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MindTree Ltd
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Good day, ladies and gentlemen, and a very warm welcome to the Mindtree Limited Q3 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Amisha Munvar. Thank you, and over to you ma'am.
Thanks, Ali. Welcome to this conference call to discuss the financial results for Mindtree for the third quarter ended December 31, 2018. I am Amisha, Head of Investor Relations. Before we start the proceedings, I would like to wish you all a happy and a prosperous 2019. On this call, with us, we have the senior management of Mindtree. The agenda for the session is as follows: Rostow and Pradip will begin with a brief overview of company's performance, after which we will open the floor for 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 the questions. We will take the webcast questions once we complete the questions through the conference call mode. Please note that this call is meant only for analysts and investors. In case there is anyone from the media, request you to please disconnect as we 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 would 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, Amisha. Good evening, and wanted to start by wishing all our friends in the financial community a happy and prosperous 2019. Very happy to share with you that we have continued the growth momentum in Q3. Our revenues for this quarter touched $251.5 million, which marks our first $250 million quarter and puts us on a path to be a billion-dollar company on a quarterly run rate. Our revenue for this quarter is a very good Y-o-Y growth of 17.4% and a 2.1% Q-o-Q on a reported currency basis. On a constant-currency basis, growth was 2.4%. Clearly, this is a reflection that our strategy and investment are resonating very well with our clients, and we are continuously being chosen as a preferred technology partner both to drive efficiency as well as to enhance growth. Other highlights of this quarter include, our Retail, CPG and Manufacturing vertical bounced back with a good growth of 4.7% Q-o-Q; Hi-tech and media grew 2.3%; Travel & Hospitality grew 2.1%. Our BFSI vertical declined by a marginal 1% in this quarter, mainly due to client-specific issues with one customer as well as seasonal factors like furloughs imposed by our customers. Overall, we expect growth to be back in Q4 for our business. Our Digital business grew 5.1% Q-o-Q and 32.4% Y-o-Y. Amongst the other service lines, our remote infrastructure management business grew 2% Q-o-Q and 30.5% Y-o-Y. At the end of the quarter, we have 340 active customers, and we added 23 clients in Q3. The number of $1 million clients grew by 5, taking the count to 116. On the people front, we have 19,908 Mindtree Minds, which is a gross addition of 1,214 Mindtree Minds in this quarter. We had campus additions of 516 in this quarter. Attrition levels are broadly stable at 13.4% on a trailing 12-month basis and on a 14.2% on a quarterly annualized basis. In this quarter, we also added 34 bots, taking the count to 518. Very proud of some strong multiyear, multimillion dollar wins in this quarter, which included: for a leading low-cost Canadian airline, we were chosen as a testing partner for them at the managed services model; we also expanded our footprint within an existing customer in one of the large U.S. airlines, where Mindtree now also have been engaged for providing digital services to this client; we were chosen by our specialty manufacturing company in Europe to provide application management and support services for their SAP suite of applications; we were also appointed as a transformational digital partner for a leading insurance company in the Middle East. Now some points on outlook. Contract closures in this quarter where at $256 million, of which renewals was $184 million and new contracts was $72 million. Contracts to be executed within 1 year was $212 million and greater than 1 year was $44 million. Digital contracts were $136 million. Overall our pipeline continues to become strong and our win ratios are stable, so we expect growth in Q4 to be slightly better than Q3, and we are confident that we will end the fiscal year with one of the highest growth rates in our industry. Very confident of our strategic investments in people, technology and partnerships, which puts Mindtree on a very strong footing. Now let me pass on to my colleague Pradip to share a few other financial highlights.
