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MindTree Ltd
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Ladies and gentlemen, good day, and welcome to the Mindtree Limited Q4 Earnings Conference Call.[Operator Instructions]Please note that this conference is being recorded. I now hand the conference over to Mr. Sushanth Pai. Thank you, and over to you, sir.
Thanks, Aman. Welcome to this conference call to discuss the financial results for Mindtree for the fourth quarter and year-ended March 31, 2018.I'm Sushanth, Head of Investor Relations. On this call, we have with us senior management team, Krishnakumar Natarajan, Executive Chairman; Rostow Ravanan, CEO and Managing Director; Parthasarathy N.S., Executive Vice Chairman and COO; Jagannathan Chakravarthi, CFO; and Ramesh Gopalakrishnan, Chief Delivery Officer.The agenda for the session is as follows. Rostow and Jagan will begin with a brief overview of the company performance, after which, we'll open the floor for the Q&A session. Since we have introduced an audio webcast, some of you may have joined the webcast, the webcast is a listen-only mode, but you can post questions.We will take the webcast questions once we complete the questions through the conference call mode. Please note that this call is meant only for the analysts and investors. In case there 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 could make forward-looking statements. These statements are considering the environment we see as of today and obviously, carry a risk in terms of uncertainty because of which the actual results could be different. We do not undertake to update those statements periodically. I now pass it on to Rostow.
Thank you, Sushanth, and good evening to all our friends in the investment community. Very happy to share with you that we ended the year on a strong note, with revenues of $226.2 million in Q4, which was surplus Q-o-Q growth of 5.5% and 15.6% Y-o-Y, making it the best quarter of FY '18. On a constant-currency basis, the Q-o-Q growth was 4.5%. For the full year, we achieved $847 million in revenues, which is a growth of 8.6%, which again has exceeded the industry estimate for the fifth year in a row and continuously beats the industry growth rate in 9 out of the last 11 years since our IPO.Our continuing strategic investments in building expertise for domain, Digital and [ run ] are being clearly recognized by our customers. Some of the key highlights of FY '18 are as follows. Our recently concluded customer satisfaction rating are at an all-time high, and we set the benchmark in the industry of a few important parameters. This clearly demonstrates our successful delivery execution, and customers are looking to us to help them drive their technology roadmap, which shows the increasing trust and confidence that customers have in Mindtree.We achieved a trailing 12-month attrition rate of 12.5%, which is one of the lowest we've seen in the last few years, again reflecting our increased people engagement and high ability to attract and retain talent in Mindtree.We also had significant client wins in both run and grow side of the business. Many third-party advisories have positioned us in the leadership quadrant for both run and grow offerings.Automation is one of the important organizational priority, which plays a significant role in modernizing our service delivery and enhancing efficiency for our clients. I'm proud to say that we're taking the lead in the industry to the number of BOTs we have, effective this quarter. We define BOTs as software that work autonomously along with humans, enabling Mindtree Minds to do more and accomplish larger goals.As of 31 March 2018, we have 335 BOTs operating in Mindtree. We continue to be very disciplined on our capital allocation, and like you would have seen earlier this year, we concluded our first buyback program, which was well appreciated by the investor community.We're also continuing to maintain a healthy dividend payout ratio. We continue this approach of enhancing stakeholder value through multiple mechanisms keeping in mind the -- our business needs, business performance, investments and other strategic priorities. We fueled our leadership strength through both internal and external hires, taking on higher -- people taking on higher responsibilities.Some other highlights for this quarter. Amongst verticals, Travel & Hospitality led the growth with 9.7% Q-o-Q; Retail, CPG and Manufacturing grew 8.7%; Technology, Media and Services grew 8.2%; BFSI declined by 4% in this quarter, which was a one-off situation in this quarter, and we expect growth momentum to be back in the future. Also full year, all verticals had good all-round performance. Technology, Media and Services led with a growth of 10.8%, Travel and Hospitality grew by 10.1%, BFSI grew by 7.1%, Retail, CPG and Manufacturing grew by 6%. Among geographies for the quarter, U.S. grew by a healthy 7.5% and Europe grew by 6.2%. For the full year, U.S. grew by 10.7% and Europe by 8.1%. Our Digital business continues the strong traction with 8.3% growth Q-o-Q and full year growth, again, is much stronger than Mindtree, almost double of Mindtree at 18.9%.We have 338 active customers at the end of the quarter. We added 23 new clients in this quarter. Very happy to report the good improvement in all the client buckets, where $25 million customers grew by 1, taking the count to 4; $10 million clients grew by 2, taking the count to 17%; $5 million clients grew by 1, taking the count to 38; and $1 million grew by 4, taking the count to 118.Trailing 12-month and quarterly attrition -- quarterly annualized attrition are very healthy at 12.5% and 13.1% respectively. We ended the year with 17,723 Mindtree Minds, reflecting a gross addition of 1102 people in the