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MindTree Ltd
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Ladies and gentlemen, good day, and welcome to the Mindtree Limited Q1 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Ms. Amisha Munvar, Head of Investor Relations at Mindtree. Thank you, and over to you, ma'am.
Thank you, Rio. A very good evening to all of you. Welcome to this conference call to discuss the financial results for the first quarter ended June 30, 2020. We trust all of you and your loved ones are safe and in good health. Today, on the call, we have with us Mr. Debashis Chatterjee, Chief Executive Officer and Managing Director; Mr. Dayapatra Nevatia, Chief Operating Officer; and Mr. Vinit Teredesai, Chief Financial Officer.We will begin the call with a brief overview of the company's Q1 performance, after which we will have the floor open for Q&A. The webcast will be in listen-only mode, but you can post the questions. We will take the webcast questions once we complete the questions through the conference call mode. Please note that this call is meant only for analysts and investors. In case there is anyone from the media, request you to please disconnect as we concluded the media briefing call in the afternoon.Before I hand over, let me begin with the safe harbor statement. During the call, we could make forward-looking statements. These statements are considering the environment we see as of today, and obviously carry a risk in terms of uncertainty because of which the actual results could be different as outlined in the quarterly fact sheet, which is available on our website. We do not undertake to update those statements periodically.I now pass it on to Debashis.
Thank you, Amisha. Good evening, and good morning to everyone on the call. I trust all of you and your loved ones are safe and keeping well. The pandemic has reaffirmed our belief that technology forms the core of businesses. Our clients are also evaluating new markets, products and growth strategies. Adapting to the new normal with resilience and emerging from it is the need of the hour. I am happy to share that on delivery front, we succeeded in a seamless transition for deals won in previous quarter as well as current quarter. For multiple crucial projects, we completed GOLive as per the planned scheduled. I thank our clients for collaborating on this effort as well as kudos to the Mindtree teams to have made this happen.We continue to receive accolades from clients for our proactive responsiveness during the global health crisis. The steps taken by us for reskilling and deploying talent, seamless transition to the new normal, on-time deliverables and collaborative spirit with our partners have been well appreciated. Our quarterly project feedback survey reflects the same, and we continue to receive high scores.In terms of the order book, it has been a satisfying quarter. Against the backdrop of a very challenging business environment globally, our order book continues to be healthy as we continue to renew as well as gain market share within our portfolio.Engaging with clients proactively has always been our approach, thereby helping them in these unprecedented times with precision and high agility. Our strategic initiative, help and grow, covering new business models, cost takeouts and workplace modernization, has set a strong foundation to gain market share for us. The initiative has also helped our clients quickly adapt to the new normal.Mindtree Minds are our key assets. We continue to strengthen our employee engagement initiatives. During the quarter, to ensure health and safety of our minds, we have tied up with mid-tier hospitals and taken over standard -- good standard lodges in the vicinity and converted them into COVID Care Centers for quarantine and care with no liability on use and pay basis. We opened up 24/7 medical help line, staffed by special doctors for the benefit of Mindtree Minds and their families. Also, we have the services of a dedicated ambulance service 24/7 at our Bangalore office. We repatriated more than 130 Mindtree Minds and their families across the globe and ensured their safe return.Physical health is important for a healthy mind. Company offers virtual yoga sessions in the morning and evening for the health-conscious minds. These initiatives were very helpful to ensure well-being as well as safe workplace environment for all of us to navigate smoothly through this unprecedented crisis. This was possible due to the unrelenting dedication by our Admin and People Function teams.We continue to contribute for the well-being of the society. For this quarter, Mindtree matched up to the contribution made by the Mindtree Minds with the amount of INR 12 crores to support the respective state governments to fight the battle against COVID-19.Now moving on to the financial highlights for the quarter. Achieving profitability of 18.2% despite the uncertainty in the global economy is the result of our relentless efforts to drive operational efficiency. For the quarter, our revenue is $253.2 million. Travel, transport and hospitality, which we call as TTH segment, is the most impacted in today's pandemic situation, leading to a sequential decline of 9% at the company level. On the demand side, there is increase in traction within our CMT and RCM segments.Our measures to deep mine the accounts continue to show the desired outcomes in terms of healthy order wins of USD 391 million across industry segments. With continued focus on tail account rationalization, we ended the quarter with 292 active clients with the addition of 6 new clients. We will continue to build on our existing strengths and also drive multiyear annuity deals.On the people front, by the quarter end, we had close to 21,950 Mindtree Minds. During the quarter, we had a gross addition of around 740 minds. Onboarding, induction and orientation programs are continued using our virtual digital platforms. The training for campus minds is also being done smoothly through the collaborative tools and platforms. We had a reduction in attrition for the quarter. Last 12 months attrition has reduced to 16.6% compared to 17.4% in Q4.Our reskilling initiative and digital