Deal momentum to continue in coming quarters, says Mindtree CEO

Mindtree has posted a strong third quarter performance with a sound deal pipeline. As the world goes through another Covid wave, the company feels that its travel & hospitality vertical is much more resilient and may not be impacted much. In a conversation with the Deccan Herald, company’s CEO & MD, Debashis Chatterjee also said that its focus on client mining has started to give good dividends. The mid-tier IT firm is also opening centres in tier-II & III to manage attrition apart from hiring freshers.

What kind of steps has Mindtree taken up in the wake of a new Covid-19 wave in India?

We have been making plans and these plans have been changing. What we have done now is that we have taken a conscious decision that Mindtree Minds will be back to office when we feel it is absolutely safe.

We also work on a strategy on how the future of work will look like. From that perspective, we feel that a hybrid model will evolve. We are also working very closely with our clients in terms of how the hybrid model will look like. However, there is no time line for adoption of this model given the current situation.

Will there be any change in outlook for travel and hospitality segment given that a new wave is sweeping the world?

We are very close to our existing clients. We didn’t lose any clients during the pandemic. As the same clients started reimagining their business models (like being contactless), started various digital transformation initiatives, we started working with them. Secondly, we stepped back and started diversifying our travel and hospitality portfolio. We added a few clients in surface transport, cruise liners, food & beverages among others. Essentially, we have diversified the portfolio, so that it can be a little more resilient than it used to be in the past. When things like Omicron (wave) happen, you have to wait and watch. Because it also depends on the specific accounts and their spends. As of now, there is no particular red alert for us and we are monitoring the situation very closely. The good news is that we have already crossed the pre-pandemic levels in this vertical now.

Mindtree had a good margin defence in Q3 of FY22. Can we expect further improvement in the operating margin in coming quarters?

Our focused strategy is on profitable growth. We have picked ourselves to be at 20% EBIDTA and beyond 20%, we want to reinvest in the business. This margin story is not limited to one quarter. We have devised a robust mechanism by which we are managing the margins fairly effectively. We will continue to do that. Our investment philosophy also has to go with that.

As we go into the next quarters and things normalise, we may see some of the costs coming back. So, it is fair to say that our aim of 20% EBIDTA holds.

Mindtree’s strategy of client mining seems to be paying back if we see the numbers. How do you see it playing out in FY23?

The strategy is working. Not only sequentially, the numbers are also growing year-on-year basis. If you see the top client, we have seen a growth of 17% YoY. For the top 2 to 20 clients, the growth was 41% YoY basis. It shows that our strategy of upselling, cross-selling and client mining are working out fairly well. There is a clear programme under which we have a focussed set of accounts, where we can participate in the transformative initiatives of these clients and increase the revenue per client over a period of time.

What is your outlook on the deal pipeline front going ahead? Will this momentum sustain going ahead?

Our pipeline is very robust and it has good combination of transformative deals, and annuity deals, which is spread across all the verticals. At a broad level, the deals closed in Q1 & Q2, matures in the next two quarters or so and the deals closed in Q3 & Q4, are carried forward (to next fiscal). More importantly, when the client chooses you as a partner of choice for a digital transformation deal, the deal cycle can be both short and iterating.

It means a deal may be a short one, but on the back of it, another deal will follow. That may not reflect on the TCV (total contract value) but in the long run, it becomes large. So, a deal can be multi-year but it may not reflect upfront.

Can we expect the revenue growth rate of Mindtree to be in high teens in FY23? Any comment on this aspect.

Our endeavour is to be industry-leading. Our focus on profitable growth will continue.

How many quarters can we expect the current attrition to continue in this range? When can we see any fall in overall attrition level?

I think, this phenomenon will continue for next two quarters. We have done quite a few things like we have run many programmes for ensuring better learning. Internally, we have also organised talent functions under one leader. We are also inducting freshers.

We are opening up centres in new cities in tier-II & III cities. We want to take the work to the people than people coming to the work all the time. This will help us in managing the attrition.