quarter. During the quarter, we had 339 campus minds join us. For the full year, we have added 1285 campus graduates. This quarter saw some very strong multiyear multimillion-dollar wins, and to share an example, Mindtree was awarded its largest single contract to date by an existing customer in the airline industry in the U.S. Under this contract, Mindtree has been given full ownership of the QA function for this customer, and we are working with the client to radically redefine the QA function. For a partner and an existing customer in the enterprise software product segment, Mindtree extended its presence into the infrastructure management area with a differentiated value proposition and was awarded a multiyear multimillion-dollar opportunity. We are providing cutting-edge analytics using SAP HANA to deliver customer insights for a large automotive company in the U.K. Another existing airline client in the U.S. has chosen Mindtree to be its strategic partner to support application development, maintenance and quality assurance services as part of their IT transformation initiative.Coming to the outlook for next year, this quarter we signed deals worth $298 million, of which renewals were $256 million and new contracts were $42 million. Contracts to be executed within 1 year was $237 million and greater than 1 year was $61 million. Digital contracts signed were $102 million. Overall, TCV signed in FY '18 crossed $1 billion. We are very optimistic about the demand environment across all our chosen verticals and continue to see improvement in our win ratio.Overall pipeline has increased by 32% compared to FY '17. Digital pipeline grew by a very healthy 66% compared to FY '17. The further success and our large-deal focus reflects the need for Global 2000 businesses to marry both scale and agility. Mindtree is in that sweet spot. Taking into consideration all the factors I mentioned above, we expect the financial year '19 to start on a very good note, and we expect to deliver stronger revenue growth in FY '19 compared to FY '18.With that, I pass on to Jagan to share some other financial highlights.
Thank you, Rostow. Good evening to all. In Q4, our key revenue grew by 5.7%, volumes increased by 7.8% and pricing realization declined by 2.1% due to high number of days as compared to previous quarter. Overall, our pricing is stable.On consolidated basis, EBITDA margins are at 16.1% in Q4 compared to 15.1% in Q3. 70 basis point improvement was due to currency benefits and 30 basis point was due to operational improvement.EBITDA margin for the full year FY '18 is up 13.6% as compared to 13.7% in the FY '17. On a constant currency, EBITDA margin for the full year FY '18 would have been 15.4%.For the quarter, we have a ForEx gain of $2.9 million compared to ForEx loss of $1.3 million in the previous quarter. The ETR for the year -- quarter was 27.3%, and the ETR for the full year is 33.2%. As margin for the quarter improved to 12.4% as compared to 10.3% in Q3, which is an quarter-on-quarter improvement of 37.9%. EPS for the quarter was INR 11.08, which is quarter-on-quarter growth of 28.7%. EPS for the full year is INR 34.2, good growth of 37.8% compared to year FY '17. Our DSO for the -- at the end of the quarter was 67 days compared to 71 days last quarter. For the full year FY '18, cash conversion has been steady, with EBITDA to operating cash flow conversion at 76.2% and EBITDA to free cash flow at 62.4%. Our return on capital employed is at 26.6%.The Board of Directors at its meeting held on April 18, 2018, have declared an interim dividend of 30% (sic) [ 20% ], INR 2 per share and recommended a final dividend of 30%, INR 3 per equity share which is subject to shareholders' approval.Some points on margin outlook. As Rostow mentioned, we expect revenue growth momentum to be stronger in FY '19. With this, we are very -- we are confident of improving the margin in FY '19 as compared to FY '18.Some of the key points to be considered are: In FY '19, we have advanced the salary revision cycle to April 2018. All Mindtree Minds will get their salary revision with -- would -- salary revision effective 1st April 2018.This will then have an impact on the margins by 300 basis points. We plan to hire 1,900 campus graduates in FY '19. We have applied, so far, less number of visas in FY '19. ETR for FY '19 would be in the range of 27% to 28%, there's slight increase due to some of the facilities entering the 50% tax bracket. We expect this rate to continue for next few years, barring any the new legislation that may impact the tax rate. With this, I conclude the update.
Aman, we can now open the floor for Q&A.
[Operator Instructions] First question is from the line of Sandeep Shah from CIMB.
Just wanted to understand the growth within the top 2 to top 10 accounts in this quarter has not been as strong as we have seen in top accounts or non-top 10 accounts. So anything to call out? Or is it more to do with seasonality? And also if you can give a color about any further client-specific issues within your top 10 or top 20 accounts?
I think our top 2 to 10 on a Y-o-Y basis Q4 versus Q4 last year, and beginning to show a very strong growth. For example, our second largest customer at the end of Q4 is a different customer than the customer we had in the past. So the [ strong ], I think, is pretty much complete. Those customers who we have problems are either bottoming up -- bottoming out or they are even continuing to grow. We have a turnaround in those accounts. So we are confident [indiscernible] to improve performance in the #2 to #10 customers and also the 11 to 30 customers as well going forward.
Okay. And also in terms of the banking and financial services, can you discuss what are the trends you are looking, especially in the North America?