Thank you, Rostow. Good evening all. Let me first begin by wishing you a very happy and prosperous New Year. During the quarter, we received the approval for the Scheme of Amalgamation for Magnet 360. Consequently, the financial results of Magnet 360 are part of the Mindtree stand-alone results this quarter. During the quarter, as Rostow mentioned, our fee revenue grew 2.1%, volumes have decreased by 1.1% and realized rate has gone up by 3.2%. Increase in realized rate is mainly attributable to volumes dropping on account of leave hours and incremental revenues coming in at better pricing. Overall, our pricing remains stable. Our EBITDA margins during the quarter have risen from 15.4% in Q2 to 15.9% at the end of this quarter. Our continued focus on driving operational efficiencies gave us this benefit of 50 basis points. Currency benefit in EBITDA level was flat. For the quarter, we have a foreign exchange loss of $5.4 million compared to a foreign exchange gain of $5.7 million in the prior quarter. Rupee appreciated to INR 69.56 at the end of the quarter as compared to INR 72.5 on 30th September. The effective tax rate for the quarter was 13.8% compared to 26.8%, mainly on account of the onetime benefit realized pursuant to the NCLT order on the merger of Magnet 360. Without this onetime benefit, our ETR for the quarter would have been 27%. We expect the ETR for the quarter -- of quarter 4 to be in a similar range of 26% to 27%. PAT margins for the quarter were at 10.7% compared to 11.8% in Q2, mainly attributable to the foreign exchange loss incurred during the quarter. Our EPS at 11.62% is an increase of 35% year-on-year. Our DSO is at 71 days, and we have improved our cash conversions. Our EBITDA to operating cash flow conversion is now above 100% compared to 65% at the end of last quarter. EBITDA to free cash flow is 87% compared to 54% in the prior quarter. Our return on capital employed is at 29%. Our overall utilization has remained stable at 74.6% both for including trainees and excluding trainees.Hedges at the end of the quarter at $47.5 million at an average rate of INR 71.53. Our hedges include euro INR of EUR 0.5 million and INR 85.56. These hedges are on a rolling 3-month basis and expire in Q4. The Board of Directors at its meeting held on January 16, 2019, have recommended an interim dividend of 30% INR 3 per equity share on a par value of INR 10. We aspire -- I mean, looking ahead into Q4, we aspire to maintain our margins at the current levels. That concludes our update. And we'll now open the floor for Q&A.
[Operator Instructions] The first question is from the line of Madhu Babu from Centrum Broking.
Sir, just on the top account, I think there has been some slowdown in the momentum, I think, around 1.1% quarter-over-quarter growth. So how should we see the top account growth for next year? I mean because this is a key driver for incremental growth.
Thank you. On a lighter vein, in the quarters when the top account grew really well, we got dinged, saying that "All the growth is coming from the top account" and now that we have generated the growth from all the other accounts, now we're saying, "Why is the top account not growing?" So I'm not sure which way we should go to be fair. But on a more serious note, we are extremely confident of both our relationships, footprint, delivery, quality, et cetera, et cetera, within our top account, so no concerns that we can see as of today anything there. It is just anecdotally in this quarter, we've been able to put all the efforts behind growing all our other accounts and the thing there. So I think the larger account performance in this quarter was just purely anecdotal.
And just one more, sir. I think the exit for this year is going to be very strong. So do we expect the vibrant momentum on growth to continue into FY '20?
From our point of view, like I said, we are focused on building a business that creates value on a sustained basis, so we are doing everything that we can, and like we have shown the entire leadership team in Mindtree is very ambitious. We set high aspirations for ourselves and want to continue to deliver the best that we can.
The next question is from the line of Gaurav Rateria from Morgan Stanley.
Firstly, any color on the budgets for the top 10 and top 20 clients? How it is shaping up for the next year?
Don't have a fully clear picture as of now. We are in the middle of getting in touch with all our customers, getting a sense of their budget, their priorities, et cetera. So don't -- I think a little bit more clarity will probably be available by April. But at this point of time, it looks like many of them are beginning to continue the whole theme that we saw during the course of this year on transforming the core. So these guys are becoming larger, digital is becoming more important and it's becoming sort of -- the sizes are -- deal sizes, et cetera, are becoming more industrial within digital. So overall, most of the commentary is positive. However, like I said, it's incomplete as of now.
Secondly, just a update on some of the deals that got delayed last quarter on decisions especially in the retail in Europe. Any color on that, how is it progressing? Have you seen the closure of those deals or you expect to close them anytime soon?
That particular opportunity which you are stating is not yet closed for the large deal, but that customer has engaged with us for multiple other things, including some of the sort of largest cloud transformation that they are doing, et cetera, so that's how that particular opportunity is progressing.
Okay. Lastly, on the cost side, we're hearing a pretty tight labor market in the U.S. Any color on -- can there be potential higher than usual cost pressures on wages for the next year?
So to reiterate on the previous question, if you look at our Retail, CPG performance in this quarter, it showed a very strong growth of 4.7%. So to that extent that one particular deal will take whatever time it takes based on the customer's decision. But nonetheless, I think, the foundation for their vertical are quite strong to bear. Coming to cost, at this point of time, nothing sort of makes us feel that there'll be sudden spike of any kind. Obviously, it's something that's evolving and we're watching, whether it's regulatory, immigrations, hired talent, forecast, skill shortage, it's a multivariate equation, we are watching it right now. But we don't know anything at this moment that gives us any feeling that there could be a sudden spike in costs.
If I can squeeze one final question. So what are the puts and takes for the next quarter margin? Because you talked about stable margins despite growth improving. So if you can provide some color on what are the headwinds and tailwinds?
