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MindTree Ltd
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Good day, ladies and gentlemen, and a very warm 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 Ms. Amisha Munvar. Thank you, and over to you ma'am.
A very good evening and warm welcome to all for this conference call to understand and discuss about the Mindtree's fourth quarter and the year ending March 31, 2019. I am Amisha, Head of Investor Relations. On this call, we have Mindtree's senior management team, Krishnakumar Natarajan, our Executive Chairman; Rostow Ravanan, our CEO and Managing Director; Parthasarathy, our Executive Vice Chairman and COO; Pradip Menon, our CFO and other management team.For today's call, Rostow and Pradip will begin with a brief overview of our company's performance, after which we will open the floor for the Q&A. The webcast is a listen-only mode, but you can post the questions. We will take the webcast question 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, we request you to please disconnect as we just concluded the media briefing 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 hand it over to Rostow.
Thank you, Amisha. Good evening to all our friends in the investment community. FY '19 was a momentous milestone for Mindtree. We're extremely happy to share with you that we ended the year on a historic note, and our revenues crossed $1 billion for the full year. This results in a growth of 18.3% on a reported dollar terms, which means that we have exceeded the industry growth rate for the fifth year in a row. What makes it even more special is that we entered the 20th year of Mindtree since inception, crossed people strength of more than 20,000 Mindtree Minds. So many very interesting important milestones in the journey of Mindtree.This quarter saw us delivering stellar growth of $262 million in revenue terms, which works out to a 4.2% growth on a sequential Q-o-Q basis. Growth was broad-based across all our verticals as well as geographies. On a constant currency basis, the growth rate was 3.9%.Some other highlights of FY '19. Our strategy and investments are resonating extremely well with customers, resulting in a growing pipeline and improving win ratios. Digital Service line continues to grow ahead of Mindtree, once again. Our clients and analysts recognize us for our deep capabilities across both technology and domain in digital. We are being seen as a trusted adviser for our clients' transformational technology initiatives. We continue to win these across both run and grow sides of our business. All the wins we reported throughout the year ramped up as expected. We recently completed our annual client satisfaction survey. Our scores continue to be high, and we are in the top 20% of our industry. This clearly demonstrates our successful delivery execution and the strong commitment that Mindtree Minds show for delivering successes for our clients, which means our clients' trust and confidence in Mindtree is continuously improving.Third-party advisories continue to position Mindtree in the leadership quadrant in all our focused areas. As you know, we started declaring our number of BOTs in FY '18 when we announced results for the same quarter last year. As of 31st March 2019, we have 576 BOTs deployed across Mindtree. This generated curiosity and willingness from clients to see Mindtree as an automation partner. And internally also, we are using BOTs in multiple practices -- multiple processes, sorry.We continue to invest on hiring and creating facilities close to our clients. During this quarter, we inaugurated our Reimagination Center in San José as well as our Salesforce Center-of-Excellence in Minneapolis. These are steps in that direction.Other highlights for this quarter. Like I mentioned before, this quarter had very strong momentum and broad-based growth. All our verticals did well in this quarter. Our Hi-tech and Media vertical grew by 4.9%. Our BFSI business grew by approximately 5%. Retail, CPG and Manufacturing vertical grew by about 4%. Our Travel & Hospitality vertical rounded off this quarter with a growth of 2.5%. All of these are sequential growth rates over the previous quarter.For the full year also, all verticals grew well. Our Travel & Hospitality vertical grew by 28.7%. Technology, Media and Hi-tech vertical grew by 24%. Our Retail, CPG, Manufacturing vertical grew by 13.5%. And BFSI grew by 7.4%. Our digital business delivered a 3.8% growth over the previous quarter and a 32% growth for the full year FY '19 compared to FY '18. We added 15 new clients in Q4. Our $25 million clients continues at 4. $10 million clients grew by 2, taking the count to 23, and during the year, we grew from 17 to 23. $5 million clients also grew by 1, taking the count to 45. We are happy to share with you that amongst the top 10 customers, there are 2 customers who have been with us from inception of Mindtree. This reflects our expertise and collaborative approach to partner with customers.Our exemplary people practices resulted in an attrition level of 14.2% annually. At the end of the quarter, we had 20,204 Mindtree Minds, reflecting a gross addition of 1,072 Minds in this quarter. During the quarter, we had 482 campus graduates join us in Q4. For the full year, we added 1,623 campus graduates. We had some very strong multiyear, multimillion dollar wins in this quarter. Amongst the wins we had from our existing customers, one was a large global hospitality industry leader. Mindtree extended its digital presence by getting a new win in the cloud migration area. And for one of our existing clients, which is one of the largest global multinational coatings company, Mindtree was chosen as digital partner to provide digital operations and support services.Amongst our new customers, we are excited to share a win from a leading sports retailer. Mindtree was chosen as a digital partner for their e-commerce platform. Mindtree was awarded our largest Salesforce application support contract to date in our history by a leading tobacco company for all their applications on Salesforce.Now some points on the outlook for the future. As we shared earlier, Mindtree has established a leadership position in the market on digital, which have helped Mindtree grow faster. And today, more than 50% of our business comes from digital. Our approach of leveraging advanced technology and next-generation paradigms to deliver cognitive experiences at the confluence of