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![](https://ik.imagekit.io/kkbzr2uz4cp/stock/nse/mindtree.png)
President and Managing Director, Mr. Venu Lambu, Executive Director and President, Global markets. And Mr. Vinit Teredesai, Chief Financial Officer.
We will begin with a brief overview of the company's Q2 FY '23 performance. After which we will open the floor for Q&A. During the call, we could make forward-looking statements. These statements are considering the environment we see as of today and carry risks and uncertainties that could cause our actual results to differ materially from those expressed in today's call.
We do not undertake to update any forward-looking statements made on this call. I now pass it on to DC for his opening remarks.
Thank you, Vinay. Good evening and good morning to everyone on the call. We are pleased to report yet another quarter of robust performance to round off the first half of the year on a solid note. .
For the quarter, our revenues were USD 422.1 million, up 7.2% sequentially in constant currency. We have now delivered 7 consecutive quarters of more than 5% growth in constant currency. In line with our goal of profitable growth, we delivered a healthy EBITDA margin of 21% despite having completed our full wage hike cycle during the quarter as planned. This was our eighth consecutive quarter of more than 20% EBITDA margin.
Our order book, comprising a healthy mix of annuity and transformational deals stood at USD 518 million, up 44% year-over-year. I'm particularly pleased to report that our H1 signings crossed USD 1 billion for the first time in our history.
Our industry-leading performance underscores the strength of our strategy and the breadth of our capabilities in addressing the full spectrum of our clients' digital transformation goals ranging from efficiency to innovation.
For enterprises across sectors, regardless of where they are in their business transformation journeys, technology-led interventions to improve customer experience, boost revenues and optimize costs continue to be integral to growth and competitiveness.
Digital transformation is about much more than technology today. It is increasingly about the differentiated experiences and outcomes that technology can enable across the value chain. A key part of this is helping organizations evolve their mindsets, cultures and operations in step with their digital ambitions so that they can swiftly adapt to rapid shifts in markets, technologies and customer expectations.
The continuous transformation agenda is largely independent of market cycles and continues to create long-term opportunities for us. For example, we are helping a leading European financial institution accelerate digital transformation, spanning data, process and technology over the next 4 years.
As a multiyear strategic partner, we are helping a global vacation experiences company differentiate itself in the leisure travel marketplace by building an integrated CRM platform that its marketing, sales and services organizations can leverage globally.
Through our consulting-led approach, we are supporting the Metaverse journey of a leading pharmaceutical and biotech multinational as an innovation partner of choice. We have helped one of the largest health care services group in Asia, optimize its blockchain-based pharmaceutical supply chain traceability solution with capabilities around electronic product information, cold-chain monitoring, and API standardization.
We have also enabled the system to integrate with manufacturers, distributors, clinics and patients across Asia to provide real-time supply chain visibility, which helps combat issues like counterfeit and substandard products.
We continue to strengthen our position as a partner of choice with clients looking at digital transformation as an enabler of not just healthier revenue streams, but also increased efficiencies, profitability and business optimization.
For example, we have been selected by European security products company as its primary IT partner for a multiyear managed services deal where we'll deliver global cloud and digital workplace transformation services. to drive digitalization and standardization across the company.
A leading digital marketing and loyalty management company has selected us for a multiyear deal to provide application support, testing and infrastructure management services across its customer-facing and enterprise application suite for improving business agility, responsiveness and outcomes.
A global asset manager has chosen us as a preferred partner for a multiyear application maintenance and support program to help it drive business transformation and optimization by leveraging our extensive experience of working with the world's top asset management organizations.
A leading hyperscaler has chosen us for a multiyear engagement to provide cloud infrastructure and cybersecurity services globally. As part of an expanded relationship, we are helping our regional care delivery organization in the U.S., to build telehealth capabilities and enhance its patient portal.
With that, let me now turn to our industry groups. Our Banking, Financial Services and Insurance business grew 10.2% sequentially and 33.3% year-over-year. During the quarter, we saw balanced growth across existing accounts, recent Tier 1 wins and new logos.
Our consulting-led, agile engagement methods as well as our expanding partner ecosystem continue to deliver strong results. Our Travel, Transportation and Hospitality business grew 8.8% sequentially and 41.9% year-over-year.
Our diversification strategy continues to contribute to the growth of this business as clients increasingly rethink their business models, and transform their organizations to deliver differentiated services and experiences.
Our Communications, Media and Technology business grew 4.3% sequentially and 23.3% year-over-year. With our extensive experience in product engineering, we are supporting clients across the entire product life cycle, encompassing design, development, quality engineering and support.
Our Retail, CPG and Manufacturing business was down 0.8% sequentially and 11.5% year-over-year. On a constant currency basis, the practice grew 2.9% sequentially. While we see continued demand for solutions to reimagine and enhance customer intimacy, there is now more focus on digitalization of core operations, connected supply chains and data transformation.
Our Health business continued its strong growth trajectory with 34.9% sequential and 195.1% year-on-year growth. Our youngest industry group has now crossed USD 10 million quarterly run rate and expanded its clients client base to more than 20 leading payers, providers and medical device companies.
By building industry-specific solutions and applying best practices from other industries, in the face of growing consumerization across this sector. We are helping clients improve health outcomes and experiences while reducing the cost of care.