Based on what we see at the moment, I think there should be a visa [indiscernible] in the BFSI business next year, both in U.S. and in Europe, which are our 2 primary geographies. However, we've seen much more opportunities for run-the-business kind of projects at this stage from our BFSI customers and not that much of grow-the-business or Digital kind of projects from our BFSI customers. Those that we have won recently, including some deals that we announced during the course of FY '17 and recently in FY '18, are continuing to ramp up and doing as well or better than planned.
Okay. Bookkeeping question, Jagannathan. In the cash flow conversion, if you look at for the full year despite the margin increase, the net cash flow from operation has not been up to the mark. So what could be the reason? And is there any benchmark which you are looking in terms of a cash conversion, either as a EBITDA to operating cash flow or as the FC [ payback ]?
Well, we continue to track the EBITDA to operating cash flow as well as EBITDA to free cash flow. We are also focusing on keep improving on the DSO. So there is no specific reason for the operating cash flow [indiscernible] out of whatever we have to tell for next year, which we'll be keep improving because all the collection metrics are doing well. Probably some amount of investments are coming on this cash flow. That's the reason why the cash from operation is slightly in a different place.
Okay. And about this reversal on the other income because of the Magnet 360 and the Bluefin, if you look at this year, that quantum at INR 91 crores, INR 92 crores has been almost like a 10%, 15% of the PBT. So how should we look that line item in the next year?
It's -- nothing further will be there on this year. So this will actually of -- this is a process which has been agreed by under original acquisition contract. So based on the time line defined in the contract, this -- if these conditions are not met, the functions are being reversed back.
So short answer is, all the adjustments that need to be made are now complete. So no further charges or reversals in future.
[Operator Instructions] The next question is from the line of Apurva Prasad from HDFC Securities.
So my first question I had on your outlook on the top account. In ICC, growth has largely been skewed towards that, so if you can throw some light in terms of how we are seeing that going forward? And the second part is on margins. If you can talk about the levers from here?
So the large account that we are very proud of all the value it has created, great relationships, great name recall for Mindtree. Like I mentioned, some time back, we had very strong CSAT scores in this year. The CSAT scores from our large customer was better than everybody else. So the best CSAT scores in Mindtree are from this large account that we have been servicing for all-in-all a decade or so at the moment.So all parameters so far are doing quite well. We continue to still have a enormous amount of headroom to grow. So don't see any concerns at the moment.On the left, see increasing customer concentration is something that we are very mindful of and the solution for that will be to not push the pedal and do more with the remaining accounts that we have, especially the #2 to #10 customer and maybe even the #11 to #20 customer. So we are doing a lot more to now move the needle on growth, while continue to make sure that everything goes well with our large customers also.On the margin question, I think at this point of time, some of the key operational parameters like utilization have reached reasonable amount of comfort level for us. We continue to keep pushing. I think the revenue growth will probably be one very big margin lever, if -- you can see even during the course of this year and quarters where we have very strong revenue growth are almost directly correlated to margin improvement as well. So strong revenue growth is one margin lever, and I would say the second best would be to improve the performance of both the Package Solutions business that we now rebranded as Bluefin, and the Salesforce factors, which is now rebranded as Magnet 360. Strong net sale performance on both of those should also help us get better margins in FY '19.
The next question is from the line of Madhu Babu from Prabhudas Lilladher.
Sir, how is the velocity of conversion of the deals? And -- so are we the anchor partner in most of the Digital deals which we have won?
Deal momentum continues to be very strong. Pipeline is building up. So there's no softness in the demand environment or across the board, Mad. And Mindtree's win ratios are improving. So I think, overall, we are very pleased with what we are doing on that front. So don't see any concerns there.
And sir, in good -- I mean, like in 2Q FY '16, we delivered almost 8% organic growth quarter-on-quarter. So considering the macro is good, so do we expect such strong quarters in 1H of FY '19? And when we are saying margins will drop 300 basis points quarter-on-quarter in 1Q, I mean, because of AJAX, are we having any counter effects which will negate the impact of AJAX?
Going back to your previous question, for Digital, yes, we are continuing to be seen by many of our clients as their anchor partner for their Digital transformation initiative. Coming to the question on margin, yes, Q1 you will see how the quarter goes in terms of revenue performance and in terms of other things as well.Hopefully, we can also do a few other things will help us offset the pressure that has come because of wage hikes. But nonetheless, on a full year basis, I think the margins in FY '19 should be higher than the margins in FY '18.
Okay. But we expect run rates to be very strong, 1Q or 2Q, first 2 quarters?
Yes. We are starting off on a very strong mode.
The next question is from the line of Gaurav Rateria from Morgan Stanley.
Question on Digital. I've seen the Digital revenue growth accelerating to 25% to 30% in the last 2 quarters. Is this purely a base effect? Or do you think some trends are changing in terms of deal sizes and engagement levels because of which the overall Digital revenue can actually accelerate compared to the levels it has been doing in the last 2 years?
