LTTS — earnings call
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Prepared remarks
Moderator · Conference Operator
Thank you very much.
We will now begin the questions-and-answer session.
The first question is from the line of Mukul Garg from Haitong Securities.
Please go ahead.
Mukul Garg
Dr. Panda, if I refer to your commentary from the Q4 call, while Q1 was expected to be weak, but the degrowth this quarter seems to be a bit sharper than what we initially expected.
It would be great if you can just help us with the areas where you saw further deterioration as we progressed during Q1?
And are these areas now coming back?
Keshab Panda
I think the impact was, as you said, plant engineering and the other one is transportation, right?
Transportation, I did not expect the aerospace to go down to the level it has.
The areas, if you recall, quarter four I talked about, areas like in-flight entertainment or the air traffic management, the software area which we work, and that is going to be in demand.
That is number one.
Number two, Japan MRJ, there is a customer who decided to scrap the project as a whole - it has impacted in a big way some of the OEMs and Tier 1s, who were our customers.
So Japanese aerospace customer deciding to scrap the project, we never visualized in quarter four that that's going to be the case.
So aerospace has an impact, which impacted our transportation segment.
23% drop quarter-on-quarter, I did not expect that to happen, right?
So this suddenly came there.
And second point was on the two segments, plant engineering and transportation, these two segments were hit in a big way, 23%, 24%.
Plant engineering, oil and gas has taken a beating.
But oil and gas, the way it has gone down – what we expected was part of it to remain part of it Q1 FY21 Earnings Call July 16, 2020 to go away.
The CAPEX spending sudden decision - we thought this would take two quarters to bottom, but it happened in quarter one itself.
So this together, before we gave to the stock exchange that is going to be low double digit, and we never expected to go there.
And suddenly these two factors impact in a big way to this drop in Q1.
Mukul Garg
Got it.
So given that backdrop and the uncertain macro environment, what puts and takes you currently have to stay within the current 9% to 10% degrowth guidance?
Have you incorporated any scenario in this, where you might encounter greater restrictions on either supply or demand?
Keshab Panda
See, what I see today that in all the segments the worst is behind us, because the segment has already hit the bottom of it, right?
And we believe transportation and industrial, for example, is going to take some time.
But aerospace is going to take one more quarter to hit the bottom, it has not hit the bottom yet.
Q2, aerospace is going to hit the bottom.
But automotive we have seen already a growth.
The number of deals we won and already action started now.
Q2, there is a growth in automotive, that is going to be muted partially by aerospace.
Then coming to plant engineering, anyway, whatever had to go it has gone already, there is nothing else I have where it is going to go whatever may be the oil price.
And FMCG and the chemicals segment, some of the orders we won, Amit talked about, so those segments are going to have a positive impact quarter two onwards.
So Q2, there is going to be an increase in that segment, which has hit 24% down in plant engineering, that is already behind us.
Then our Medical segment, which grew 42% year-on-year in Q1, in that segment the pipeline we have, the order we won will continue to have a sequential growth, we will have that.
Industrial, there will be growth, there won't be degrowth.
With 12% degrowth happening in Q4 to Q1, that is not going to happen again.
So we have hit the bottom of it and with the orders we won now, there will be a marginal growth in Q2 and start growing Q3 onwards.
And Telecom & Hi-Tech, as you know, I think last year we have gone through a very difficult time in Telecom & Hi-Tech as de-growth happened.
Now Telecom & Hi-Tech first time, after so many quarters, we have grown 5%, so we have shown growth.
So that, I think we believe, that quarter two onwards we will start growing.
So all these segments when I look at it overall, what would be the worst case scenario, and looking at that we have given the guidance as we see right now.
Mukul Garg
Got it.
Just clarification.
Is the acquisition baked into your guidance number or is that on top of it?
Keshab Panda
We have not taken that into account.
This is not part of the guidance number.
Moderator · Conference Operator
Thank you.
The next question is from the line of Sandeep Shah from CGS CIMB.
Please go ahead.
Sandeep Shah
Just wanted to understand first question in terms of the gross margin.
So it has declined by almost 675 basis point on a Q-on-Q basis.
