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MindTree Ltd
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Ladies and gentlemen, good day, and welcome to the Mindtree Quarter 1 FY '22 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand over the conference over to Ms. Amisha Munvar, Head of Investor Relations at Mindtree. Thank you, and over to you.
Thank you so much, Aditya. A warm welcome to all of you to this conference call to discuss the financial results for the first quarter ended June 30, 2021. 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, Mindtree; Mr. Venu Lambu, Executive Director and President, Global Markets, Mindtree; Mr. Dayapatra Nevatia, Executive Director and Chief Operating Officer, Mindtree; and Mr. Vinit Teredesai, Chief Financial Officer, Mindtree. We will begin with a brief overview of company's quarter 1 performance, after which we will have open the floor for Q&A. Please note that this call is meant only for the analysts and investor community. Our friends from the media are requested to please disconnect as we have already concluded the media briefing. 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 differ from those outlined in our quarterly financials, which are available on our website. We do not undertake to update those statements periodically. With this, I now pass it on to Debashis.
Thank you, Amisha. Good evening, and good morning to everyone on the call. I hope you and your families continue to remain safe. There are mixed signs of improvement in the COVID-19 situation with increasing vaccinations on one side and newer variants on the other. Even so, the progress in our ability to respond to a global crisis of such unprecedented proportions is remarkable. We will remember this period as a turning point that challenged us out of our comfort zones and pushed us towards a radically different view of the future. In more ways than we can imagine, the pandemic has also brought out the best in us. This is especially true of Mindtree. Our strong start to the FY '22 underscores the resilience of our business model and the continued commitment of Mindtree Minds. For the quarter, our revenues were up 7.7% sequentially, and our order book was of USD 0.5 billion, the highest ever in our history. The pandemic has reemphasized the pivotal role of digital transformation in driving competitive advantage, business outcomes and customer value in today's hyper-connected, hyper-automated and hyper-personalized world. Thriving in these volatile times requires adapting to disruptions with agility and turning them into growth opportunities. This is where we are making a significant difference to some of the world's most pioneering enterprises. By leveraging our digital expertise, omnichannel approach and domain knowledge, we are enabling them to reimagine their business models. We see growing focus on customer experience initiatives, cloud and platform-driven operating models, intelligent decision-making and automation amongst our clients. The focused execution of our strategy, supported by improving macroeconomic indicators and market sentiment positions us well as a strategic partner to clients looking to become agile, innovative and technology-driven enterprises. This is helping us gain market share and differentiation as clients analyze, reimagine and transform their businesses for the new normal, aiming to maximize revenues and growth opportunities instead of just optimizing costs. Our broad-based growth across service lines, industry segments and geographies, indicates that the disciplined execution of our strategy and investments in strengthening our capabilities and partnerships are producing desired results. With this, let me provide more details on the quarter that gone by. We delivered exceptional Q1 performance of USD 310.5 million in revenue, up 7.7% quarter-on-quarter and up 22.6% year-over-year. Our record order book of USD 0.5 billion, comprising both annuity and transformational deals, is up 34.2% sequentially, making a strong start for FY '22. The momentum is evident in the fact that all industry segments grew sequentially this quarter. Communications, media and technology grew 6.9%; retail, CPG and manufacturing grew 7.7%; banking, financial services and insurance grew 6.4%; travel, transport and hospitality grew 13.1% sequentially. As we begin reporting the performance of our health care business, we have reclassified some of our clients and included new wins. We are pleased to report that health care, our newest industry group, contributed USD 3 million to our revenue. The comparative numbers are available in our Q1 financials. In terms of geographies, North America contributed 76.6%; Continental Europe, U.K. and Ireland contributed 16.2%; and APAC and Middle East contributed 7.2% of our revenue during the quarter. Our investments in Continental Europe, U.K. and Ireland, have helped us deliver a strong growth of 11.2% quarter-on-quarter and 52% year-over-year for the region. Among our service lines, customer success contributed 40%, data and intelligence contributed 15%, cloud contributed 19.9%, and enterprise IT contributed 25.1% of our revenue for the quarter. In our industry groups, RCM and CMT continue to witness strong demand. We are happy to report that our BFSI business is returning to growth. We remain cautiously optimistic about the TTH business, although our client relationship and diversification strategy continue to drive growth momentum in that sector as travel and hospitality pick up. We are partnering with forward-thinking organizations in leveraging disruptive technologies to help them keep pace with the changing business environment, maximize efficiencies and accelerate time to value. Let me share a few deals we won during the quarter. One of the world's leading investment managers has selected us as a strategic partner for a multiyear managed services engagement to drive innovation and differentiated experiences by modernizing and transforming its IT infrastructure and application portfolio, while enabling multiple strategic business and technology change initiatives for them. A global travel management company has chosen us for a multiyear end-to-end AWS cloud migration and cloud operations program to drive its new business and product strategy. A global leader in automobile manufacturing has chosen us as a multiyear strategic partner to transform its applications ecosystem. A global high-tech industrial conglomerate has partnered with us to enable digital selling and an omnichannel customer experience. A world leader in steel wire-based products has partnered with us for a multiyear digital transformation program, where we will deliver digital commerce platforms globally with our data-first approach to enable digital revenue