Thanks, Gaurav. I would, on a lighter range, say there's nothing magical about it. It took a lot of hard work by our own bunch of 17,000 Mindtree Minds. And like we explained in this -- in our earnings release, that there are 30 BOTs that we have all combined together to produce this result. But on a more serious note, on Digital, continuing to see very strong traction amongst 3 or 4 verticals. Technology, Travel and Retail, CPG, Manufacturing. Some of the work we are doing there are fast breaking for the respective industry. Overall, we are seeing number of deals and size of deals going up. So today, we are having quite a few $5 million, $10 million kind of deals in Digital. I would say the strongest traction are our, on helping our customers with their cloud and analytics journey.So those are the best sweet spots for us at the moment. It's also very strong recognition from many of our partners. On the cloud side, very strong partnership with both AWS and [ FBR ] content management with Adobe. So across all of our partners, we're getting very strong recognition on the work that we are doing. So that's what we are seeing on the Digital side.
Sure. Question on margins for Jagan. The 1Q will see confluence of 2, 3 factors, one is the wage hike, which you quantified as 300 basis point, and then possibly increase in the travel cost because of visa-related expenses. What are the offsetting factors? And do you think you can absorb the margin and still hold onto the margins at the current levels?
So it may not be able to -- we may not be able to completely absorb the impact of the salary increase, but there will be definitely be some amount of operational improvement down the furrow.
We also -- just wanted to also clarify that like Jagan mentioned when he made his comments, we have significantly ramped up our ability to hire both campus graduates as well as laterals in all our key markets. So in Q1, we are not expecting a big swing on visa costs. Unlike in previous quarters, Q1 may not see a big swing on visa cost. So the main margin headwind for Q1 will be decided divisions [ firmly ].
The next question is from the line of Pankaj Kapoor from JM Financial.
Rostow, I think we entered the quarter with about 3% to 4% kind of a growth expectation, so did this acceleration in the growth that you saw during the quarter, was that a surprise? And if so, what led to this acceleration?
Well, I wouldn't say it was a surprise. I think the -- we are quite confident of the growth in this quarter, and largely it stands in line with our expectations.
Okay. And if I look at the top account, what kind of a visibility do you typically have there? I mean, I'm presuming these would be typically short- to medium-term projects. So is my understanding right? Or this is something which has got a long-term commitment of revenues also over there?
Contrary to what you said, the bulk of our business is a multiyear kind of contract. So there's reasonable amount of visibility. So I'm quite confident of even next year growth positions from this account.
Sure. Got it. And just lastly on the margin outlook, if you are looking at the first quarter margin decline, going forward from second quarter onwards, do you expect a bulk of impact on a positive side should be coming in from utilization? Or you think it could be largely because of our increased campus hiring? The pyramid impact will be a bigger margin driver for us?
I think Jagan recently mentioned about this in his comments. I think utilization is already at 75% also. So unlikely that utilization will be a bigger improvement -- or bigger factor in margin improvement for next year. I would say the revenue growth will probably be the most important driver for us, somewhere we are at the moment. Then obviously, some amount of continuous improvement will drive from an operational efficiency perspective, but revenue growth will probably be the biggest margin driver for us next year.
The next question is from the line of Ashish Chopra from Motilal Oswal Securities Limited.
Rostow, I just wanted to pose the margin question a bit differently. So I think, on a full year basis, the 13% margin in FY '18 is obviously slightly easier compare -- especially if I consider the exit margin of 16.1%. So I just wanted to understand that, given that you start at a lower base quarter-on-quarter, how do you feel about your ability to end up on the margins front next year? Or maybe in a couple of years' time compared to the exit margin of 16%? Or do you think that a margin of -- at this level is probably a quarterly number given the seasonality? And on a full year basis, one should probably expect the number in the bang between the full year average versus the exit margin that you have?
I understand your question, Ashish, but clearly, our policy is to not give guidance. At this point of time, I would say, if you look at the full year this year compared to full year FY '17, there is a 200 basis point impact because of currency, negative impact because of currency. And in spite of that, we have improved margins. So all the effort that we put in, in terms of operational efficiency, bringing the Salesforce and the SAP practices back to stability, and very strong growth in both of them in this quarter, 7%, 8% kind of growth in both those businesses in this quarter, et cetera, all of which has led to the improvement during the course of this year, and we're confident that many of them will continue to give us benefits next year. But nonetheless for me and for the entire management team, this continues to be a very important priority that we want to continue to push for margin improvement next year. We still don't feel confident about -- we still don't feel good about the margins where we are, so there is a big push to help improve margins as we go forward.
Okay. And secondly, just for -- a bookkeeping question, could you help me with the revenues and profitability in Bluefin and Magnet 360.
We don't report either of that separately. In any case, the entire market solutions business has all been amalgamated into 1 group, Bluefin doesn't exist as a separate legal entity anymore. And even with Magnet, now there's reasonably large amounts of sales force factors where we are now getting booked in Mindtree from our existing customers. So looking at it individually, probably will become lesser and lesser, otherwise going forward.
Sure. But would the juice on profitability improvement from these entities be -- still be significant, or you would have largely turned them around to the levels that you would have wanted to?