Among our service lines, Customer Success contributed 40.7%. Data and Intelligence contributed 16.1%. Cloud contributed 20.3% and Enterprise IT contributed 22.9% of our revenue for the quarter.
In terms of geographies, North America contributed 78.1%. Continental Europe, U.K. and Ireland contributed 13.4% and APAC and Middle East contributed 8.5% of our revenue during the quarter.
Our talented employees continue to power our consistent growth by responding to client needs with extraordinary passion and commitment. We are encouraged by the results of our ongoing efforts to sharpen our employee focus and engagement.
We were recently named among India's Top 100 Best Workplaces for Women for 2022 by Great Place to Work Institute. This was the second consecutive year that we received this prestigious recognition for fostering gender equality in the workplace. Our diversity and inclusion initiatives also earned us Women in Sustainability Award at the ESG World Summit and GRIT Awards 2022 in Singapore.
During the quarter, we on-boarded more than 3,100 professionals to close the quarter with a global headcount of more than 38,200.
While we continue to be consistent in our pace -- in our pace of campus as well as lateral hiring, we are now looking at our hiring plans from the perspective of the increased capacity and economies of scale resulting from the merger of Mindtree and LTI. We expect hiring to continue at a steady rate while accounting for talent synergies between the two merging companies.
As anticipated, attrition is showing early signs of stabilizing. For the quarter, our LTM attrition was 24.1%. We believe there is room for it to trend down further. All Mindtree offices are now operational and well over 1/3 of our employees are now working from the office in a staggered manner. We are pleased with the enthusiastic response to our return to office program. Our strategy and approach continue to be fully aligned with our clients' needs.
I will now turn over the call to Vinit for Q2 financial highlights. Vinit?
Thank you, DC. Good evening, and good morning to everyone on the call.
This was another strong quarter for Mindtree, marked by robust revenue growth and resilient margins. Our sequential revenue growth was 7.2% in constant currency, this was a seventh consecutive quarter of 5% plus revenue growth in constant currency terms.
Our sequential revenue growth in USD terms was 5.7%. We reported a strong EBITDA margin of 21% compared to 21.1% in Q1 of FY '23 after taking in the full impact of planned wages hikes this quarter. This was the eighth consecutive quarter of 20% plus EBITDA margin. Our resilient margins reflect our robust revenue growth and ongoing cost discipline.
The EBITDA margins this quarter had an impact of 240 basis points from the planned wages hikes. This was offset by the absence of one-off expenses of 110 basis points in the last quarter, currency benefit of 50 basis points and operational efficiencies of 70 basis points.
Our reported EBIT margin for the quarter was 19.1% compared to 19.2% in the preceding quarter. Net ForEx loss for the quarter was USD 2.4 million compared to a gain of USD 0.6 million in the previous quarter.
PAT margin for the quarter was 15% compared to 15.1% in the previous quarter. Absolute PAT in Q2 was at INR 508 crores, crossing the INR 500 crores mark for the first time. The effective tax rate for the quarter was 23.7% as compared to 24.6% in Q1 of FY '23.
EPS was INR 30.80 for the quarter as compared to INR 28.60 in Q1 of FY '23. Our DSO for the quarter continued to remain strong at 50 days for the second consecutive quarter. For the quarter, operating cash flow to EBITDA was at 49.1% versus 67.2% in the previous quarter. Free cash flow to EBITDA was 38.8% versus 60.7% in previous quarter. [ Free ] cash flow was lower compared to Q1 on account of higher outflow of taxes in CapEx towards investment and office space.
Our robust cash management led to cash and investment balances at USD 465 million. In INR terms, it was INR 3,790 crores compared to INR 3,946 crores in Q1. Annualized return on capital employed for the quarter was 43.1% versus 41.3% in Q1.
Return on equity for the quarter was 35.6% versus 33.6% in Q1. Our utilization in the quarter was 80.7% compared to 81.2% in previous quarter. As of September 30, 2022, our cash flow hedges were USD 1.87 million -- sorry, USD 1,867 million, hedges on the balance sheet were USD 139 million.
I now hand it back to DC for an update on our business outlook and Mindtree-LTI merger.
Thank you, Vinit. Our strong performance this quarter reaffirms our relevance to our clients across the dual objective of revenue maximization and cost optimization. While macroeconomic indicators point to near-term softness in certain sectors, we expect it to be transitory and are offset by the longer-term need for our end-to-end digital offerings in driving their transformation programs.
History tells us that market volatility invariably fuels a surge in demand for technology. The current period of volatility is unlikely to be an exception. With technology now set deeper into business strategies around differentiation, competitiveness and resilience, enterprises will continue to secure and advance gains from their shift to digital cloud-driven businesses.
We are confident in our ability to help our clients address their long-term strategic imperatives around delivering future-ready offerings and experiences in a hyper-connected, hyper-automated and hyper-personalized world. This will receive further impetus with the coming together of Mindtree and LTI into a scaled-up, more efficient LTI-Mindtree that will operate with a larger, more comprehensive portfolio of global clients, capabilities, verticals and markets.
We are in the last leg of regulatory approvals and expect to close the merger before the end of this calendar year. Our immediate focus will naturally be on ensuring that the integration is speedy seamless and successful while continuing to delight our -- continuing to delight our clients. Subject to regulatory approvals, this could well be our last quarterly earnings call as Mindtree.