onboarding platform helped us to redeploy a record number of Mindtree Minds for the various assignments. Adaptive learning has been and will continue to be our key differentiator. For the quarter, we saw more than 680,000 hours of learning, which is 70% more than the earlier quarters. This exponential increase in learning and reskilling on our e-learning platform is helping us to have constantly future-ready talent.Osmosis, which is Mindtree's annual technology festival, is one of the most awaited events in the organization. This year, the event was conducted with the theme, "Possibilities Next", where we opened up futuristic client problems for our technologists in the Idea-thon Makeathon tracks. We also conducted the Techie of the Year initiative virtually in our college campuses with a record of 10,000-plus participants. Mindtree has been recognized among the Top 30 employer brands in the country by People Business group for its employer branding and best practices.Let me share some of the wins for the quarter. For a leading manufacturer in outdoor maintenance and gardening equipment, Mindtree has been awarded a program to redefine the e-commerce journey by bringing direct-to-customer channel using Salesforce Commerce Cloud and by deploying a new content management system, thereby opening a new revenue stream for the client organization. Mindtree has been awarded a multiyear global infrastructure services engagement for a top multinational corporate travel and meetings management company to provide 24/7 remote infrastructure management, administration, monitoring and support services for their data centers across the enterprise.Mindtree has been chosen as a strategic partner for the implementation of Salesforce-based digital solutions and ServiceNow rollout for a pioneer in retail teledentistry enterprise based in North America. For a global travel technology leader, Mindtree has been chosen as a strategic implementation partner to accelerate their cloud transformation and modernization road map to create a new travel marketplace, comprising critical products and systems across their entire portfolio. Mindtree has been chosen for development and testing services for a world-leading health care manufacturing and distribution company based in North America.Now let me pass on to my colleague, Vinit, to share some of the other financial highlights.
Thank you, DC. Good evening, and good morning to everyone. Our fee revenue for the quarter declined by 8.7%, volumes increased marginally by 0.4% and pricing realization declined by 9.1%. The drop in price realization is largely due to decline in revenue from the Travel & Hospitality segment. Our reported EBITDA margin for the quarter is at 18.2% compared to 17.1% in Q4 of last financial year. Improvement in margin is led by tailwind of 30 basis points from operational efficiencies and 80 basis points from favorable currency movement. The headwind of 90 basis points is mainly on account of visa cost and matching contribution for COVID-19 relief activities.The effective tax rate for the quarter is 26.5% as compared to 21% in Q4 of last financial year. Net ForEx loss for the quarter is USD 3.4 million. PAT margins, profit after-tax margins, for the quarter is at 11.2% as compared to 10.1% in Q4. PAT in absolute term is at USD 28.3 million resulting in EPS, earnings per share, of INR 12.9 per share for the quarter ended as compared to INR 12.5 per share in Q4.Days of sales outstanding for the quarter is at 67 days compared to 66 days in Q4. EBITDA to operating cash flow conversion for the quarter is at 175.9% and to free cash flow is at 172.1%. Our utilization, including trainees, declined to 75.5% as compared to 76.5% in Q4. Utilization, excluding trainees, is at 77.4% compared to 78.8% in Q4.Our contract signings for the quarter is at USD 391 million, out of which renewals were USD 315 million. New contracts were at USD 76 million. Contracts to be executed within 1 year were at USD 265 million and greater than 1 year were at USD 126 million.As of 30th of June, our cash flow hedges are at USD 863 million. And on balance sheet, hedges are at USD 106 million.Thank you. I'll now hand over back to DC to cover on outlook.
Thank you, Vinit. We have recently concluded our strategy refresh activity. These days, most of the transformations are led by digital technologies. Taking cues from our clients' ongoing needs as well as emerging priorities in a post-COVID world, we have reorganized our capabilities and expertise into 4 service lines. First, customer success. Through customer success, we enable our clients to deliver intuitive experiences to their clients faster in an agile, secure and resilient fashion.Second, data and intelligence. Through data and intelligence, we help our clients articulate, implement and realize their strategy to drive business outcomes by leveraging data. We support clients' conceptualize their data strategy, identify the right AI and analytics use cases, and implement a commensurate data architecture.Third, cloud. We partner with our clients to enable their end-to-end cloud transformation journey. We help clients assess their existing technology landscape, establish the end-state view, move to the cloud, operate efficiently and unlock value using APIs and cloud-native development.And lastly, enterprise IT. At the center of our enterprise IT service lines lies the ambition to enable our clients transform their technology ecosystem. We aim to deliver zero cost transformations where we help our clients transform their ecosystem steadily while we deploy new-age monitoring and support systems. From a near-term perspective, we continue to see uncertainty in travel segment. While deal conversions are taking a little longer, we are seeing good demand traction in CMT and RCM segments. With all these tractions, we anticipate our Q2 revenue to be better than Q1.Our focused service offerings, healthy deal pipeline, surge in digital demand, steady ramp-up of deal wins and future-ready talent gives us confidence to strengthen our position in the market. We will continue to grow and also continue to drive operational efficiency.I now pass this back to the operator for opening up for questions.
