Management – Professional Management

A M Naik – Chairman, highly renowned- Padma Bhusan and Padma Vibhusan

SNS – Vice Chairman

Employee Cost = 60% of revenue cost

Auditors - M/s. Aneja Associates as the Internal Auditors of the Company for a period of 3 years commencing from May 3, 2017 to May 2, 2020. Re-appointed M/s. Aneja Associates as the Internal Auditors of the Company for a further period of 3 years commencing from May 3, 2020 till May 2, 2023.

Concall Snippets:

We leverage our labs to win new business. Also have an in -house asset management portal where we keep building an inventory of reusable assets, which have seen good traction in the last few quarters. Many of our engineering labs have been enabled to be demo-ed virtually to our global customers without them having to physically visit our development centers.

The only India-based service provider, and one of the six globally authorized partners in the world to support Amazon, Alexa Voice Service integration for connected devices, spanning multiple domains and industries. Another example of investing along with our clients is the opening of a Hub development center - to provide our auto customer DRiV - support in developing intelligent next generation solutions.

Attrition at 10.7% YTD

For commercial aerospace we are turning around, and we are focusing on the defense area in the U.S

Overall Plant Engineering, not just oil and gas but FMCG and Chemical plants as well. Some of the learning we had in FMCG segment, we have taken into oil and gas.

This past quarter also saw us being ranked by ISG as a leader in IoT consulting and services and by Zinnov as leader in Autonomous, Connected, Electric and Shared Mobility Automotive engineering.

Way Ahead  In transportation there is demand in electrification in auto, in trucks as well as connected vehicles and electrification conversations in aerospace.

Second, in medical, people talking about home care, miniaturization of devices, bringing things, making it easier for a patient to do a lot of self-diagnostics, etc. telemedicine. Third industrial products continue to see demand for digital products, digital services, digital engineering, and digital manufacturing.

In Plant, people are starting to talk about new capex, oil companies are talking about upgrading stuff, etc. but then money has yet to hit the market, one. People talk about sustainability across, but that money is still to hit the market.

IT is largely a cost center play and not a cost play they are cost center play, they are more on an innovation model that is a difference so there is differences there.

“I am unequivocally reconfirming that LTTS will get to a billion-dollar run rate by Q2/Q3 of FY23 and get to $1.5 billion as stated in our guidance in the investor day.”

Oil and Gas Deal

 Because a lot of investment in upstream is not happening when oil price has gone down or limited investment is happening there. So we realized we are not going to wait for oil price to come back to $60, of course, it has increased now to $50 to $53 now. So we said when this oil price is lower now, what are the options available to us and what technology offering we have, we can go to different areas. So this is the downstream what we are doing it for the refinery. This can be taken to multiple refineries from the same customer itself. So this is a different type of deal, and we are creating a center very close to the plant. And then we have a center where major part of the employees is going to work from India. So combining both together, and this is the first time the customer decided to do this because of cost pressure, and we have done good job for the same customer, we have been working for a long-time, they know us well. So they decided to switch from a supplier who has been doing it for the last 20 years, they shifted to LTTS.

Digital Engineering vs Legacy engineering

Zinnov report saying that 20% - 25% increase in ER&D, if you see 2019 to 2025, the digital engineering or the new tech engineering CAGR is for 20% growth. Whereas if you see legacy engineering, ER&D spend, its growth is only 2%. That means if you see in 2030 or so, the legacy engineering is almost going to die down, anything you do in the new tech engineering it is called digital engineering. So today we have 49% of our business comes from digital engineering right now.

Digital engineering for us is product design, cloudification, analytics, creating cyber security modules on products, as well as remote design collaboration.

What is different? We have been investing in this area by creating; one, labs; second, reusable assets; third, filing patents for ourselves and our customers; fourth, setting up a training academy

Competition

From a competition perspective in Transportation, while we look at definitely Tata Elxsi, TCS, HCL, KPIT, some of the competition in India. And of course, we look at the global companies as well, very closely watch them, especially in areas like powertrain where we believe that we have very strong differentiated offering

 On Transportation

Transportation has three components: Off-highway, Automotive and Aerospace. And this is crowded. If you work on the mechanical side, it is highly crowded. Any company will look at, if they are into transportation, doing piece of business in mechanical engineering or some subsystem design, s ystem design. Whereas, what we have done now, this is a tough field though, unless you are attentive every minute, unless you have a clear differentiator, and this is going to be a difficult game to play with. We have differentiated because we are bringing it from our IT, we are bringing it from Telecom. So we are differentiated from traditional players and therefore we will see improvement in terms of growth as well as margins in this area. But structurally, on-site is more, and that's really going down.

