The lack of growth is more market dynamics rather than leadership churn: LTIMindtree CEO Debashis Chatterjee

Your revenue hasn’t trended well and analysts are expecting not just a weak entry year but also a muted FY25. Can you give us a sense of how you see growth coming back? Also how’s demand shaping up?

As far as we are concerned, if I look at the full year, FY24, we still grew at 4.4 percent, which is probably better than some others in the industry. Our expectation, aspiration was higher but we pretty much did a decent job as far as the full year is concerned. We added quite a few Fortune 500 clients also as a part of our roster.

The top 40 clients we wanted to focus on grew very well, and the order book was very robust. So overall, I think it is a decent full-year performance. It could have been better but we are very happy with whatever we did in the current market conditions and the downturn that we saw.

Coming specifically to what transpired, if I just look at Q3 and Q4 and even the full year, it’s been a difficult market environment, very cautious client sentiments, delayed decision-making, etc. And if you look at the type of spend that we used to participate in with the client, it was significantly oriented towards discretionary spend.

So what happened last year was we were transitioning in a way where we were also trying to rebalance our portfolio where we have a combination of cost take-out deals as well as discretionary spend deals. That was the primary goal in the last financial year.

And within that also, the decision-making was a little delayed, especially Q3 and Q4… Now, the confidence that I have as far as Q1 is concerned is that many of these deals which were delayed in ramping up, which was reflected in our last two quarters’ results, those deals have kind of ramped up fully and revenues will start kicking in.

Right now more than 80 percent of the deals in my pipeline are all cost take-out deals, which means they will follow the same pattern.

We feel that our execution will be better in FY25.

How did the leadership churn affect growth?

I don't think I can attribute the leadership, whatever have left, to do anything with growth because the merger is pretty much behind us. Leaders leave and join companies... The lack of growth is more market dynamics rather than anything else. And please understand that we had two organisations coming together.

We had a significant leadership bandwidth also available across the two organisations.  That's why we are very confident that it actually creates more opportunities for some of the leaders in the system and at this point of time, we are very well positioned and whatever leadership exits here and there, we can always tide over that and we can always get back. That happens all the time.

Your operating margins went down by nearly 70 basis points (bps). What drove that and what levers are in place for recovery as you said Q1 onwards there will be growth?

When you say recovery, I think margin has to be a discipline and this is something which you have to run as a programme. That programme is pretty much in place and though we have not called out a number, I expect that as the revenues keep coming back, the margin also will start improving over a period of time, quarter on quarter. There are, of course, some cyclical things that happen from specific quarters, but overall, my margin programme is very strong and I have a firm belief that as the revenues come back, margins also will be coming back.

As a part of this programme, we will work on all the standard margin levers like utilisation, subcontractors, pyramid, all of these... That is pretty much in place. What you saw in Q4 was a very specific thing. Like there was a partial reversal of furloughs, higher working days, lower pass-throughs which gave us a benefit of 70 basis points in terms of margin. We had higher SG&A (selling, general and administrative) depreciation that took 86 basis points out and there was 80 basis points impact because in BFSI (banking, financial services and insurance) there was an unexpected cancellation of two new projects which was resulting from decisions where clients have reprioritised their spend.

Has the margin target of 17-18 percent been pushed out? With revenues picking up in Q1, can we expect you to come in that range? Give us a sense of the timeline?

We called out that we want to give a pause on the 17-18 percent margin target. That 17-18 percent was doable provided we had a certain revenue line coming. The revenue line did not come. A pause does not mean that we do not run a margin programme and we are not focused on the margin. But the pause is basically I do not want to focus on the margin too much to impact the growth. I want the growth to come back and then again focus on giving a timeline. But it is difficult to call out a timeline unless we see the overall environment change and wait for a couple of months to see how the growth comes back.

When do you see the overall environment improving? This divergence between deal wins and discretionary coming down, we are seeing this playing out across companies.

Well, we do not have a crystal ball here. What we can see is what you also see. The market at this point of time is seeing a certain level of cautiousness among clients in terms of spending on discretionary and that cautiousness continues. Now, is it going to ease up with the interest rates or the geopolitical situation or the elections in the US? We do not know. We do not have a good answer.

But it is not that deals are not happening. I must also tell you that they are, our pipeline is pretty robust. There are a lot of deals that we are talking about, but most of the deals are in the efficiency play.

This sentiment among clients, is it linked to macro or geopolitics? Or are they waiting and watching on how AI will disrupt their industries and then take a call on some of these new spends?

Many clients are actually going very aggressive in terms of building use cases around AI, Gen AI specifically. So, I do not think that is the scenario. And there are also use cases where we are working with clients and moving them into production. Gen AI is working fairly well and we are also doing a lot of work with our clients. It is the macro environment which is kind of creating the cautiousness within clients.

Your attrition rate has gone up contrary to the larger industry trend, and utilisation too declined. What caused that and will there be further downside in the upcoming quarters? What kind of salary hikes will you be giving out in FY25?

Our attrition came at 14.4 percent and our comfortable range is 14-15 percent. So, last quarter it was at 14.2 percent LTM (last twelve months) basis. I do not think the attrition has really gone up from that perspective. In the same way, as far as utilisation is concerned, our comfortable range is 85-86 percent. Utilisation was around 87 percent this quarter, which is not ideal. We would like to see whether we can stabilise at 85-86 percent.

If you are talking about salary increments, the percentage of salary increments for each employee is determined by their individual performance, length of service and market competitiveness. And we are going to definitely do the revisions. We have not decided on a timeline. We will see how the market shapes up and do it. But I want to also tell you that we have paid all the bonuses. We pay bonuses in two stages, half-yearly and at the end of the year… We can do all these things because we still have confidence in our overall capabilities of the business.

We have also onboarded 500 freshers this quarter. And we target to onboard at least 500 freshers every quarter.

You are hiring 2,000 freshers for FY25?

I have said that we will target to take at least 500-plus freshers every quarter. And we have also said that we will absorb all the freshers’ offers we had given out.

Will you also link performance bonuses to work from the office like what Tata Consultancy Services has done?

We have other mechanisms also, and we watch this space very closely. We will definitely want people to come back to the office more. But I don't want to react to what others do. We will have a plan. And when we have a plan, we will definitely share more details.

Take us through the overall management succession plan for LTIMindtree. Is this your last year? Will you be staying on? What are the plans in that direction?

I can only say that succession planning is a very routine part of risk management exercise for any company of our size. And beyond that, we should not read into anything. And the other question you asked, that you should be asking my board.