So wanted to understand, is there any element which can be understood as a permanent loss to the margin where we might have given some billing rate Q1 FY21 Earnings Call July 16, 2020 discounts to the client?
So out of that 675 basis point, what could be one which you can recoup with the growth?
Keshab Panda
Yes.
I think I will let PR answer that.
The first point is revenue itself.
If the revenue $195 million goes to $171 million, if you do the math on that, that itself is a big part.
And then number two, as you can see that people were coming out of the project in U.S. and outside India; and also in India we were not able to make a decision to reduce.
We have taken a conscious decision that the people, only bottom performers we are going to downsize, but all the employees we will retain them.
And number one is, they couldn't fly back to India, with their assignments over they were all sitting in the U.S., their cost was on us and that was going through.
So all these together, I think I would say major part is on the revenue drop itself.
Once revenue starts coming back and the margin will come back, there is no other major issue on any customer issue or any onetime payment issue, no, that's not the issue.
The issue was suddenly this came in Q1, that has impacted the margin.
PR, you want to add anything to that point?
P. Ramakrishnan
Thank you, Dr. Panda.
Sandeep, just to add to what Dr. Panda just now told, the drop in margins is led by drop in revenue, which I say from a volume basis, not necessarily from a value basis.
There has been some reduction in billing rates, but that is not material to impact these margins what we have shown.
Essentially, 12.5% dollar terms drop in revenue which has led to the margin drop.
But for the fact that we managed to have normal cost savings, which any company would have witnessed, like travel cost and other stuff, that has anyway happened.
Plus, we have been able to optimize some part of our employee overall cost stack without disturbing the overall employee headcount.
There are further actions like Dr. Panda talked about more, I would say, clinical separation of bottom performers, which will lead to some amount of cost savings maybe from Q3 onwards.
Sandeep Shah
Q3 onwards, you are saying?
P. Ramakrishnan
Yes.
Because separations would have happened some in June, July.
So I think we have to see from Q3.
Keshab Panda
See, there is an important parameter again there.
The C&B cost when I look at it, the one thing I want to be clear that the number of the employees downsizing we are going to do is of only bottom performers, Rated-1 and 2, nothing beyond that.
We will take some pain for one, two quarters.
We have invested a lot on these engineers for last few years.
Because projects came down, I don't want to reduce the cost for improvement of margin.
I am training them.
There are a few hundred people, now close to 1,000, 1,200 people are going through training on new technology, because getting a combination of engineering and technology combination, getting people in the market is difficult.
So that investment we are doing it.
But I think once revenues start improving it, and then all this pain is going to go away, that is number one.
Number two, the reduction of billing rate is less than 1%.
Not that in many places we have got requests from customers to reduce billing rate, it's a small percentage of our business.
Q1 FY21 Earnings Call July 16, 2020
Sandeep Shah
Okay.
Fair enough.
Just in terms of guidance indicates 2.3% to 3% Q-on-Q growth from 2Q to 4Q at the higher end and the lower end of the guidance.
So will it be back-ended more in 3Q, 4Q or you believe even 2Q may see almost a similar guided range of growth?
Keshab Panda
Quarter two, as you know, I think every day is a different day, every day we are going through.
As I see right now, I also talked about every segmental growth quarter two onwards, right.
And what is the percentage, I am not going to comment at this time, but I can only tell you that every segment, all the five segments I talked about, which is going to have growth and which is going to have a very positive growth, which is going to have a flat growth and so on.
So I did talk about it.
It's difficult to say.
I will not be able to comment on this quarter two what is the percentage of growth.
But growth is going to happen from quarter two onwards, that is for sure.
Moderator · Conference Operator
Thank you.
The next question is from the line of Pankaj Kapoor from CLSA.
Please go ahead.
Pankaj Kapoor
Dr. Panda, two questions to you.
How much of the revenue fall in the quarter you will attribute to projects that may have been altogether scrapped or canceled by the client and probably will not get revived instead of just being deferred?
That's my first question.
Keshab Panda
Yes.
See, Pankaj, majority of this what happened is deferred.
I would say, 60% to 65% of the project got deferred because customers were saying, "Let me review, am I going to have this product rollout now or I will do that later.
