Want to end FY22 with industry-leading growth: Mindtree CEO Debashis Chatterjee 

Asia's Tech News Daily

#Business, #India, Mindtree

Mindtree CEO Debashis Chatterjee (Image: Mindtree)

From Rs 700 in August 2019 to Rs 4,762 in October 2021, the Mindtree stock has generated returns of over 500 percent in the two years since Debashis Chatterjee took charge as CEO. A Cognizant veteran, he was the first non-founder to don the CEO hat in the company’s two-decade history, during a turbulent period for the company. Three of its co-founders had quit days after L&T gained control of the company, creating uncertainty about its future. But Chatterjee steadied the ship, and also unveiled a 4x4x4 strategy last year, wherein it will focus on 4 industries, 4 geographies, and 4 service lines.

Chatterjee spoke to Moneycontrol after the company’s impressive second-quarter earnings and said he was confident about the growth momentum continuing into the coming quarters as well. Mindtree has also been snapping up top executives from larger rivals such as Cognizant as it looks to scale up in a robust demand environment. Edited excerpts:

Your Q2 FY22 numbers came ahead of consensus estimates. Tell us what’s really been working for you over the last few quarters, beyond the headlines, stock prices, and what analysts are seeing.  Do you see this playing out for the rest of the year and perhaps the next fiscal year is well?

I think the demand environment has been pretty good. We are ensuring that we can do the right things. Given the demand, the 4x4x4 strategy that we rolled out, where we defined the focus in terms of industries, geographies, and service lines, has worked out extremely well for us. So, what you see is that the first half of the fiscal has laid a very strong foundation for industry growth for FY22. We had very robust growth across all the last four quarters, and that is profitable growth, which is broad-based across industries and service lines. I will say that the 4x4x4 strategy, focusing on profitable growth, and also how you upsell and cross-sell in terms of your existing logos, have worked out very well for us. That is what is reflected in terms of the numbers that we have done this particular quarter.

If we look at your top client, revenue was flat and if you look at the overall total contract value (TCV) it is $360 million, down from $504 million in the previous quarter. We have seen this trend of softening TCVs for other IT companies, too, this quarter. So, is the post-pandemic growth spurt moderating? 

The way to look at it is that whether it is the top client or TCV, I think we will always have a bit of seasonality from quarter to quarter and specific quarters. But you should look at it from an overall full-year basis. The top client had tepid growth this particular quarter sequentially. But if we look at year-over-year growth, the top client grew 2.8 percent, which means that it is still growing. There are still a lot of opportunities to grow the top clients, but we also wanted the rest of the portfolio to grow very well. For the first half of the fiscal, TCV is around $860 million, which is a growth of around 24.5 percent year-over-year. But I think for both these aspects, we should be looking at the full fiscal and we are very confident that from a full fiscal standpoint, given the growth trajectory that we are seeing right now based on the last two quarters, the momentum that we have generated is good for the overall business.

Is it a conscious decision on your part to de-risk the top-client portfolio? Your top client contributes 24 percent of your revenue, which is down from almost 30 percent in the same period last year, and your top 10 clients’ revenue contribution is almost 45 percent. 

Our strategy is, absolutely over a period of time, that the concentration risk or de-risk — whichever you call it — should come down. Our strategy to make that happen is that we want our top client to grow. But at the same time, we want the rest of the portfolio also to grow in a robust fashion so that automatically the concentration risk comes down. That is exactly what has happened in this particular quarter. It is a little up and down, but the trend has definitely come down from the pre-pandemic levels, when they had gone up to 30 percent and then dropped to about 24 percent. That will be a gradual trend, but our intention is to make sure that we continue to support the top client, and also mine the portfolio that we have, which is the two to 20 and up to 40 top clients. That is the strategy that we have adopted.

You said that demand momentum is robust. Companies are investing more in migrating to the cloud and on digital transformation in the wake of the pandemic, which is expected to be a multi-year cycle. But from Mindtree’s perspective, where is the demand coming from? 

