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MindTree Ltd
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Good day, ladies and gentlemen, and a very warm welcome to the Mindtree Limited Q2 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sushanth Pai. Thank you, and over to you, sir.
Thanks, Ali. Welcome to this conference call to discuss the financial results of Mindtree for the second quarter ended September 30, 2018. I am Sushanth, Head of Investor Relations. On this call, we have with us the senior management team, Krishnakumar Natarajan, Executive Chairman; Rostow Ravanan, CEO and Managing Director; Pradip Menon, CFO; Parthasarathy N.S., Executive Vice Chairman and COO. The agenda for the session is as follows: Rostow and Pradip will begin with a brief overview of the company's performance, after which we will open the floor for the Q&A session. Since we have introduced an audio webcast, some of you may have joined the webcast. The webcast is a listen-only mode, but you can post 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 the analysts and investors. In case there's anyone from the media, I request you to please disconnect as we just concluded the media briefing before this call. Before I hand over, let me begin with the safe harbor statement. During the course of 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. We do not undertake to update those statements periodically. I now pass it on to Rostow.
Thank you, Sushanth. Good evening to all our friends in the investment community. Quick highlights for the quarter. Off the back of a very solid Q1, happy to state that we are maintaining our growth state. We entered the quarter 2 with $246.4 million in revenue, which represents a strong Y-o-Y growth of 19.5% and a Q-o-Q growth of 2%. Constant currency basis revenue growth was 2.4%. Half year this year compared to half-year last year showed a very strong growth of 20.1%. Clearly, this is a reflection of our deep expertise across both Digital and Run landscape, which is helping our customers get a competitive advantage. That customer focus is fueling Mindtree's continued growth. Our efforts in driving growth for our top 2 to 10 customers is also yielding positive results with a growth of 3.6% in this quarter. So growth is broad-based even outside the large customers. Other highlights of this quarter. Our Travel & Hospitality vertical led the growth with a 7.7% Q-o-Q growth. Hi-tech and Media vertical grew 3.1%. BFSI grew 2.3%. Our Retail, CPG and Manufacturing verticals declined by 3.9% in this quarter mainly due to a few projects in Europe coming to an end and delayed decision for a few other deals that we are expecting to close in this quarter. However, considering the pipeline and deals closure, we expect Retail, CPG and Manufacturing vertical return to growth in the next quarter. Among geographies, [ rest of world ] grew by 3.3% whereas Europe declined by 4.2% Q-o-Q on a constant currency basis, but the issue here was the same as a point that I made before of a few projects coming to an end.Digital business grew 3.3% Q-o-Q and 34.9% Y-o-Y. Our remote infrastructure management business had a very strong growth of 10.6% Q-o-Q. We added 18 new clients in this quarter and we're happy to report that $10 million clients grew by 2 taking the count to 21. $5 million clients grew by 5 taking the total count to 44, reflecting the growth that I outlined in terms of our good growth in our 2 to 10 and also 11 to 20 customer buckets. On the people front, we added 1-1-2-6 Mindtree Minds in this quarter on a gross basis, taking the quarter end headcount to 19,402. Attrition levels are stable at 13%, and our attrition is trending lower than the rest of the industry based on our continued investment in people in the rescaling efforts. We had some strong multiyear, multimillion-dollar wins in this quarter, both within existing customers and in new customers. For example, within one of our existing customers in the CPG industry, Mindtree now has the status of digital transformation software. For a world leader in the enterprise cloud data management business, we are providing cloud operations under our managed services model. We are transforming the core to derive rich customer insights and migrate to a cloud infrastructure leveraging Mindtree's customer -- consulting first approach for one of the best-known companies in the hospitality industry. We are involved in setting up our data lake and an analytics platform for one of the world's largest asset management companies. Now shifting to outlook for the future. This quarter saw our contract signing of $271 million, of which renewals were $222 million and new contracts are $49 million. Contracts to be executed within one year were $198 million and longer than one year were $73 million. Digital contracts were $162 million. We see a cautious and a volatile external macro kind of uncertainties around the world, and also the typical seasonality that affects businesses in Q3. Both of these pose some challenges from a demand perspective. In spite of these external factors, because our pipeline is strong, we expect Q3 to have revenue growth rate similar to Q2. On a full year basis, we reiterate that we are on track to achieve a strong growth for FY '19. With that, let me welcome Pradip to this forum, who recently joined us as our CFO, and he will share a few other financial highlights.