As I look back on the last 3 years of Mindtree since the change in management, I am filled with immense pride and gratitude for the incredibly talented, passionate and dedicated Mindtree team that has defied all odds, prejudices and expectations to consistently deliver industry-leading performance across every aspect of our business, even in the face of market vagaries unleashed by the unprecedented pandemic.
It is because of this team's unwavering commitment and hard work that we have been able to deliver unmatched profitable growth over the last 12 quarters with a 56% increase in revenue, a 230% increase in net profits and a 3.7x increase in EPS. Our outstanding results this quarter further extends this track record of robust growth and profitability, setting the stage for a promising start as LTI-Mindtree.
I wish to take this opportunity to thank all our clients, partners, analysts and investors for their support and guidance in helping Mindtree grow from strength to strength over the last 3 years. Their confidence in our vision and our capabilities has been instrumental in our continued growth and industry acclaimed excellence.
We are relying on the collective force of this trust goodwill and collaboration to power the next phase of growth journey as LTI-Mindtree and enable us to turn our shared purpose and values into sustainable long-term impact for all our stakeholders. Let me now open the floor for questions.
Thank you, DC. [Operator Instructions] We will take the first question from the line of Aniket.
Is my voice audible?
Yes, Aniket.
I just have 2 questions. I wanted to understand the composition mix of your TCV. I mean, how is the mix of pipeline in terms of composition, large, mid and small size? And just wanted to understand, have the deal tenure increased and shifted more to our cost optimization deals?
So Aniket, at a broad level, the -- the mix is a good mix of both deals towards efficiency or cost optimization as well as deals towards revenue maximization.
And both of them require a lot of digital transformation capabilities. And specifically, in terms of the TCV that you see in the last 2 quarters, there are quite a few multiyear opportunities that we have closed. And that's why you see the healthy -- the robust order book in the last 2 quarters, and that's how we see a $1 billion order book in the first half of this fiscal.
One last question, actually, just wanted your outlook on manufacturing and CMT vertical and what's the discussion going on pricing front?
I'll let Venu answer that, Venu?
Sure. Thanks, DC. I hope, I'm audible. Right. So I think with regard to the manufacturing vertical. As -- I mean, as we all know that, the post-pandemic there were supply chain challenges, there were challenges of production is running through capacity and so on. I think those issues are, I would say, are behind our back. But having said that, there is always the inflation impacts and the cost of money changing from where we were last year at the same time. So I think as an industry, it is going through its own transformation.
But the good news for us, as a technology service provider is that there is so much to do in that sector in terms of digital transformation, right, whether it's to enable the products that's got manufactured to the direct consumer or to the customer or increasing their efficiency in supply chain and so on and so thing. So from that point of view, the opportunity is still very high, and we're very bullish about that sector.
Look, I think the price part of it, it's pretty common across all sectors. I really don't -- won't pick up manufacturing as one where there is a differentiated pricing approach to something. I feel at all times we had to be competitive to the solutions and to the proportion -- per customer.
Same thing with regard to the tech sector as well. The only commentary I would make on the tech sector is that we are also closely watching that sector, right? I mean that's the sector which has invested heavily during the pandemic time and post that, and it's a sector which drives a lot of innovation that impacts across industry as such. So we are reading the same kind of developments in certain companies, as you all read about it.
So I would say, at this point of time, it's just wait and watch in terms of how the tech sector would sort of respond to some of the macroeconomic headwinds that all the sectors are facing for. So I think it's too early to call out any specific trend or any specific pattern, whether it's regard to the opportunities or even with the price.
Next question is from Vibhor Singhal.
Yes. I hope I'm audible. Very congratulations to the entire team for a very strong performance yet again. DC, I have just a couple of questions, majorly related to the retail vertical and the European geography.
So as you mentioned in the retail vertical, our constant currency growth was 2.9% on a Q-on-Q basis. But in the last couple of quarters, we had some client-specific issues. So just wanted to basically understand are those client issues behind us?
And also, is the overall basically as we look down on maybe for a possible economic downturn in U.S. or Europe, are we seeing any pushbacks from any of other retail clients, excluding the [ 2 ] in which we had a problem.
And on a similar note, I think Europe this quarter reported a significant decline Q-on-Q. Now I understand a large part of it would be cross-currency impact. So what is the current scenario in Europe and what are clients talking about it in terms of basically the current geopolitical scenarios are developing. Any pushback that we are getting? And how do we see Europe playing out over the next few quarters.
Thanks, Vibhor. So let me start and then I'll request Venu to chime in as well. See, as far as retail and consumer packaging goods are concerned, RCG, I think this is one area or one industry group where we had called out about certain ramp downs that we had.
And we also I mean, as you can make out, there are -- there's a significant dependency that we have in this sector with respect to U.K. and Continental Europe. So whatever you see in terms of these sectors and the -- and as you rightly said, the cross-currency movement has definitely not helped us in terms of the top line growth in this area. So that's why you see a muted growth over there.
But the good news is that some of the ramp downs that we had anticipated with some specific clients. I think those are behind us. So hopefully, if things don't deteriorate any further in terms of client sentiments or a recession, et cetera, I think we are -- as I would say, the worst is behind us.