Is that going to be my priority?" So in quarter one most of the impact happened, because the customers were also not going to office, coming together and thinking about how in the product engineering they going to change their strategy.
They wanted to design a product and go to a different market.
Is that market the right time today or they will wait for three more months?
But at the same time, they also came back and asked which areas was not priority.
Some of the areas, new areas, they came back and said, "Can you stop this and work on the other areas?' So I would say it's a combination of both together.
So more and more if you see, and again segment wise, there are customers where the capital investment in oil and gas - we were were doing very interesting projects but they said, "We see the value in doing that, but I think let us delay by a few quarters.
We will come back in quarter three, quarter four, year time, maybe October-December time frame we will come back and reopen this and make sure that our core team remains." So I think all combination happened during these last four months.
Pankaj Kapoor
Okay.
And in scenarios where the customers decide to scrap or cancel the project, how did we account for the cost?
Was there any cost element taken up in this quarter which was a one-time in nature due to those contracts?
Keshab Panda
Only cost is like customer cancels the project.
For example, onsite.
See, offshore to some extent can be managed.
Onsite, they were not able to fly to India, right?
And there were a few, let's say, 50 engineers came out of the project and they were sitting in the U.S., and we had a choice to terminate their service in U.S. itself.
They were on our H1 visa, they were on L1 visa, it is allowed legally.
But we made a conscious decision that getting our employee from India to U.S. or Europe, we are not going to terminate their service.
If they have come on visa, we should retain Q1 FY21 Earnings Call July 16, 2020 them.
And there was a cost came along with that.
We paid for it, and we hold the people, some of them have gone back to India and some of them have reengaged into new assignment with other customers.
So that all happened, if they have the right skill set.
And other areas when we look at it, employees who are here, the defense area we believe is going to grow.
Some of these citizens what we had in similar area, we put them in our development centers in the U.S., and they are going through training program, that is giving us more opportunities.
Recently, we won a deal because these employees we held them, even though the cost came to us, that is helping us to win new orders.
So I think there are multiple situations.
P. Ramakrishnan
Pankaj, apart from what Dr. Panda just now stated, I guess to answer to your question, we did have in one of the projects in plant engineering in terms of project closures, one time I think costs have come.
One of the reasons for plant engineering to come down in margins is attributable to that.
I guess, with that project being done, I think from next quarter onwards, at least to that extent there will be a rebound in margins.
Pankaj Kapoor
Thank you.
And PR, just one bookkeeping question on the SEIS income.
You have any figure which you are expecting to come through in this year?
And you think this will be more in the latter half of the year?
P. Ramakrishnan
See, Pankaj, normally you are aware that the way we do is we file for the licenses usually in the second quarter.
When we file, we do take a percentage of the licenses which we have filed for.
And usually, we get the licenses in the fourth quarter, correct?
Another percentage we accrue based on what be the probability.
So as it stands now, the government has not opened the portal.
Usually they open the portal for filing sometime in Q2, most probably, I think, July or August.
But as it is COVID and there is Foreign Trade Policy, that is still not announced, but I believe that the policy will continue for FY '20 in terms of our ability to file.
But we don't know when we will be filing because the portal is not yet open.
Our understanding is that if it's open we will file it in Q2. So we will have some number accruing in Q2 and if you look at the licenses in that quarter, usually Q4. And what you see in the other quarters is nothing but how much we have taken as a mark-to-market, and the realization of that what accrues as a number.
So whatever number we had in Q1 is nothing but realization of the licenses what we already had.
Pankaj Kapoor
Got it.
Thank you.
And wish you all the best, PR, in your new role back in L&T.
P. Ramakrishnan
Thank you, Pankaj.
Moderator · Conference Operator
Thank you.
Your next question is from the line of Vibhor Singhal from PhillipCapital.
Please go ahead.
Vibhor Singhal
Sir, just two questions from my side.
One, if maybe Amit sir can answer this.
Sir, basically, just wanted to get an idea as to what exactly is your outlook in terms of the, let's say, the deal flow that could play out, not just in the next couple of quarters but, let's say, over a larger period of time.