[Operator Instructions] The first question is from the line of Mukul Garg from Haitong Securities.
DC, you just mentioned that you expect Q2 revenue to be better than Q1. Can you, please, clarify a bit in terms of demand environment, what do you see? Has it bottomed? Or is this partially a factor of easy comps from Q1 quarter? And especially on the Travel & Hospitality vertical, given the sharp erosion, which we have seen, is there a risk of -- to the vertical survivability in your business? Or do you expect this to rebound? And I have one more for Vinit later on.
Thanks, Mukul. So in terms of -- when I say -- let's talk about TTH first. As you rightly said, there was a sharp erosion, and which is -- which was inevitable. This is the vertical, which was probably in the forefront when the entire world was hit with the pandemic. But if I look at the relationship that we have with all these clients, it's a very longstanding relationship with many of the marquee logos that we work with. So obviously, there is a sharp downsizing in terms of the relationship, which we have. But we are very hopeful that as they rebound, our relationships will also -- our relationship is also going to rebound along with that.[Technical Difficulty][Operator Instructions]Yes. So yes, we will definitely rebound once our clients also rebound. So we are very hopeful that these relationships, the nature of work that we do, the kind of domain knowledge we have working with these clients, I am sure clients also value that.Now in terms of what is the time line, that's a little difficult to say. But at least for the next couple of quarters, we expect softness in TTH. But having said that, there are pockets of conversations that have started. Some of the engagement that we are doing with some of our travel clients, which were all put on hold, some of them are opening up slowly, but it will still take a little bit of time.And when I -- when you say -- when I said Q2 to be better than Q1, it is -- probably it is -- the maximum hit that we had to take from COVID that probably happened in Q1. But as this -- as the pandemic unfolded, there are a couple of areas where we have seen good traction. One vertical is CMT, and the other vertical where we have seen good traction is CPG. And also the traction that we see at an overall level, the adoption of cloud and the focus on digital transformation, workplace transformation, cost takeout, all these things are also kind of accelerated many of the clients' minds. So there are opportunities that are emerging. So that is why we are very confident that our Q2 will be better than Q1 because some of the things which were put on hold or slowed down, we are now seeing that they are kind of coming back slowly.
Noted. Thanks for that detailed commentary. Just a quick clarification from Vinit. Vinit, can you help us with the breakup of the operating costs? What was the gross margin on a comparable basis -- on the IFRS comparable basis versus last quarter? And how much SG&A you incurred this quarter?
So Mukul, our gross margin more or less remained the same. There was a marginal dip. However, we were able to find out operational efficiencies into our G&A segment. And obviously, there was also a certain amount of benefit that came in, in terms of our other income. So otherwise, the gross margin has -- was not grossly changed.
The next question is from the line of Apurva Prasad from HDFC Securities.
DC, my question is more on the pricing environment. I mean, in the context of the big drop in the first quarter versus good collections also. So I mean, how do you really look at pricing outside Travel & Hospitality segment? I mean, especially because -- I mean, we're looking at tight enterprise budget scenario. So I mean, how is it that you're looking at it?
So we don't see no major impact to pricing per se. But as you can understand that many of the clients we have been working with, they -- we have a very longstanding relationship with them. And the entire -- the client community, because of COVID, many of them, beyond TTH as well, many of them have gone through a very tough time during Q1. So in terms of specific clients, there are conversations that we had where we have offered some discounts case-by-case basis. But these are -- in my view, this is a very short-term phenomenon. But over a period, I think pricing is going to be stable, and I don't think this is anything to worry about in longer term.
DC, can you quantify of that 9.5% pricing impact, how much of it would be temporary in nature which you expect can come back in the next couple of quarters? And I've got a follow-up to that also.
No. I don't think we can give a breakup of that. That is not a very material amount.
So you're saying the temporary element is not material.
Yes.
Okay. And my other question is on the top account that seems to be continuing very strong growth trajectory. So I mean how do you -- from a -- more from a medium term perspective, how should we look at the scalability of that particular portfolio?
Sorry, which portfolio you're talking about?
The top account.