edge, intelligence and humanity has differentiated us very strongly in the eyes of our target clients. Effective use of cloud services along with the power of data and new technologies like artificial intelligence has equipped us to help businesses transform themselves through connected operation as well as core transformation. We are now at a point in our digital journey where we believe each of our core offerings have gathered the required critical mass to grow exponentially. Also these are amongst the earliest to report digital revenues as a percentage of our total revenue. We want to continue to lead the industry with greater transparency and more insights into our business so that the financial community can track us and understand our business more granularly. Therefore, we are going to start reporting digital broken up into 3 core groups [indiscernible] from now onwards. Those 3 core groups are: Mindtree interactive, which is all the work that we do with our clients on the front end. The second is data science and engineering services, which is all the work that we do on our analytics. And cloud services, where we help clients migrate to the cloud and also manage their cloud infrastructure. From the next quarter onwards, we'll report our digital revenues along these lines so that our investors can have greater visibility of our business.During this quarter, we signed deals worth $242 million, of which renewals were $158 million and new contracts were $84 million. Contracts to be executed within 1 year was $218 million and greater than 1 year was $23 million. Digital contracts signed in this year -- this quarter was $126 million. Overall, TCV signed in FY '19 crossed $1 billion.Coming to the demand environment, we continue to see an optimistic demand environment across all our chosen verticals. We have new growth strategies, which are partner-led and offering-led as well as strong pipeline, great delivery track record, all of which give us very high confidence that we will continue to maintain the growth momentum that we have seen. Taking into consideration all the factors we know as of today, we are confident that our growth in FY '20 will be in the low-teens range in constant currency terms. While our normal practice is to not give guidance, we've updated our stance and mentioned that we are going to grow in the low-teens range because historically we are able to peg our growth rate to the NASSCOM forecast. And since NASSCOM has stopped giving growth guidance given the changing nature of our industry, we've now updated our stance and we are wanting to share with you that we are confident of a low-teens growth rate in FY '20. With that, I'm passing on to my colleague, Pradip, to share a few other financial highlights.
Thanks, Rostow. Good evening to all. In Q4, our fee revenue grew by 4.5%, volumes increased by 5.6% and pricing realization declined by 1% due to the number of days. However, overall, our pricing has remained stable in the quarter.Reported EBITDA margin is at 15.2% as compared to 15.9% in quarter 3. Currency has been adverse at 50 basis points during the quarter. As such, on an underlying basis, the margins have been flat quarter-on-quarter. For the full year, our EBITDA margin is at 15.2% compared to 13.6% in full year '18. As such, we have grown our margins during the year by 160 basis points. For the quarter, we have minimal ForEx gain as compared to a ForEx loss of $5.4 million in quarter 3. The effective tax rate has been 25.6% as compared to 14% in quarter 3 as in quarter 3, here, we had some onetime reversals.PAT margins for the quarter is at 10.8% compared to 10.7% in quarter 3. Full year PAT is at 10.7% compared to 10.4% in full year '18.Quarter 4 earnings per share is at INR 12.05 as compared to INR 11.62 in quarter 3. Earnings per share for the full year grew by 33.7% to 45.85% as compared to 34.28% in full year '18. Our DSO is at 70 days at the end of Q4 as compared to 71 days last quarter. For the full year, '18-'19 cash conversions have been strong, with EBITDA to operating cash flow at 59.2%. Return on capital employed is at 31%, a growth of 5% over the prior year. Our utilization including trainees has improved to 75.3% compared to 74.6% last quarter. Utilization excluding trainees is at 77.1% compared to 76.4% last quarter. Hedges as at 31st March, $51.4 million at an average rate of INR 71.28. This includes hedges of euro INR of EUR 0.5 million at INR 79.07 and GBP INR hedges GBP 1 million at INR 92.57. These hedges are on a rolling 3-month basis and expire in Q1 of the new fiscal.The Board of Directors at its meeting held on April 17, 2019, have declared an interim dividend of 30%. That is INR 3 per equity share of our value INR 10 each. The Board of Directors have also recommended a final dividend of 40%, INR 4 per equity share of face value of INR 10 each for the financial year ended March 31, 2019. And a special dividend of 200%, INR 20 per equity share of face value of INR 10 each to celebrate the twin achievements of exceeding USD 1 billion annual revenue milestone and the 20th anniversary of the company. Both the final dividend as well as the special dividend is subject to the approval of the shareholders at the AGM, which is planned in July.Some points on the financial outlook. For full year '20, we will have salary revisions in 2 rounds and that will impact the financials accordingly in the year. The new accounting standard for lease has been notified with effect from 1st April 2019, which prescribes a single lessee accounting model that will bring substantial visibility of office needs, commitments and improve the quality of financial disclosure. Consequent to implementation of this standard, our reported EBITDA is expected to increase by 1.5%, due to reclassification and a minor drop in PAT and earnings per share for full year '20.We plan to hire around 2,200 campus graduates in FY '20. With our proven ability to hire locally through effective channels, we have applied for a lesser number of visas. Thus the visa cost impact in Q1 full year '20 on profitability will be insignificant. We will continue to hire local workforce. ETR for full year '20 would remain in the range of 27% to 28%. Given all of these developments as well as our visibility at this moment, we are committed as a management to drive operational efficiency and improve our margins between 100 to 120 basis points for the full year '20. That concludes our update, and we can now open the floor for Q&A.