Now having said that, in terms of Europe specifically. What we see right now is there is a lot of caution and there is also, in general, a lot of apprehension. So it also matters in terms of the portfolio of clients that we manage. So as of now, I don't think there is anything that we have seen, which is where clients have canceled any of the programs. But in terms of decision-making, we do see a bit of caution as we go along. So I guess that kind of clarifies your question, but I'll just let Venu add if he wants to add anything.
No, DC, I think you've covered the points comprehensively.
So sir, the Europe -- so as we mentioned that we are basically seeing some kind of caution in the talks from clients. So is that also applicable to non-retail clients in Europe? Is it across all the segments in Europe or is it just retail clients of yours?
I can take that, yes. So I would say it's actually across select few sectors, right? I think it's too early to call out across all the sectors, but definitely a few sectors, right? Manufacturing, retail CPG, and to some extent, logistics. These are the sectors which are directly impacted with their cost to serve, right?
When their cost to serve increases, they face the revenue pressure. And when they face a revenue pressure, then they look forward to us to help them out either to enhance the revenue to using digital technologies or to save the costs bringing the efficiency [ and the gains].
So there are certain sectors, logistics because of the fuel price and so on and so things. So that's how I would put it, Vibhor, in terms of the select few sectors. It's definitely beyond retail and CPG.
The next question is from the line of Sameer [ Dosani ] Sameer, you can go ahead with your question, please.
Can you hear me?
Yes.
Yes. So congratulations on a good set of numbers. Just to understand this whole utilization part. So our utilization is in this quarter has been on -- if I compare it on a historical basis it's at a low. So do you see any benefits from here? That is one.
And second, can you give some color around fresher program, how much is the target? And how much have we hired and deployed -- if you can just throw some light on that?
You want to take it?
So Sameer, in terms of the utilization, I think, so we have mentioned this in the past that at this point of time, there is no material change that is happening between quarter-on-quarter basis. It -- in some quarters, it sort of drops down and some quarters it is up, but we anticipate in the short run, it will remain in this 80% to 82% range from a forward-looking perspective. And as -- can you just repeat the second part -- second question.
On the fresher, what is the kind of target we have.
No, the fresher hiring as well as the fresher deployment continues to remain extremely strong, and that is one of -- has been one of the successful parameters for us, which has allowed us to keep our cost base low.
But I would call out that sectors like CMT, sectors like TTH et cetera, and particularly the contracts whereby we are able to execute it on a fixed price basis, I think -- so those are the areas where we are able to significantly deploy.
In some cases, we have almost 70% of our population -- fresher population getting billed in less than 45 days after their completion of the training program. So -- a lot of these things are progressing as per the plan that we had laid down when we started off on our freshers front.
Understood. Can you just -- yes, yes, sorry.
Just to add on to what Vinit said, Sameer, and as I said in my -- mentioned in my prepared remarks, we are in the fag end of the merger. So we are expecting that we should be able to if everything goes fine with the regulatory approvals at the last -- final leg, we should be able to close out within this calendar year.
But keeping that aspect in mind, we are also in terms of our overall talent supply chain, there's a lot of integrated planning that we are doing across the 2 organizations. So that also will kind of dictate some of the strategies as we go forward.
Understood. Understood. And also just to understand your revenue visibility, how much of your revenue, if you can just throw some give us some understanding what part of your revenue would be on the basis of past orders that you have received? And what part of the revenue would be something which you have won during the quarter and you're executing during the quarters, so that we get some revenue visibility.
The TCV's is it? Yes. Look, if you look at the book and bill ratio historically, we have been around 1.2 kind of a book-and-bill ratio over the last few quarters, and it varies a little bit here and there. But I don't see that book-to-bill ratio has changed anything with regard to that. So that sort of sums up that there is no material difference. Though we have clocked a very high TCV number this quarter and for the first half, $1 billion TCV, but the book-to-bill ratio is the same because of the nature of the project and the kind of scope that you pick it up.
And average tenure has more or less remained same over the last few quarters? Or if you can just give some color?
Well, it's the same. Look, we always had a good mix of a multiyear annuity kind of contracts plus also the transformation projects, which were more based on the scope rather than the duration, right? Some of them were 12 months, 18 months and so on so I think. So that mix also hasn't changed much.
Next question is from the line of Abhishek Bhandari.
Congrats on I know early Diwali for in terms of performance. So DC, you mentioned at length about multiple times about the advanced stage of merger and likely possibly by December end and also trying to integrate the supply side by working closely with the other group.
If you could also help us understand what kind of organizational changes you're planning between the 2 companies? Are you looking at some kind of dual structures to accommodate the leaders of both companies, your thoughts will be appreciated, yes.
So Abhishek, I may not be able to exactly tell you the -- give you the answer that you are probably asking, but let me tell you that we are in the final stage of the regulatory approvals. And probably, we will not be able to share the exact details until we are closed on the regulatory approvals.
But I can tell you that in terms of how we will be operating, how we'll bring the synergies -- and as you know, this whole merger is done with a view that we can get more synergies across the market. So the organization structure that is required to help us in terms of the synergies, in terms of cross-selling, upselling in terms of industries as well as service lines, all those things are pretty much decided and designed by the steering committee that we had formed.
So as soon as the regulatory approvals are all closed out, I think we should be able to share all the details with you, but it is probably not fair to share that at this point of time. But the good news is we are very far away from doing that.