The top account. Okay. No, I think there are a few things that you need to understand about the top account. One is the bulk of the growth in the top account is based on the quality of service that we deliver to the top account. During the pandemic, the top account, also, there was a lot of spike in terms of work that we came -- work that came from the top account. So I think that is also something which has helped us. So over a period of time from a medium -- and also third thing is, if you look at the top account, the kind of work that we do in the top account is also well diversified across multiple portfolios within the top account. So given all these factors, I think we still feel that the top account is steady. And over a period of time, I think we still feel that we can nurture the account further, as we nurture some of the other accounts also within our portfolio.
[Operator Instructions] We take the next question from the line of Diviya Nagarajan from UBS.
Congrats on the good execution in a tough quarter like this. My question is on the operating margins. You -- I think the operating margin this quarter was clearly driven by a fair amount of SG&A savings. Could you just run us through what proportion of this is -- because today, there are some temporary reduction in costs and what is sustainable? And on your gross margins, again, we've seen the pricing impact really flow through. What kind of recovery can we look at as the year progresses?
Vinit, do you want to take that?
Yes. So Diviya, around 25% of our overall operational efficiencies, you can, say, are like a permanent annualized reduction. The rest of all the expenses are related to the revenue drop. And there are also one-off expenses like the visa expenses, which are typically incurred in Q1, so to that extent, there are these headwinds also that have come and hit us. But otherwise, on a gross margin basis, as I mentioned earlier, our gross margin remains pretty much intact. Most of these savings have come through the optimization initiatives that were being driven since the last couple of quarters. And we'll continue to do so in the forthcoming quarters.
Okay. And DC, coming back to the revenue question, do you have a sense on when revenue growth can once again come back into positive territory?
No, as I said, Diviya, I mean, we are definitely looking at Q2 to be better than Q1. And if things don't go any further worse than where we are right now, I think we should -- we are positive to see a good traction as we go along. TTH, per se, will be a bit of slow recovery. But if I look at some of the other industries in which we support our clients, I can expect -- we can expect that things should gradually look good, but we can certainly talk about Q2 at this point of time.
The next question is from the line of Sandeep Shah from CGS-CIMB
Just wanted to understand whether the large deal of Realogy, whether it is reflected into Q1 numbers? Or do you believe that the ramp-up may start from 2Q onwards, and which gives you confidence of a positive growth in 2Q?
I think, Sandeep, to answer your question, the transition has been going on. In fact, we have very successfully completed the transition for this particular engagement. And the bulk of the recognitions will start from Q2 onwards.
Okay. Okay. Okay. And sir, in terms of the other large deal pipeline because we were positive about some deals at an advanced stage. So do you believe the prospects are improving in terms closure starting from 2Q, or it may take longer and may go into second half of this financial year as a whole? And second question is in terms of margins, so one can expect that margin may still have an upside versus the monthly levels because visa cost of 90 bps may not reoccur in the second quarter, and cost optimization exercise is still to undergo. And your view on wage hikes, any decision being taken because generally it's starting from 2Q?
So I didn't get your last part question, but we'll come back to it later. But in terms of large deals, I can only say that the deal closures have been taking a little more time. It has been a little -- slow process, given the current situation. And as far as the margin is concerned, I have always mentioned that our endeavor is to take the margin quarter-on-quarter, do a little -- do improvement on the margin, and that's what we have been focusing on. But I don't think we want to take the margin to -- so that we don't -- it doesn't -- it starts impacting growth. So that's all I can say. But over a period of time, our endeavor is to bring in more and more operational efficiency in the system.
Okay. My question was on wage hikes, any decision being taken on that side?
So we have not taken any decision as yet. But we have decided that as a part of our annual process, we also do the promotions. So we will go ahead with the promotions that we normally do. But wage hike, we will -- we have not decided.
Okay. Last question to Vinit, CFO, just on the hedges. Looking at the current spot rate, do you believe going forward, there could be more positive gains on the cash flow hedge? Because at the end of Q4, you had big losses sitting as the notional losses on the results and surplus. So any view on that will help us to model.
Yes. The hope always is that the rupee will not depreciate from where it is today. So as far as that continues, we will see some positive impact coming up.
Okay. So even at current spot rate, one can expect some positive gains starting from Q3.
May not be all in Q2, but definitely, in the second half, you can -- second half and onwards, you should anticipate that, subject to rupee remaining at where it is or appreciating from where it is.
[Operator Instructions] The next question is from the line of Sudheer Guntupalli from Motilal Oswal.
So over the last 4 quarters, if you look at share of revenue from fixed-price contract increased almost 12 percentage points, from 55% to 67%. And in this quarter also the shift is very sharp at around 8 percentage points or so. So is this entirely driven by our strategy shift towards more of long-term annuity projects, or there is some other aspect here? Secondly, in this quarter, if the new large deals have not completely ramped up, why is there such a sharp change in the mix?
Okay. I'll let my COO, Dayapatra, take that question.