So again, like I said, on a semi-serious note, but Pradip will give the more serious note there. By this fact we are saying that margins will be broadly stable, it means that there are neither headwinds or tailwinds. Whatever we have is likely to continue on more or less the same trajectory. But for a more serious answer, I'll give it to Pradip.
Yes. So just to supplement the answer, I would say that we're saying that the Q4 growth would be a trajectory higher than Q3. But obviously to ensure a higher trajectory of growth in Q4, we would need to make certain investments, which is why we -- what we are seeing is the benefits or the leverage coming through higher growth would get compensated through the investments we'll need to make and therefore, the call out on a stable margin into next quarter.
The next question is from the line of Ashish Chopra from Motilal Oswal Securities Limited.
Rostow, my first question actually was around how are you feeling about the overall demand environment? I mean, more in relation to your comments in the last quarter, where you mentioned that there were some of these delays in retail, which were brought about by some tensions in the macro or uncertainties in the macro, whereas, while the growth this quarter has been fairly healthy if you look on a Y-o-Y basis, your comments for the next quarter also looks like a fairly continued momentum. So are you seeing that some of the maybe concerns that were there in the conversations are not playing out as of now? Or would you still believe that the outlook going into FY '20 still remains much clouded given some of these issues on the ground?
Ashish, I think to some extent like I said what we explained at the end of Q2 was a picture we saw at that time. And in retrospect, for example, we are not only ones right, in the middle of November, even Apple came back with a comment about their forecast for this quarter, et cetera. So the macro does present whatever picture it presents there. But beyond that I think, like I said, everything that we are doing, from a strategy, priority, investments, et cetera, is completely aligned with what the customer and the market is expecting from us as of today. So based on everything that we know right now, you would have, I would say, one of the best growth years for Mindtree in this year. And everything that we know gives us an indication that even FY '20 should be a good growth year. Kind of demand environment continues to be very, very positive for us.
Got it, got it. And secondly, on the margins front, just if we look beyond 4Q, where would be -- where would we be right now on the margin journey? So we had set out on this improvement trajectory, and so would you believe that without giving any guidance but -- that you would probably be operating at an optimal level for the kind of growth that you are seeing and the investments that you need? Or are there more levers that you think you'll be putting in the system, especially in the wake of or in the backdrop of the elevating costs of doing business within the U.S.? Would you want -- would you think that one should go a little bit more cautiously in terms of the margin expectations or expansion from hereon?
I think the management team is completely conscious of, what shall I say, our need to improve margins on where we are. So that's the focus of the leadership team, and I think that's what we are continuing to work on. Don't have any information as of today that makes us feel that our aspiration is not achievable, but like I said, we'll continue to monitor it and give you any update as and when it happens. But at this point of time, I think our stand still remains the same.
So we should continue to expect margins in -- so like you had mentioned in '19 should be better over '18 and '20 should be better over '19 x of currency. That should be the continued expectation on that front?
Exactly.
Okay, that's helpful. And just lastly on my side, while BFS will turn to growth in the next quarter, but just overall, do you see the trajectory over there turning for the better since that's been a vertical which has been underperforming for some time now?
Unable to make like a long-term kind of a prediction. Between our 4 verticals, BFSI is probably seeing some amount of slowness there. Unable to decipher whether there is anything that's happening from a broader industry perspective or within our own portfolio. Like we shared in the past, one of our large customers was going through some challenges with innovations and own business pressures. That particular customer has -- from being the second largest customer at one point of time, has even dropped out of the top 10 today. So there are 1 or 2 sort of those kind of Mindtree specific sort of big issue that are also going on right now, so unable to make anything sort of long-term comment on it there. But some of the recent wins like we announced in this quarter, a large Middle Eastern insurance company has chosen Mindtree to be complete end-to-end digital transformation partner. So pipeline is fairly strong. So we'll have to wait and watch.
The next question is from the line of Dipesh Mehta from SBICAP Securities.
Couple of questions.
Dipesh, you are not audible.
Is it better now?
Yes. Thank you.
Yes. Can you help us with the constant currency Y-o-Y either for Q4 -- Q3 or 9 months? That would be helpful. Second question is on BFSI. If we look at its revenue moderate and is quite evident, but if I look at margin wise, segmental margin where we referred, that margin is also substantially lower. Now it is low single-digit margin. So can you provide some more color about how one should look at BFSI going forward? Third question is, can you provide broad sector outlook for all the sectors where we have operations for calendar '19?
I'm not sure if I got your second question, could you please repeat that? The first question was constant currency growth and the last question was outlook for all the 4 sectors for the full -- for FY '19, sorry calendar year '19. What was the second question?
