Regulatory spends in BFS, vendor consolidation driving demand for LTIMindtree: COO Nachiket Deshpande

LTIMindtree and L&T Technology Services (LTTS) together have a Gen AI deal pipeline of $200 million.

As of Q1, North America saw the highest growth on both QoQ and YoY basis, with the revenue contribution coming from this geography increasing to 75.1 percent, its highest since the merger of erstwhile L&T Infotech and Mindtree in November 2022.

Interestingly, the demand in North America was driven by regulatory-related spend. “So post the SVB (Silicon Valley Bank) fallout of last year there has also been tightening on regulations in the banking sector and that's resulting into some of these pent-up projects that the banks had to get it done in order for them to meet their compliance need and that's giving rise to it.”

Demand outlook

LTIMindtree’s CEO and MD Debashis Chatterjee during the company’s earnings conference on July 17 said that while the market environment remains unchanged, it has started to recover with some green shoots. He is seeing early signs of customers “beginning to deploy the savings and additional budgets towards kicking off high priority transformation programmes and making foundational investments for AI.”

When asked if the current demand is likely to cyclical in nature, Deshpande said, “We are seeing that the engagement model is short cycle but the demand is not, if the projects are not ending in that time. It is like a print-based release of budget but the projects are of 12-month type of horizons at a minimum on these modernization service. So from that perspective we do believe that this demand will stay and the momentum will continue.”

Desphande added that he would refrain from commenting on Q3 and Q4 demand perspective as the biggest challenge for the company has been to predict how furloughs would play out. So, he will wait till Q2 to get more clarity.

“In the last three years, there have been very different pattern with regards to furlough. In 2022 it was different and so was 2023; hence it is very difficult to predict what it will be in the financial Q3 or the calendar Q4. Also, in Q4 and particularly in tech and financial services segments, the furloughs are more than others,” he said.

Updates on Saudi Aramco JV

Unlike rivals like Tata Consultancy Services (TCS) which saw a major chunk of growth in Q1 come from rest of the world (RoW), LTIMindtree’s revenues from the RoW geography has been declining both sequentially and year on year. This was despite the company announcing a joint venture (JV) with Saudi Aramco’s IT services arm Global Digital with an initial investment of $12.3 million in March.

Deshpande shared that the Aramco deal is still going through the incorporation process as JVs are "inherently complicated from a structure perspective". “So we're going through multiple jurisdictions for approvals that Aramco also has to get. We are anticipating that maybe somewhere by the beginning of Q3, the incorporation is likely to complete. And then we'll be in a position to comment on the timelines of revenue ramp up from that JV.”

He added that on the RoW front, it was a cautious decision by LTIMindtree to reduce public sector portfolio in India and has accordingly not gone after many deals in this space.

“In the last three quarters or so I don't think we have closed any deals or announced any deals in the public sector. So we've been staying away from some of those. It's been part of the plan. And I think as you know, TCS also is largely driven by the large deal that they did in India,” he said.

TCS is currently seeing revenue coming from the $1.8 billion deal with the state-owned Bharat Sanchar Nigam announced last year, wherein it is undertaking deployment of 4G network across India for BSNL.