Sudheer, good evening. This is Dayapatra here. So clearly, it is part of our strategy. For the last couple of quarters, we have been driving more and more annuity deals, more and more long-term deals. So as a result, the mix of FPC and FMC has been going up, and we see it to continue to move up as we move forward. This also helps us in bringing in more operational efficiencies because we have longer-term engagements. And therefore, our ability to implement some of the cost levers is much higher. And also, it helps our clients also realize more benefits. And therefore, it is a win-win situation for both of us. And that's why this strategy is working out very well for us.
Sure, sir. And in this quarter, why is there such a sharp increase if the new large deals are not completely ramped up compared to the previous quarter?
So it is just the mix that has changed because of some of the deals that have ramped on because of COVID situation, especially in Travel & Hospitality. So that mix change has led to sharp increase. This much increase would not have happened otherwise.
Sure, sir. And any -- going forward, this change in mix, will it also entail any accounting changes in terms of, let's say, revenue booking, et cetera, or it will be more or less normal?
No. No major accounting changes that we anticipate.
The next question is from the line of Sandip Agarwal from Edelweiss.
Sir, I have just one question. First of all, congratulations on a very good execution. Sir, I wanted to know what is your view on the Microsoft business, so basically, the top client business. I know they are doing extremely well, I am sure you are also getting benefited. But is there a facility that you know this momentum comes down quickly, the point I am trying to understand is that they are doing extremely well, and that is the reason there is a high growth right now, that -- and that is compensating for our low growth in Travel. So is it possible that their growth cools up before travel picks up. I'm just trying to know whether there is a big volatility, which can happen for 1 or 2 quarters in between. I am not asking for a guidance, but just a sense.
Sandip, your line is a little -- can you just...
I think what he is asking is, is the growth from large -- largest customer likely to come down before TTH picks up, so that may have impact on overall revenue.
No. I think whatever we see right now is in near term. I think -- but overall, I don't think there should be any impact.
The next question is from the line of Vimal Gohil from Union Mutual Fund.
Sir, I just wanted to understand the margin bit once again. Firstly, on the gross margin, the report -- you said that the gross margins are relatively stable if I have -- but on the reported basis, if I see, there's a sequential decline of about close to 400 basis points. So this would have been entirely driven by this temporary blip that you've seen in pricing, right?
Vinit, do you want to take that?
Not necessary. There is also an impact on account of -- we have been in the knowledge transition phase for a couple of our clients. And the impact of that getting reflected in revenue, you will see it in the subsequent quarters. So that -- I don't think so the observation what you made is correct.And then based on operation -- and then there are also efficiencies that we have been able to manage on account of reduction in travel. Obviously, travel has not happened. And then there is also an optimization on some of our subcontractor cost and professional fees paid.
So after all these optimization and efficiencies, you -- the gross margin has fallen, but you should see an improvement going ahead, right?
That's the expectation.
Sure. And sir, just on your deal wins, I mean, Mindtree has done an excellent job of continuing this deal win momentum. Just wanted to get a sense on how the deal wins are spread between -- across your top clients and other non-top clients. So is it well spread, if you could just give a sense of that?
Yes, it is quite well spread, Vimal. I think the reality is whatever you see in this quarter is because it's a little aberration because of significant ramp down in TTH and the top account continued to grow. So if you ask me, the way I look at it, the top account will be steady. We still want the top account to grow, but we are expecting that there will be other accounts also, which we will be growing, not necessarily only -- not necessarily in TTH, but some of the other segments, like we are expecting -- we are seeing good traction in CPG as well as other CMT accounts. So that will continue to drive the growth.
Okay. Just last one data point question. If you could just give me the effort mix, the onsite, offshore breakup this quarter comes to that revenues?
Yes. They are available on our fact sheet.
I think it should be available in the fact sheet. I don't have it handy. You can take a look at the fact sheet.
The next question is from Madhu Babu from Centrum Broking.
Yes. Sir, looking at second half, I mean, the stimulus has relatively helped for the relatively stable U.S. economy scenario. So if there is no second stimulus, so how do you see second half recovery for the company overall? And secondly, now top account, I think, 30%. I think this is the highest in any mid-cap having a single client at 30% of revenues. So are we starting to feel a bit uncomfortable because in any given scenario, if it starts to decline, that can have a huge impact on the performance?
