Double-digit growth with profitability is the focus in FY22: Mindtree CEO

L&T-owned software firm Mindtree closed the fourth quarter with 5.2 percent sequential growth even as its travel and hospitality vertical continued to see pressure in the aftermath of the pandemic. Under the 4x4x4 strategy, which was implemented last year, the company is confident of achieving double-digit growth in FY22.

In this interaction with Moneycontrol, Debashis Chatterjee, CEO & Managing Director, Mindtree, spoke about its growth and hiring outlook. Edited excerpts: 

Travel, transportation and the hospitality sector accounted for 16 percent of your revenues before the pandemic. That has shrunk to about 10 percent in Q4 FY21. How is the sector looking and what is your outlook?

We have been talking about how it will be several quarters before TTH can come back to (pre-)pandemic levels. But having said that, if you look at our exposure to travel, we have quite a few clients in travel and hospitality, where we have been working with them for over a decade. We never lost any client during the pandemic —revenues were down, but we never lost any client.

So if you look at the last two quarters, there are some green shoots of recovery that we see. Every client in the travel and hospitality sector is now designing contactless checking, contactless booking, etc. So there is discretionary spending and we are participating in some of those initiatives with some of our clients. We are also looking at some other clients like cargo that we probably didn’t do earlier. But overall, the green shoots are happening. That is not to say that travel is going to be back anytime soon. At least a few quarters, we just cannot predict…

Can you share the progress on the 4x4x4 strategy that you had implemented late last year to focus on four verticals, geographies, and service lines?

Four by four by four is very simple to understand for industries, geographies, and service lines. The heavy lifting was by the four service lines — customer success, data, and intelligence, cloud and enterprise IT — that help clients in terms of their digital transformation. This was supported by a small consulting outfit.

The strategy is in execution mode right now and we are seeing very good traction in terms of the deals that we are winning — not only new logos, but also in existing accounts, where we are able to mine those accounts by cross-selling and upselling. So overall, I think even with the pipeline that we have, we are very confident that we should be able to do double-digit growth in FY22, maintaining the margin at 20 percent plus.

You are talking about double-digit growth. What gives you this confidence? Also, can you give more colour — is it going to be in the high teens or low?

It will be difficult but as far as growth is concerned, you have to understand two quarters 5 percent sequential is a tremendous achievement. And that gives you a lot of confidence. The second thing is that the deals closed in the fourth quarter are going to ramp up in Q1 FY22, as well as Q2 and throughout the year. So given all these scenarios, and a strong pipeline of $1.4 billion in FY21, I think we are confident that we will do double-digit growth. Now if you ask me to call a specific number, you have to wait for one or two quarters, we’ll figure out where we are. And one important thing is that we are not going to lose our focus in terms of profitable growth.

Consulting has also been a key theme in this quarter and you have mentioned, Mindtree has a consulting unit as well. How do you see that playing out?

As I was explaining, there are four service lines. I mean, if a client is doing a lot of work on data, there’s a lot of cross-selling and upselling opportunities. But when you have a situation where a client is trying to do multiple things together, they need a better solution, which kind of cuts across multiple service lines and that is where the consulting comes in. And that’s where the consulting activity will roll in terms of sticking the solutions together. So, we do have a small consulting capability and we will keep on growing the consulting capability also as we grow the service lines. They will have the service line solution capability.

Rationalisation of client accounts was one of the key focus areas after you took over in August 2019. Does that still continue? Do you have a specific timeline for the same?

No, that would continue. When I took over my role, there were 364 clients; from there we are now at 270. We must have added some 30 or 40 clients. We have rationalised long-tail accounts, and that process will continue. There is no deadline for doing that.

Are all these happening at your end or is there also a client consolidation happening because there will be consolidation in favour of the larger players. So, is that also a concern?

Of the 270 clients that we have, and 26 additional logos that we have added, these are all strategic logos that we expect to ramp up. You are right there is a consolidation happening but it is probably not fair to say that consolidation will only favour those bigger than us. It can go either way. So we have been on wait-and-watch mode and see how it works. But we are into several consolidation deals as well. You know, in some you will win and some you will lose. So, consolidation is a part of the game.

Now that you are including a fifth vertical, healthcare, how will your strategy change?

The reason I did not want to add anything at that point of time was these are the four industries in which we have been operating in for the last 20 years: banking and financial services, communications, media & technology, retail, CPG & logistics and travel and hospitality. Now, if you look at all these industries, we realised that many of them are marching towards healthcare because the segment is going through a huge transformation. Like, for example, you look at Google acquiring Fitbit. Some of the tech clients are also kind of getting into health tech, and we cannot stay away from that.

And all the clients that we are working with, in some of the other segments, we felt that all these clients are also trying to lean towards healthcare in some shape or form. So, that’s why we thought that it is probably appropriate for us to also start incubating healthcare as a practice. But we also have to be very careful since healthcare is a big space. So, we have to figure out what it is that we will be doing, how we will differentiate.

Now as a part of our strategy, we have a very clear vision in terms of four service lines. Even as we go after healthcare, we’ll focus on those service lines. For example, customer insight data, customer intelligence, customer success data and cloud. We will also just focus on payer providers and healthcare plans. And that itself is a huge space. So, we are very focused in terms of what we want to do. And that is how I think the fifth vertical will kind of emerge over a period of time. We don’t call it a fifth because it’s kind of getting incubated right now, and it is kind of related to all the other sectors that we have. So, it is not deviating from the strategy that we have adopted. I can also tell you that, you know, in the last two quarters, we have been incubating it and we have got the sales and delivery engine ready. We are going to have this healthcare recorded separately from the next quarter.

War for talent and high attrition has been another key theme in IT. Is that a concern? What is Mindtree doing to retain talent?

War for talent is not new; it has always been there, and it has just intensified. If you look at the nature of work that we do, almost everything is digital. The bulk of the work that we do is all digital transformation for our clients. Also, if you look at utilisation, it is at 84 percent, which also gives an indication that if you are joining Mindtree, then you’re probably going to get deployed on client investments very fast, which also is a very big attraction for people.

Now, keeping all these things in mind, we have done the wage hike. We are observing the space very closely. Apart from wage hikes, we will do whatever is appropriate at the right time. In terms of hiring, we are very clear that it has to be a mix of laterals as well as freshers. In terms of overall hiring, the numbers are really going to go up in the next couple of quarters.

Do you have a future-of-work strategy on your plans for the real estate, campuses you own, as more work goes remote? 

From our perspective, we have not added any real estate at this point. Because we don’t know how this whole thing will play out. And we have a task force that we formed almost six to eight months back and have been debating what should be the future of work. So, they are ready with recommendations.

But it depends on whether clients are also comfortable in having those conversations, because at this point, to be honest, I don’t think you can get people back to work. So, what we have done is, we are ready with the models. And the model will eventually be a hybrid model, where you may probably have people kind of rotating in and out.