I think in Q4, we brought them to a reasonably decent state, but I think some further work is required to bring them to our comfort levels.
The next question is from the line of Dipesh Mehta from SBICAP Securities.
Just want to get sense about BFSI, I think you alluded to some of the -- one of the factor which impacted perform. So if you can help us understand a bit more about quarterly, what played out? And how you expect it to play out over the next year?Second question is about the rest of world. If we look, there is some kind of weakness. Is it because of some reclassification? Or -- despite that weakness, we are seeing the strong growth, so if you can help us understand, outside of that particular weakness, growth seems to be very strong, so if you can address these 2 things? And then I have a follow-up about, usually we used to provide next quarter kind of outlook, so if you can help us understand how you expect Q1 to play out?
Okay. On BFSI, it was client-specific issues for 1 of our customers where the -- a project ended, and we still haven't been able to identify and pass some new work [ to us ], but over the last 2 or 3 quarters, many new customers have been added which are growing extremely well. So without extending those client-specific issues with 1 or 2 customers, and we expect BFSI business should do well next quarter onwards. Pipeline continues to be strong and the ramp-up, et cetera in the previous wins that we had during the course of this year and last year continue to be strong, so we expect BFSI to start showing better performance from next quarter onwards. I am not sure if I fully followed your other question on margins, et cetera, if you could repeat that once again?
Second question was on -- about rest of world. If we look from the geographical mix perspective, we are seeing some weaknesses in rest of world, is it because of reclassification? And if it is not because of reclassification, the rest of the business is showing very strong momentum, so do you expect that momentum to continue going into next quarter?
I don't think there's any significant reclassification in this quarter on the geographic revenue. Across all the 3 parts of our business, Europe, U.S. and the rest of the world, seeing good traction across all of them. For example, the win that we had in this quarter, the enterprise product company was with the Asian business of this particular customer. So seeing good momentum across all the 3 geographies, but nonetheless, I would say the U.S. and Europe are both of our largest market segments and also will grow faster.
So Rostow, rest of world seems to have declined 20% this quarter, quarter-on-quarter, and even for the full year, it seems to be declining around 11%?
I think there's anecdotal factors.
Okay. Okay. So not much to read kind of things?
Yes, but overall, it's maybe what was 5%, 6% of our revenues, so even a 20% decline on it doesn't sort of make that much of an impact on the overall level.
[Foreign Language] My point was different. Let's say, despite that weakness, we are seeing very strong momentum, and that's what I wanted to understand. [Foreign Language]. Broadly you are suggesting U.S., Europe is very strong.
That's right.
Understand. And the last question is about if you can help us understand Q1, how we expect momentum to play out?
Not commenting, like I said, in terms of guidance for the future, but we're expecting the year as a whole to be better than FY '17 versus FY '18 on growth, and growth will start from Q1 onwards. In the sense, it was not a back-ended growth year. We're expecting the momentum to be reasonably even across all the 4 quarters, starting the year on a strong note.
The next question is from the line of Abhishek Bhandari from Macquarie.
Rostow, I had 1 question. Now that a good part of FY '18 was spent on stabilizing some of the problem areas like working on margins and getting some of the weakness in clients done, and the outlook for FY '19 is strong on revenue growth and improving margin. Do you think we are going to again look at stepping up our pedal on the M&A activity?
Not at the moment. I think given the momentum that we have and given our own analysis of the portfolio, don't see any immediate plans to look at any M&A at this moment. If something evolves then obviously, we'll keep the investment community updated at that stage, but at this moment, not seeing any M&A plans in the near-term future.
[Operator Instructions] The next question is from the line of Rahul Jain from Emkay Global.
Couple of things. When we are talking a positive views on FY '19 from a revenue[Audio Gap] positive pushback because there is a general improvement in the end results from a spending perspective.
Rahul, on a lighter vein, I've never heard positive pushback in a conversation before, but jokes apart, I think we are seeing 2 or 3 factors. One is overall, customers are now beginning to make much larger with some transformational technology initiatives. Technology today has clearly proven that it can make a big difference to the front office function and therefore can contribute to revenue growth. So there is a change in the mindset of the customer, and therefore, some of these Digital kind of programs are becoming more larger and enterprise-wide. So there is increase in technology spend.[Audio Gap]but I think the underlying sort of strength for Mindtree is the call that we took about 4 or 5 years back, when we called out Digital as a trend, made all the investments behind both domains, Digital and run, are now beginning to yield results for us.
Okay. And so in one of our largest account, the top account, we have seen significant growth in this year. So is there a project kind of in nature to it, which can still be repeat because there are transformation which is undergoing? And otherwise -- or you can say this is more on the run side of the business.
For our largest customer, we work with them across multiples service lines, so the thing that we are doing for them on analytics, et cetera and also doing, helping them with their run the business kind of infrastructure management, application support, so it's a multiservice line penetration into that account, great customer satisfaction, great value creation for this customer, like I outlined before. So continuing to see strong traction.