acceleration and enhanced customer experience. The core of our delivery excellence framework is built upon best practices from distributed agile execution methodologies that help us drive positive business outcomes. Certifications in 7 ISO standards across 14 of our locations are a testimony to our ability to provide seamless and secure delivery. Let me talk about a few engagements we delivered during the quarter. For a leading telecom company, we helped optimize operating costs by migrating its IoT applications to the cloud, resulting in 99.99% uptime, reduced data center footprint and improved security compliance. For a leading asset management company, we executed a multiyear large-scale IT support and transformation project using a robust transition methodology on our proprietary platform. We successfully migrated more than 200 applications in a zero-touch manner. For a multinational FMCG company, we successfully rolled out complex SAP remote conversion tool to address its regular infrastructure scaling. This is enabling smoother business transition and significant annual cost savings. Our recognitions in the quarter include being ranked second for client satisfaction in the 2021 U.K. IT Sourcing Study conducted by Whitelane Research in collaboration with PA Consulting. Our overall satisfaction score of 80% was well above the industry average of 72%. We earned The Analytics on Microsoft Azure advanced specialization, validating our ability to help businesses unlock value from data and analytics. We were named a major contender by Everest Group in its application and digital services in Banking PEAK Matrix Assessment 2021. We were named among 40 customer analytics service providers in Forrester's 'Now Tech: Customer Analytics Service Providers, Q2 2021' report. We were recognized with the 2021 ISG Digital Case Study awards for best-in-class digital transformation work with enterprise customers. Investments are key to enhancing our ability to deliver value to our stakeholders, our clients, Mindtree Minds, and our communities, be it hiring and reskilling the brightest of talent, building new domain, delivery and technology capabilities, driving partner-led go-to-market strategies or fulfilling our responsibilities as a corporate citizen. We recently completed the acquisition of NxT Digital Business of -- to advance our H2 experience proposition. This strengthens our ability to reimagine and drive the industry 4.0 vision, leveraging IoT, data analytics and cloud technologies seamlessly.We see innovation as a big part of our ability to help our customers seize new growth opportunities. This can be seen at play in the Digital Pumpkin, our unique digital innovation hub for multidisciplinary teams to come together to ideate, design and craft meaningful business solutions in a collaborative approach to create innovative prototypes and pilots for our clients. Our consulting team plays a big part in this, shaping demand and meaningful business outcomes. Let me share a few success stories in this context. We were selected by our leading U.S.-based beverages company as a strategic partner to provide consulting and implementation services to improve customer acquisition and retention. We have been retained as the preferred partner by a leading luxury real estate services provider to define and implement a refreshed customer experience strategy. We have been selected as a strategic partner by a leading multinational sports goods manufacturer to design and implement its digital commerce initiatives. All this is made possible by our dedicated and passionate Mindtree Minds across sales, delivery and support functions. We continue to build upon our unique value proposition for Mindtree Minds, in line with the fundamental principles of our work ethos, purpose, caring, learning and delivering results. During the quarter, we onboarded a net headcount of more than 3,400 Mindtree Minds, our highest ever in a quarter, taking our headcount to over 27,000. Our last 12 months attrition stands at 13.7%. Continuous learning is the cornerstone of competitive edge in this era of change. Our learn anywhere, any time approach in delivering quality learnings at scale is bearing fruit with an 86% increase in learning hours quarter-on-quarter. I would now like to pass it on to Vinit to walk you through our Q1 financial highlights. Vinit?
Thank you, DC. Good evening, good morning to everyone on the call. A strong start to the new fiscal, the broad-based growth bears testimony to the focused and successful execution of our strategy. This is our fourth consecutive quarter of profitable growth momentum despite unprecedented times. Our reported EBITDA margin for the quarter was 20.3% compared to 21.9% in Q4 of FY '21. Our reported EBIT margin for the quarter was 17.7% compared to 18.6% in the preceding quarter. The 160 basis point drop in the EBITDA margin as compared to the prior quarter was primarily due to 170 basis points on account of our highest ever net headcount addition, 40 basis points due to visa costs. This was partly offset by 50 basis point tailwind from the cross-currency movement, revenue growth and higher operational efficiency. The net effective tax rate for the quarter was 26.2% as compared to 24.3% in Q4. Net ForEx gain for the quarter was USD 5 million. Profit after-tax margins for the quarter remained flat at 15% as compared to Q4. PAT in absolute terms was USD 46.5 million, resulting into earnings per share of INR 20.80 for the quarter as compared to INR 19.20 in Q4 of FY '21. Our continued efforts in collections during the quarter led to a 3-day reduction in the days of sales outstanding. For the quarter, it stood at 57 days. EBITDA to operating cash flow was 28% for the quarter, free cash flow to EBITDA was 20.9% for the quarter. Our utilization for the quarter was 83.2% compared to 84.3% in Q4. Our contractual pricing for the quarter remained stable. A record order book of USD 0.5 billion is the result of our differentiation and gaining market share. As of June 30, 2021, our cash flow hedges were at USD 1.108 million, hedges on balance sheet were at USD 128 million and options of USD 15 million. Our sustainability report for FY 2021, the company's ninth sustainability report, provides a snapshot of how we have integrated environmental, social and governance considerations into our business, demonstrating our commitment to people, planet and profits, as we enable business and societies to flourish. We were rated among the top 5 companies for ESG by CRISIL Ltd. in an evaluation of 225 companies across 18 sectors in India. EcoVadis awarded the Silver rating in this year's sustainability assessment, placing us among the top 25% of more than 75,000 companies it assessed. I now hand over to DC to cover the demand and outlook.
