Change in wage hike cycle has nothing to do with the margins or shareholder interest: LTIMindtree CEO

Edited excerpts:

How is the demand environment looking like in the H2? Will H2 be better than H1?

As part of the tariff impact, businesses are already reconfiguring their business model, whether it's supply chain or how they source products and how do they manufacture in different parts of the world.

That bit of reconfiguration has been happening over the last few quarters. So, I don't expect anything to be different in the second half on the topic. It will be the same as the first half

But keeping that aside, if I look at the type of demand that we see, there’s obviously still a continued pressure on cost and clients are looking for can I do more with less? Not just because of the macroeconomic factors, but because AI gives that opportunity for our clients and why not leverage it? And that's getting reflected in the large deals that's coming on the back of consolidation because they're redefining their own vendor ecosystem. So once you redefine your vendor ecosystem, you tend to consolidate with one or two vendors.

There’s also a lot of good traction happening for us in the BlueVerse agentic ecosystem, wherein we're trying to solve specific client problems, whether it is reimagining some of their functional processes, HR, finance, IT, legal and so on. At the same time, looking at very vertical specific processes, things like fraud detection, contact centre operations, marketing operations for retail and consumer and so on. That’s where we are seeing demand.

Then clients have started looking at areas where they need to modernize, especially in the area of data or digital engineering to be ready for the AI world.

Overall, demand environment is looking slightly better than the first half or probably the last year, I would say that's the right reference point. But still, at the end of the day, we need to differentiate ourselves a lot more to win, and which is what we have done in the first half of the year.

We will continue our growth momentum, both on revenue and on profit terms in the second half.

Is discretionary spending back among clients?

There are always very opportunistic ways of spending money from clients. I see that continuing as well.

Most of the discretionary spend is in the AI readiness projects, around data modernization, enhancing the digital engineering capabilities for the agentic world. Every customer is seriously looking at how AI can reshape their business model. They're spending money once it aligns to their business goals.

Are there specific sectors you are seeing pressures in?

Within sectors, retail and consumer side of the business has done very well for us in specific accounts. But at the same time, the sector has its own challenges. Sometimes the sectoral narrative is not necessarily the direct reflection of our results in that particular sector.

Rather than being focused on where the stress is, most of our clients are going through a transitionary phase about recalibrating. They're actually defining megdium and long term plans in reimagining their business processes at the back of AI native services. So, both the AI infusion and AI native services are going on in parallel.

LTIM has been one of biggest users of H-1Bs among Indian IT firms, our data shows. What will be the impact for you going by the current policy changes?

We have the highest offshore to onsite ratio, in my view, in the industry.

Our dependency on H-1B over the last couple of years has actually reduced. In the short term, I don't see any material impact with regard to the H-1B process. And then we have near shore capabilities which serves within the America region.

But at the same time, the clients will accelerate offshoring more. So it's going to be a good combination of the local hiring, which we are strengthening with our local talent teams. A good combination of the scale that we can deliver at the near shore centres in the same time zones, or in the more convenient time zone, and also liberates the scale at the offshore.

So all these three things will happen as we navigate the new normal. The total percentage of offshore and onsite, I think it's about 76% to 80% is the offshoring.

You are changing your wage hike cycles? Why was this decided? How will you go about splitting this given the size of the company?

I do believe in the new normal. The salary increment is not a one-event cycle in a year. In the new normal, I would expect this to be multi-event in the year cycle. Meaning, it can happen throughout the year. It doesn't mean that hikes don't happen, hikes will happen. But hikes will happen, in different timelines within the year for different business unit, different population of employees, different cadre of employees and so on.

This has nothing to do with the margins or the shareholders interest, let me just call that out. It has more to do with how do we achieve the growth in the new normal? How do we focus on reskilling? How do we achieve some transformation milestones along with employees and reward them for navigating themselves into the new normal with a new skill program that we have implemented a new skill at scale.

In summary, I think rather than focusing on one event increment cycle, I would prefer to have increments throughout the year for different population of our employees.

Our increment cycle starts from January 1st and will go on till April 1st. So for a period of three to four months, we will cover our employees within those two quarters.

Will there be a change in the variable pay structure also similar to what HCLTech announced?

For certain categories of people at LTIMindtree, we actually don't have variable pay. We have been having fixed salary for a long time.

For the bottom of the pyramid, we don't have variable pay.

We have had fixed salary for a very long time. And for those employees who have variable pay, ours is one of the most competitive and attractive. There is an acceleration built on the variable pay and linked to the roles and to the goals of business. So, it's a pretty attractive variable pay.

Any plans for setting up data centres like TCS? Considering L&T already is one of the biggest in EPC sector? Will there be synergies?

Of course, we are already synergizing with the data centre our group company has established in a separate business. We'll continue to leverage and synergize with them as and when we get opportunities with our clients.

Top 5 clients are recaliberating as they are observing AI impact. And DC  (former CEO Debashis Chatterjee) had called our earlier that there will be a transitional impact on revenue as you pass on productivity gains to customers?

It becomes a material thing to be focused on if you're not growing or creating a margin expansion story.

Here we are balancing the portfolio very well. We are growing to the street and to our expectations and to the stakeholders’ expectations. We are committing to grow to the near double digit in the second half of the year. And we are also committing to expand our margin.