Mindtree’s margin story remains intact: Debashis Chatterjee, CEO
Debashis Chatterjee, CEO,
, shares his business outlook and talks about the company’s expectations from this fiscal. Edited excerpts from his interview to ET Now:
ET Now: What according to you led to this quarter’s robust performance?
Debashis Chatterjee: The overall demand environment has been fairly strong. We have been fairly bullish on the demand and we have been working with our clients. The client conversations give us the confidence that the demand scenario has definitely picked up.
In line with the demand, we have been able to close a sizable order book. If you look at the composition of the order book, there were renewals but we also got some additional scope. One common thing in most of our new deals is that we have got more multi-year opportunities.
In terms of profits, our PAT has been fairly stable although the EBITDA has gone down slightly. We have been able to manage the PAT because of efficient use of the treasury function. There has been some treasury gains and that is why the absolute PAT has gone up and the overall PAT has been steady at 15%. This is fairly good from our perspective.
Your margins have dipped by over 100 bps in the quarter gone by. Share with us the breakup of this margin decline. What is your margin outlook given the high attrition levels?
In terms of margin, the bulk of the impact that we had is from the hiring that we have done in this quarter. However, because of the demand that we’ve seen, we are also getting ready to deliver for the rest of the year.
We ramped up our hiring both in the laterals as well as freshers in this quarter. What you see in terms of margin is a bit of the cost of hiring and a bit of employee payouts.
Talking of margins, I can only say that there will be headwinds from time to time, but our overall margin story remains intact. It remains intact for the full fiscal. You will see some aberrations in a couple of quarters, but overall for the fiscal we still have a very good programme and fairly good confidence in terms of sustaining our margins.
Specifically with respect to attrition, it is an industry phenomenon and we also are part of it. But from our perspective, we do a lot of initiatives within the organisation to ensure that there are sufficient engagements with our Mindtree minds. As we do that, we also try to control attrition.
Attrition is a factor in many things. One of them is the nature of work that we do. Most of the work that we are doing for our clients is fairly advanced digital transformation kind of work. When people join Mindtree, they tend to like to be part of those engagements. So I think that will help us in terms of managing attrition.
One of the highlights of this quarter is the order book, the highest ever at $504 million…
In terms of demand, I would say our strategy of 4x4x4 is working out fairly well. The reason why we went for a 4x4x4 strategy is to stay very focussed in terms of which industries we want to play in, which geographies and what are the service lines in which we want to build capabilities.
The order book and the pipeline are pretty much falling in line with our overall strategy. We see very good demand across all four service lines — customer subsets, data, cloud and enterprise IT. The order book is a reflection of the same thing.
From a specific industry perspective, I would say this quarter has been about broad-based growth. Even from a geography perspective it has been fairly broad based. We want all our growth to be broad based. In one quarter maybe one particular industry will do better. We have been seeing good traction in terms of CMT as well as RCM, but this quarter we have seen a very good traction in BFSI and even travel as well.
So overall, we see broad-based growth in the verticals in which we play. Things are working out as per the strategy that we have adopted.
Can we expect a strong double-digit growth in the current financial year?
It is difficult to tell this early in the year. But I can say that the first quarter is a good indication of what is going to come. If the demand continues the way we are seeing, I feel that our growth is definitely going to be in double digits for this fiscal.
In terms of margin, we have been talking about a 20% EBITDA. We are confident that we would be able to sustain that margin for the full fiscal.
Mindtree’s stated focus is on filling wide spaces like healthcare verticals. You were also targeting an entry into Japan, Middle East the Asia Pacific. What is the progress there?
The strategy is in execution mode right now. But we also need to look at the future. As for other, newer geographies we have to do it step by step. At this point of time, some new geographies are in the works. It will still take some time for us to get into execution mode on those geographies.
Healthcare is one area where we’ve set the ball rolling. That is why we started calling out healthcare separately beginning last year. We want to stay focussed on healthcare and we are building out a pipeline in that space.
In terms of wide space, you heard about the acquisition that we have done. NxT is more in terms of industry 4.0 and IoT. We feel that is a huge opportunity in the manufacturing space. That is something we are very bullish on. We are going to stay very focussed in terms of creating more opportunities and more solutions around industry 4.0 and IoT.