Thank you, Vinit. Our focus continues to be on accelerating growth, building new edge capabilities, strengthening our work in course and making our business model more resilient. We are witnessing accelerated adoption of digitalization across industries. And while recovery is understandably linked to the recovery from the pandemic, we are energized by the growing scale and scope of transformational opportunities ahead of us. We have greater visibility in the business, and our pipeline continues to be strong across industry sectors, ensuring our strong start to FY '22. Deal constructs are factoring in our differentiated capabilities to deliver solutions that are aligned with evolving industry context and have the potential to open newer growth avenues for our clients. This is further strengthened by newer digital capabilities as manifested in the new opportunities around IoT and Industry 4.0 that have been unlocked by our acquisition of L&T NxT. We will continue to make focused investments in the business to drive sustainable long-term growth and shareholder value. We are further ramping up hiring to meet the growing demand for our services. And we'll soon initiate a second round of wage increases for our eligible Mindtree Minds up to the mid management level. While this could create some near-term margin headwinds, our robust business momentum and operational efficiency programs give us the confidence to deliver industry-leading double-digit profitable growth in FY '22. We have demonstrated the strength, agility and resilience required to lead into the future. With that, let me open the floor for questions.
[Operator Instructions] First question is from Mr. Nitin.
Sir, the first question was on -- of the $504 million of deal wins, it will be helpful if you could give us some vertical-wise color in terms of how the wins were in terms of proportion of that $504 million?
Yes. Nitin, I think the way to look at it is there were some renewals, but at the same time, some of the deals were more annuity kind of deals and led by mostly in the CMT as well as RCM, which has a maximum share. But otherwise, it was fairly broad-based. Vinit, do you want to add any color?
No, DC, I think you covered it well.
Next question is from Mr. Vimal Gohil.
I just had one question. Just wanted to get your sense on the subcontracting costs. I mean, they have doubled on a Y-o-Y basis. And what causes such a sharp increase, if you could just highlight, will our dependence on the expensive mode of delivery, which is the subcontractors go up structurally going forward because of the tight supply environment that we see, how should we see this cost going forward.
So Vimal, the way to look at it is, if you look at our overall growth momentum in this quarter, we had a significant growth. And we also felt there are opportunities where we wanted to initiate new engagements wherever it is possible. So in view of that, definitely, we had to rely on subcontractors. And I think that is a scenario which may exist for a little while. But as an overall strategy, I don't think we want to really keep on increasing subcontracted cost in the long run. So it is a short-term phenomena. But over a period of time, it will even out, that's the strategy that we have.
Next question is from Mr. Vikas Ahuja.
This is Vikas from Antique. I just want to check on the overall pipeline. So after this $0.5 billion of bookings, which was again a record high, how the overall pipeline is looking now after booking such deals? And secondly, some color on -- yes. And secondly, maybe some color on the BFSI vertical. It has been a laggard, but saw that it moved positively into high single-digit growth this time. So how should we look at into this vertical going forward?
Thank you, Vikas. See, as far as the pipeline is concerned, the pipeline is fairly robust. In fact, the pipeline has only been increasing from quarter-over-quarter. So our pipeline at this point of time is pretty robust. And so the order book that we have, in spite of that order book, our pipeline remains pretty healthy and pretty strong. And as far as BFSI is concerned, we did mention in our previous quarter that there were a few opportunities which we were expecting closures that took some time for closures. Those opportunities are closed, and that's why we are seeing very good traction, and we are very confident that this traction will continue as we go along. But we tend to also appreciate that this is one segment where there's a lot of consolidation that happens. And that's why things do get slowed down. But as of now, we feel confident about our recovery in BFSI. Vinit, do you want to add anything?
Yes. Just on the -- just on order booking number, right? So if you actually look at it, last year, we did about $1.4 billion. So we're looking at the orders that we can book for the entire 12 months. There is always going to be 1 quarter where you may see a slightly a different value keep coming in. But what we're interested in is for throughout the year, can we keep increasing our order book. And I think we got a good start for the first quarter, which will help us to achieve the point that I mentioned because there's also a bit of a time line that the customer takes decisions on. So hence, probably not always, the quarter-to-quarter order book is the right measurement, but the run rate is what actually matters. Are we in a good run rate to clog the order book for the entire year, which will be higher than what it was last year. And I think we are on the track.