So I could not get your first question, but I can talk about the second question, and then we can get back to the first one. In terms of the top account, look, I think there has been always an endeavor to make sure that we balance the risk that has been -- there is a well laid out strategy within the organization in terms of how do you look at accounts across other industries and how can you grow those accounts so that it can balance it out. The strategy is very well laid out. The strategy is very much in place. But at the same time, we also want to make sure the top account is healthy and that can also grow. So there is to be perfect balance. I think what you see in Q1 is a slight aberration because of the -- whatever has happened in terms of TTH. I mean if you have suddenly a significant portion of your revenue, 40% to 50% deep in a particular vertical, then that kind of drives a lot of other behavior. So that's what you are seeing. But over a period of time, we ourselves also believe that we need to mitigate this, and we have a plan in place. But it will probably take up a couple of more quarters to kind of go in that direction.And I think your first question was stimulus, I don't think there is much of an impact for us with respect to that.
The next question is from the line of Manik T from Emkay Global.
My question is with regards to the pruning of the tail accounts that we've been doing over the last several quarters, if you could help us understand how would that link with the sales and support headcount rationalization that we've seen? And how much more pruning do we see on this account? And how is that helping from a profitability standpoint?
So in terms of tail accounts rationalization, this is something which we have been talking about for a while. And the main purpose is that we want to be more focused in terms of our strategic clients. We want to cross-sell and upsell in terms of our strategic clients. And -- but having said that, we don't want to do anything, which will disrupt the -- which will cause disruption to any of the tail accounts. So essentially, this is, again, depending on the specific [Technical Difficulty] we are consciously trying to divert all [Technical Difficulty] in terms of mining the existing accounts. And if you look at the -- my commentary, we have very clearly identified the 4 service lines. And we feel that there is a -- in the world where every transformation is led by digital, we are very confident that these 4 service lines can actually be cross-sell and upsell sold in every account.So we would rather like to do that in the key accounts in the Top 20, Top 30 accounts within the port -- within our organization portfolio, and focus on that rather than trying to focus on too many accounts and the long tail. So that's the rationale that we have been adopting in terms of rationalizing the long tail where we don't want any disruption. And I don't think there is any -- as we do the rationalization of the long tail, we are also very clear that we should not really impact in terms of our revenues and margin. And that's why the planning is required where you do it very nicely.And I don't know what was your other question?
In terms of...
In terms of sales and support headcount, I think we are talking about a very miniscule numbers. There are certain refresh that has to happen. As we are refreshing our strategy, we also need to get folks in the team who can align to the -- that way we want to go to our clients. So I think what you see over here is BAU, and it's more of a strategy to refresh rather than thinking anything beyond that.
Sure. If I could ask one more. What we've been hearing is that some customers are asking for differential pricing on work from home. If we could understand from you if you are also seeing something similar happening on the ground? And how do you see the situation evolve on this front?
I didn't get your question, differential pricing of...
Are really customers asking for differential pricing?
No, I don't think we have come across situation. I mean, as I said, there has been situation, which is in near-term during the pandemic, where we are supported with -- supported our clients with whom we have a longstanding relationship. But I don't think beyond that, we have seen any differential pricing.
The next question is from Kawaljeet Saluja from Kotak Securities.
Congratulations on very good margin performance. Just a quick short couple of questions. First and foremost is that the travel vertical declined by over 50% quarter-on-quarter. Has that been the general budget cuts by clients or have there been any share losses? That's the first question. And second is the entire realization decline of around 8% to 9% is staggering actually by any standard. So what really transpired? What are the kind of concessions that you have given? Just wanted to understand that.
Yes. So -- Kawaljeet, so in terms of TTH, as I said, most of the impact that we had was in TTH, where the -- I mean, the business of our TTH clients have really come to a grinding halt, and we work with quite a few marquee logos. And as I said, we have got great relationship going with them. So to your point, whether they have been -- these projects have been shelved or it has been delayed, I think at this point of time, I would say that there are projects which they just put on hold. And as we speak, we are seeing 1 or 2 of those projects even coming back. So I am hoping that it was a pause that they took, and that was the best thing to do for them when the hotels are all closed, airlines are not flying. But over a period of time, I think [Technical Difficulty] see those things, the projects coming back over a period of time.And in terms of the overall impact in the organization is around 8% to 9%. But if you look at beyond TTH, also some of our other clients, they definitely wanted some help in the Q1 in terms of tiding over the near-term prices. And that's something which we did. I think what you see over here is the TTH clients where things got completely deferred as well as in some of the other clients where things became a little -- where they wanted some help in terms of concessions in Q1. But over a period of time, Q2 onwards, we expect many of those things to slowly come back.
So DC, my question specifically was that, has that been the average decline in budgets of clients in the TTH vertical, or has Mindtree lost share of...
No, no. We have not lost share. I think when you talk about ramp down across the TTH clients, the ramp down is pretty much, in my view, across all the partners they have been working with. I don't think we have lost anything in terms of share of the wallet. It's just the situation it is. So that's why we are very confident that once things do open up, given the relationship and given the nature of work that we do, the kind of critical applications that we have developed, we are very hopeful that they will again call us back at the right time.