Thank you, Rostow. Good evening all. In Q2, as Rostow mentioned, our fee revenue grew by 2%. Volumes increased by 6.3% and pricing realization declined by 4.3% due to a higher number of days compared to previous quarters. Overall, we continue to see stable pricing. Our EBITDA margins are at 15.4% as compared to 14.1% in Q1. We had the following headwinds in this quarter. Promotions and full quarter impact of Q1 campus additions had an impact of 60 basis points. These were offset by tailwinds, which were as follows: absence of one-off cost of 60 bps relates to the Stanford University contribution we have made, and the second one is currency benefit of 130 bps. Therefore, on a constant currency basis, our margins are flat. For the quarter, we have a ForEx gain of $5.7 million compared to a ForEx gain of $2.8 million in the prior quarter. The rupee depreciated to 72.5 at the end of the quarter as compared to 68.45 as of the end of the prior quarter. This resulted in better realizations on collections as well as gains on debtor revaluation. The effective tax rate remains stable at 26.8%. PAT margins for the quarter have improved to 11.8% as compared to 9.6% in Q1, which is an improvement of 24.9% quarter-on-quarter and 50.4% year-on-year. EPS is at 12.55%, quarter-on-quarter improvement of 30.4% and 68.5% year-on-year. Our DSO has been stable at 68 days. We have made progress to improve our cash conversion. Our EBITDA to operating cash flow conversion is at 65.1% compared to 5% in the last quarter. EBITDA to free cash flow is 53.9% compared to negative 10% in the prior quarter. Our return on capital employed has improved to 37.6% compared to 29.1% in Q1. Our utilization including trainees is at 74.5% compared to 75.4% last quarter, a slightly lower utilization because of our continued capacity creation for certain specialized areas in Digital. Utilization excluding trainees is at 76.5% compared to 76.3% last quarter.In terms of hedges, at the end of the quarter, we had hedges of $49 million at an average rate of INR 71.64. This includes hedges of euro-INR of EUR 1.5 million at INR 83.73 and GBP-INR hedges of GBP 1 million at INR 92.62. These hedges are on a rolling 3 months basis and expire in Q3. The Board of Directors at its meeting held today have recommended an interim dividend of 30% INR 3 per equity share on par value of INR 10 each.In terms of margin outlook, given our growth momentum, we expect Q3 margins to be slightly better than Q2, and full year margins to be better than full year '18 excluding currency movements. That concludes my update, and we will now open the discussion for Q&A.
[Operator Instructions] The first question is from the line of Mukul Garg from Haitong Securities.
Rostow, I just wanted to get your stance on the revenue visibility beyond the top client. While 2 to 5 grew well in this quarter, it has been volatile over the last 4 to 5 quarters. And beyond this, there was no growth in Q2. Can you help us understand the reasons behind this growth and your visibility beyond the top client over the next few quarters?
Thank you, Mukul. I think this quarter we saw our 2 to 10 customers grew 3.7%. And even the 11 to 20 customers grew faster than the Mindtree growth for this quarter. So we are beginning to see all the efforts that we are putting in, in terms of stabilizing our 2 to 10 customers and getting growth out of them. All of those efforts are paying well -- bearing fruits in this quarter. You have to keep in mind that the composition of that bucket has changed significantly. So those customers who are currently in our 2 to 10 customer bucket are giving a high degree of confidence and good amount of visibility in a majority of those accounts. There is only one account where we potentially could have some continuing challenges, but the remaining customers, there's a high degree of confidence in terms of visibility and in terms of growth potential within those accounts, which is a picture that we have at the moment.
