LTIMindtree pipeline strong, aiming for double-digit growth in FY24, says CEO Debashis Chatterjee

LTIMindtree CEO Debashis Chatterjee

LTIMindtree, which started functioning as a combined entity in November 2022, completed its integration on April 1, 2023.

However, two quarters of integration have also delayed some normal activities like hiring. For the fourth quarter of FY2023, the company reported a mixed operating performance. Revenues were below estimates but margins were in line with expectations. However, this comes amidst the larger macroeconomic environment in which the company has seen delayed decision-making as well as delayed start of projects.

In an interview with Moneycontrol, Chief Executive Officer Debashis Chatterjee talks about the macroeconomic climate, fresher on-boarding delays, top-level exits and more. Edited excerpts:

Given the macroeconomic climate, where are you seeing softness? Where are you seeing ramp downs? What do things look like for FY24?

We had really strong wins in Q4. That is reflected in the order book. For the full year, we closed our order book at $4.9 billion, with $1.35 billion coming from Q4. But two things happened in this order book. Some of the projects are delayed because of delayed decision-making.

In this order book, we were supposed to start some projects in Q4FY23. Now, we will start them in Q1FY24. Many of the programmes within this order book are cost takeout programmes, which means that you will have a transition, a slow pickup. Overall, it will look very good as we move to the next quarters.

During the same time last year, we were talking about a lot of transformation programmes but now we're talking about a lot of cost takeout programmes. If you look at the specific client case, a client is looking at cost savings, but whatever cost they can save, they want to kind of support that in-flight transformation. That is the trend we are seeing in the marketplace right now, within the portfolio of clients we have. There is a bit of a freeze in BFS (banking and financial services). We are very hopeful that, by Q1, it is going to be all clear.

Again, if you look at the overall performance of LTIMindtree as one entity, for the full year, we have grown 19.9 percent in constant currency terms. I think it is a pretty phenomenal growth. My way of looking at it is that quarter-to-quarter may be a little bit of an aberration, but the overall pipeline looks very strong, and cross-sell and upsell is working fairly well. There are some vendor consolidations where we are well-positioned. Given all these things, we are still optimistic about our growth in FY24.

Are deal sizes getting smaller?

There are two ways to look at deals. One is the transformation deals, which are tapering off at this point in time because clients are saving cash and don't want too much discretionary spending. At the same time, in many of the deals in which they wanted to do a longer-term multi-year cost takeout deal but as you take the costs out, you want to again, support the inflight transformation initiatives that were already embarked on (This sentence doesn’t make sense. Needs rework) So, I would say that the deal sizes are actually becoming bigger when you have cost takeout deals and they also become multi-year projects.

Given the macro conditions, are clients also negotiating in terms of pricing?

Cost takeout deals are meant to be like that. Every cost takeout deal is different, but when we are doing these deals, we have to protect our margins as well. As of now, we are very confident about the kinds of deals we are doing. We are trying to create a win-win situation. I must say that our pricing from this standpoint is fairly stable.

Any particular verticals or geographies where you are seeing softness?

It is not always quarter to quarter which gives you a true picture. But if I look at the overall deal activity, the pipeline and the order book we have, that is fairly broad-based, both in terms of verticals as well as geographies. From that perspective, I can't really call out any specific area where we have less focus or more focus.

Specifically coming to hi-tech, it has grown around 14.5 percent for the full year, which is not a bad growth, given the fact that there has been a lot of negativity among hi-tech clients. In terms of consolidation within hi-tech, we are favourably positioned. Our optimism is that in some of the scenarios, in terms of the portfolio of clients we have in hi-tech, we are still pretty optimistic.

Some of your top clients are going for layoffs. Is there any knock-on effect on LTIMindtree?

Nothing, as of now. We have seen a knock-on effect on some clients, but we have a freeze on those clients. Freeze doesn't mean we will not do the programmes we have already committed, but the start will be delayed. I don't think there is any other effect that we have seen so far.

On generative AI, what is the game plan going to look like for FY24? Any targets with regard to client addition in this space?

It is too early to say because whenever you have such new things come up, you need to give it some time to settle down and the business cases have to fructify. We have launched this new platform, which helps clients from the concept to the value journey. This is more focused on the ethical use of AI, sustainability and data privacy, etc. There are six clients who are onboarded on the platform, four pilots are piloting the use cases. We have to just wait and see how those play out.

Headcount has gone down this quarter by 1,916 employees. Is it because attrition has reduced, or does the combined entity have more people?

If you look at our Q3 and Q4, this is the time integration was happening. This is the first time the two organisations were looking at each other's data. Our real integration started on November 14, 2022.

From that perspective, we have now got a larger bench which is an aggregation of the two individual benches. In this industry, you have to utilise your bench. We are very focused in terms of utilising the bench, focusing on learning, development and training, and creating cross-skilling and upskilling on various people within the bench.

That is why the Q3 and Q4 hiring plan was not as it was in normal circumstances. Now that the integration is behind us -- as of April 1 -- everybody's on one system. We will go ahead with our plans.