Next question is from Mr. Mohit Jain.
This is Mohit from Anand Rathi. Just wanted to check one thing on the cash flow side. So we have seen this buildup on the receivable days, if I include unbilled amount into that. So what is the reason for that? Or should we expect it to get normalized as the year progresses? Or is there a change in working capital requirement for the company?
Now, this is pretty -- this is a quarterly situation. As we have been talking about in the past, our overall shift is moving from an effort-based to an outcome-based, whereby we are having a lot of new fixed price deals coming in. So to that extent, yes, our billed revenue -- billed DSO has come down. And even during the unbilled also, it has come down by 1 day. So during unbilled, it was 77 last quarter. This has moved to 76 this quarter. But even the overall, what we are seeing right now, that drop in the cash flow is mainly on account of the variable incentive payout that we have done and the overall growth that we have in our debtors during the year. But this is not something we should look at from a trajectory change perspective. This is just a quarterly phenomenon that is happening.
Next question is from Mr. Manik Taneja.
This is Manik Taneja from JM Financial. I had a couple of questions. Number one was on segmental margins. I see that the segmental margins from the retail vertical have come up sequentially in a very sharp manner. Just trying to understand if there is any one-off cost recognition here? That's question number one. The second thing is that we talked about the fact that we will be implementing wage increments from 2Q FY '22 onwards. Just trying to understand if that 20%-plus EBITDA margin outlook holds true for FY '22?
So on the retail -- again, on the retail, consumer packaging and manufacturing segment, the drop in the margin is right now only because we are in the process of ramping up on some major projects for 2 of our customers based in Europe and [Technical Difficulty] little bit more costs compared to the revenue that we should be realizing there. It's in the transition phase. And on your wage increments, it's just the wage increments, what we are going to be doing is obviously going to be at a selective level up to a certain level in the organization. And that is only going to have a limited impact on our overall margin. With our growth momentum continuing the way it has been at this point of time for Q1, we are confident of still remaining on the trajectory of 20% plus for the full year. So there might be some short-term headwinds.
Next question is from Mr. Dipesh.
2 questions. First is about the non-top 10 clients. I think we are seeing good traction in non-top 10 clients. So if you can provide some color in this bucket, how we are seeing this client play now? And do you see potential or scope in this client where we are seeing some of them moving to top 10 over a period of time, so if you can provide some detail on this client. What kind of services we are planning to provide and how cross-selling is happening in this bucket? Second question is about depreciation and amortization. That number has risen softly this quarter. So if you can grow it, what would be the steady state one should expect?
So Dipesh, let me just respond, and then I'll let Venu and Vinit also add. See, as far as the top client is concerned, top client revenue share has gradually -- it has reduced a little bit. And our intention is that over a period of time, as the growth happens, the top client will -- the concentration -- revenue concentration for the top line will reduce. And we have been very focused in the 2 to 10 as well as 2 to 20 segment. The top 10 clients, barring the top client, the revenues have grown sequentially by 13%. And the top 20 clients, barring the top clients, revenues have grown around 11%. And we have a very robust program in place where we have a set of focus accounts, and we want to cross-sell and upsell into those focus accounts. And we are very confident that revenues will actually grow in the focus accounts, which will be in line with our overall strategy that we are adopting. Venu, do you want to add any [Technical Difficulty] color and then we hand over to Vinit?
Sure. Probably, I'll just answer the other part of it, what kind of services are getting sold in those customers. We actually see a significant demand in our customer success service line, everything to do with enabling the front end and customer experience and the commerce capabilities of our customers. And the second, where we are seeing a significant traction is in the digital engineering space, where you actually do the digital product development for our customers. That's why you see the growth of 2 to 10 as well as 2 to 20 customers is coming essentially around these areas. Vinit, do you want to take that next?
Yes, question on the depreciation and amortization. As we had mentioned in the past quarters, we had gone for a little bit of an accelerated depreciation on some of our intangibles pertaining to the past acquisitions between Q3 and Q4. That has got completed. That's why you see the Q1 depreciation and amortization number coming down compared to the past quarters. However, as you know now that we have recently made the acquisition of L&T NXT, which has got completed and will be integrated in Q2. So to that extent, you will see again a certain amount of amortization expenses increasing from second quarter onwards.
[Operator Instructions] Next question is from Mr. Vibhor Singhal.
Congrats on a great performance yet again. So DC, I just wanted to get your perspective on the strong hiring that we have done in this quarter. Of course, it's for the unprecedented and also the reflection of the demand environment we are operating in. So just wanted to get a color on this, that how should we look at it in terms of, let's say, quarterly numbers, does this mean that we are expecting a similar kind of -- so again, not a guidance per se, but are we looking at a very strong performance in near future? Or is it just, let's say, long-term reparation of the strong demand environment that we are looking at?