The next question is from the line of [ Abhishek ] from Aquarius Securities.
The question is regarding the growth in FY '19. The exit rate reached to almost 6.5%, 7% growth on a Y-o-Y basis. So what is leading to this conservative kind of a guidance? All saying that our numbers will be better than FY '18, which is just 8% and 7% is on the exit rate. So are there any risks that are -- you are factoring to keep it conservative? Or anything else, which is keeping the guidance conservative?
No, nothing. Other than systemic or macro kind of risks that all of us worry about, nothing is holding us back right now. I wouldn't, at this stage, call our guidance either conservative or aggressive or anything or the other because we don't give guidance. We just made a qualitative comment and next year growth will be better.
Okay, and just a second one on the margins. This year you did almost 1,300 people on fresher hires, next year also, you're guiding for a stronger number. Could you just highlight what is the 0 to 3-year band to reach for us and can that be a margins weaver next year? I know you've answered this, but if you can also highlight where the pyramid is, that will be helpful?
My colleague Sushanth will answer this question.
Yes, see currently, the 0 to 3-year band at the Mindtree level is close to about 27%, so obviously there is some scope for improving that, and we'll report back as we go along.
The next question is from the line of Sangam Iyer from Subhkam Ventures.
I just wanted this -- I just wanted a small clarification. It's kind of a follow-up from what was asked earlier is that in terms of the margins that we say that it's going to be better than what we have reported, are we adhering to Q4 numbers, or are we adhering to the full year average? If it's Q4, could you just elaborate a little more in terms of what are the margin levers that we are looking at for improvement in margins beyond 16%?
The short answer, Sangam, is that the comment was around full year margin, so we ended the year at a certain margin profile. The focus will be to continue deliver better than that next year. Growth momentum and Jagan was talking about continuous [ pushout] of operations, cost control, et cetera is what will help us get set.
Got it. So just a small follow-up to that, is that in terms of margin levers, we did mention the utilization is more or less at the kind of a peak level where you want it to be? So it's predominantly going to be driven by growth that would combine next financial year, is that the right way to look at it?
Growth will be very -- 1 -- 3 contributors, improving the steadiness and continuous growth in both our packet solutions as well as our Salesforce factor will be another one. Pyramid will be the third from an operational perspective.
We've the next question from the line of Nitin Padmanabhan from Investec.
Rostow, you certainly have been a very -- a little more specific on guidance in terms of, let's say, high single-digit growth or mid-double-digit growth. This time around, you have said that it's going to be better than the last year. So I was just wondering, is it because 45% of revenues is Digital, so it is difficult to really pin that visibility to the latter half of the year considering they're short-cycle projects? Is that the reason, or is it just being conservative?
Again, if I give you the impression that I am being conservative, then I think my apologies, and we want to reconfirm that we are not being conservative. We are just sticking to our philosophy of not giving guidance. All he had said was, next year will be good and the growth momentum will continue from Q1 onwards. So it is not a back-ended kind of a growth. The year is starting on a very strong growth, so that's where we'd like to leave that.
Sure. I've just 1 more if I may. Is -- this time around, if you look at the new deal wins, it's 31% lower than same -- than the last year, but still our outlook is actually better, so is it fair to assume that on the renewals, there's incrementally more business and thereby, that's leading to a higher growth. Is that how one should look at it?
Not exactly. If you look at our -- the rhythm of our business, more than 90% of our growth comes from existing customers. So the -- usually new customers contribute about 5%, 6% of your -- of the revenue for the year. So continuous focus on minding existing customers will always lead to more growth coming out of existing contracts.
The next question is from the line of Kawaljeet Saluja from Kodak Securities.
Just a question, I mean, I think in the quarter, there has been quite a bit of changes to the pole. Now I understand that you've already announced the stepping down of V.G. Siddhartha from the board, but there are a couple of other changes as well. Just curious to know the reason for this change?
Kawaljeet, all 3 members of this board, who have stepped down. We are in -- sometimes -- based on their own too -- or based on their preoccupation and their own businesses and Pankaj Chandra, who has completed his term on 21 March 2018, so therefore he did not seek the appointment. V.G. Siddhartha, primarily because of the growth of his own business coffee based business is so strong that he needed time to focus on it. Continues to be a very strong supporter of Mindtree, no changes to the strategy of plans or anything or the other. Similarly, Manisha as well has come to almost to the end of her tenure from her board appointment. And given her priorities, in the way her own business is growing, decided to focus on that than to seek reappointment. So there's just individual decisions by those board members. No negativity on Mindtree in any form or portion and at least, with respect to Siddharth, who is also our larger shareholder, no change in the priorities or no change in the revaluation of Mindtree. So all of them continue to be great friends and continue to be extremely supportive of Mindtree.
And what are the -- what's the composition of board now between independent and otherwise, what's composition look like after these changes?