Transportation, the type of work that we do, there is a little bit of onshore work, including a defense part that we do, that's being done in the U.S., right, done by our local delivery centers here. The new wins that we are having in automotive, that's in the areas of EV as well as autonomous, and electrification in T&OH and in-flight entertainment and software in aero, is all improving the offshore-ability of the work that's happening. So structurally, earlier if you go back, like you said, two years, three years, there was a higher percentage of work being done onshore in Transportation, that's slowly moving offshore. And as we move forward, you will see that there is headroom for us to grow, and we will improve the margins.

Medical

Medical segment, we do see work happening in four clear areas or 5 clear areas R&D focus that is there in medical, one is Telehealth and the expansion of that, second is connected devices that are there, third is cyber security, fourth is patient experience and the fifth is digital manufacturing or automation whichever we want to call it. These are the five broad areas. Now the sixth one is regulatory compliance certification that is there. Now, we had a good run up last year in medical devices.

One of the differentiated assets that we have built be it Sepsis detection, be it Digital front door or be it Chest rAI as well as some QARA (Quality Assurance and Regulatory Affairs) related algorithms that we have built I believe along with AiKno™ will help us in terms of coming back in this space.

Autos

So the kind of work that you will get will be around the e-powertrain components and vehicle controls which is software and hardware work. You will get work on onboard energy management which again is hardware and software work, offboard energy management which again is hardware, software work. Then there is an EV chassis design, because the car itself is changing and the loading factor etc., is changing, so therefore the loads are changing, so therefore that will be the legacy work that will come in and finally connected and autonomous will also be a lot more software. So, there is software, hardware and mechanical, electrical work that will come in Auto. And not just in Auto. I should also add that if I look at T&OH or Trucks and Off-Highway, they want connected vehicles. They would like to have kind of safe environment where they can see a surround view of an object, do analytics properly, so they don’t at a construction site, the excavators, the boom cranes and all that don’t hurt people, so all that, so it is not just auto, it is T&OH and auto and I am hopeful at some point, the commercial air will come back and we will start talking about narrow body and start talking about alternative energy to an aircraft in a bigger way, the design cycles are of course much longer tenures now.

US government increased spending of on infra - That will impact us in the areas of Trucks and Off Highway for sure because companies like Caterpillar, John Deere others will benefit from that. Second as infra improves, automotive itself will benefit. Third because of green energy, electric vehicles etc. we expect that to continue to grow

Telecom

Telecom, has been a very competitive marketplace. And therefore, if you look at it, we have had a challenge in terms of margin there, not just because of being competitive, but also because we had a division that was working out of, again, a non-India location, servicing the Telecom & Hi-Tech market. That particular center also now has been drawn down and the work has been moved offshore.

Hi-tech for us is actually 6 sub-segments. There is Semiconductor, there is Telecom infra, there is Telecom operators and Communication media; there is Consumer electronics; there is ISV.

On the ISV side, software capability continues to be something that we are building on, be it product cloud, be it cyber security, be it DevOps, SecOps, be it UI UX, etc. so these are capabilities that continue to be built out in the company.

Deals

If I look at my future pipeline today, the number of 10 million deals that I have got going on or 25 million deals going on, 50 million deals going on, there is a fair degree of those deals that continues to happen. You will agree with me, however that the bigger deals that you have, say 50 million or 100 million deal takes some time, it doesn’t close overnight, the closure cycles are longer.

In terms of the client profile as you see it is normal in our business to actually have clients that are more than 50 million. So, you are not capping off at 30 to 50. In fact I go back three years and we used to have a couple of clients in that range. So, having said that there is a clear mining focus in the company, account mining, there is a hunting focus in the company, and we continue to work on this

Attrition

I do expect more than 1000 freshers to be added into the company, so that is from a recruitment standpoint. Second one is on retention part and that again, we used to be at about if you remember 14-16%, attrition and we came down to about 10% last year. Q4 for us has been 12%. We have given wage hikes to our juniors and mid-grade effective April 1 st; seniors will be effective July 1st.

On one side we have had deal wins and the curated vision that we had created for ourselves around six dimensions and six bets has got traction and we have seen deal wins happening therefore and solutions being there. At the same time there has been attrition

The management’s commentary and question on EBIT and EBITDA remains a key in concalls but number crunching is not our aim but just to get insights of the business so that we can decide wisely whether to invest or not.

Mass Hiring - One is we're trying to broad base the pyramid and we are planning for future growth. I mean, that's how I would put it, as number one. Number two is the kind of skill set required for our future will be slightly different from what was there two years ago. We are refreshing that as well and getting ready.

A business worth looking as the sector has got tailwinds but the valuations touch the roof, almost pricing in the entire growth forecast. Any poor result and skew the price which would make LTTS a lucrative bet.