Yes. Vibhor. So I think, look, there are a couple of data points. One is we have gone into the FY '22 with a very strong momentum. And that kind of sets the stage for the rest of the year to a certain extent. And if you look at the momentum, the momentum kind of got built over the last several quarters. This is the third consecutive quarter of 5% plus sequential growth that we have. And the hiring that we have done is definitely obviously, to fulfill the demand for the quarter, but also keeping in mind the confidence that we have in terms of the deals that will be coming in the future as well. So at this point of time, the only thing I can say is that we are very confident about the demand scenario that we see and the hiring will continue both in terms of laterals as well as freshers. And in fact, our fresher intakes are also going to significantly increase this year compared to the last years.
Next question is from Mr. Ashish Aggarwal.
Hello. Yes, sir, just a couple of -- this is Ashish from Principal Mutual Fund. Just a couple of things. On the deal side, were these deal signings more renewal savvy or these were mostly newer deals? And are you seeing an increase in the duration of the deals which you're signing? And secondly, despite the strong employee addition, our employee costs only increased by 3%, 4% Q-on-Q. Does that mean a lot of these employees were added towards the end of this quarter?
See, in terms of deal signings, as I said, there is a combination of renewals as well as new deals. And definitely, more and more deals that we are signing, they seem to be multi-year and they definitely are helping us in terms of creating a more multiyear kind of order book. And I think -- what was the second question?
Employee costs.
Employee costs.
You want to take that?
Yes. So Ashish, you are right. The -- though you are seeing a significant increase in the employees headcount towards the end -- towards the quarter, a lot of that has happened towards the end of the quarter. And as DC mentioned in his initial comments, we are also adding a lot of freshers who have also joined towards the back end of the quarter. So that's the reason. So you don't see necessarily the entire cost coming up in Q1.
Next question is from Mr. Nitin.
This is Nitin from Investec. Sir, my question was around the margins again. In this quarter, we have seen a very sharp improvement in subcontracting costs. And the employee costs have -- the employees have been added towards the end of the quarter. Now if you think about it in terms of, at least from a modeling perspective, do you think that subcontracting cost decline will be gradual or do you think these employee additions will sort of straight away make up for the increase in subcon costs that we see? And the other thing was in terms of wage increases or salary increases, how should we assume it? Is it for a part of the employee base? And what could be the potential impact?
So let me answer that, and then I'll request Vinit to add more color. I think the first question I've already answered. There will be -- there has been a need to have more subcontractors, given the kind of the nature of deals and the programs that we have started. And I think this is a phenomena that may continue a little -- for a little while. But our -- we have a pretty robust plan in terms of our overall operational efficiency, all the levers that we use, including a lever, which is the -- how do you correct the pyramid, how do you reduce the subcon over a period of time. So we have all those programs in place. So over a period of time, we will definitely have those things gradually coming down, and we'll have a better view of that. In terms of wage increases, we think it'll be only for -- it will be mostly for the junior and the middle management, and there will be definitely certain eligibility criteria for -- and the corrections will be in line with the market expectations. So we may not be able to call out a specific number, but we feel that it's very essential for us as we go along. Vinit, do you want to add anything?
No, I think, you have answered it, DC.
Next question is from Mr. Mukul Garg.
All right. So DC and Venu, either of you can answer this. Venu, you mentioned earlier that you have an aspiration or to increase deal TCVs as we go through the year. I wanted to clarify 2 points regarding that. How do you see the TCV value which you can manage with the current structure and workforce? If you have a certain aspiration level in terms of the value or do you think $500 million to $600 million is basically something which will be a peak TCV with the kind of workforce you have right now? And second, also, I wanted to check in terms of the trajectory of booking, DC, you mentioned earlier that they have increased -- they are multiyear deals. But if you look at from last few quarters versus this quarter perspective, are you seeing any elongation in the trajectory given the sharp increase you have seen in Q1? Or is this something which has similar type of kind of booking environment like you have seen in the last few quarters, which implies that growth can accelerate?
So first of all -- I will let Venu comment. But first of all, I don't think there is anything that prevents us from having TCVs more than what we have right now. I don't think there is any constraint in that respect. And as I said that if you look at our overall bookings, bookings have continued to be healthy. And as a part of our overall philosophy of closing large deals, strategic deals, we are always looking for creating more annuity opportunities longer term, multiyear opportunities as we go along. So that will continue. The only thing I would say is that there were some renewals this quarter. Every quarter, there will be some renewals. But overall, this quarter is nothing different than the other quarters, except the fact that there has been better closing this quarter. Venu, do you want to add anything?
You're right, DC. You're right, actually, most of our order booking or the approach towards the order closures that we do is usually driven by market downwards, not from what the supply model is based on. It's based on what our customer wants and what kind of capabilities that we can service them as we expand into more service lines within that 4 service lines, if we extend more capabilities. And also to some of the new geos that we already got into it last year, specifically the Europe part of it and so on, right? So hence, if you look at our average order booking, is more or less fairly stable in terms of what we book on a quarterly basis. But at the same time, there are a few deals out there in the market. And as the deal progresses, you will see those variations coming up in the quarter. But it's usually not the supply force, it's sort of driven from market downwards in terms of what our customer wants.
