MC Interview | We're seeing demand but deals are taking a long time to close: LTIMindtree's Chatterjee

LTIMindtree CEO and MD Debashis Chatterjee

LTIMindtree is seeing demand for IT services but a lot of deals are taking time to close, said its CEO and MD Debashis Chatterjee in an interview with Moneycontrol. The company reported a subdued performance for the quarter ended June 2023 with sequential revenue growth of 0.1 percent.

Chatterjee termed the performance as “fairly good” given the current macroeconomic climate. The company’s biggest vertical, BFSI (banking, financial services and insurance) is slowing down, and there's also softness in the retail sector.

“If you look at the decision-making cycle, we expected a lot of the deals to close in Q1, but they are now rolling over to Q2. So, the decision-making process in terms of deals is again delayed across all the sectors and industries," he said.

In the financial services segment, the company was expecting some clients to lift their hiring freezes and ramp up, but that did not happen. “That ramp-up did not happen because the freeze is still on, and we don't know exactly how long the freeze can be on. We are hoping that at some point in time, the client has to take out the freeze as they need to look to their own programmes that they want to run,” he said.

In fact, Chatterjee went on to say that some of the assumptions that the company held going into the quarter were wrong — like expecting faster deal closures when there is demand. It also put a dampener on the company’s aspirations to see double-digit growth during the fiscal year.

“The decision-making delay is also going to push the revenue cycle out. Given that scenario, looking at the overall macro, it is going to be challenging for double-digit growth, but what I can assure you is that our aspiration is to still have a profitable growth story,” he said.

Efficiency deals: The pros and cons

While the demand is steady across industries, barring retail, LTIMindtree, like its peers, is holding conversations where efficiency is the dominant theme. Chatterjee said that since clients save money on these deals over a period of time, it also gives them the confidence to re-invest those dollars into transformation programmes.

However, in these, he said, the primary challenge is the transition involved, as this period does not help in revenue acceleration. “The revenue acceleration starts only after you complete the transition. So, keeping that in mind… because of the delayed decision-making, the transitions are also getting delayed. And that's why the revenue realisation is also getting delayed,” Chatterjee said.

“This is truly paradoxical because there is significant demand and there is significant pipeline activity; it’s just that the closures are taking a lot of time. That is pushing the revenue cycle out. In deals around efficiency, it's very important to have the closures as quickly as possible.”

Improving margins and hiring plans

LTIMindtree has seen its headcount decline for three consecutive quarters, or during the time that the merged entity of LTI and Mindtree have been reporting their numbers as one entity. Its headcount has shrunk by a little over 4,000 on a net basis over three quarters.

Chatterjee said that the company maintained there would be no job losses during the integration of the two erstwhile companies, and the only way to ensure that was to upskill and place them internally before going to the market to hire. For now, he said that the company has increased its utilistation instead, and isn’t concerned about hiring ahead of time and build a bench, as was the case 18 months ago.

“In the last two quarters (Q3 and Q4FY23), we have been very busy in terms of completing the integration. In Q1, we tried to run everything on one system, one process, as we adopted a single view of the complete bench across the two erstwhile companies. Given those things, we anticipated that we should be able to first utilise the workforce that we have internally available on the bench before we again go out and hire laterals,” Chatterjee said.

However, operating margins took a beating during the merger, something which started improving in Q1FY24. Sequentially, margins were up from 16.4 percent to 16.7 percent. By Q4, Chatterjee expects EBIT margins to expand further and remain in the range of 17-18 percent.

Improving utilisation pyramid, billability, assigning the right roles to the right talent etc., will also help the company to expand overall operating margins, he said.