But I think I just want to give you the assurance that everything is planned out in terms of how we'll be focusing in terms of the market and how it can be helping us in terms of the creating more synergies in terms of revenues.
And collectively, we'll be having around 700 clients across the 2 companies. And with only a handful of -- 10 clients which are common. So which means that the capability or the ability that we'll have to cross-sell and upsell, leveraging the new organization structure will be fairly significant.
DC, my last question is around your deal wins. This year, it was -- I know in this quarter, it was unusually high. Typically, we normally see a good dip between Q2 and Q1. So my question is, was there any advancement of certain deal signings or spillover from last quarter?
And do you think this run rate, which has now kind of come towards $500 million mark is sustainable given, as you said, the demand for technology in the bio is only increasing and not going down.
First of all, let's understand 1 thing, Abhishek, that when you talk about deals, and again, I had mentioned in my prepared remarks that we typically see 2 types of deals. One is where clients are trying to maximize the revenues, and the other one is clients are trying to look at the efficiency side of their business. And as a partner, I think it's very important that we can play on both the sides.
And in the last 2 quarters, we have seen that some of the clients who were focused on more discretionary, more transformation, they are also now talking about how can we look at efficiency side as well. And typically, if you see the deals which are on the efficiency side, they tend to become a slightly longer tenure.
So what you see in the deal mix today in this quarter or the last quarter is a good combination, good healthy mix of transformation as well as some longer tenured annuity kind of deals which are more on the efficiency side. And now it's something that we feel that we are in a very good position to service our clients in both these areas and the kind of sentiments that we see right now, our view is that at -- number of time, clients may look at more efficiency deals as we go along.
So if that continues, then our order book also will remain healthy, but it's difficult to call out exactly the way quarter-to-quarter order books may vary. But we have always maintained that when we look at order book, it's not a quarter-to-quarter phenomenon. It's overall yearly phenomena, and you need to also look at -- we always look at what is the overall order book for the full year. So from that perspective, we are confident that we are on track for the full year. Venu, do you want to add anything?
No, DC. I think you covered it.
Vinit, just one small one for you. I know I'm exceeding my limit. In this quarter, we had 50 basis points currency improvement -- that appears to be slightly lower given that most of the larger caps had similar kind of improvement because of currency with a higher European exposure.
So I was wondering, is this 50 bps -- and if you could explain the math around the 50 bps in the ballpark way given that U.S. is actually higher than many of our peers.
Yes. When I say 50 bps the net impact on the P&L. So on the one hand side, where the dollar is strengthening against the rupee, you've got a cost benefit. On the other hand, dollar strengthening against some of these European currencies have a hit on -- impact on your revenue. So the net impact of a negative hit on the revenue plus the positive impact on the dollar strengthening against the rupee has given us the net benefit. That's how that net 0.5% is coming.
Next question is from the line of Sulabh Govila.
Am I audible?
Yes.
So firstly, on the deal wins, again, which is a very strong number that we've reported this quarter. I'm just trying to better understand, was there any mega deal included in this number that we provided that led to an uptick, especially in the light of the comments that we made earlier that there is caution in some select sectors in the decision-making.
So that caution is something that we've seen in this quarter and that is how the deal is panned out? Or is something which will pan out in the coming quarters?
Yes. Look, firstly, in terms of the deals that's contributing to the $500 million, as I said, it's a mix of -- a very good mix of annuity and transformation deals.
And we did announce a few deals as well, both as part of the DC's opening comments as well as even in the various press releases that we did during the quarter. So it has come across all the sectors, travel, hospitality sector. We closed some good deals over there.
There are a few deals that was won in the BFSI space. and so as the -- on the media and tech space for us. So it has been sort of a broad-based where we got these deals for -- and the typical deal life cycle is about 3 to 6 months, depending on the signs of the deal. So that means these opportunities started somewhere in Q1 or -- and some of them even started in Q4.
So that -- it takes that much of time in some of the sectors to actually come to the closure, sign the contract and then we can announce it as that the deal is closed. So that's really not the reflection of the softness commentary of today. That's the effort of -- that we have put over the last quarter or so to each year. Yes. So what was the second part? Did I miss the second part?
The mega deals.
Yes. Is that going to continue kind of a thing. Look, I think even DC covered that point, right, there are quite a few opportunities still out there. I find no reason why we can't keep the same deal momentum. Our pipeline is very robust. There is absolutely no change in the pipeline, right?
The pipeline is continues to grow. We continue to add various opportunities across all these sectors. So I'm fairly confident we can continue that momentum.
And if I can just add, I think 1 of the questions Sulabh asked is caution. I think way back in Q4, we were always confident that our H1 looks pretty strong. When we talk about caution, I'm not talking about caution for Q1, Q2.
I mean we are talking about referring to the caution that we can see in some scenarios with our clients in Q3. And one of the things that we have always seen that Q3 is -- it's a seasonally weak quarter for us because of the furloughs, because of the number of working days being less -- and on top of that, we do see some caution where some decision-making got -- kind of getting delayed.
I don't think I will say that clients are canceling their programs, but they are definitely getting a little delayed as we go along. And that's pretty much across multiple sectors. So that's the caution that we are talking about.
Sure. Sure. Just a quick, quick follow-up. On the pricing of these deals, given that in the past couple of quarters, you guys have seen some pricing uptick in the newer deals that you've signed. Is it fair to assume that the pricing on deals would be the newer pricing that you've generally seen?