Next question is from Girish Pai.
Yes. Yes. Okay. Girish Pai from Nirmal Bang. I just had a few questions regarding the TCV and the growth. Do you think the TCV will be in that $500 million to $550 million category in the coming quarters? Or will it kind of slip back to the $350 million to $400 million that you've been talking for many quarters now? The second is regarding growth, you've been talking about double-digit growth. Would you say that the growth expectation 3 months down the road is higher now compared to what you had, say, 3 months back?
Let me answer the growth question first. I think we have been very confident to say that FY '22, we definitely want to have a double-digit industry-leading growth. And what we have seen -- and when you talk about growth, the first quarter kind of sets the tone to a certain extent. I can certainly say that we have got into the first quarter with a lot of momentum and the momentum -- there is no reason for us to believe that the momentum will not continue. So that's all we can share at this point of time. And in terms of TCV, yes, there will be -- there can be some ups and downs. But at a broad level, we definitely feel that we are on a good trajectory in terms of also focusing on order books as we go along. I mean, there could be certain -- maybe 1 quarter, we'll have more renewals and other quarter could be a little less. But overall, we feel very confident in terms of the way we are booking the orders as well. Again, Venu, do you want to add anything?
No, I think you said it right, DC, and that's a point which I mentioned just a few minutes back, that I think it's important to look at order booking over the year, right? Will we do more order booking compared to the last year, that's our endeavor, and that's exactly what we want to do. Hence, the growth has -- we're talking about industry-leading double-digit growth. And for that, you need to do more order booking than what we did last year. So that's the best, I think, we can comment. It's very difficult to predict the 3 months time line order booking numbers because it depends on the customers and bit of seasonal variations and everything. But for the year, we are very optimistic how things are looking.
Next question is from Abhishek Bhandari.
I had 2 questions. This quarter, you had robust employee addition. In last 2 quarters, you've added quite a bit. So could you give us a pipeline of maybe the addition number, what you have for the rest of FY '22? And the second question, if I heard correctly, you said you will be rolling out differential hikes, maybe up to a certain level of the total employee pyramid. Could you give us a number in terms of what percentage of your employee base would be touched by that hike?
You want to take it?
So Abhishek, on the hiring -- on the hike front, up to a certain level, it is going to be broad-based hike. And above certain level, it is going to be selective based on the performance, et cetera. With respect to the specific number, of course, we can't give it, but as DC said in response to one of the earlier questions, it is going to be in line with what the industry players are doing.
What was the first question?
Hiring.
Sorry, can you repeat the first question?
Yes, I was asking what is your broad hiring plan for the rest of the year, given that you already added quite a bit in last 2 quarters, if you could give that number. And just to clarify, is that also a preparation for maybe a potential rise in attrition, what you see as some of the peers are talking about?
Sure. So it is -- I won't say it is a result of one specific factor. There are multiple things that are happening. One is, clearly, there is a supply side challenge in the market. There is a spike in demand that every IT player is seeing in the industry. And as a result, we have taken several measures to make sure we are addressing the supply side. One is internal capability building, which is up-skilling and cross-skilling. We are also building capacity ahead of time by hiring both laterals, which is experienced people as well as freshers. And the hiring that we have done in Q1 is, of course, we are doing ahead of time, but it's not a reflection of attrition. There are several measures that we are taking to make sure that we are engaging with our employees better. We are giving them better opportunities in terms of exciting engagements and also several other employee engagement measures that we are taking to make sure that attrition is in check.
Next question is from Vibhor Singhal.
Yes. So DC, back to my favorite question on the travel verticals. So just wanted to get your outlook on how we -- basically the demand side or the queries on the travel vertical are shaping up. And specifically in the context that if I look at our quarterly revenue, we closed around $41 million of revenue in the travel vertical in this quarter. And if I look at pre COVID, we used to be around $44 million, $45 million. So we are just 10% below that number. So I know the configuration would have changed as a percentage of revenue is still lower than what it was pre COVID. But does that mean that there's only 10% of the revenue that we lost which is yet to come in? Or is it that we have got new clients, added new business and there could be more upside from the revenue that we had lost in the last year due to COVID, taking this revenue maybe higher up the ladder.
Yes. So Vibhor, your observations are absolutely spot on. I think first of all, the travel vertical, which got very badly impacted as far as we are concerned when the pandemic hit, which you know because it was almost 17% of our revenues before the pandemic struck. And one thing which I think we highlighted in the earlier calls that through the pandemic, the business did come down. The revenues did come down, but we did not lose any client per se. We have very strong belongingness to the clients. We have been working with many of those clients for decades. So when things started coming back in terms of domestic travel, some leisure travel, et cetera. And the other thing which also has happened in the travel industry is there is a lot of reimagining of business models like contactless, for example, is something which is very big in travel. So some of the discretionary spend as and when they have opened up, we have been able to play a role in that. I wouldn't say that travel is fully back. I think it's still -- we are still cautiously watching it because the pandemic is far from over, and you know how things are. One, suddenly, there will be something happening where, again, there will be something to dampen the whole mood. So we are watching it very cautiously. But I can say that given the investments that we have done in terms of our travel vertical, given the -- some of the new logos also which we have won. And given the long-standing relationships we have, we feel very confident that as the market keeps opening up, as the industry keeps opening up, we will be also able to do better than whatever we have done so far. Venu, do you want to add anything?