Understood. And if I may squeeze one more question in on the margin side? While the margins performance was good, you had multiple tailwinds this quarter. The currency was favorable. Off-shore was better. And you also had about 20% more BOTs in Q2 versus Q1. Even after then, the gross margin was flattish. So can you help us understand the pulls and pushes behind that? Is it investment or pricing or any renegotiation of contracts with customers?
There was no headwind in terms of renegotiation with customers or pricing or anything on that front at the moment. All the benefits that came from currency have flown through to the bottom line. Other than that, the gross margin was flat mainly because there is continuous amount of people additions that we are seeing as an opportunity for Mindtree to attract world-class talent. During this quarter, you saw we have added 1,126 net addition -- gross addition in this quarter, and the full quarter impact of the people that we added last quarter. Last quarter also had more than 1,200 overall additions in Q1. Those paid during the course of the quarter whereas this quarter, we had the full impact of that addition. So the continuous investment we are making, leveraging our brand, leveraging our results, our efforts at hiring people, so that was the impact at a gross margin level. Other than -- a smaller impact was there was a large round of promotions, which have happened in this quarter. But other than this it will be smaller, what should be smaller impacts.
The next question is from the line of Madhu Babu from Prabhudas Lilladher.
Sir, on the retail and manufacturing, could you give us the exact nature of where the weakness came? Was it a client-specific kind?
It was client-specific over 2 or 3 clients where -- it's a combination of 2 things. One is for 2 or 3 clients in the Europe geography, where we were implementing a package solution for those customers. Those projects ended somewhere during the course of this quarter, and given the project-based business, we didn't have anything immediately with those customers to either continue on additional or new projects. It got compounded because some of the deals that we were expecting to close in other customers in the U.S. got delayed slightly. So we expect those deals to close in Q3 compared to the original estimate of closure in Q2.
Second, sir, for 3Q we said, okay, 2.5% kind of growth. But if you think last year I think second half was strong and even 4Q had a very good quarter. So can we build a good 4Q and hence a good full year growth rate?
We are not commenting on the percentage growth for Q3. I saw -- I reiterate the comment that I made. I think Q3 will be similar growth compared to Q2. Obviously, this year started off on a much stronger note, right? Q1 this year we have an 80% growth on a constant currency basis, which is much, much higher than the Q1 growth of last year. Overall, irrespective of any of the mathematics, like I reiterated, full year this year will be a very strong growth for Mindtree. If you look at H1, this year was a 20% growth over H1 last year. It is an indication of the strong growth momentum that we are seeing. So even on a full year basis, that's the kind of direction without commenting on a specific percentage.
Okay sir, and last one, subcontracting has been trending upward for the last few quarters. Just your views on that.
Temporary and tactical. Sometimes when new projects start or new customers or different locations, if we don't have the relevant skills in that location, all those skills at that moment [ of a professional nature ] kickoff all that business of contracting. There is a very specific program by which we look at those individuals and, as quickly as possible, we replace them with full-time Mindtree employees there. So I think it is temporary and tactical.
The next question is from the line of Ashish Chopra from Motilal Oswal Securities Limited.
Firstly, Rostow, I just wanted to check with you on your comments on the macro. And the fact that the growth in the first half has been very strong. So mathematically, this should be a good year. But barring that numerical number for FY '19 growth, would you be worried in the current environment? I just want to know how should we read the growth outlook considering the macro that you are seeing?
I think like I said some of those are probably factors that affected most of all immediately on the Q3 perspective. Don't have any sense or any comments on customers, just have to see whether it is going to be a longer-term issue or anything like that. So that comment was relatively more around the same. That last [ Q3's ] seasonality as a headwind that we see immediately for Q3. I don't have enough of a data point or enough of a read on the market to say it's going to be a longer-term basis. Barring like I said -- or having said that, I think we are continuing to get very strong, very positive momentum from customers. Our message to the market is resonating very well. Feedback from customers is extremely positive. So I don't see anything that is fundamentally going to change the health of Mindtree or the salience of Mindtree within the marketplace with customers. It is also born by the fact that we are continuously winning a very strong recognition from the industry analyst community. For many of our practices, we are ranked as a leader or a very strong challenger across our entire portfolio. So I don't think anything has changed from a relevance of Mindtree to customers.