Okay. And the second question specifically was that the realization decline was 8% to 9% quarter-on-quarter, given that volume was flattish, so the realization decline was 9%, which is staggering by any standard, given that 30% of the business is Microsoft and the realization in that would not have changed. So just trying to understand the magnitude of pressure and the consequences of it.
Yes, I will let Vinit answer that. Vinit?
Yes. So as I mentioned earlier, we have done a couple of knowledge transitions at this point of time. So -- and to that context, you will see that there is an -- the impact of the revenue on that will be coming only in the subsequent quarters. So these knowledge transitions at this point of time, we have been holding our clients and helping them in getting this transition done. So to that extent, you are seeing the build hours on a higher side. But comparatively, the revenue not happening -- revenue increase not happening on the same pace. But the -- in the subsequent quarters, you will get -- you'll see the impact coming in.
So can you, please, help me with the real underlying decline in realization because this is just -- I mean, I think, what you’re practically saying is just accounting related. So what is the underlying decline in realization if you strip off the knowledge transfer volumes?
No. There is no decline in that context. What we are saying is, right now, in the current scenario, we have been holding a couple of clients in doing the knowledge transition. The revenues will flow in the subsequent quarters.
The next question is from the line of Princy Bhansali from Anand Rathi.
Sir, Princy here from Anand Rathi. My first question is regarding the status of facility expenses and how much of it is recurring?
Vinit, do you want to take that?
I am sorry, I missed that question. Can you repeat again? I am sorry.
Yes. What is the status of facility expenses? And how much of it is recurring?
The facility expenses right now, we have only now factored in the -- as far as our rentals are concerned, it continues. The utilities expenses right now since all the facilities are not operating, to that extent, there is a reduction in those expenses. And right now, we are not planning for any new incremental facilities to come in the near -- in the short term. So to that extent, whatever you are seeing in the Q1, as far as the facilities continues in the same fashion, there will not be any material change.
Okay. And on the non-Top 10 client side, they seem to be quite weak this quarter. Do you think some sales and marketing efforts will be required on that side? I mean, what is your view there?
No. I think from every quarter-to-quarter things may change a little bit because many of the works that we do within our client portfolios are still project-based. So as we get into more of annuity based, you'll probably see that variation happening to a lesser extent. But we have got all the efforts going on in terms of focusing. And as I said, I mean, we have been very clear that we want to rationalize the long tail and drive -- deep dive into all the Top 20 accounts. We have been very vocal about account mining. So those things are already in place, and we should be able to see results as we go along. And we have just recently launched these 4 new service offerings, 4 new service lines, and we are going to align our service offerings also with respect to these service lines, so which is, again, something which we have very hopeful that, that will be very relevant to our clients, especially the Top 20 clients.
Okay. And in terms of your BFSI segment and the testing side, they seem to be quite weak this quarter. What is the outlook there?
Yes. I think when you say testing, I think the most of the impact has been because of Travel & Hospitality. And that's something which we expected, and we have to -- we have also been doing a lot of cross-training and redeploying our resources in other engagements. And as far as BFSI is concerned, yes, there is -- we have been fairly strong in the insurance, even in banking also there are a few deals we are working on. So we have to just wait and see, and hopefully we should be able to revise that as we go along.
The next question is from the line of Vibhor Singhal from PhillipCapital
So basically just 2 questions from my side. One is, again, on the Travel & Hospitality vertical. So the vertical, as we know, saw a sharp fall, and we now come down to around $20 million run rate on a quarterly basis. So just wanted to check with you that basically given that we are guiding for a better revenue growth next quarter, do you believe that at $20 million of run rate we could have bottomed out in Travel Transport? Or we could only see some more pain in the sector before it starts reversing its growth path? And secondly, on the margins front, if I could just ask, as basically Vinit mentioned that there are multiple margin tailwinds in terms of the visa costs, which will not be there from next quarter and also the knowledge transition revenue that will be booked. What are the margin headwinds that you see in the next couple of quarters, which could probably balance out part of that or -- of those margin tailwinds that we have?
So Vibhor, in terms of Travel, I would say if -- where the pandemic is today and whatever we know about it, if there are no further deterioration, I would say, we have kind of reached the bottom. It's fair to say that we have reached the bottom, and things will only improve from this point of time. So that's what we are hoping. But again, depending on how the things emerge.And in terms of margin, I don't think there is any significant headwind that we are talking about at this point of time. And one thing which I want you to understand is that margin is -- this is something that we did not -- we kind of put a process almost 3 quarters back, where we have a team which is kind of looking at how do you get more and more operational efficiency in the business. So this is something which has been an ongoing effort. And we are continuously looking at how we can deliver better, how we can have more operational efficiency. So given all those initiatives which are going on, our endeavor is to kind of make the margins better as we go along.
