In FY23, our fresher hiring will be 40-50% more than FY22: Mindtree CEO

'Our story about profitable growth has been fairly consistent. This is the fourth quarter of 5% plus sequential growth in constant currency,' says Debashis Chatterjee

Mid-cap IT services player Mindtree reported a growth of 34 per cent in net profit yoy for the third quarter of FY22. The company also reported sequential growth of 5.2 per cent in constant currency, meeting the street expectation. It also reported that its order book for the quarter was at $358 million and for YTD it has reached a TCV of $1.2 billion, despite a strong performance, the company’s stock price was down 5 per cent in early trade. In an interview Debashis Chatterjee, CEO & MD, Mindtree tells Shivani Shinde the demand environment, the knee-jerk reaction of the market and demand for CY23. Edited excerpts…

Your Q3 performance has met street expectations despite that the stock was down almost 5 per cent in early trade. Why do you think the market is not factoring the growth momentum?

I don't know how to comment on that. But I think as far as we are concerned, our story about profitable growth has been fairly consistent. This is the fourth quarter of 5 per cent plus sequential growth in constant currency. Last five quarters, in fact, we have been fairly consistent with growth. We have been holding on to the EBITDA at 20 per cent plus levels. So on an overall level we are very pleased with what we wanted to achieve. Our strategy is working very well, the client account mining is going very well. So I think these stories are very powerful. I'm sure they (market) will understand this as we go and it should reflect rightly as well.

What have been the growth drivers for Mindtree for this quarter?

Our pipeline has been fairly robust, it has been growing over the last several quarters. If you look at the order book for YTD it's at 1.2 billion which is 21% up on a year on year basis. From an orderbook standpoint, there are a couple of characteristics we see, one the nature of the deals are about digital transformation. And digital deals are traditionally iterative, and the delivery is over multiple sprints. These transformation deals typically come with a long tail of growth, and then subsequently, it develops into a larger strategy engagement. Secondly, I would say that the work that we do with our clients, is in the revenue maximization segment, which means it will help in terms of clients improving or increasing their revenues as they reimagine their business models. We are in that situation where many of our clients have accelerated their journey to the cloud, and we feel that since we are a strategic partner for them, there are plenty of opportunities.

Analysts are also pointing out that the TCV for this quarter is also soft. Is it due to seasonality impact or any other reason?

Every quarter has some seasonality impact on TCVs. For instance, when you have a lot of renewals happening in Q1 you see TCVs going up. The right way to look at TCV is the kind of deal momentum that we have, our internal confidence in terms of pipeline, which is pretty robust. But the other important aspect to the TCV is our YTD our TCVs is at $1.2 billion, which has gone up 21.5% on yoy basis, but even if we look at the Q3 order book which is at $358 million, it is up 15% year-on-year. The sequential numbers may not give the true picture.

Despite a supply side constraints and hiring numbers going up, you have managed to control margins. Can you please elaborate?

Managing margins is not a one quarter phenomena, it is an ongoing program and the process and rigor that we have put in place over the last several quarters. What you see is nothing but a combination of that strategy working with the various margin levers. Just to give you an example our subcontractor cost had gone up, we have again rationalized that subcontract cost and brought it down to a certain level that is reflected in the margin this quarter as well. So our endeavor is to have steady margins. For this particular quarter our margins came in at 21.5 per cent compared to last quarter’s 20.5. We did have 60 basis point growth in margin which is because of the top line growth as well as operational efficiency and the remaining 40 basis points from currency.

One of the constant themes we have been hearing is that deal sizes are smaller, this was recently also stated by the top three IT firms, what does it mean for players like Mindtree in terms of the competitive landscape?

It's more advantageous to us because we have always been a strategic partner to our clients and deliver multiple short cycle deals as we go along. And at the same time, we have been also focused in terms of how do you convert a short cycle deal into a multi-year deal. With respect to competition, we have aspirations to grow and if you have aspirations to grow. But at the same time we are very focused in terms of our strategy, which is to be focused on four service lines. We want to be the partner of choice for our clients when it comes to digital transformation.

Attrition has yet again gone up for Mindtree as well, do you see it settling down anytime soon?

It’s a challenge that we have to deal with in the near term and in the next two to three quarters we will see some stress in terms of attrition. But having said that, you know there are a lot of things that you have to do internally also, hiring freshers is just one area, we have created a lot of initiatives such as role rotations, career development or career movement opportunities etc. Our intention is to hire a good balance of freshers as well as lateral from the market. For the next fiscal our fresher hiring will be 40-50 per cent more than FY22.

From a demand environment how does CY22 look like?

If I look at the visibility we have now, the pipeline seems to be robust and the demand is pretty good and broad based. Clients definitely want to implement a lot of digital initiatives at scale and many have accelerated their cloud journey. And clients are looking for transformation first partners which is where we have an edge.