Sure. And outside of the Retail vertical, would there be any -- anything that you may want to call out in the other verticals as far as the demand outlook goes, which is over and above the seasonality of 3Q? Or would you think -- would you say that, that continues to be fairly strong but it's really the third quarter that typically ends to be -- tends to be seasonally soft?
I would say quantitatively, the only other vertical which we are paying a lot of focus on is our BFSI business. Haven't seen as strong a pickup on Digital as in BFSI. Like we are seeing in other industries tends to be similar to the kind of comments we made in previous quarters as well. So that's an area that is different in terms of outlook compared to the other verticals.
Fair enough. And also when you mentioned the package implementation deals getting over. So are we saying that it is in relation to Bluefin especially that it comes in Europe?
Two parts. Our [ accessory ] business is one part. But we also implement packages like Duck Creek for insurance companies. So some of those kinds of projects as well.
Okay, and just one last thing from my end. So you mentioned that there were headwinds on the margins from the additions of people as well as campus graduates joining during the first half. So in terms of the expectation of a slightly better margin in the second half or in the third quarter, should we expect the gross margin also to pick up or -- because in this quarter, I think it was mainly driven by SG&A. Or should we expect the trend to be a mix of both?
I think it will be a mix of both because like I said some of -- for example in Retail, we added people but the contract closures got delayed. As and when those contract closures come back and the work starts, the people will start getting deployed there. It should lead to employee utilization and therefore improvements in gross margins.
[Operator Instructions] The next question is from the line of Surendra Goyal from Citigroup.
Just one question here. Has the quarter been weaker compared to what you anticipated at the start of the quarter? I am just trying to understand if anything changed during the course of the quarter?
Not materially. At the end of the day, for example, every quarter you close the deals and some deals you lose, some get deferred, et cetera. No material change during the quarter compared to the perspective we had in the beginning of the quarter.
The next question is from the line of Dipesh Mehta from SBICAP Securities.
Yes, in terms of your perspective on 2 verticals. About the Travel, I think for last few quarters, we have seen significant traction in Travel. But can you provide what is driving growth there, and sustainability of the trajectory of growth? And second on BFSI. Partly you alluded, but I think still BFS -- if you can provide some more detail. BFSI, we continue to see softness as compared to some of the peers. Now seeing some early signs of recovery and they have reported decent trajectory of growth. So if you can provide some color on how we are expecting growth outlook there? And second question is on the margin side. At the beginning of year, I think we indicated the constant currency margin to expand. But if let's say one looks at EBITDA margin, last year we were somewhere around 13.5% to 14%, somewhere in between 13.6% to [ 15% ]. In CC, H1 seems to be around 14-odd percentage. And your commentary indicates even in Q3, margins to be slightly higher than Q2, but not materially. And so in CC, it seems to be more or less the same. So if you can provide some clarification there?