And second question was on BFSI. If I look segmental profitability, it is showing significant weakness. Now BFSI operating at low-single-digit margin compared to closer to double digit, let's see, if I look Y-o-Y perspective in first 9 months. Q3 even weaker than 9 months. So if you can provide some details there. And whether it is likely to persist then it could have implication on our margin aspiration.
So the margin aspirations is for the portfolio as a whole and within that obviously, at some point of time, one vertical may do a little better, one vertical may do a little worse there. So irrespective of that, on a Mindtree level and a portfolio level, our aspiration is to grow margins. Coming to the question on BFSI margins, to some extent the margins are highly sensitive to revenue. So given the fact that even 1% decline in revenue that vertical saw in this quarter, automatically obviously correspondingly translates to a margin pressure for the vertical. So the moment that Q4, for example, if it starts getting into growth more than the margin should get a little bit -- pressure should get a little bit eased. But nonetheless, like I said, so on an overall perspective, historically, the challenge for us within our portfolio was a large portion of the work we were doing for our BFSI customers. I'm talking about maybe 4 quarters, 6 quarters ago, was primarily run kind of work, which from a customer perspective the focus was on cost reduction, efficiency improvement, et cetera, and there was some challenge in terms of trying to get margin improvement there. But if you look at the last few quarters and likely, for example, in this quarter, we announced that the digital work within this vertical is continuously increasing. And therefore, I think that should be also be some amount of leeway for us to grow the margins in the BFSI business over the next few quarters. As far as the outlook for calendar year '19, across our 4 verticals, I think travel, hi-tech and Retail, CPG, Manufacturing, we are extremely confident. The pipeline is very strong. Our message in terms of BF -- on digital, et cetera, is resonating completely well. We have done some really stellar work in terms of case studies, which is being recognized there. If you look at this quarter, for example, ISG, for the first time, had done a vertical-wise qualification of vendors for each vertical. For the travel vertical, we've been rated as a leader. So our story, I think, is very well sort of positioned for the other 3 verticals. In BFSI, there's probably a little bit of a softness compared to the other 3 verticals at this moment. But again, like as I said, we're putting a lot of efforts and care for them and let's see, how it pans out over the next 2, 3 quarters.
Just to respond to your question on margins, on a YTD basis, the margins would be at around 15.1%.
No, no. He said constant currency growth? Constant currency revenue, not margins.
Margins.
No, no, constant currency growth.
Okay.
Dipesh, I think we can continue with the next question. I'll come back to you maybe in a few minutes or at the end of the call on the constant currency growth.
Rostow, on the second question. Is in BFSI, our on-site offshore mix is any different than the company average? Apart from the one thing which you said is RTB exposure is different. But any on-site offshore or any other metrics different than rest of the verticals?
Not in a material way.
Okay. Only RTB is the difference.
The next question is from the line of Rishi Jhunjhunwala from IIFL.
Just one question on the top clients. Clearly, it has shrunk a significant amount over the past 3,4 years. And if you can just talk about in the past 3 to 5 years, has there been new areas that you've been able to open in the new -- in top clients which is possibly going to ensure that continue to grow in that at a pretty high rate? That is one. And secondly, from a market share or wallet share perspective in the same, where would you be in terms of the number of vendors and possibility of increasing that versus saturating it at some point of time?
So we have continuously grown the account primarily based on both high-quality delivery. This account, for example, runs at the highest CSAT scores across all of Mindtree and some really, really deep relationships, so we have our presence in multiple groups within the customer. So therefore, very well spread out whether it's in terms of buyers, service lines, et cetera. So any which way you look at it, we are reasonably broad-based within this customer. We are very small in their scheme of things. The overall outsourcing of this customer runs into a few billions of dollars, so therefore, we are very small from a wallet share point of view. From all that we know as of today, I can assume an enormous amount of headroom to grow, and the main growth driver will be high-quality delivery because there's a lot of work available. The customer chooses the partner who can provide the best possible value proposition, so as long as we continue to have high-quality delivery, I think there's a lot of growth opportunity available for us there. Don't see any sort of immediate visible glass ceiling that will hit us. Unless, like I said, we grew -- we make any mistake from a delivery or a relationship or whatever point of view, unless we are very execution in the steps, I think our territory is, like I said, very rich.
And secondly, just slightly more on BFSI. So is it -- the current paying, is it driven by any of the BFS clients or is it more on the insurance side? And would you attribute it purely on pricing pressure, which could possibly will not be reversed in the medium term? And secondly, currently, we are probably growing at low mid-single digit on BFSI and with a low mid-single digit EBITDA margins as well. So do you have any expectation of that actually going back at least to double digit? The reason why I ask is while you mentioned about run the business kind of thing, and we have historically over the past 4 years, if we analyze margins from BFSI, it's 3 to 5 percentage point below your overall average. But this year, clearly, it is almost more than 10 percentage point below the average. So do we expect that to normalize? Or do you think because of pricing it will possibly remain there?