[Operator Instructions] The first question is from the line of Aniket Pande from Prabhudas Lilladher.
Congratulations to the Mindtree team for the outperformance in FY '19. Sir, my question is regarding the dividend announced. Sir, you have announced INR 4 as final dividend, INR 20 as special dividend and INR 3 as interim dividend. So will this require shareholder approval? And do we need to have an AGM meeting for this? And if yes, then what would be the possible time line for this, sir?
So the interim dividend has already been approved by the board. And the final dividend and special dividend is subject to shareholders' approval at the forthcoming AGM. So there is no AGM that is being planned for this. That will be taken up in the forthcoming AGM. Timeline for the AGM are approximately June or July.
Okay. Yes. And sir, my second question is that -- I mean, sir, in this quarter, we have seen a slight spike in attrition, so what may be the reasons for that, sir?
I think it's a seasonal factor that -- the increase is relatively small, approximately 13% over 14.2%. So we would just rate it as anecdotal factor. No specific trend lines that we can draw from it. And it is not a cause for concern at the stage for us.
Okay. And sir, my last question is regarding the TCV. So sir, TCV has been slightly muted in this quarter as we compare to last 3, 4 quarters, and the digital TCV also a bit down in this quarter. So sir, going forward, do you expect a strong TCV and -- in -- both in digital and your total TCV also?
Yes. That -- we are very confident of our growth, delivered, like you said, very strong results for this year on the basis of very committed and passionate teams delivering numerous client successes. That leads to our clients to see us as a trusted adviser and their anchor digital partner, and therefore, continue to give us growth in the future as well.
[Operator Instructions] The next question is from the line of Shyamal Dhruve from PhillipCapital.
Congrats for a good set of numbers. Sir, my first question is on the margin front. So in our segmental margin, like BFSI margin has been in the lower to mid-single digit from last many quarters. So despite strong growth reporting in BFSI, the same is not reflecting on the margin. So what could be the reason for that? And when can we see the company average margin for the BFSI segment?
At this point of time, we had like 1 or 2 client-specific issues with some of our clients in BFSI. That impacted the margins. The BFSI leadership team is very actively working on it, and we hope to start reporting margin improvements very soon.
Okay. And another is on the dividend part. So we announced the dividend of INR 20 per share, including final and special dividend. So that would be a cash outgo of around INR 450 crores, and we have cash and current investments of roughly around INR 900 crores, INR 950 crores. So that would be almost 50 percentage cash outgo. So does it mean that going ahead our strategy would be more on the organic growth front rather than the inorganic, irrespective of the outcome of that L&T offer?
I don't want to draw any reference to this, to the L&T open offer because to some extent, there are 2 independent issues. Our dividend announcement is in line with 2 important principles. One is our capital allocation policy, which is public, which is that we will continue to increase dividend and increase a dividend payout from time to time because we want to work on more where we return surplus cash back to shareholders, so it's lined with the capital allocation philosophy. At this point of time, our primary focus is organic growth. So therefore, our sense is that we'd like to retain cash back to shareholders in line with our capital allocation philosophy. Secondly, it's also a way by which we can share some of our successes with shareholders. It's such a momentous year for Mindtree. There are 4 very important milestones that we've celebrated: crossed 20,000 Mindtree Minds, $100 million in PAT, $1 billion in revenue and the 20th anniversary of Mindtree. So given the very historic and very important occasions that we are celebrating, we wanted to share that with shareholders. So that's the underlying principles behind our dividend decision.
The next question is from the line of Gaurav Rateria from Morgan Stanley.