I'll take the question of the revenues and I'll ask Pradip to -- I'll invite Pradip to make the comments on the margin. On the revenue, especially on Travel, it's driven by a few trends. One, it's an area where we have an enormous amount of depth of domain knowledge, especially around both airlines as well as the hospitality sector. There is a really, really powerful credible story that we have. And that has led to a lot of wins. For example, a few quarters back, we announced that a large iconic American airline has chosen Mindtree to be their exclusive testing partner. As of today, it's the largest deal in the history of Mindtree. Very strong deal wins like that is one of the reasons for growth. By and large, we see the travel and hospitality industry doing some of the most cutting-edge research and most cutting-edge work on personalization and many trends like that around digital. And not just from a domain point of view, but also from a technology point of view is another reason why it's an absolute sweet spot. Therefore, we've been able to win very, very innovative, very fast-breaking, first-in-the-world kind of work within that industry. It falls in our sweet spot and that's another reason for us to get good growth in that sector. Because I don't want to comment on guidance -- we do not give guidance for the future, I don't want to comment on future for that vertical. But broadly, I would say, very happy with the progress we are making and continue to see a good future for that, good momentum in that business. Coming to the BFSI. Within our portfolio, we see somewhat of a mixed picture. The majority of the kind of things that are in our pipeline, both with existing customers and new customers, typically tend to be more in the Run Your Business kind of areas for our customers, which comes with its own, what shall I say, pros and cons. We are not seeing, within our portfolio, that much of an [ uptrend ] Digital within our BFSI clients. So that's why we see a slightly different outlook for our BFSI business compared to the comment that you heard from our peers in the industry over the last few days and weeks. With that, I'll hand it over to Pradip for his comments on the margin question.
So I think the margin drivers are primarily 3. If you look at revenue as a driver of the margin. The second is the way we leverage the [ selling ]. And that will be the second way of handling it. And third one would be efficiency in the systems including some of the numbers we've called out in terms of BOTs and so on so forth where we improve the delivery mechanism through our -- the projects that we deliver. So I think these are the 3 broad areas that we see, and we continue to, of course, look at our SG&A costs and optimization within that space.
If you look at H1 last year EBITDA versus H1 this year EBITDA, there has been a very good growth even ex of currency. So some of the factors that Pradip outlined just now are beginning to play-in. And like I said, confident that we will be able to make incremental progress on this even during the course of the year -- the remainder of this year.
Yes, sir. Just want to -- because I think my question was broadly on -- because let's say 13.5%, what we delivered last year. CC it seems 9 months also likely to be more or less same. At the beginning, we anticipated it to be better than last year. So any incremental investment where we might have made or any other comment if you can try to cover that kind of thing?
No, but things specific, other than like I said in the beginning of the year we made those commitments or kind of make [ institutional contracts ] . Nothing else at the moment other than people addition. Both in Q1 and in Q2, like we reported, strong people additions much higher than the kind of people additions we made in same quarters last year. We also have to wait and see how Q4 pans out. So let's see, but overall, full year basis, we will have higher margins compared to last year.
[Operator Instructions] The next question is from the line of Sandeep Shah from CGS-CIMB Research.
Just first question, Rostow, is on the top client. Generally, I think in the second half of the calendar year, it gets renewed. So what is your experience in terms of both volume growth as well as pricing stability in that account?
Typically, the -- in that particular customer, the contract renewal usually happens in our fiscal Q1 because the customer follows the July to June financial cycle, but nonetheless we continue to achieve very good, what shall I say, brand equity for Mindtree in the customers, very good relationships, very good traction within the customer in terms of delivery, quality, et cetera. We are likely to get a little bit more growth even during the course of this year. But the bulk of the contract renewals are typically in our calendar term -- our fiscal Q1. Pricing has been stable to, I would say, maybe marginally improving. I don't see a pricing pressure within the large customers.
Okay, okay. And second, looking at the currency benefit which every vendor is now getting benefited out of the same. Do you think incrementally there is a more competitive intensity in terms of the market either from the client side or from the vendor side? Are you seeing the same?
Our business has always been highly competitive. I would say maybe one of our -- 80%, 90% of our business is always won against competition. Relatively only a small proportion of our business comes directly to us on a [ sold for ] basis. I haven't seen any change in the competitive behavior because of currency.
Okay, okay. And just last question in terms of pricing. I didn't understand why it has led to a sharp decline because last year as well there could be a seasonality impact, but the pricing did not decline in this fashion. So what is the reason for this kind of a pricing decline?
Broadly, I would say, the proportion of fixed-price contracts is going up. So when there is a higher number of billing days, with broadly a similar sort of revenue trajectory, that leads to a fall. So the issue I will just correct it to say is not of pricing decline, but more of a realized rates decline.