Do you see this pandemic actually impacting the companies so significantly that at this point of time, while at one hand we are seeing these project cancellations and companies putting Q1 FY21 Earnings Call July 16, 2020 their spend on hold.
Even if, let's say, we are past this pandemic, there is going to be a lag with which the companies actually resume their R&D spending.
I mean, initially they might want to just focus on their other activities to boost sales and rationalize their costs.
So do you see that even when we are past this pandemic, do you see a lag in which the entire discretionary R&D spend comes back which could take us back on the growth path?
And my second question is on, basically the growth outlook that we are looking at in the transport space.
So in the transport space, the auto manufacturing probably is one of the largest part, aerospace has been through downturn.
Where in the year, not just necessarily for us, but for the industry as a whole, when do we see the auto industry and the overall transport industry to maybe s tart reviving back in some sort of numbers?
Keshab Panda
See, I think, overall, which industry is going to be, if you look at three years term, right, pre- COVID and post-COVID is going to be different.
We have recognized that in the last four months.
What we were selling in pre-COVID, 100% is not going to be the same way.
The business model has changed, new technology has come in, customer priority has changed.
So we have realigned ourselves.
When you have gone to customer and submit a proposal for not only quarter two and quarter three, but beyond for the next year as well, so the proposals have gone to the customer, we have video conference, we are talking to them regularly.
And that process is on, the team is working.
Amit and the whole team is working on this, the delivery team as well working on this, number one.
Number two, for example, some of the platform area which we work on. i-BEMS Shield, if you see in our press release, we had a smart campus management platform.
We said in post-COVID what is going to be important we have to change or transform that post-COVID.
And then if you look at the process industries, what they would be needing it now, when you say top place operations when you have to run it, or remotely you have to track your plant, what are the technologies used there?
The number of people going to plant is not going to be the same.
And what technology we have today we can immediately realign to what the customer is going to buy.
So those we have already been doing it.
And I would think, as a whole, we are making every effort to say this is not for quarter two or quarter three, even beyond.
How do you do this year FY '21 and beyond, what are the technology and engineering what we need to build, what is important today?
And how much software and electronic engineering, embedded engineering is more important, how much mechanical we don't have to have.
So those balancing is what in last four months we have been doing it.
As far as transportation is concerned, I think if you see transportation as a segment, before transportation, I will talk about manufacturing.
We did talk about frugal manufacturing.
We realized that what the customers, auto industries, we are already working with some auto industries, I will request Amit to give a few examples.
See, I think auto industry, what are they going to buy?
And if you go to auto and aerospace now, we are doing it.
Now aerospace, even though there is a downturn, customers are talking about the digital way of design to Q1 FY21 Earnings Call July 16, 2020 manufacturing how do we compress the time and what are the new technology we can borrow from adjacent industry to aerospace industry, that process is going on.
Auto industry, again, auto industry the customers are going to buy different type of things.
Now, there are electric vehicles, are they going to autonomous car?
Is that going to go away?
No, it's not going to go away, there’s much more technology driven is going to come.
And if you see us some of the deals we won recently are in these areas.
So we believe there are some priority changes happen to what we were doing pre-COVID to post-COVID.
But I think some of the technology areas, if you are in technology, you understand the segment domain, it is going to continue.
It is not going to be, I think, maybe pain for few quarters, one or two quarters we go through, then we will come back slowly, both top-line and bottom-line improvement we can do.
There are areas in oil and gas.
We are going through difficulty in oil and gas.
As you know, oil price has gone down, but we had a gain in oil and gas segment in upstream area in the oilfield services area which is entirely software.
We are building a platform using analytics, our domain knowledge, we are building platform there.
So I think more and more your priority changes, business model changes, but I think nothing changes as a whole.
That is our experience last four months dealing with customers through audio, video and emails, communication what we have, that's our experience.
Amit, do you want to add anything?
Amit Chadha
Sure, sir.
So one, like Dr. Panda talked about, he already talked about frugal, so I will not touch on that.
See what we are seeing definitely is that there is cost pressures that our clients are facing, number one.