So there are multiple questions wrapped up in one question. So our view is, our -- the BFS part of our business is doing quite well, whether it is against our own internal plans or growth, et cetera. So the challenge of the pressure is for us more on the insurance side of our business so far. But based on whatever we know at this point of time, I think, for FY '20, even that business should do quite well because some of the challenges were more client specific. Like I said, one of our large customer in the insurance segment which was at one point of time one of our top 5 customers has now dropped out of the top 10 list. So there is client-specific issue within the portfolio. Some of the newer accounts that we have won even in insurance are ramping up extremely well. So therefore, I think there is a lot more positive kind of a view that we have for our insurance business for next year. On the margin for the business, historically, we not haven't seen like a immediately to have a pricing pressure point of view. I think the problem on the portfolio levels is the predominant portion of the work was run the business. Many of those, like I said, contractually then have annual efficiency improvement for the customer, et cetera. So that was the problem. Given the fact that we are now beginning to see more uptick within our portfolio on the digital kind of work that should automatically benefit both the growth rate as well as the margin picture going forward.
The next question is from the line of Sandeep Shah from CGS-CIMB.
Just the first question, if I look at the top 6 to 10 accounts in this quarter has declined by 4% to 4.5% in dollar terms. So what has led that? This is more because of furloughs or something else?
Sandeep, can you just repeat? You said 6 to 10 accounts had degrowth?
Yes, yes.
So like I said to some extent because one customer which was in that category has dropped out of that category. So therefore, a new customer has come in, and it will take a little bit of time to rebuild that portfolio. So that was the background for the change in the 6 to 10 customers.
And some impact of furloughs also.
And like I said because to some extent it was seasonal, so therefore, maybe some of the other customers in that group imposed furloughs in this quarter. But I think the main driver was one customer dropping out.
Okay, okay. So Rostow, is it now fair to say that the client-specific issue in almost all the top 10 accounts is behind because one of the account where you faced the issue is now outside of top 10. So top 10 accounts can now have a potential to at least grow in line with the company average going forward?
Absolutely, yes. If you look at, for example, the 2 to 5 customers this quarter, grew faster than Mindtree, and the top 10 also grew faster than Mindtree.
Okay, okay. Just a -- the large-cap results which were out, both of them were very clear that the strategy is to capture the growth and optimize later. So do you feel that the competitive pressure within some of your large account is increasing? Or you believe enough is there in terms of a spending power and everybody can grow?
I have no way of commenting on the other people's priority. We are not seeing 2 -- therefore, from our point of view, there are 2 ways how we should look at it. In the marketplace, we are not seeing pricing pressures not as though we have customers that are coming back and telling us to renegotiate contracts or anything like that at the moment. So on our own, we are not seeing pricing pressure. On our own, I think the value proposition that we are able to take to customers is extremely strong. And therefore, as long as you can prove that value proposition, the customers are coming and telling us to drop prices. Therefore, our feeling is, we margin whatever challenges in Mindtree are predominantly internal and that's what we're working on quarter-after-quarter, year-after-year to address and help grow margins there.
Okay, okay. Fair enough. Last 2 questions. Just on order book, most of your commentary is good in terms of pipeline stable win rates as a whole, but if I look at last 2 years, your book-to-bill ratio has been close to 1.2, but the same in the first 9-month has dropped. So what is like, is it the TCV with the lower duration this is happening or what is it? I mean to say, the TCV is lower with the duration has been -- TCV is slightly in terms of duration is lower and that's why it may not be captured fully in the book-to-bill?
I think the issue is a little bit more slightly different, and we are now beginning to, whatever, approve to the customer and target more contracts that are longer than 1 year. So within the TCV, for example, there is a -- these are contracts that are being executed in 1 year, contracts that will go longer than 1 year, push us to start getting more and more longer-term kind of contracts. So that's the reason. Otherwise, anecdotally, don't see anything specifically worrisome on the contracts getting converted, et cetera. So overall, like I said, we are quite positive on the order book at this point of time.
Okay, okay. And just last question, Rostow. I think the industry trend is the subcontracting cost has been going up because of the supply side issue. But I think Mindtree has been managing that cost line very well. So what differently we do here versus others? And you also said that you do not see any spike in this cost going forward. So if you can give us some color what differently we do here versus maybe the peers?