We will take the next question from the line of Gaurav Rateria from Morgan Stanley.
Rostow, just a question on the macro environment. You talked about delays. If you could highlight it is specific to just a few clients in few -- one vertical in the U.S. geography or is it more broad-based? And is it leading to, kind of, elongated decision cycle, which means that pipeline might remain strong, but the closures may take longer?
The economic uncertainties or the macro uncertainties, I think, affect both U.S. and Europe for many different reasons. In some cases politics, in some cases economics, but the macro factors are integral sort of higher volatility in both U.S. and Europe today. Haven't been able to immediately sort of decipher how much delayed, deficient, et cetera at the moment, but we are beginning to see customers' sentiment getting affected because of that.
Surely. In terms of vertical outlook, based on the deals you have already closed, where do you think the traction will be there in the 2H from the revenue growth perspective?
I would say reasonably even. Obviously, at any point of time, one vertical will be slightly better than another vertical. But at this point of time, I think there's reasonably even sort of growth across all 3 Travel, Hospitality, Hi-tech and Retail, CPG and Manufacturing. BFSI is probably the area where we potentially could have some softness.
[Operator Instructions] Next question is from the line of Shashi Bhusan from Axis Capital.
If I look at the commentary of previous quarter, you said Q2 revenue growth would be slightly weaker than Q1, which was on high single digit. However, growth in this quarter is significantly weaker, I would say, compared to 7%, 8% what we delivered last quarter 2.4 percentage, quite knocked down in terms of quarter-on-quarter growth. Now my question is you cited the reason that the project closure which happened in Retail, CPG resulted in this, and there are some delay in wins which got pushed to Q3. If my understanding is correct, normally when the deal win happens, the ramp-up of those deal wins are in the next quarter. So when you started the quarter, Q2, the deal closure -- the project closure was very much anticipated. So where exactly that disappointment, the 5% knockdown from the previous quarter, 5% plus knockdown from the previous quarter growth actually came? And was there a negative surprise in this quarter? Because when we met during the analyst meet, the commentary was quite upbeat. And what we see -- what we are hearing today in the conference call that there is little bit of caution at least for the next quarter process. So where exactly is the disconnect? What happened in the last 2, 3 weeks which changed this whole thing?
So there are multiple questions within that question. Let me see if I can cover all of them. Usually -- I am not sure if we made any comment as to growth in this quarter will be high single digit or anything like that there. I think our commentary was we expected Q2 to be lower than Q1. Broadly in line with the philosophy that we are not wanting to give guidance. Nothing materially changed for us in our own outlook of the business between Q1 -- or between the beginning of Q2 and the end of Q2 from our perspective there. At that time, and even in some of the comments that we made to media, et cetera, we kept reiterating the fact that our business is not a Q-o-Q business. So there will be some quarters wherein a deal win momentum, et cetera, will help get a little bit of high growth rate. In another quarter, some of it be a little bit lower, et cetera. But I don't think in our own mind there is anything that's changing this. The slowdown in growth relatively, 6% something reported currency basis in Q1 versus 2% reported currency basis in Q2. There is a 4% difference in the growth rate. But part of it is also because Q1 was such a strong growth and therefore if we see where we are last 4 quarters, for example, growth has been in the 3%, 4%, 5.5%, 6%, et cetera. So compared to that, overall within the quarter, we are still maintaining a strong growth rate. So I don't see anything materially that changed up to where we are. The commentary on Q3 was probably the only thing that's relatively new, some of the recent feedback from customers is showing more of, what shall I say, concern over the volatility. So that's what we are sharing with you with respect to Q3.
So is this just -- the early discussion with your client for Q3, is this just a one-quarter phenomenon? Do you think that it can get spilled over to Q4 as well? Or is there any project closure which might get spillover in Q3, and that's why we are citing little bit of caution or uncertainty because of that?
