FY23 will likely be double digit on revenue...and profitable: Mindtree MD

In a Q&A, Debashis Chatterjee, who is also the firm's CEO, talks about the demand environment, merger with LTI and moonlighting

Mindtree Q2 managed to beat street estimates and delivered eight consecutive quarters of improved EBIDTA. Debashis Chatterjee, CEO and MD, Mindtree says deal wins in H1 of FY23 will allow the company to deliver double digit growth in FY23. In an interview with Shivani Shinde, he talks about the demand environment, merger with LTI and moonlighting. Edited excerpts:

Mindtree was the first company to flag off the softness in the global economy two quarters back, yet you have consistently delivered on results. What explains the mismatch in the global environment and company performance?

First, the demand scenario that we have reported is something we had shared in the fourth quarter of FY22. We had stated that our first half of fiscal is very good and strong. Out TCV for the 1H FY23 has touched $1 billion. The reason for this confidence was because we were working on quite a few transformational deals which were very critical for our clients.

But we did see some softness, as clients in Europe were affected by both Russia and Ukraine, and as markets were impacted due to supply chain issues from China. A few clients have started exercising caution and slowing down some of the transformation initiatives, but the same clients started talking about how to bring in efficiency.

In the last quarter, we also called out some specific client scenarios, especially in Europe, where some of the clients were slowing the transforming deals.

The good news is that in the Q2 order book, we have a significant portion of efficiency play deals, such as managed services deals which also have an annuity construct.

Our role in this scenario as a provider of services is to partner with clients in their transformation journey and take out costs for them as well. Our Q2 deal pipeline has a good mix of cost take-out deals and managed services deals, which gives us confidence that regardless of whatever we go through, we should have a good pipeline.

But again, in terms of our overall growth, Q3 is a seasonally weak quarter due to furloughs.

How would you differentiate the macro environment at present to the earlier slow downs?

There is no pause button being pushed by clients. If I have to compare it to 2008, the situation has come to a grinding halt. Let me give you my perspective of why we are seeing some pause, or some pockets of softness, but not across the board slowdown.

The first thing is that many clients began their transformation journey during the pandemic. These programmes themselves are also 3-5-year programmes and they cannot stop or cancel these, because if they do, they will lose the competitive edge. We do see some temporary pause but many of the clients cannot cut or stop spending.

The second aspect is, within the same industry two clients behave differently. Hence it is not a one-size-fits-all kind of a scenario but every client is taking a different approach and that is why we are seeing the mix of both the transformation as well as annuity opportunities.

So for Mindtree FY23 will be a double digit growth story?

If you look at our performance in the last two quarters we are already on track and we envision to have industry leading growth and it will presumably be double digit, but more importantly it will be a profitable growth. This is the eight consecutive quarter of 20 per cent EBITDA, which is very commendable.

How is the pricing environment, are clients renegotiating on higher pricing models?

The pricing environment is very stable. The profile of engagements are changing and hence the pricing changes, but if the execution is good it can benefit providers like us.

I would also add that there are still transformation deals that we are participating in where you need very niche capabilities, and we are able to command a premium.

What are the hiring plans for the fiscal, do you plan to up the numbers for the second half?

Our fresher hiring numbers have been healthy. But we are very close on the overall merger activities, as we expect the regulatory approvals in a few weeks. We are hopeful that both the companies will work as a single entity within this calendar year. Since we are working on the synergies across the supply chain. Our hiring numbers will actually be dependent on how the merged entity looks.

The go-to-market teams of both the companies have been working together since last quarter. What impact do we see in Q2 TCVs?

The TCV that you saw in Q2 has got some deals where both the companies participated. From one deal last quarter, this quarter we have a few deals.