I think the continuous investments we have made over the years. We are amongst the earliest to consider and set up a nearshore center, set up a program to recruit from campus, et cetera. So we saw this is as a necessity and -- or as a priority and have done this over years. So therefore, I think we have anticipated, prepared for it, et cetera. And also because originally we are amongst the, what shall I say, innovators on digital as a segment and so on and so forth, now when some of those are becoming larger, we are able to move more work offshore. So maybe that's the difference that we have seen in our portfolio compared to the others. Before we take up the next question, I do want to give the update to the previous question. On a Y-o-Y basis, our Q3 this quarter -- Q3 this year compared to Q3 last year, the reported growth was 17.4%, constant currency growth was 17.8%. On a 9 months ended December basis, for this year, the growth rate is 19.16% on a reported currency basis, on a constant-currency basis, 20.2%. This was the data for the previous question that came up.
[Operator Instructions] The next question is from the line of Ashish Chopra from Motilal Oswal Securities.
Rostow, I just had one additional question on the margins. So if I look at the stand-alone numbers, even recalibrated for the previous quarter with the effect of Magnet 360, it seems to suggest that, that entity would still be having at least at the PBT level a fairly large sort of double-digit negative margin. Would that be the correct understanding? And just wanted to know, if that is -- so the margins improvement in that segment would be one of the work in progress as far as the internal improvements go?
Yes. So this is Pradip here. I just wanted to give a perspective. I'm sure, Rostow will supplement. So as you know, we have integrated fully the businesses and therefore, it is not strictly comparable set of numbers either quarter-on-quarter or year-on-year. Some of the contracts would be -- the new contracts and new customers would be in Mindtree, whereas some of the cost could still be in the old entity. Therefore, it's not a fair assessment. We are completely integrated in terms of going to the market and the business.
Exactly. So like Pradip outlined that for the Magnet business looking at it as the legal entity view may not make sense because the growth sometimes could have come from a customer that's already in Mindtree. So therefore the contract was on Mindtree's name and the revenue was on Mindtree's name, et cetera. So the legal entity view of that business may no longer be relevant. But nonetheless, on a principal point of view, I accept what you are saying. That part of our business is today running at a lower profitability than Mindtree. And one of the, what shall I say, profit improvement levers is to stabilize and get the margins up in that part of the business as well.
The next question is from the line of Rahul Jain from Emkay Global.
One question in terms of, since we are on track to do about close to 18%, 20% kind of a growth for this year. And obviously, the commentary at the beginning of the year was little bit better than the previous year kind of a growth. So obviously, some of the thoughts that we were having at the end of the year has played much better than possibly what was anticipated at the end point of time. So all these positive surprises that played out during the year, so what were these? And then, how you see some of these factors which you think can play out going into next year, which can guide the growth momentum for the fiscal '20?
I think the issue was not less as to whether there was any positive or a negative surprise. I think the year is planning out -- the year is panning out as per our plan. So from my point of view, like I said, our focus is on making sure that we understand what's required in the marketplace correctly. Make the investments where we can solve the problem for the customer there, but it is a highly dynamic environment. So it obviously continuously keep fine-tuning as we go along, et cetera. But overall, very, very confident of the value proportionate we have build. That has led to a strong pipeline and that's led to, like I said, very high win ratios for us there. So that's the momentum that we have. Don't want to make any comments on FY '20 at this stage because the whole assessment of customer, budget, priorities, et cetera, is underway at the moment. But the only, I would say, directional view that we have is that it is a demand-rich environment, so we continue to be very confident of growth for next year as well.
Okay. Just to add on to that, this value proposition kind of a differentiator, how it has helped us in terms of where we can now map us versus peer in terms of versus the large-cap versus maybe a MNC large player or a [ core sized peer ] how has that changed in your opinion over last 12 months?
I think everybody has upped their bar. I mean, Mindtree has also continuously refined. We have more so or whatever impressive case studies based on the work that we have delivered, et cetera, plus also continuously talking to customers, bring in more of our domain flavor into our solution. So many things that we have done to keep refining and strengthening our offerings, but it is not an isolation. I think many of our competitors are also very good companies, so they are also, obviously, continuously improving their own portfolio as well. So I think, it's a mode where all of us are continuously focusing on improving wherever we are.
The next question is from the line of Madhu Babu from Centrum Broking.
Just on a few cost items. I think the travel cost, there has been a substantial increase Y-o-Y in 3Q, any reason for that? And second, employee expense, the salary expense, despite a strong net addition that has been flat quarter-on-quarter. So any update on these?
Pradip will answer.
Yes. So I think, year-on-year comparison is strictly not a fair comparison. We had certain one-off credits which came through in the prior year in that quarter, and therefore, we've continued to have a strong and clear control on the spends, including on travel and the trajectory in terms of quarter-on-quarter is -- remains consistent.