First of all, I'll answer that, I want to complete the previous answer. We also announced today the addition of [ Viju Kurien ] to our board as an Independent Director. And since he joined as an Independent Director, this requires shareholder approval, so the appointment will be effective after the AGM which is on 17th of July. So the -- it's not only the 3 who have either retired or stepped down, but it's also the addition that we wanted to share. Post [ Viju's ] joining the board, it will be 4 Independent and 4 Nonindependent Directors. So it'll be an 8-member board. As we continue to look at our future priorities, the board has in the nominations committee, as a clear strategy in terms of competencies that we'd like to see in our board, and we'll make additions as the year progresses.
Got it. And Rostow so the second question is, just a little bit curious as to what does the disclosure of BOTs mean? Is that Mindtree's own BOTs deployed on grand total? Or is this just BOTs which includes instrumentation of a robotic process automation of a third-party provider like a Blue Prism or Automation Anywhere or who, are some of the players are in the market. What does this metric stand for and how should I interpret this?
We recently included that. It should reflect these changes that are happening in our industry and the primary sort of message that we wanted to share with you was a one, we have a workforce that now includes both humans and nonhumans. Secondly, we wanted to reiterate that factors like automation are not leading to job losses, et cetera so the -- our own experience in whenever we have done BOTs and delivered services to our clients through BOTs have led to these repetitive mundane kind of works now being handled by these software BOTs, which is leading to the human workforce becoming more engaged, and more value-added, higher in also cerebral kind of stuff and also that bandwidth getting freed up is helping people get re-skilled, et cetera. So again as an anecdotal example, where we are seeing this impact, people satisfaction scores by those projects are actually significantly increased. Coming back to the point that these repetitive mundane kind of work is getting lower. It's also leading to, for example, lower attrition in the project because now those people are able to go spend more time on getting re-skilled, et cetera, et cetera. So the point was to reflect these trends that we are seeing from a people dynamics, our technology dynamics point of view. These are the BOTs that we have developed, either as ground up developed code by Mindtree or through BOTs that we have worked with in third-party partners like Automation Anywhere, et cetera. But these are BOTs that are currently running by Mindtree for servicing our existing customer's needs, this is not a [indiscernible] and then give it to a customer, but these are actually being used day in and day out for service deliveries by Mindtree. The last method we wanted to also share is as this becomes larger and more material, this should also become an important margin defense lever for us, especially in run the business project where there's continuous amount of customer expectations on cost reduction. So you want to start tracking it and to some extent, that'll also start reflecting -- as it becomes more material, start reflecting as a margin defense lever for us.
You're right. I mean, just a observation, Rostow. Let's say, if you implement a BOT off a Blue Prism or Automation Anywhere for a client, I mean in the launch, instrumentation is done you, kind of, instrumentation see the subsequent selection revenue is minimal and the entire license, so to say, effectively are a recurring revenue that's taken away by the RPA provider. So I don't know how this metric will help me in any of the data, definable revenue forecast, or I mean how should I really interpret this metric? Maybe I take this offline but just a thought.
Quick response and maybe it requires a longer conversation. You're right if the revenue model was pure P&L then after the initial implementation there's no follow-on revenue, but if Mindtree has the ownership for a defined deliverable, for example, if Mindtree had ownership in infrastructure management project for a system of time, et cetera, and then I am delivering it through BOTs and therefore, not having recurring human workforce wages, then that's how we get to see the benefit of margin improvement over time in -- those kind of projects and our kind of revenues is increasingly moving to that. You should look at the fixed price, fixed -- in our mainly monthly kind of contracts in this quarter has gone up over the previous quarter. So as we take more and more ownership for deliverables and then we do it through reusable components like BOTs, that's how we'll begin to see the benefits from a margin improvement perspective.
The next question is from the line of Viju George from JPMorgan.
Rostow, my question really relates to industrialization of Digital. Are you seeing a very irreversible signs of this? How strongly is the team picking up? Can you give us some indications of how large the contracts are getting? What is the offshore synchronicity in such contracts? And then I have a follow-up question.
Overall, yes we are beginning to see Digital becoming a more -- larger, more complex and more transformative, so it's becoming multi-geography or front to back within a business unit or multi-brand, et cetera. So overall price of Digital teams is growing. What is especially for us -- exciting for us is Mindtree's win ratio for those deals including those opportunities where we go head on against some of the largest players in the market that we've still been able to get almost like a 50% plus kind of a win ratio for the large kind of transformative Digital deals. Today we have a reasonable number of $5 million plus, reasonable number of $10 million plus kind of opportunities in Digital within our pipeline and continue to see more of those being created in many cases incubated by Mindtree, meaning Mindtree went to the existing or a new customer and created that value proposition and created that need in the mind of the customer and not responding only to RFPs. So the true consulting led kind of an approach, all of those sort of very strong momentums are very strong sort of factors reflecting of -- a very, very good story on Digital with customers within our 4 verticals.
So how do you see the -- do you think in the larger-digital deals, how do you see that maybe on the on-site to offshore ratio moving towards the offshore, are you seeing a situation that substantially more of that business coming down to offshore, and how do see that going forward?