Number two is, these remote operations from idling factories getting shutdown because of infection, etc., as well as shutdowns in local counties and areas and precincts is creating more digital opportunity.
Third, there is repurposing of the manufacturing as well as supply chain that is happening.
So the wins we have had are broadly in these three areas.
If I look at the technology tailwinds that we have got, these are around Industry 4.0 smart manufacturing, product redesign, cloudification, AR/VR and analytics , and then system and network security.
We have invested in these areas in the last few years, quarters.
Dr. Panda alluded to it by saying we invested in technology, that is helping us at this stage, right.
If you see the report that came out today morning in the U.S., we have seen this on the ground, retail is back up, cars are selling again, Europe has opened up.
So we do see that coming in as a positive.
So that's one and two.
Third, just one thing, in your data metrics we have gone to the e-business platforms, we have conducted more than 30 webinars just in the last quarter, which was attended by about 1,300 people.
And this would not have happened had there not been interest in engineering services in our technology area.
So we still are fairly upbeat about our prospects in this sector.
Thank you.
Moderator · Conference Operator
Thank you.
The next question is from the line of Abhishek Shindadkar from Elara Capital.
Please go ahead.
Abhishek Shindadkar
Let me first wish PR, thank you for the support and best wishes.
My question is regarding the December quarter more.
So generally, it's a seasonally soft quarter with furloughs , but this time Q1 FY21 Earnings Call July 16, 2020 because of the COVID, people have had furloughs in the June quarter itself, and there is a possibility that we could resume back and continue during the holiday season as well.
So my question is, when you are talking to clients and when they are budgeting for the ramp-ups or the transitions, what is the kind of feedback you are getting?
Are they kind of budgeting the ramp- up to continue in the Q3 as well or it could be the usual year?
Thank you.
Keshab Panda
It's a mixture of both.
There are customers who are coming back and saying that, "We are going to relook at it".
As I said before, saying, "This project, we are not going to do it".
Now look at the elevator, right, touch-less elevator, can we do that?
How do you do this?” There is some technology coming in there.
And looking at the other areas, automotive for example, the customer has come back and said, "Can you do this now and which we need more than before, can we do that?" Data analytics getting from auto, from lot of chips out there.
And then we sold recently an end-to-end chip design for a camera.
So I think there are multiple things happening right now.
It is not that customers are saying, "Am I going to reduce my spend?" Yes, we are always careful about the big customers who are $10 billion, $20 billion customers, they are thinking differently than the small companies, less than $1 billion.
They are worried about, are they going to keep their employees outsourced or they are going to reduce their employee cost and use us more?
So there are multiple things going on.
And more and more we hear from them saying that "Can I reduce my cost?
Can you take this particular product, can you take complete control over this, starting from design modification to my customer support, can you take completely?" And the other point is, "New product I am coming back with, now I am going to use less employees, I will use more employees, your employees, because you have a lab, you have multiple labs, your employees have domain knowledge, can I use that?" And there are cases customers are also saying on the negative side, customers are saying, "I think I will not talk about next two, three quarters on the growth.
And let me look at it how this goes, then I will come back to you." So I think it's both, that's how we look at it.
Abhishek Shindadkar
Sir, second one on the acquisition.
So as per the press release, the revenue contribution you have highlighted for 2019 and 2018, there has been a sharp jump in the revenues of the company.
So what is a sustainable revenue run rate for this company?
If you can just provide a color, that would be helpful.
Keshab Panda
No, I didn't understand your question, 2018, 2019.
See, I think, one, on M&A we believe in one thing.
We always believe in that we are not going to acquire a company for the top-line, we are going to acquire a company for technology we are going to get from them, wherever the gap whether we can build or buy?
And is that going to give us access to which market and what technology, how we are going to do that?
So all the M&A we did, small one we do always, $10 million, $20 million M&A, we do always.
And not too many companies are available in technology segment where we can acquire for engineering application.
So the M&A which we did now also, we believe, that is a gap in competency we can fill.
And that is a segment we think we should go, it will add to our portfolio what we have.
That is how we go and do that.
Sorry, I missed that, 2018, 2019, PR or Amit, can you explain that?
