LTIMindtree CEO Debashis Chatterjee rules out layoffs in merged entity, hopeful of full integration by FY23 end

LTIMindtree CEO Debashis Chatterjee

Three years after the L&T Group’s hostile takeover of Mindtree, the merger of the group’s two software units finally received regulatory approval and started functioning as one entity on November 14.

The combined entity LTIMindtree, with a headcount of nearly 90,000 and over 750 clients, is now India’s fifth-largest IT services firm by market capitalisation and sixth-largest in terms of revenue.

Debashis Chatterjee, the Chief Executive Officer of the merged entity, speaks to Moneycontrol about the merger timelines, strategy ahead for winning deal, tone of client conversations and more. Edited excerpts:

You mentioned that you can now have a seat at the table for larger deals. Has your pitch to clients changed with the merger? Have clients raised any concerns before the merger?

To be candid, I haven't come across a single client who has raised any concerns about the merger. But, there are a few clients who wanted to understand what the rationale is, how it will work and how they will be in the overall scheme of things. Barring that, I think it has been very positive from all the clients. They're all looking forward to this merger. They also know that as a merged entity, we can do much more for them in terms of cross-selling and upselling.

L&T chairman AM Naik said that there is some delay in client spending that is being observed. How are the big-ticket transformation deals shaping up?

In the last 18 months, there haven't been too many large deals, but clients have been doing a lot of transformation.

At this point in time, what we see is that in some of the conversations we had with clients with regard to continuing with the transformation, there has been a bit of a pause and clients are instead talking to us if we can look at their estate and do some efficiency play—if we can do some cost takeout.

What happens is as IT companies, there are two areas that we predominantly work on at a broad level—we work with our clients in terms of discretionary which is developing systems, which will help them in terms of enhancing clients’ revenues. The other is cost-efficiency or cost takeout, whichever way we call it.

As LTIMindtree, we have a very strong capability on both sides. We feel that depending on what clients want to do, we can support them in both these areas.

Also read: LTI-Mindtree unlikely to make it to Nifty50 in March 2023 review

Do you have any concerns for 2023 since your clients will be drawing up budgets now for the next year?

We are watching the space very closely and we are working with our clients. There are definitely some isolated instances, there are clients who have been impacted because of supply chain issues and the multiple lockdowns in China. There are clients who had markets in both Russia and Ukraine who were impacted.

With some of those clients who we work with, there are isolated instances where there is a bit of a pause. We are watching the space very closely—the macroeconomic developments—and once clients go through the budgeting exercises we will get a clearer picture in terms of how the next year will look like.

Is there an overlap in skills between employees of LTI and Mindtree? Will redundancies lead to any layoffs?

No, I don't think we have. We have said that the whole purpose of this merger is to ensure that we can better leverage our talent pool. There is absolutely no question of any redundancy. As a part of BAU (business as usual), you will always have some churn here and there but I don't think it has anything to do with the merger. We are actually excited to leverage the talent pool in terms of opportunities that we probably could not address earlier.

Are you expecting attrition to tick up a bit or see any senior-level exits?

No, nothing as of now. Churn always happens as a part of BAU, but the merger gives so many opportunities for people. Attrition is also an overall industry and market phenomenon. Our view is we are seeing early signs of attrition cooling off and our hope is that will only come down from this point as we go forward.

Can you give us guidance on what you expect attrition numbers to look like in the coming quarters?

I'm not going to share a range or a number per se, but if you just look at our numbers in both entities, attrition has kind of stabilised in the last two quarters, which I think will continue.

Overall, what we have seen in the market in the last 18 months in attrition is probably not very rational. It is not something that we have seen before and it’s not sustainable. I think the worst is behind us. Over a period of time, it can only go down as we go forward.

How are you planning to manage the cultural integration between LTI and Mindtree?

There's a lot of effort we have spent in the last four or five months as we came to Day One (of LTIMindtree). Interestingly, we realised that first, being part of the same parent, there are not too many differences in terms of culture. If you look at the four pillars of culture for this organisation, it's driven by purpose, it’s a caring and compassionate organisation, and it's focused on learning, and delivering results.

Also read: LTIMindtree's $5 billion revenue target too optimistic: Jefferies

LTI has an acquisition-led growth strategy with nearly half of its revenue coming from it. Now with the scale the merged entity will have, how do see this strategy change or evolve?

The goal that we have set is we should continue to have a profitable growth story and we should have an industry-leading profitable growth story as LTIMindtree. As a part of that growth journey, we will definitely be looking at inorganic at the right time for the right opportunity.

We don't want to just do inorganic to add scale, that's not its purpose. The purpose should be to do inorganic which will help us in terms of growing a market or growing in a particular industry or growing a certain capability, and that effort will continue as we go along. The strategy will be a combination of organic and inorganic at a broad level.

The strategy will be a lot of cross-selling and upselling, and also looking at how can you stitch end-to-end solutions for our clients in a much better in a much more efficient way.

With L&T Technology Services (LTTS) and LTIMindtree now, what’s the game plan for the 5G opportunity, especially since Mindtree is big in the hi-tech segment?

We have a very clear way of working with each other. As and when there are opportunities, if it is on the engineering side, LTTS is going to be taking the lead. If it is on the services side, the lead can be taken by LTIMindtree. Depending on the specific opportunity as and when it is required, we will always come together.

5G is very initial and very nascent now. We still need to see how it will play out. Wherever there is an opportunity, I think we can bring all the capabilities across organisations also together.

Are any merger proceedings pending? What's the timeline for the full integration?

We wanted to get Day One out by the end of the year. We were hopeful. We have achieved that thanks to the support of the regulatory authorities and our internal teams.

I think that job is done and now is the actual integration, people must be on the same system and we need a uniform website, these kinds of things have to happen. Significant planning has already happened.

I believe that if we can get it done before the end of this fiscal, that will be a great achievement from my side.

No regulatory approvals are pending. It's internal right now in terms of how quickly we can get the two teams on the same systems and the regular integration activities that we need to do from an internal compliance standpoint.

What's the exposure to the US and Europe for the merged entity and what’s the visibility for the second half of this fiscal?

Overall exposure to the US is almost 75 percent. Both organisations have similar exposure. The third tends to be a little soft because of furloughs, etc., but I don't think that's going to change. We had called it out that we are we expect a little bit of softness in Q3, but as we get into the next quarter, and as we get through this whole integration in the next two quarters, our aspiration is to get back to our industry-leading profitable growth.