So would it be safe to say that assuming rupee remains stable, we could basically -- should see some kind of, if not huge, but some kind of minor improvement in margins quarter-over-quarter?
Yes, I think that's fair to assume.
The next question is from the line of Ashwin Mehta from AMBIT Capital.
I had one question, in terms of your segmental margin. So in Hi-tech, we've seen almost a 430 bps increase in margins quarter-on-quarter. You've added almost $9.5 million of incremental revenues and just $2 million-odd in terms of incremental costs. So just wanted to understand, was there any non-effort linked revenue that aided margins in terms of Hi-tech?
No, I think the revenue was good. The revenue was kicking in. There was a significant kick-in during the COVID period. I think that's something which helped us in terms of margin. And I don't think there was any additional SG&A that was required to kind of drive that business because of the investments that we have already done. I think that kind of gave a boost.
And in terms of the transition costs that we are talking about, would that be distributed across verticals or there will be a higher concentration in Hi-tech and Media?
Yes. I think the -- specific to Hi-tech, it is not significantly material. But the transition that's happening is mostly across some of the other verticals. And we have been successfully completing those transitions and getting into the steady state.
Okay. My second question was in terms of depreciation, there was almost a 12% reduction in depreciation. So what drove that? And is this a sustainable level to look at?
I will -- Vinit, can you take that?
Yes. So the depreciation reduction is mainly on account of -- we have revised our depreciation policy on laptops. And to that extent, that's a onetime catch-up you had, but it is a sustainable one, given the fact that in the forthcoming quarters, we are not seeing any significantly incremental CapEx spending.
Okay. And just last question. In terms of -- from an other expenses perspective, there are 4 cost items, which is travel subcon, other expenses and professional services, which have given you almost a 530 bps Q-o-Q decline. So as things normalize, do you expect these cost items to come back to normal or they will possibly settle at lower than what they've historically been?
Yes. At this point of time, the assumption is it will remain where it is. Obviously, we don't know a couple of the -- what can transpire in terms of this outbreak and the challenges that can throw. But at this point of time, it's -- our assumption is it stabilizes where it is.
We'll be able to take one last question. We take the last question from the line of Alroy Lobo from Kotak Investment Advisors.
My first question is actually on the fixed price proportion of your business. That's gone up pretty materially in this quarter. And also your top client has gone up materially. Can one conclude, therefore, that the top clients, we are doing mainly fixed price projects for them for this material change in the fixed price proportion?
No. I don't think that's fair to say. I think the -- if you look at the overall -- I think we answered this question during the call. The TTH revenues have kind of dipped, and that has kind of changed the height of the overall fixed price ratio proportion for the entire organization. I don't think there is not much of a material change from a top client perspective in terms of fixed price.
Okay. And also, in terms of your receivables, I was just looking at the cash flow statement, you released about INR 69 crores of cash flow from your receivables with respect to the quarter which was of the previous year. Just wanted to understand your receivable days have more or less remained the same. Can you explain how you managed to release this amount of receivable with your cash flows?
Vinit, do you want to take that?
If I understand your question correctly, you're asking how we are able to manage our receivables at the same level compared to the last quarter, am I right?
So I was just looking at your operating cash flow statement. You released about INR 69 crores for the quarter ending June 2020, and you released about INR 173 million -- that is INR 17 crores in the previous quarter, that is last year -- last year June quarter. But if I look at your revenues, and I try to do the calculation with respect to your receivable days, it appears that you should have released far more than what you have shown. Just wanted to reconcile those numbers. Your revenues are down by about INR 1,040 crores or INR 1,050 crores from what you had in the previous quarter. So to that extent, if your receivable days remain the same, you should be releasing far more amount of cash flows from receivables?
We'll -- I think -- I don't -- if we don't have the data right now, we'll come back to you offline on that.
We'll take that as the last question. I would now like to hand the conference back to Mr. Debashis for closing comments.
Yes. Thank you, everybody, for joining the call. I mean, I just wanted to summarize. We closed the quarter with revenue of USD 253.2 million, margin of 18.2% along with a healthy order book of USD 391 million, which was in line with our expectation despite the challenges faced by clients during these unprecedented times. Our near-term focus is to collaborate with clients and initiate proactive conversations for cost takeouts, revenue play and workplace modernization that helps our clients to overcome current crisis. Our strategic initiatives to deep mining accounts as well as participating in multiyear large deals, engagements with advisers and partners will help us drive profitable growth. Thank you. Stay safe, stay healthy. Thank you.
Thank you, everyone. Look forward to connect with you during the call. Have a great evening.
Thank you very much. On behalf of Mindtree Limited, that concludes this conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.