Okay. From INR 50 crore 3 quarters ago now it's around INR 80 crores just, okay. And the employee expenses?
And the second point just to also -- just to clarify, some of these are, it depends on the kind of contract we have with the customer. So some of the costs are billable to the customer. So what you will find is that it appears in the cost line, but it also will appear as a recovery from the customer. So strictly not comparable to look at the travel expense as a stand-alone item.
On the people cost, I think the biggest change has, obviously, been the people addition that we had in this quarter, very high amount of campus additions through the course of this year. I think the campus addition this year will be somewhere in the -- for the full year basis be somewhere in the range of 1,800, 1,900 kind of a range compared to last year as more than 1,200, 1,300 kind of a range. So big additions from a campus perspective is one reason. Second is overall headcount increase as well. So that's the reason for the cost increase on the people cost side.
Sir, last 9 months we added almost 2,000 employees. So when we are adding this campus guys, I mean how long would be the gestation? Because currently, most of the incremental growth is coming from digital, right? So what is the gestation, maybe 2 years when they can be able to handle that kind of service lines or can you give us a number?
I think our story is very, very different. If you look at one of the biggest differentiators for Mindtree from a talent perspective is the investments that we've made in our global learning center in Mindtree Kalinga. So typically, people spend anywhere between 60 to 90 days undergoing training and typically, within 60 to 90 days after that, they get absorbed into projects across all our streams, including some of the most advanced technologies like artificial intelligence kind of areas, people get picked up very, very quickly. The talent there is just unbelievably capable, very passionate, very high learnability, et cetera. So we are very, very happy with the quality of the talent that is coming and joining Mindtree, plus very, very proud of all the efforts that we have put in terms of bringing them on board, training them, et cetera, et cetera. So for us, the deployment period is in weeks, definitely not in years.
The next question is from the line of [ Lakshmi Narasimhan ] from [ Tattva Capital ].
So now Rostow with digital contributing 50% of your overall revenues, by industry which is the industry that is contributing the highest in terms of digital? And which is the industry where your digital contribution is growing faster than either the industry or Mindtree? So that's my question.
I think our value proposition equally attractive across all 4 customers. For example, if you look at the 2 fastest growing practices within Mindtree for digital, it's cloud and analytics. Both of them, in analytics, for example, helping our client understand their customers better, like a front-end engagement, customer 360 kind of an offering is equally valid and equally getting whatever deployed across all the 4 verticals. The only, what shall I say, view that or the trend that we are seeing is, consumer-facing industries like retail, CPG, travel, et cetera, typically are turning out to be a lot more innovative. They lead some of the digital transformation trends and customers in BFSI typically tend to be a little bit of a follower. They adopt it after it becomes more proven, so there is little bit behind on the curve. But otherwise from our offering, if you look at, say, cloud as an example, all the verticals are equally interested in there. But we are seeing faster growth in retail, CPG, travel those kind of verticals.
So a follow-up question is, so generally can we take it that so if your, say, for example, Hi-tech and media is 40% of your revenues, then 20% is from digital from a overall revenue perspective, will the split be very similar across industry as well or is digital in one industry is skewed like say, 70%, 80% of the overall revenue is coming from digital for a particular industry?
There will be marginal differences between verticals. So one vertical will have slightly more retail, CPG, travel kind of vertical will have a higher proportion of digital compared to say, BFSI and Hi-tech will be somewhere in between because in Hi-tech also, for example, segments like media has a much higher penetration of digital compared to, for example, the -- again, like I said, within our portfolio based on the works that we are doing compared to say, telecommunication, equipment manufacturing or data communication equipment companies, semiconductor companies, et cetera. There we aren't doing that much of digital kind of work. So Hi-tech is a little bit of a, I would say, like a mixed picture. But otherwise verticals like travel and Retail, CPG, Manufacturing have higher proportion of digital.
One final question. So do you see digital growing at the same rate? Or do you see some sort of slowdown coming through with your digital offerings?
At this point in time, we don't see anything that gives us any concern on the growth rate of digital. It is running at approximately, like I said, 30-plus percent growth Y-o-Y this year. And we are just seeing market opening up even bigger in the sense that customers are going in for much more deeper, much more -- much larger transformation in the future, so digital deal sizes are increasing and so on and so forth. So nothing that we see at this point of time gives us any concern on the growth rates for digital.
The next question is from the line of Apurva Prasad from HDFC Securities.
Rostow my question is, again, just to prove further -- my question is, again, to prove further on the top account. So you talk about the addressable segment and the diversified presence within that account, so I mean, how should we really look at it? I mean, do you think that growth skew over slightly medium term should continue, or it will be more broad-based across segments?