In terms of demand, at a very broad level, digital accelerated significantly during the pandemic, where there was a lot of cloud adoption, and we also played a very big role. If you look at the service lines (cloud, enterprise IT, data and intelligence and customer success), we are seeing robust growth, wherein we are talking about transformation and reimagining business models. All our service lines are required to drive those kinds of transformation. So, that’s why the cross-sell and upsell strategy is working out extremely well for us. The other aspect I would say is that there is also a demand, where we are seeing a lot of modernisation, where we want to take applications away from the mainframes and move to the cloud, revising business models to create more revenue. These are some of the areas where discretionary spending is going and demand is coming up.

The war for talent that we are seeing in the market is pretty unprecedented. Attrition is back to double digits, 17.7 percent for Mindtree, up from 13.7 percent in the previous quarter. Would you say that this is perhaps an unprecedented situation for the industry per se? Is it something that you have seen in previous cycles and when do you expect it to settle down?

We did not see the pandemic. So, we did not see the attrition, as well. But see, the reality is the industry goes through ups and downs and we have to make sure that we are aligned to or react in a certain way to the current situation. So, we know that what is going on in the industry right now is the talent war and the challenges associated with that. But as an organisation, we also have a lot of mechanisms to counter that. We have increased the intake of our freshers significantly in the last few quarters. We recently launched a program called Mindtree EDGE, where we are taking BSc and BCA graduates and running them through the BITS Pilani Mtech program. There is a lot of innovation that we are doing. We also feel that you know, as we continue to grow, and do a lot of transformation projects, there’s a lot of cutting-edge technology that we are working on. When people join, they’re all very excited to work in cutting-edge technologies. We have to do a lot of employee engagement initiatives, which we have been doing very consistently. We have ESOPs programmes for our employees. Now, is this situation going to be perpetual? Definitely not. How many quarters could it go on? I hope it doesn’t go on for too long. But you know, there has to be a way to counter that. And that’s what we are focusing on right now.

Could you quantify the fresher hiring?

We have roughly 1,000 freshers joining us every quarter.

Are you also hiring a lot of top-level executives? We have seen a lot of hires come into Mindtree from Cognizant, not just in the human resources function but also in industry verticals as well… 

When you do the transformation for a client, you have to transform yourself as well to meet the demand and scale of business. So, as we are riding from one S curve to another S curve, with the aspirations that we have and the growth that we are seeing, we need to also re-engineer and re-energise our team. From that perspective, we have been hiring leadership from other tier ones, and we will continue to hire leadership from other tier-1 companies. We don’t comment on specific leaders per se, but we will be beefing up the system, and we have been doing it consistently, which is also getting very good results for us.

When you took charge of Mindtree, the stock price was below Rs 1,000, and today, it is above Rs 4,000. Do you still see an upside in terms of what Mindtree can do in future because the company is on a different growth trajectory? Looking at the last one or two years, Mindtree has even outperformed large caps in terms of the returns given to investors.

I have to focus on what we can do and what is within our control. We can talk about profitable growth and we have stuck our neck out and said that we will have double-digit industry-leading growth in FY22. I think the double-digit growth is not relevant any longer. We have already done that and we will continue to maintain the momentum. There will be seasonality in quarters, but our momentum, growth engine, and the foundation that we have laid for growth will continue. We have to also make sure that we can sustain the EBITDA margin. That’s also something that is within our control and we will try to do the level best to do that. But beyond that, the only thing I can say is, right down to the way we have recovered from the pandemic and the way growth has come back across the industry and service lines, I am hoping we will still be able to maintain our industry-leading growth.

So when you say that double-digit is no longer relevant, does this mean that you are looking at sustaining the 12 percent-plus growth in the next two quarters?

As I said, we started the year with a very positive outlook. We would like to end the year with industry-leading growth for the fiscal year. But you know, there is seasonality in quarters, like for example, Q3 will always have a holiday season, which is an industry phenomenon and everybody understands. So, it is difficult to call like that. But what I can say is that having four quarters of consecutive and robust growth is something that is commendable. It gives me confidence that the momentum in the business has come back in terms of the growth that we are talking about.

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