No, I think just only one quick comment on the travel part is that, look, most of the travel that is back is the leisure travel. I think the peak business traffic is still not out there. So I think that's really a good indication of stability in that industry, and that's what everybody is waiting for.
Next question is from Mr. Abhishek.
Yes, a couple of questions here. The first one is on the active client base. We are consistently seeing a drop in that number. So how -- where does this stop, I mean, is the rationalization behind? And the second question is on the offshoring. Now offshoring is definitely helping gross margins. So based on our current order book, is there any change in terms of ramp-ups happening going ahead? And the last one is on the deal closures. So though early for Q2, but are you kind of witnessing any changes in terms of closures? European holidays are upcoming.
Yes. So I'll let the deal closures be answered by Venu and I'll let the offshoring be answered by Dayapatra. But before that, on the rationalization part, Abhishek, I think this is a strategy that we adopted day 1 once the management change that happened 2 years back, and I was very vocal about it, that over a period of time, we will rationalize the long tail, where it is not a win-win for either the client or for Mindtree. We did slow down that a little bit during the pandemic because during the pandemic, if you just close an engagement that the client has no where to go, that is not a good scenario. But having said that, just to give you 1 data point from August 2019 till date, almost over the last 2 years, we have rationalized approximately 150 long tail clients, long tail accounts. And I don't have a -- I think we still have some way to go. And our intention is to make sure that we focus on limited set of clients, limited set of strategic clients, and we have a program, which is being run right now to ensure that we mine those clients and grow the revenues of those clients. And we will continue to rationalize the long tail as and when there's an opportunity. And it is still some way to go. I cannot just give you any more data at this point of time, but we will continue to rationalize the long tail. Dayapatra?
Sure, DC. So on the offshoring, Abhishek, there is a clear shift that is taking place in terms of more offshoring. In last 1 year, for us, there is a shift of about 330 basis points that we have seen. And mainly, the reason it is happening is, one is the focus on large transformational programs where we are able to do more work at offshore. Second is the focus on the long multiyear annuity deals that, again, helps us to more offshore. And third one, of course, is a remote working that is happening. So it doesn't matter where you're actually delivering the work from. Now going forward, as things settle to normal, our belief is it is going to settle somewhere around 85% in that range. We are roughly around 83% to 84% right now.
Venu?
If I understood the question correctly, I think is the order closure going to slow down because of the summer holidays, if that's -- is that the question if I understood correctly?
Yes. And was there any positive tailwind in 1Q because of the holidays in terms of closures?
No. No, not really. I don't think, the order booking of Q1 is not the reflection of the holidays that is going to come up in Q2, right? So it's not that. I mean, in fact, typically, our Q1 order booking is usually higher because even if you look at the CPG customers, they run a lot of their summer campaigns and a lot of marketing campaigns gets built up around these times. So there's a huge amount of tech spend that happens around this time. But usually, these holidays always comes every year. So the budget cycles and the order cycles are always factors these holiday periods. And again, if you look at holiday period between U.K., Continental Europe and U.S., they're not at the same time. They sort of overlap a little bit, but sort of spread over 1.5 months. So I wouldn't look at that as a reason for any -- having any material impact on order book. I think any order book that we come about in Q2 will be the reflection of what customer would have decided to close within that time line.
Next question is from Ashwin Mehta.
Had just one question. So we've seen almost a 23% increase in headcount over the last 2 quarters. We've also had a wage hike where we indicated there was almost a 240 bps impact because of that wage hike. But our staff cost seems to have gone up only by around 8-odd percent. So how have you been able to manage the staff cost so tightly? And secondly, in terms of the skew of freshers is to laterals, if you can give some sense in terms of how that's been over the last 2 quarters. So is that the factor that explains the staff cost not commensurately going up?
Yes. So Ashwin, as I mentioned earlier, the major reason for what you are probably seeing not the staff cost increasing in line with the headcount for 2 reasons. One, there is a good amount of freshers. We have added more than 1,000 freshers this quarter. And the timing is towards the back end of the quarter. That's the one reason. And secondly, again, this headcount addition happens across the quarter. So there is -- it may not necessarily resonate with the end headcount and the overall cost being -- going up to that extent.
Okay. And just one follow-up in terms of the impact of margins in the next -- of wage hikes in the next quarter? Any quantification, if you can give.
No. So we -- as DC mentioned, we are not going to call out that number, but we will be doing an increment at the junior to mid-management level in line with the industry standards. Our overall growth trajectory and profitable growth trajectory for the full year still continues to remain the same as what we have mentioned in the past.