Look, I think for the niche skills, we are actually commanding at a good price, I would say. So I don't think there's any pressure with regard to the price points on those digital skills on the niche skills.
So there is also an appetite from the client to actually give us a few extra points on that. And with regard to the areas which are fairly, I would say, cost efficiency driven there the push is more towards automation more enhance the productivity, get the right pyramid right and so on and so thing. So -- but there is no unit price stress as such.
Understood. Understood. One last question for Vinit on the cost side. So Vinit, on the travel expenses this quarter, so we've been seeing travel expenses going up since the bottom end of COVID for the last few quarters.
But again, this quarter, there's been quite a bit of moderation from a percentage to revenue perspective. So just trying to understand, is this something which can remain volatile? Or it can continue to go down from here?
I see what you saw in COVID times is obviously not going to be the normal. People will travel back. And only thing what we have mentioned was that the travel won't definitely return back to the pre-COVID levels.
So we are seeing some uptick now. There is definitely given the competitiveness that we need to maintain. There are places where people need to travel, but at this point of time, the mass travel that we anticipate that we might be anticipating that whether it's happening from India to the Western countries, I don't think so that is happening in such a mass scale. It is happening slowly, slowly, it's coming back to normalcy.
You may see some uptick, particularly in Q4. I don't think so Q3, you will see that much amount of thing. You also need to keep in mind that the fares are also adding to our expenses. So it's not necessarily a representation of a trend of increasing travel, but the travel cost per seat itself per person itself is going up because of the generally high fares and hotel charges across, not in terms of any change in [ trend ].
Sure, sure. Got it. Got it. One last quick one, if I may. So the outlook for the margins that we maintained at 20%. Given that in 1H, we are at 21% and the wage hikes are already behind. So what is the sort of caution that we have in 2H, which is baked into the outlook for 20% now?
We -- caution is obviously as DC and Venu mentioned that Q3 is a soft quarter for us. So that's one of the headwind that we had to be cautious about. Currency continues to be a little bit of volatile, though we are hedging ourselves, but it's the volatile movements do not necessarily give the 100% benefits what the hedge is supposed to translate into.
So those are, I would say, potentially the 2 major headwinds that would come on or way. But our endeavor is to constantly keep our cost discipline process strong, continue to find efficiencies and continue to -- we continue to endeavor and would like to sustain our 20% margin even going forward.
Next question is from Mohit J. You can go ahead with your question, Mohit. We'll take the next question from the line of Dipesh Mehta.
A couple of questions. First of all, can you provide some color about BFSI and CMT growth outlook. I think BFSI did very well for us. Even CMT is doing well. But if I exclude top client, then CMT is showing some moderation for the last couple of quarters. So if you can provide some sense about these 2 industries, how it is playing out in CMT top client and outside of top clients.
Related second question is about margin. Now if we are looking at some kind of softness in CMT. Do you expect it would weigh on margin because your CMT segment margin is higher than rest industries. So if there is some mix change and whether you expect it to have some implication on margin.
So firstly, on the BFSI question, if you sort of look back to our commentary last year and subsequently on the BFSI, it all started with a very transformation journey that we undertook 2 years back in terms of sort of relooking at the entire business redefining the strategy in terms of what propositions we want to carry and what capabilities we want to focus on.
And then we also announced some partnerships with a very platform-centric players in both BFS and in the insurance space. And all that effort, plus investing more on the client-facing roles in some of the focused accounts. And we did announce a couple of large managed services deal also with an asset management firm, a couple of quarters back. So it's been a sort of a cumulative effort over the last few quarters that has actually transformed the BFSI business for us, and it's at a growth trajectory, right?
And this quarter is not just the only quarter where you saw that growth, even if you look back over Q1, BFSI has been a strong performer. And that's essentially is a summary with regard to the BFSI question.
On the CMT, actually, if you look at the reported currency, as it had a modest growth, right? I mean -- and if you look at CMT, exclusive of the top client has been a very continuous performer over the last few quarters. In fact, over the last 1.5 years or so, right?
So I wouldn't read too much into 1 particular quarter trend. The fact that it had a significant currency impact as well in the tech sector. But on top of it, I wouldn't read too much. But having said that, if you could refer back to the commentary that I made a few minutes back that we're just closely watching the tech sector in terms of what they do with regard to their spend and in terms of their overall strategy to navigate this economic headwind. So a bit of cautiously optimistic on the tech sector, I would say.
And on the margin, Dipesh I mean, as Vinit articulated, I think our -- I don't think a little bit of change here and there will not change our strategy in terms of profitability.
So I think we are fairly confident that we should be able to continue with our journey of profitable growth. And for every quarter, there will be some business which will do better than the others. Some industry group will do better than the other and that we have to manage through our internal processes.
Next question is from Nitin Padmanabhan.
And congrats on a solid quarter. So in the last quarter, you had mentioned about H1 having a very good view of H1 and H2 being a little hazy.
And since then, we have actually -- 2 things have happened. One is you have had very solid wins this quarter and the headwinds within retail are sort of subsided. So I'm just curious to understand based on these 2, shouldn't you have reasonable visibility into the second half.