I'm not sure, if I understood your question, Apurva. When you said the growth skew, what did you mean?
I meant if can -- the top account continue to grow at the recent historical rates or do we see that normalizing and sort of more balanced across the other top accounts?
Don't know, in the sense that I think we are doing everything that we can to continue growth from all possible avenues. Like I said, very, very happy, very proud of all the things we've accomplished with our large customer across-the-board, like I said, where it is relationships, delivery quality, customer satisfaction, all parameters, like I said, point to a very healthy growth rate there. And we are also pushing as much growth as we can out of the rest of the portfolio. So not able to you know give you an answer in terms of relative of -- the rest of the portfolio to this customer because like I said we are seeing good growth potential across the entire portfolio off the top 10 that we have as of to date.
Right. So I'm coming more from the point of that we are derisking the portfolio from top client concentration over more medium-term sort of ratio. So is that really being seen currently?
That -- maybe since this question has come up multiple times, I don't understand where you are coming from. Like I explained this over the last few quarters because this question has come continuously, we are doing everything that we can to get growth on a more diversified kind of a basis, no doubt at all, not because we are seeing the large account as a -- what shall I say, as a concentration risk per se. In our minds, obviously, it is what it is, but we are not worried about it from a concentration point of view. But nonetheless, like I said, it is our endeavor to try and grow the other customers as well because you want to be meaningful, you want to create an impact, et cetera, et cetera, so we are doing everything that we can to grow our -- the rest of our portfolio. But at this point of time, don't in any way feel that the size that we have with our large customer anyway presents a risk.
Okay. That's helpful. And also on the subcontracting charges, how should we see that over, again, slightly more medium term?
We use subcontracting as a short-term or a tactical solution. Sometimes a project starts and you don't have all the people readily available on that date, et cetera, or sometimes some other projects require certain skills, which we don't think has a long-term sort of a need, only like you know that one particular project, or the need is either short or small and short term or small, and therefore you resort to subcontracting there. So to that extent, it is the function or the nature of the demand that comes. It is to some extent that balancing figure. Our primary, what shall I say, priority is to help and try and get as much of it's filled through Mindtree Minds, but anecdotally, from time to time, we will use subcontractors as well, so that's our approach.
Right. So can this potentially be a margin lever with this rationalizing as it has spiked up in the recent past?
No, not planning on that because like I said that always ends up being a little bit of, what shall I say, tactical thing. So the margin improvement thesis is mainly around improving the pyramid, improving utilization, improving pricing. The margin expansion has done through all of those there, not necessarily explicitly sort of calling out the subcontractor as a lever.
The next question is from the line of Surendra Goyal from Citigroup.
Happy New Year to the management team. Rostow, do you want to comment on the recent press articles around the stake sale and even the press articles talk of the promoters thinking of participating in it? So any clarity would be helpful.
Okay. I will for -- on a lighter vein, I'm curious as to why this question did not come up till now, so thankfully at least Surendra raised it. But thank you also for your wishes, Surendra. Likely I have articulated to the media as well, the management team at Mindtree is completely committed, passionate, completely enjoying what we are doing, et cetera. So at this point of time, there is no interest for the Mindtree management team to change any of our plans. I think we are totally, totally focused on making Mindtree even stronger, making Mindtree a memorable company. As far as the plans of shareholders go, we are not privy to it. It is their priority and their prerogative is to make their own financial decisions. So we are not tracking, not following up, et cetera, with any of our shareholders. So no comments on our shareholders' plans. But emphatically want to reiterate that there is no change in the approach by the management team at Mindtree.
Rostow, and as a co-promoter, would you be able to comment if the promoters -- what the promoters are thinking about the business or...
Absolutely.
No, no. Surendra, let me, I'm here. I'll give you a categorical sort of statement. No promoter has any intention to sell. We would rather make the company much stronger potentially sort of increase the value of our stakeholders multiple fold over the next 3, 4 years and build an admired company rather than getting into any speculation. Because obviously, I think, honestly today business journalism has become a bit of a fiction. So beyond a certain point, I don't think we want to comment on fiction.
And on a lighter vein, journalism today has not just become fiction, they also want to become strategy consulting, they want to become corporate finance consulting, and come and tell us what's the best strategy for us to do. But again, like I said, on a more serious note, like you heard from KK, the entire leadership team at Mindtree is completely committed. So no differences within any -- between the leadership team. As far as we are concerned, we are completely, completely focused on growing Mindtree. Shareholders will make their own decisions, we are not privy to their decision, and we are not participating in any of the sort of plans that they may have.
As there are no further questions, I now hand the conference back to Ms. Amisha Munvar for closing comments.
Thank you. And if you have any more questions, please do reach out to us.
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.