Q1 FY21 Earnings Call July 16, 2020
P. Ramakrishnan
Amit, you explain.
Amit Chadha
Yes.
So before we go to numbers here, see, the reason we have done this is that, like Dr. Panda said, 5G is an area for us.
5G, we believe, is an area where there will be investment, right, and we are seeing that already.
We have been working with some Telecom infra providers.
We also talked about in our investor release that we have actually started business with operators also.
So this company does high-end value engineering work for the Telecom industry in the areas of network engineering operations and enterprise mobility.
So they just don't provide services, they also have a patented product that helps with the network as well as devices .
They have got multiple clients, in fact, they work with three of top four communications service providers in the U.S. They work with the Telecom operators headquartered in U.S. and Europe.
So that's why it's strategic to us in terms of competency as well as client fit.
From a revenue standpoint, how much would it add?
I will request PR to answer that directly.
P. Ramakrishnan
So last year revenues were in the range of $15 million, okay?
And the way we have structured the transaction regarding to earn-outs, we will have a better revenue growth rate.
I mean, quite an aggressive growth rate over the next three years.
And also, equally, I think I would say, good EBITDA track, because we believe that this company is in the current, I would say, scheme of things into Telecom related work, which is going to really be well.
And with their association with LTTS, the company should be giving us good flexibility in that particular space.
So last year revenues were $15 million, and we expect it to grow better.
Moderator · Conference Operator
Thank you.
The next question is from the line of Sandip Agarwal from Edelweiss.
Please go ahead.
Sandip Agarwal
So Dr. Panda, I have one specific question on the growth front, and then I would have a small question on the margin front also.
So just wanted to know sir, while we knew that this quarter will be weak because we are a lot more dependent on physical activities or physical interface because we have plant engineering, and there it is very hard to grow in this kind of situation or defend the revenue.
But when you are guiding for a 9%, 10% decline, why that 9%, 10% decline number implies a very, very small quarter-on-quarter growth, particularly in a scenario where we have seen such a sharp decline in this quarter.
And as one of the early participants mentioned that the manufacturing industry may not go through the furloughs which they generally go through this time.
So, I believe that the recovery could have been much stronger.
So what is holding you back to give such a deep cut for the full year, barring the quarter one number?
Is there something else or you are just simply conservative?
Number one.
Number two, on the margin front, in the utilization there is a dip to 70%.
I understand that you have taken few steps which will be helpful for the company in the long-term, in the sense that we are not asking anyone to go and all those things.
But with such a low utilization, I believe that the comeback or the turnaround will be also extremely sharp.
So while you have mentioned there will be a recovery in margin, can you give something, some ballpark on what could have been the loss of this last fall of utilization in the overall thing?
Q1 FY21 Earnings Call July 16, 2020
Keshab Panda
See, Sandip, I think there are a couple of things happening.
Now in the U.S., as you know, I think there are states which opened and closed after two weeks, it's still going on.
And the offices open, office closes.
Capacity is not at 100%, 50% itself is a big number.
So I think we have to look at it overall point of view, what could the challenges be in the future, looking at that.
And in the aerospace segment, as you said quarter four, I did explain earlier, quarter four I did not see the Japanese aerospace company completely scrapping the project itself, a few billion dollars they invested, they decided not to go ahead and said few quarters they are not going to do it possibly this year itself.
So I think taking that into account and then what is happening in their overall point of view.
And engineering is one thing for sure that the market size is big enough for us to dream big, there is no question about that.
If anybody can do engineering, we can do engineering.
I have no doubt about that, it is technology and engineering put together.
The only point we have to be careful about is that, a number of order or pipeline we have today is better than Q4. We did that.
And then decision making, if some of the customers are going to delay the decision making...the decision-making would have happened now because, let's say, Texas closes or Florida closes or California closes or Arizona closes, in that, some city close.
If it happens to be there, if that's going to be delayed by two months, that's going to impact your business.
So I think overall, keeping in mind what is going on in the world today.
See, I think the factory or oil and gas, the drop in plant engineering is more related to oil price than going to factory or office.