And has the visibility versus what you saw originally has it worsened or is it just pure caution at this point in time. So just little confused based on what has transpired through the quarter in terms of the positives and versus the commentary that you're suggesting for the second half? If you just give some color there?
So let me take a stab at it and I'll let Venu and Vinit chime in. See, as far as -- the first half is concerned, I think we were very confident that many of the programs that we are working on, which was a mix of annuity as well as discretionary and some of these transformation programs we have been working on.
And some of them have come to a closure, and we are waiting for the next set of transformations that the clients are going to embark on. And the reason why we are a little cautious is we do see that, in certain cases, clients are not really moving at the same pace with some of the transformation.
But at the same time, the same clients are willing to discuss with us in terms of some of the longer-term annuity efficiency kind of opportunities, which are more managed services construct. And that's what is reflected in the deal wins.
Now as far as Q3 and Q4 are concerned, it is a bit of a caution because every day, there is some news that comes up, which is unsettling. But having said that, our focus is the portfolio of clients that we are managing. I mean even within the same industry, you cannot say that 2 clients within the same industry are behaving the same way because every client is at a different stage in their journey of transformation.
So we work with our clients very closely and we try to understand in terms of what their views are and that there we see a certainly a level of caution. But the other thing which you have to also appreciate is that Q3 traditionally for us is a quarter which is seasonally soft, and that has got nothing to do with the clients per se. It's more of the furloughs and the and more on the number of working days, et cetera.
But having said all these things, the focus that we are -- or at least I'm driving right now is there's a lot of attention in terms of how these 2 organizations will come together. So I would say that Q3, we will spend -- we have been already spending a lot of time, but we also want to make sure that we can get over this integration activities as in a speedy manner as possible so that as we get into the next quarter, we should be or as soon as the day 1 is announced, which is the day on which LTI-Mindtree comes to exist we should be able to slowly get back to the same growth momentum that we have been demonstrating as individual organizations. Venu, Vinit, do you want to add anything?
Well, I would only say that considering that we had such a great first half. So we're fairly confident in terms of meeting our aspiration of industry-leading growth for the rest of the year that we have for this, right?
And there are some fundamentals that are very strong here, right? I mean whether it's our cross-selling and upselling capabilities, our account coverage across our top 100 accounts, the kind of strategic partnership that we have established with hyperscalers and other technology providers or even the investment that we have made in the geographies, right from Asia Pacific to the Continental Europe and so on and our nearshore centers are ramping up much faster than where they were last year at the same time.
So if you actually look at all that, it is actually built for a very continued growth momentum, right? This kind of softness sort of a cautious that we are exercising is purely based on what we hear, what we see and what we solve and we can't. But as an organization what we are built up for is actually built up for a very strong growth with all this, and that's actually showing in the results as well consistently over the last few quarters.
So actually, just 2 quick follow-ups there. So 1 is, do you have a sense of furloughs, that's sort of an evolving sort of topic?
And second, the deal wins that we have won in the current quarter, do you think those actually come through it converted to revenue sometime this year itself? Or it really moves into the next year?
And finally, from whatever I have understood, the worry is more on the base revenue taking some knock because at least over the last 2 years, it never looked like you had a furlough in Q3 in terms of the strength of growth that you had during those quarters. So just wanted your color on these 3 aspects?
We always had furlough, good that you didn't feel it, right? So that means we actually did a good job in that quarter. And that is going to still be the endeavor and effort so that it's not highly visible.
But the Q3 commentary already factors in how much of furloughs we will have. It's not dynamic. We more or less know what is that impact, right? So there is a certainty of how much of that impact is towards furlough.
So from that context, you will not have any more -- I don't think that we will have any more surprises than what we know today with regard to the furloughs. And with regard to the revenue realization of the orders closed, absolutely yes. Some of them have already started the projects, and you will see those revenue realization happening this quarter as well as for the next quarter.
The next question is from Rahul Jain.
Yes, sorry for asking a very similar question. So just to understand a little bit more on the thoughts which Venu shared just a moment back. So is it safer to think in this manner that the macro view is more cautionary the way news flow is in the market. But for this to translate into actually impacting the demand could be some time away so we could do well as a company and maybe as an industry as well, a few more quarters and then probably things could become a little different.
So look, actually, it's a bit of a crystal gazing on that, what I'll still make an attempt. Look, will there be an immediate impact on this macroeconomic headwinds? Probably not, right?
I mean these are conversations, these are planning and these are the budgeting exercises and especially October, November, December happens to be the time where a lot of our customers who follow the December, January cycle for the year for their financial year they get into the budgeting of their spend as such.
So hence, what has been budgeted is already being spent for this year, and that will be spent in the Q3 as well. So it's not going to be very immediate as such. But having said that, we're living in a fairly dynamic world, here and there, you get some bit of headwinds, which you don't anticipate as such.
But I wouldn't -- to put it in summary, I wouldn't think that will be an immediate impact as such. In fact, at the end of the Q3, when the budgeting life cycle, our budgeting cycle of quite a few of our customers are over, we would actually get a great visibility even for the next year. Because they will start putting their narrative out in terms of how they want to do for the next calendar year or for the next financial year for them.
Add 1 thing is, interestingly, the last 2 years, the clients have really opened up their purses and budgets in terms of doing a lot of discretionary. What is discretionary? Discretionary is nothing but driving a lot of transformation all led by digital. And this transformation is done to redefine their own business models because once the pandemic struck, I think everybody wanted to truly become digital and redefine the business models.