Attrition has significantly come down. If you look at the quarterly annualised attrition, it is around 13.7 percent. This is significantly lower than the last quarter, which was 18.1 percent. On the last 12-month-basis (LTM), it is 20.2 percent. Given the fact that attrition has also come down, we did not have to hire for the backfill. We are also careful in terms of how the demand scenario is. We knew that there would be some delayed start, etc. So we were also cautious about that.

These are multiple factors that played out but the net headcount reduction is not a reflection of the confidence we have in the business.

What was the net fresher addition for FY23? Can you share your hiring target for FY24?

I’m not able to call out numbers, but I will tell you that as we go into FY24, we will always have a good balance of freshers and laterals, as always. In Q3 and Q4, we had to pause fresher intake because as we were going through two systems, and we were more focused on integration, which is most critical.

If you don’t integrate well, we won’t be able to lay the foundation for the future. But as we get into FY24, typically, fresher intake happens in Q1, Q2, and Q3 of the financial year. That will continue to happen. That's the direction in which we are going.

About 600-700 freshers from the 2022 batch of campus hires, a majority from Mindtree pre-merger, are still awaiting onboarding and have been agitating about the ‘Ignite’ programme. Can you give us a sense of when they could get absorbed, or what is the company’s plan?

The Ignite programme is a very good programme that erstwhile LTI used to have and LTIMindtree has right now. This is a programme that was launched back in 2019-20, because there is always a gap between the time the people pass out and the time they join the organisation.

This is a programme by virtue of which we expose all our learning resources to the potential new recruits so that by the time they go through the programmes, they are ready, they are inducted, and can be much more productive.

This was always the case with LTI trainees who were recruited from engineering colleges. Now, we have extended that programme to the erstwhile Mindtree folks as well. It is not something that is new, it is something that has been going on, and it was very well appreciated earlier. As a part of the integration, we also looked at what are the best practices we have. So, we have adopted this one across the organisation. People are probably not trying to understand the nitty-gritty but just make some noise. As people go through these programmes, we will be having freshers joining in Q1, Q2, and Q3.

What explains the series of top-level exits we have seen? More seem to be happening from the Mindtree side, post-integration, particularly executives who joined from Cognizant.

When two organisations come together, you have two sets of leaders coming together. Some exits are normal. I don't think it is fair to call out in terms of exits happening from which organisation they came from or this erstwhile LTI or erstwhile Mindtree, but the important question is ‘do we have the organisation design for the future?’.

If you ask me, we have got an organisation designed for the future. I think the last six months were a lot of work to get our organisation ready for the future. I will not say it is completely done. It will keep evolving as we go along. All that I can say is we are very confident where we are right now. I don't think we are overly worried. It's not good to have exits. At the same time, we are not overly worried about it because there are enough leaders who can step up and take up those roles.

Are the exits because of an overlap in roles? Is there a cultural shift happening where more of a manufacturing culture from L&T is seeping in?

We addressed the culture issue earlier as well. If you look at the two companies, both are IT companies and there are multiple tracks that we ran as part of the integration. Interestingly, I personally ran the culture track, because it is so critical for the organisation and very close to my heart as well. We realise that the go-forward culture will be very similar -- almost 80 percent between the two organisations.

We have done a good culture assessment, and we feel that, culturally, we are very well aligned. I can just tell you that it is a purposeful organisation, focused on learning, caring, and delivering results for our clients and stakeholders. That's the culture we want to imbibe. I don't think there is any issue with respect to culture.

I can only say that, at certain points in time, people's aspirations are also critical. If people's aspirations are not fulfilled as a part of these two organisations coming together, they will definitely look for other opportunities. I think that's the only thing I would attribute rather than anything else.

LTIMindtree has seen double-digit growth, more than 19 percent, in constant currency terms, but we are also seeing that a lot of your peers have guided for single-digit revenue growth for FY24. Do you see a similar trend playing out for LTIMindtree?

I always believe we cannot ignore or can be insulated from the macro headwinds. What is more important for us is to focus on the portfolio of clients we have. Clients are also impacted by similar trends. Given the fact that we have a very strong portfolio of clients, we feel that many of the clients are also excited about this merger. They are also excited to get exposed to all the capabilities we can give them in terms of cross-sell, upsell, and also, the order book that we have. It's a very, very strong order book that we have, as well as a very strong pipeline, a lot of deal momentum. Given all these things, we feel that though there will be a little soft start in Q1, because all these orders have to eventually convert into revenues, we are very confident that we should be still aiming for double-digit growth as far as FY24 is concerned.

Near term, Q1, what's the outlook?

I think some of the challenges we have witnessed in Q4 in terms of delayed start will continue, because of some of the freeze we have put on BFSI projects. That will continue. That's why I think we will definitely see growth in Q1 but it will be very soft. Right now, the focus is not just on Q1 but on the full year. We have a very, very strong deal activity at this point in time.