The mid-cap IT services firm Mindtree has been in the news for a possible merger with L&T Infotech (LTI) as early as next week. The combined revenue of the two entities would be close to about $3.5 billion.
Mindtree registered $1.41 billion in revenue for the year ended March 31, 2022.
While both companies did not comment on this speculation, the merger has been in the offing since the parent firm, Larsen & Toubro, acquired Mindtree in 2019 in a hostile takeover. Since then, both the companies have been working together on a deal-to-deal basis, by leveraging capabilities.
Debashis Chatterjee, CEO & MD, Mindtree, spoke to Moneycontrol a day after announcing FY22 result, and shared more insights on the synergies with LTI, demand outlook, and the impact the ongoing Russia-Ukraine crisis could have on business. Edited excerpts:
How much of a distraction can the talks surrounding the merger with L&T Infotech be for the company? Though we know you cannot comment on speculations, the fact remains that this will create uncertainty among various stakeholders, including clients, employees, etc. So, how are you going to manage the transition going forward?
I think it’s a speculation, and we don’t comment on speculation. We will just end the conversation there rather than thinking anything else beyond that.
Mindtree and LTI have been collaborating on various projects. Could you share with us how this dynamics work?
This has been going on for the last more than two years, and in my commentary, I have always said that the mandate is to operate as independent entities. I think the reasons why L&T looked at Mindtree include the capabilities, industries and skills being fairly complementary. And that’s why they were very interested in this.
Having said that, whenever there’s a large strategic deal, or large opportunity where we feel we can use the capabilities of both organisations together and make a pitch, we have met with success. So, the synergy story is not something new; we have been working on creating synergies, but this has been purely on a deal-to-deal basis.
Could you also quantify how much this collaboration has worked since you have been talking about cross-selling opportunities and large deals?
We cannot comment on that, except the fact that it has been going on. We have been always working on specific deals together.
Besides working on large deals have there been more synergies at play? Have you been able to tap into LTI’s client base, cross-selling and upselling?
This is more of a very capability-specific approach. When we have a scenario where we don't have that specific capability within ourselves, but we know that it is available in other organisations, then (we ask ourselves) why don’t we get those capabilities so that we can pitch it and compete with other competitors as well? Because sometimes clients would also be expecting end-to-end capabilities, and you may not have all the capabilities in-house; so we borrow. That is an approach we have been following ever since the management change happened.
In this context, would you say merging the two entities would make sense?
I don't think I can comment on that. This is not for me to say.
Mindtree reported 31 percent growth for FY22. What led to the growth and how does FY23 look like given the macros?
I think, at a broad level, the strategy that we had laid out almost 20 months back focusing on select industries, service lines and geographies have worked well. We have been building our integrated offerings around that and we have been putting a lot of effort on consulting. So, those things have worked out well. We also had a strategy of rationalising the long tail. That also worked out well. The account mining strategy is reinforced by the fact that in FY22, 90 percent of our revenues came from the focused 100 accounts. This means we are really cross-selling and up-selling into the key accounts. (That) also (is) working well. So, I think the strategy is going to continue the way it is. I don't think we need to tweak too much. Overall, the demand situation seems quite robust, and we are very confident that at least for the next two quarters this should continue.
Are there any headwinds like demand or margins that could impact you in the near term?
In the near term, demand is fairly broad based. We are very happy. Headwinds will arise from time to time; it could be macro or something very specific to a particular account. Let me give you an example. We had a decline in retail in Q4, but for the full year, the sector has grown almost 45 percent year-on-year. So, the overall demand pipeline, the way it is, I think we are quite confident that this growth momentum should continue.
Over the last few quarters, Europe has been a key focus area for you. In fact, continental Europe has grown 69.2 percent in FY22, accounting for 9 percent of revenue. However, with the Russia-Ukraine conflict, are your clients stepping back on investments? How does this impact your growth in Europe, as well as overall growth?
I think there are two aspects here. Are you directly impacted because of what is going on in those geographies with those countries? We are not, because we are not present in those countries, either from a market standpoint or from a delivery capability standpoint. So, that's pretty straightforward. Now, are there clients who have been using those capabilities from those countries? Absolutely, yes.
So, one thing which we have done is we have extended all help to our clients who need it to go through their business continuity in the current scenario. But beyond that, right now I don't see any specific slowdown as far as those clients are concerned. But we are watching this space very closely.
Do you have operations in Russia such as employees working there for global clients or some such thing that you would like to reconsider?
No, we don't have any operations in Russia or any clients. We don't have any delivery centres.
How will geopolitics impact decision-making by your clients and IT budget? Is there a pause in decision-making?
Apart from geopolitics, the only thing which we are watching very closely is the overall scenario with respect to inflation. This has been on the rise in the US and clients’ decisions could be impacted by that. But as we speak now, demand is fairly robust, and as I said, at least for the next two quarters I don't see anything substantial changing from the pipeline and demand that we see, which are fairly broad-based. But we are watching the space very closely and we will take measures if we see something different.
Tell us about the talent situation? Attrition continues to be high and you have been ramping up your fresher hiring.
The talent situation is an industry phenomenon. It's not something which is very specific to us. But we have had various initiatives to make sure that we stay ahead of the curve. We knew that attrition is going to be up in Q4 FY22, and it was a little up. But our hope is that it will stabilise at some point in time and eventually start going down. But having said that, there are multiple initiatives that we have launched that are helping up. We have launched a very robust program in terms of campus hires. Campus hires are coming in thick and fast, and this programme will continue even well into FY23 as well.
Recently, we launched another programme—a returnship programme, where we are encouraging women who have taken a break from work, to return to work. That programme has been launched in a couple of cities, especially Kolkata, and has yielded good results. Rather than bringing talent to work, we are also taking work to the places where talent is available. We have expanded to Kolkata and Pune; we are opening up in Coimbatore. These are some of the strategies that we have adopted going beyond Tier one, and Tier two cities, etc. But all these things are done keeping in mind we should be able to tide over the overall talent scenario, in the short, medium and long term.
Could you quantify the fresher hiring you will be doing?
We have hired around, 1,500 freshers in the last quarter. I think that number is only going to increase, going forward.
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