The good news is that many of the clients and -- or rather all the clients that we support, they are at various phases of their transformation. And it's not this transformation, some of them are long drawn like 4 to 5 years transformation journey.
And when I say caution, some of these transformation are -- some of the clients have actually slowed down on this transformation, but they cannot pause it because if they pause it and if they kill it, then if they will be losing the competitive edge in the market and their own plans will actually go for a toss.
So I don't think they are going to completely shut it down. But I think what the clients are looking for, and this is something which is interesting, and this reflects in our TCV is some of the clients are now thinking of given the fact that there is a bit of caution and they are trying to pull back on the discretionary, but they are also discussing with us in terms of what are the things that we can do on the efficiency side.
Can we look at cost takeout in certain fashions? So the view that I have is that this could be a transitory phase. And IT has always kind of come out stronger through some of these phases because through digital transformation, either you focus on revenue maximization or you focus on cost optimization or efficiency as we call it. And I think some of the clients are now switching the focus and shifting the focus to more in terms of efficiency because the whole idea is that if you can pull out some dollars by being more efficient, then you can at least continue to fund your transformation.
So -- and this is not something that is easily done. So -- but many of our clients that with whom we work, they're actually thinking on these lines. And some of the annuity deals that you see in our pipeline I'm sorry, in terms of TCV is a result of that.
And sorry, if I could add a bit more. So we shared a bit of view in terms of where we could potentially see some weakness on a relative basis built in terms of geography vertical. But is there any other vertical that we could highlight can do much better and over accelerated trend versus, let's say, last 6 months.
Look, I wouldn't pick just one vertical. I think considering where we are with regard to the most the industry growth. I would say there is still a lot of opportunities.
I think probably we may be over beating the softness part of it in this thing, but you need to understand that even in those sectors where there is a softness there is a play for us, right, as DC mentioned, right?
Then there is an efficiency play, that's a big opportunity by itself, right, wherever there is a play. So I would think of a substituting with some other sector if there was no play, right? So I just want to call that out separately to say that just because there is a softness, that doesn't mean that there is no play for us. In fact, there may be a much bigger play to address that opportunity.
Sure. Got it. I understand. And we are up on the time, just a quick one, if I could squeeze in for Vinit. You said about how -- on a staggered manner, we have weekly working in all our centers. Is there any cost headwind we should count in for in the near term towards that or most of which is already baked in from a run rate point?
While our return to office is happening in a gradual manner and as we sort of expand and open up new offices, there will be a little bit of a gradual increase in the cost that will be happening. But as I mentioned this also in the past, and our footprint on that office expansion is not on one-on-one mapping as it is to exist into pre-COVID levels.
So we are also cautiously expanding the footprint in such a fashion that the costs don't go up necessarily in the same fashion. And within the office also, we have secluded areas whereby people come. It's not like the entire office becomes operational. So yes, you'll see costs going up, not in the same scale as what it was probably in the pre-COVID levels.
We'll take a final question from the line of Manik Taneja .
Congratulations for the solid performance. So DC and Vinit, I just wanted to pick your brains were just trying to reconcile the revenue growth that we've seen in the current quarter. Our headcount reduction is far more muted than we have seen in the recent quarters. Utilization is down on-site offshore mix is more or less unchanged. We've seen some increase in subcontracting expenses. But what is essentially explaining the significant revenue growth in the current quarter? Is this some realization improvement, pricing improvement that's driving bulk of the revenue growth in the current quarter?
Yes, Manik, I think so that is one of the important factor that has contributed that we have been doing this pocketed exercise to go and look out for price increases in for niche skills across our client base. And obviously, the results come from in a scattered fashion. So this quarter, we have been able to get a good amount of price realizations.
Secondly, even if you look at from a headcount trend perspective, it is not necessarily an indication that our trend of -- trend is slowing down towards hiring. As DC was mentioning, that we are confident of that the merger is likely to get over. We are also now looking at sort of the common bench of resources that will be available soon between both the organizations. So we are confident of the costs.
It's a first step towards cost synergies that we intend to achieve as a part of this merger. And hence, you will see -- so there was no change in the trend as well, and I don't consider it as any negative at this point of time.
So one last clarification on the price increase. Given the fact that the industry essentially has seen significant talent pressure and thereby has pushed customers for price increases. Where are we in that journey as an industry?
Do you think this is a dynamic that will still remain -- work to the advantage of the players going into the next 6 to 9 months? Or given the current uncertainty, this may not be a tailwind for the industry.
I see it all depends upon the revenue mix and the projects you handle. We are more into the digital transformation and revenue optimization play. And the talent that is available is always in shortage. So particularly a couple of niche skins are always in shortage. So to that extent, the customer is more interested in getting the work done and making the project live. So he's ready to pay that extra price because it starts benefiting him at the top line level.
On the other hand side, we -- our attrition at this point of time, we believe, is showing early signs of stabilization. It's not worsening itself is a good sign. It won't probably come down below 20 in a very quick run but it's not worsening itself from a forward-looking perspective itself is an encouraging sign for us.
That was the final question for the day. On behalf of the management, thank you all for joining this call and for your continued support. You may now disconnect your lines. Thank you.
Thank you.
Thank you.