Actually, frankly, I don't have an answer to tell. Because customers are saying that some of this is changing. Or we are sensing a change in the customers' sentiment because of [ access ]. But nonetheless, we also expect growth in Q3 will be similar to the growth in Q2. So it's not as though we are expecting a big change in the growth momentum et cetera. So therefore if you look at it on a -- again if I go back to the point that I made before. H1 this year compared to H1 last year is a very strong growth of 20%. So keep in mind that in that business that we measure more on a full year or full year kind of a basis. We are still executing to the kind of vision that we had and the kind of commentary that we shared.
And in terms of deal pipeline and deal closure, last quarter was decent. This quarter is a little bit soft and something got pushed out. So qualitatively speaking, if I look at deal pipeline when you entered Q3 compared to say 6 months back, has it improved or is it more or less the same?
So again like I said, zoom out for a second and the nature of our industry and the nature of the way we are running our business is not to narrowly focus on a Q-o-Q basis. Obviously, the report results, et cetera, I give you all the data and everything else. But that's not the same time frame in which we look at or manage our business. If you look at Q2 last year and Q2 this year, Q2 last year, we had a deal -- contract signing of $207 million, and that is $271 million in this quarter. So a big jump in contract wins there. So from a quarter-to-quarter basis, sometimes, for example, one quarter one deal closes, in the next quarter it gets pushed a little bit so there will be a little bit of pros and cons that happen from a quarter-to-quarter perspective. But overall, I think, our, what shall I say, more important metric is what are the offerings that we have? What is the strength of those offerings? How are they being accepted by customers, et cetera? None of those, we are seeing any amount of change, and continuously we're being incrementally more positive. So that's the picture that we have.
The next question is from the line of Apurva Prasad from HDFC Securities.
So while the top account continues to do very well, what are your thoughts in terms of -- from a medium-term perspective in terms of derisking the client portfolio?
It continues to be a priority where we will do, obviously, everything we can to get growth across all parts of our portfolio. So everywhere we can get good growth by making investments [ in the projects ] we will continue to do that with the large customer. But we will also do that with the rest of the portfolio. The issue was not so much of Mindtree doing well or not doing well, but like we have shared several times in the past, individually a few of our customers in the top 2 to 20, top 2 to 10 kind of buckets, there are some account-specific challenges. Largely, in our opinion, we believe that's behind us, which is what you see this quarter, our 2 to 10 customers grew approximately 4%. So we're beginning to see the benefits of all the efforts we are putting in, in terms of mining our -- the remaining parts of our portfolio beginning to yield results.
Right, so I mean, so if I put it another way. Do you expect with this change in top 2 to 10 composition growth to be more evened out between the segments like it has not been the case earlier? It was more skewed than that.
That is correct. So that's our own sense of the situation as well.
Right. And if we can talk about how different would the margins be for the Digital side of the business versus what it was a year back?
Certainly. No change in the margin profile of the Digital business last year compared to this year. Broadly the things that we are seeing is that individually at an opportunity level and overall from a relationship level, things are moving more closer to our sweet spot. Digital deals are becoming larger and therefore customers are now trusting us with larger opportunity. We are also increasingly being called for more transformational, high consulting kind of capability, high domain knowledge kind of capability, higher technology complexity requirements, et cetera. So the Mindtree story on Digital continues to be very, very strong in the market.
The next question is from the line of Abhishek S. from Equirus Securities.
I have 2 questions. One, regarding your comment on the BFSI space and customer-specific challenge. So could you just highlight whether this is an I or a BFS customer?
I will say predominantly the BFS part of the business.
Okay, that's helpful. And the second part of it. You also mentioned that the changing customer priorities was one of the reasons for the impact on the customers. So does that mean that -- a loss of market share or is it a closure of projects?
Closure of projects. We've not lost any market share there. Including, for example, we had 4 wins this quarter against one of the world's largest technology companies that's continuing to do quite well. So even when we go head-on against some of the best names in the business. Again, obviously, it's a one-quarter phenomenon, so don't extrapolate it beyond a point. We had a 100% win ratio when we went head-on against some of the largest global technology players. So we don't see that there is an erosion of market share problem at the moment.