See, we were doing much more technology work in upstream area, and the CAPEX investment and companies oil and gas companies, OEMs going through difficulties, they said, "That investment we are going to put a stop to that right now till we come back." When oil came down to $20, $22, they made a decision that we will come back to that investment later.
There is no doubt about our contribution to this, no doubt about our technology use, they need it.
But at this time, affordability was issue or looking at strategy was issue.
"Can I look at investment more in downstream, upstream area, can I put a stop for some time?" So those changes which happened, in the quarter two if I see things are going to be better, I think we have to be very, very careful about what we say and what we really see, that we communicate.
As I see, what we see today, that is what we communicated.
See, today this COVID-19 is not over yet.
If the vaccination is going to come, is medicine going to be there by end of December or January, and some city opens and closes.
So I think keeping all these factors into account, we have come with the best case scenario, this is what we see today.
And we will keep updating you next quarter, again, what we see this quarter to next quarter.
This is something we will continue to do that.
On the margin front, you asked about, our intent is, it so happened that suddenly it came in Q1. I think keeping in mind the employees, conscious decision we have made that employees we will keep them, the cost came now.
And once the business starts growing, revenue keeps adding, these employees we kept them.
The employees who are relevant in terms of technology and domain knowledge they have, we kept them, we are training them.
And we don't have to go to market and hire those people to increase our revenue in Q2 and Q3 in a bigger way.
And those Q1 FY21 Earnings Call July 16, 2020 employees with entry level engineers we get from good engineering school, I think that solve our purpose moving forward.
And again, our investment in technology whatever we did, the platform, the 525 patents we have filed now.
So we are not going to stop that to improve margin right now, because that investment if you don't do in engineering and technology, you are not going to be relevant in the long run.
So keeping that in mind, balancing out customer buying behavior, balancing out on the post- COVID scenario and employees, what assets we have, that is what we have worked out.
Moderator · Conference Operator
Thank you.
The next question is from the line of Prakash Chellam from Marathon Edge.
Please go ahead.
Prakash Chellam
Just a quick one.
Your SG&A has dropped dramatically by almost 33%.
Could you give me some color on how much of it has dropped because of S&M?
How much of it has dropped because of G&A?
What sort of cuts have happened on that front?
Thank you.
Keshab Panda
PR, take that question, please.
P. Ramakrishnan
So Prakash, the SG&A drop, one of the reasons would be the savings from the travel costs.
And then we also focused upon how much we can optimize on the sales cost also.
So there has been some amount of savings.
And also, the other aspect is, we have had some separations in that particular area, in enabling functions earlier itself.
And that also we managed to cut on the cost aspect.
So the major things are, I would say, savings in travel and also a some separations which we managed to do prior, the savings on that account also has come back.
Prakash Chellam
And these separations are in sales and marketing or in G&A.?
P. Ramakrishnan
It is a combination of both.
Keshab Panda
Prakash, what we did is we formed different teams now internally, and we said in very difficult time, we get new ideas.
We said, "Are we efficient enough in sales organization?
If more demand is going to be on Telecom than in Medical, can we reassign our sales people if they have the right technology knowledge, can we do that?
And there are people who are selling the technology which we don't think are relevant, can you reduce that number of head count?" So we have taken a target for this towards both sales and administration side, both the HR, then the finance, the administration plus sales altogether, we said we are going to do that, look at this parameter, where are the room for improvement, very, very aggressively we have done that.
I still believe that there is some more work we need to do, depending on what we learned in quarter one and what difference is going to be quarter two and beyond.
That's work in progress, and we will continue to do that.
Moderator · Conference Operator
Thank you.
Ladies and gentlemen, due to time constraint, that was the last question.
I now hand the conference over to Mr. Pinku Pappan for closing comments.
Q1 FY21 Earnings Call July 16, 2020
Pinku Pappan
Thank you for joining us on the call today.
We hope we were able to answer most of your questions.
In case you have any follow-up queries, please reach out to me on email.
Wishing you safe times.
Goodbye, and have a great day.
Moderator · Conference Operator
Thank you.
On behalf of L&T Technology Services, that concludes this conference.
Thank you for joining us.
And you may now disconnect your lines.
Note
This transcript has been lightly edited for clarity and accuracy.