Mindtree shares dropped as much as 5.6% to 4,477.3 at BSE on Friday after Mindtree released its results for the third-quarter after market hours. Debashis Chatterjee is Chief Executive Officer and Managing director of Mindtree. Business Lines Venkatesha Babu The performance and growth of different verticals, the demand environment, geo footprint, and talent attrition.
Despite having a good set of numbers, what is the reason for this market reaction?
The market is a unique entity. We are not concerned with the overall growth story we have been following over the past five quarters. It is not growth. It is profitable growth. Our margins at the time of the management takeover were not the best. After that, we saw a significant improvement in the margin. We decided to maintain the margin at 20 percent because it was right for the business and so that we can reinvest in the business as we grow. From this perspective, I’m very happy with both our growth story and the margin story.
Because we saw some improvement in the prior quarter, the last quarter was spectacular. However, this doesn’t mean much. If you look at Q3 performance year-over-year, we grew 34% year over year. It’s a very positive story. The last four quarters have seen a 5 percent increase in quarterly growth, as well as constant currencies and sequential growth. This is a wonderful story. Overall, I am very satisfied with the growth.
How do you assess the overall demand environment in your area? Is it still strong? Is there some softening? What do you think the future holds?
We have a lot of pipeline in our business that reflects the demand environment. It is at an all-time high right now. If you look at the particular order book for this quarter, you will see that there are seasonalities in the order book. However, the Q2 orderbook is up 15% year-on-year.
It has grown by almost 22 percent compared to the previous year’s same quarter. The YTD Q3 order books, which are at 1.2 billion, is almost 22 percent higher than the previous fiscal. Overall, the order book has performed well. However, one thing that we are seeing is the type and quality of the work we do. This is more in the digital transform where we are helping clients maximize their revenue. Many digital transformation opportunities can be iterative and delivered in multiple sprints. Even if you have a strong product pipeline, it might not reflect in the order books in the way that you want.
However, if you look at the macro picture, we are very bullish on our demand.
Because of the pandemic-related issues, there were concerns about the hospitality and travel industries. Are those issues now being addressed?
Travel and hospitality accounted for almost 17-18% of our revenues prior to the pandemic. When COVID struck us, we had a significant impact. We didn’t lose any clients. The bad news is that the industry most affected by this kind of event is the one who has to reinvent themselves and reimagine its business models.
Contactless travel is one example. These are just some of the transformation projects that we have been involved in with many of my travel clients. This has helped us to get back to our clients and grow the portfolio as clients bounce back. The total TTH has risen to $200 million, which is a significant improvement on the pre-pandemic levels.
What are your strengths and weaknesses within the three broad categories of BFSI (Retail CPG), Communication Media Technology (Communication Media Technology)? How do you view a challenging environment?
BFSI was again a landmark. We crossed the $250 Million annualized run rate. Some consolidation among clients caused some slowdown in our growth. However, we have gained momentum over the last two, 3 quarters. BFSI’s growth is mainly driven by clients who are trying to realign technology portfolios, accelerate future technology adoption, modernize their legacy infrastructure and reimagine their channel strategies.
CMT has seen a lot of growth. It has grown nearly 25% year over year. We have been helping OEMs accelerate their 5G offerings and IoT platforms. Retail and Consumer Goods Manufacturing saw marginal growth due to a Q2 sale. However, our y-o-y growth was almost 52 percent. So it has been a positive traction in consumer experiences, core modernizations, supply chain transformations, smart factory solution, and the ability that we have inherited.
Mindtree had previously been exposed to a single customer, contributing to close quarter of your revenues. How has this changed over time? Have you been successful in your journey?
This has decreased. This has been a gradual decline. The largest client revenue, which was close to 30% of the company’s total revenue during the pandemic, has now fallen to 24% or so. This client is not just one; there are many levels of business within it. It is a combination of several LOBs within the client. This is a large client to me. I want my largest client’s growth to continue. But I want the portfolio to grow much faster. This quarter’s results reflect that well. Our top client, this has grown 17% year over year. The 2-20 clients, that is, the next 19 clients have grown 41% year over year. This means that the large plant is growing which is great. However, I can raise the rest of my portfolio faster.
Mindtree reported that talent loss was 21.9 percent. How do you plan on tackling this?
The macro-level challenge is what I believe the problem is. However, interventions are necessary. There are some things we have done. This is a great chance to increase the fresher intake while also balancing the lateral intake. We want to see a nearly equal number of laterals joining the company each year. We have placed a lot of emphasis on fresher hiring, not only from engineering colleges, but also from BSC, BCA, and so forth. That program is now in place.
(Additional inputs from BL Intern Haripriya Sureban
January 14, 2022