Absolutely. So the larger Digital programs do have a very strong offshore component. For example, on our largest Digital opportunity, which is I would say in the $15 million to $20 million kind of a range, typically operates almost like maybe 75%, 80% offshore by effort and maybe 20-odd-percent on-site, so the larger programs do lend themselves to much higher amount of engineering kind of activities, and a large part of it can then move offshore.
Sure. And my second question really is that if you see this theme picking up currently and it is the inflection point, maybe not 2018, maybe '19 or '20, I know you have alluded to the fact that your win rate in these kind of deals against Tier 1 players is very good, but do you think that the deals getting larger and more complex and getting more offshore-centric with multiple technologies, do you think the advantage might shift back to the Tier 1 players who can win with complex integration skills to get at the table in 1 platform? And maybe, I'm not talking specifically about Mindtree here, but you can generalize this maybe some of the mid-tier companies have been working with slightly smaller projects, maybe a couple of technologies for instance, may find themselves out if this side takes over?
Yes, interesting question, Viju, and frankly, I'm not sure if I would have enough of a meaningful answer for you. The only thing I am confident of is that our story for those deals are very, very strong and more than one case from, like I said, we are seeing larger number of deals, and customers are clearly making big bets behind those kind of things, so there's no softness in demand. It's now very active demand for those kind of opportunities whether it is customer feedback, whether it is feedback about Mindtree by the industry analysts, from all of those parameters, I think we are in a sweet spot. We have both the ability to scale as well as ability to deliver results there and the other thing that we are seeing slightly different from the implication that you raised in your question is that this doesn't require scaled talent, even large programs still require very high expertise but small number of teams, so for Mindtree at least, we don't see ourselves being at a disadvantage compared to the large guys. These kind of deals make the customer look for specialization not scale, so it's actually working to our sweet spot.
Sure, and 1 last question is that your productivity has been improving that is realized rate. How much of this due to fixed price real productivity improving versus better contracts or better mix -- sorry a better -- higher contribution of Digital, that is better coupon rates or better mix, and do you think this upward trajectory can be sustained?
It is all of those including, I would say, a very strong and successful delivery that also led to the improved revenue productivity. We still think there's a lot more that we can do. So I don't know the specific answer that it will go up by 1%, 2%, 1 quarter, 2 quarter, but I think there's still a lot of momentum left on that theme, and we continue to do more; we need to do more.
So safe to say that your revenue growth will be higher than your volume growth?
Yes. number one, and number two, that plus other factors should lead to higher margin growth than revenue growth. So EPS growth or PAT growth for example will be faster than revenue growth.
The next question is from the line of [ Ruchi Bodi ] from BOB Capital.
I wanted to ask you more about the BFSI comment that you made. You commented that their demand is optimistic and more -- so you see, more demand on their run the business side. Could you talk a bit more about what is driving this? Is it more differentiated solution that Mindtree is putting across? And what are the reason you see that Digital demand being a little slow -- or the change the business demand being a bit slow in BFSI?
I think the -- many reasons, quite possibly but BFSI is much more regulated, et cetera and therefore, the customers probably setting a lot more focus on the regulatory requirements and some other kind of things and typically, these also -- even in the past technology cycles, we see industries like retail being early adopter of new technologies, and industries like BFSI tending to be later adopter of technology, so it'd just be the mindset of customers between different industries there. On our win rate -- on our success rate in the run the business programs, I think all the effort we put in from building platforms, which are able to give customer more confidence on our ability to predictably give them quality improvements, efficiency improvements and year-over-year productivity improvement, et cetera, I think that's one of the reasons that we have good rate and a good success rates there. And I will again come back to that point on strong delivery. Many, many customers, we have great referenceable case studies and therefore, either for additional opportunities from an existing customers or for a new customer, internal references or references from comparable companies is also a reason why we have that. But I think strong delivery and the focus therefore to building platforms are the -- are a very big part of the reason for our success.
Secondly, could you sum up for us, what progress being made in terms of our turnaround effort for Bluefin and Magnet 360 FY '18? And what are the areas or challenges we plan to address in FY '19 in this part of the business?
I think the focus was primarily on getting them to stable revenues because we saw a very high volatility quarter-to-quarter in that business. So a lot of effort went behind chasing different kind of deals, working with a different set of channel partners, et cetera [ to date ]. And also reorienting the sales teams, and reorienting, with geography priority in some of those units, et cetera, all of which have contributed to help stabilize the business both on revenue and margins in Bluefin and Magnet during FY '18. All of those activities will continue to apply in FY '19 as well, while we see the little [ levers ] where we have reached, we recognize that there more work needs to be done on both those businesses, and we are continuing to stay focused on it to help get it to a better place.
Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Sushanth Pai for closing comments. Thank you, and over to you, sir.
Thanks, Aman. Thank you all for joining this call. We look forward to staying in touch and if you have any specific questions, please do get in touch with us. Thank you, once again.
Thank you very much. Ladies and gentlemen, on behalf of Mindtree Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.