Okay. And a last one from my side. I also heard you saying a deceleration in the Digital projects especially in the BFSI space versus last year. So could you elaborate what are the reasons or what are customers citing for the same? That will be helpful.
I didn't say there's deceleration of Digital and BFSI compared to last year. I just mentioned that within our portfolio, customers at Hi-tech and Media, Retail, CPG and Manufacturing, Travel and Vertical (sic) [ Travel & Hospitality ] verticals are embracing and adopting Digital in a much more cohesive, much more strategic, much more -- in a much larger way. Whereas adoption of Digital within our BFSI portfolio is not as strong. More of our portfolio in BFSI and more of the pipeline in our BFSI business is typically tending to be, at this point of time, around more on the Run side of the business and not so much on the Digital side of the business.
The next question is from the line of Sumeet Jain from Goldman Sachs.
Firstly, wanted to understand, Rostow, I mean around your hiring plans given the deal pipeline that you have. Are we largely done with the hiring, or still we have some more pipeline there?
I think overall, we've added about 600 plus campus graduates in this -- on top of the year out of -- and that is about, I would say, half of the total recruitments that we plan to have. So something around 800 plus campus graduates are likely to join the second half of the financial year. So out of the overall committed hiring that we made to campus, approximately half has joined and approximately half is yet to be hired. And the amount -- and the number yet to be hired in the course of this year, or amount of joining in the rest of this year is about 800. I would say roughly 400 in Q3 and about 400 in Q4. So that's what is pending. Latter additions will be a function of both business needs and talent availability.
Okay, got it. And in terms of any wage hikes or promotions, are we largely done or some of them are yet to come in the second half?
No, that's pretty much done for this year.
Got it. And in terms of Digital deals, I remember a few quarters back, you said some of the deals are moving to $10 million thresholds and the offshoring component in them is as high as 80%. Are you still seeing those kind of deals and more deals, which were smaller earlier going to that size when you are talking about front-end Digital work getting integrated with the back-end IT systems?
Absolutely. So overall the pipeline of Digital is slowly moving to more larger deals. Even during the course of this quarter, we saw the Media and deals that are Digital going up, as a case and point. And larger Digital deals easily lend themselves to higher amount of offshoring. So all of those trends continue. No change in those trends.
So can we see going forward your on-site mix can come down similar to what we are seeing in last 3 to 4 quarters?
I don't know the answer to that question because some of it, like I said, is a function of a process that we started some time ago, started with some initial pilots or proof of concepts. Those are now going into larger deals and leading to more offshores. Whereas we're also continuously adding new customers, which is going through a finance cycle all over again so don't have immediate visibility as to what will be the on-site/offshore ratio in the future.
Got it, got it. And also at the macro level, particularly in the U.K. market, I mean, Brexit is scheduled to happen in March 2019, but are you seeing any sort of delay in the discretionary IT spend in that market particularly?
That is one of the, what shall I say, short-term challenges that we are seeing. Given some of the uncertainties around Brexit, et cetera, U.K.-based customers are holding off their decisions or, for example, giving short-term extensions to existing contracts and not signing up new contracts, et cetera. So that factor is one of reasons that we see as a headwind over the next 1 or 2 quarters.
And just on the extension of that. Is that delay in decision-making more on the Run side of the business or it's more on the Digital side in terms of transformation?
I would say it's on both because there's, what shall I say, that negative sentiment is making people cautious and not opening up budgets.
[Operator Instructions]
If there are no questions then you can do the closing comments.
Sure, sir. So as there are no further questions, I now hand the conference over to Mr. Sushanth Pai for closing comments.
Thanks, Ali. Thank you all for joining this call. We look forward to staying in touch in the coming days. If you have any further questions, please do write to us. Thank you once again.
Thank you. Ladies and gentlemen, on behalf of Mindtree Limited, that concludes this conference call for today. Thank you for joining us, and you may now disconnect your lines.