We will take last 2 questions. Next question is from Vikas Ahuja.
Just one small clarification. The APAC and the Middle East was largely flat. Is it because the witness decline in India this quarter? And if yes, are we expecting it to bounce that in the next quarter?
Venu?
Yes. Actually, it is not -- it's not related to the second COVID wave of India, if that's what you're implying to. I think it is -- if you look at our India -- sorry, APAC and Middle East presence, our approach has been very focused accounts and select few countries within that region. So the seasonal spend of select few customers that we focus on in that region, it sort of reflects in the revenue for that particular quarter. So it's definitely not related to the second COVID wave impact as such. It's just seasonal for that particular quarter that some of these focused customers that we have in that region did not spend in that quarter.
Next question is from Apurva Prasad.
Yes. So my question is on the deal duration, how different would that be in Q1 as compared to, let's say, FY '21 bookings, given there's benefit certainly from the seasonal factors of renewals? But from a duration point of view, how would that be different this quarter, let's say, versus last year? And would you have more such AWS migration deals in the pipeline, more end-to-end AWS migration deals? And finally, on subcontracting, do you think the elevation is also driven by top 2 to 20?
Yes. I think let me -- in terms of deal duration, definite average tenure of deals that we have seen in this quarter is likely higher than what we have seen in the past, I would say. And there are a lot of migration deals I can't call out. There is a lot of deals on the cloud in general. So I'll let Venu provide additional color. And then on the subcon, I'll let Dayapatra speak. Venu?
Sure. Thanks, DC. No, the duration, as we've been saying it right from when the strategy was unrevealed of 4x4x4 was to focus on increasing more annuity construct in our deals. So we have deals which are ranging between 3 years and 5 years. That's sort of onetime. And the second is that as we -- as it is reflected in our quarterly numbers as well, the cloud and customer success has actually grown much faster. And that's also -- appears in our future pipeline, too. And these deals happens to be a good combination of the project duration, which goes for more than 2 quarters or so, plus it will be followed up with the annually construct that you need to keep those environments running and so on. So look, our approach has been to increase more annuity ratio in our deal closures as much as well. Either it could be capacity-based or it could be the duration-based.
And Apurva, on the subcontractors, it is not specifically linked to the 2 to 20 accounts. It is primarily because of the large deal ramp-ups that happened in the quarter as well as there was a demand spike that we saw given our robust order book where we did not have sufficient lead time to mobilize resources quickly as employed, and therefore, we resorted to subcontractor additions. Also in certain areas, subcontractor addition is very much part of the strategy as well. However, going forward, as we said earlier, we are proactively building the capacity. We are hiring ahead of time. We are building capability internally to up-skilling and cross-skilling. We have also increased pressure hiring multi-fold compared to last year, and all that will help us in managing the subcontractor costs going forward.
Next question is from Mr. Sudheer.
This is Sudheer from ICICI Securities. Vinit, a couple of questions to you. The incremental rupee revenue booked in the quarter was around INR 180 crores. And if I look at the receivable number, this increased almost INR 150 crores. So in a way, almost 80% of the incremental revenue booked is getting reflected as incremental receivable. And this is perhaps the highest jump for several quarters now. And this comes despite the share of fixed price projects actually going down from 71% to 68% on a sequential basis. What explains such a sharp rise in receivables in the revenue book during the quarter? Is there any change in the revenue recognition policy, so on and so forth? And secondly, just a clarification on how you calculate the DSO days because either we take quarterly annualized number or quarterly number, we're actually seeing an increase in DSOs rather than a reduction.
Yes. So Sudheer, on your first version, as far as the overall debtors going up compared to -- and the unbilled revenue going up, yes. Though you are seeing, in percentage terms, you may feel that our fixed price projects are relatively not increased. But the -- with the growth momentum that you are seeing, this percent, this number is on a higher side. Number two, there are many peer projects which are in a ramp-up phase. That is also the other factor that is driving down some of the receivables, whereby the milestones are much different compared to what you see in terms of the actual efforts that have been involved. And coming to your DSO question, DSO, we have mentioned, we look at the quarterly revenue and look at the build, build DSO. And that's what we constantly track as one of our metric from our receivables and collections perspective.
Ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to Mr. Debashis Chatterjee for his closing comments.
Thank you. We are pleased with the progress of our robust and focused strategy to drive sustainable and profitable growth. This is helping us raise the bar on client centricity and cementing our position as a business transformation partner of choice, delivery excellence with agility and differentiated culture and work ethos. With a strong start to FY '22 on all dimensions of our business, we remain very excited about the growing canvas of opportunities to envision and power agile and data-driven businesses that have consumer experience at the heart of everything they do. Our aspiration continues to be to deliver industry-leading double-digit profitable growth in FY '22. And we are more confident than ever in our ability to realize it. Thank you, stay safe and be in good health.
Thank you. On behalf of Mindtree Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines, exit the webinar. Thank you so much.