Congrats on a good broad-based growth during the quarter. 2 questions. Firstly, if you look at the book-to-bill ratio on a trailing 12-month basis, it's one of the lowest in last few quarters. So it'll be helpful if you can give some color. Next year growth will be a function of pipeline growth, which is quite robust? Or you expect the win ratio to further improve? How do you expect that deal-win momentum to pan out in the coming quarters?
Deal-win momentum continues to be strong. So like you rightly pointed out, Gaurav, it's a function of both pipeline growing as well as our win ratio is growing as well there. So I think it's the strategy that we had of being expertise-led and the sort of passion and commitment of our people. So it's a strategy plus culture that's delivering these kind of strong results. And confident that we'll be able to execute on the same theme, even going forward.
So it'll be helpful if you can give some color around the outlook of top clients. Are you seeing any pockets of weakness? Which segments are likely to be strong? Like just some qualitative color around that.
So within our overall top 10 clients and also our 11 to 20 clients, I think we have very good visibility into the growth. Now obviously, some clients will grow faster than the other, it's just the nature of the business. But I've spent a lot of time with many of our large clients, and quite confident of reasonably broad-based growth across -- especially our U.S. business. Thematically, I think we are seeing much more traction within our Travel, Hi-tech and Retail, CPG, Manufacturing verticals right now compared to the 4 segments that we are operating in at the moment.
Last question. Any walk on how this lease accounting impact on the -- like margins? And what is the corresponding impact on the other line item? And does your outlook include this particular -- the lease accounting impact in terms of 120 basis point improvement in margins?
So I'll answer the second part of the question and then Pradip will give you the first part. So our improvement commitment for margins of 100 to 120 basis points is over and above the change that happens on an accounting perspective. So from an operational perspective, we are doing everything that we need to deliver that margin performance. But I'll hand it over to Pradip to explain the intricacies of the accounting treatment.
Yes. So the impact of the change in accounting is an improved EBITDA margin of 150 basis points. But as I said in my commentary, there will be a minor drop in PAT and earning per share, but it's not material. So you will see an improvement on a -- as is of 150 basis points. And then and further on top of that, we will be working as a management team to ensure a further improvement of within 100 to 120 basis points.
The next question is from the line of Madhu Babu from Centrum Broking.
Sir, congrats on a strong quarter. Sir, just gone through a report, which says whether that L&T's bid is valid, the open offer -- whether the open offer has actually been triggered. So what are your views on that? And what are we trying to do to address this?
Thank you, Madhu. Like you pointed out, we did get some feedback from several of our shareholders as well as from our small investor association, and also the proxy advisers raising some questions on the validity of L&T's open offer. Because of technical legal issue, we've examined the legal aspects of that. And currently have asked SEBI to clarify this aspect. So once SEBI gives us clarification, we'll have more information at this stage.
Okay. Sir, secondly, we have a very good first half last year. So do we expect similar momentum? And in that case, our guidance looks a bit conservative. Can we touch the midpoint of the -- mid-teens kind of growth for next year?
So our guidance is on a low-teens basis. I think the guidance reflects all the factors that we know as of today, which is all the things that are happening outside Mindtree from a macroeconomic kind of perspective, but also the strong momentum that we have in the recent past, and also the new size bucket that we're now moving to, right? So it's difficult to maintain the same growth percentage when the base is different. So all of those factors have gone into the estimate of growth that we've announced for next year.
Sir, but has this L&T's bid distraction led to some -- any impact in terms of the new deal wins, which we could have won in other ways? We are missing on that because of this hostile bid. Whether that has also impacted this guidance?
Not in a direct sense because the way the management team has responded is that at a Board level, some of our Board members and KKR Chairman, are driving some of the decisions and the implementation with respect to the unsolicited bid. I and the rest of the management team are primarily focused on delivering our business. So at this point of time, the management team is not distracted by the bid by L&T. We are focused on making sure that all our clients are happy and all our people are engaged.
The next question is from the line of Diviya Nagarajan from UBS Securities.
Congrats on the good execution and all your milestones during the year.[Technical Difficulty]
Diviya, sorry, I think your line got dropped. We can't hear you.
Yes. Sorry, can you hear me now?
Yes. Diviya. Thank you so much for your wishes.
Just a question on the margins. Could you just run me through your assumptions behind the 100 to 120 basis points of margin expansion that you're planning for fiscal '20, please? That's my first question. The second, you also alluded to have factored in certain macro-related assumptions, which I assume. What should be assumed as the upside risk if those -- I mean, what have you assumed as macro impact? Is it -- and what should we assume as the upside risk if those factors don't play out?
I'll take the second question, Diviya. This is Rostow, and then Pradip will give you the answer to the first question. So the macro factors are many things. For example, geopolitics, Brexit, many of those kind of factors. But also many things that are positive in the sense that technology become so pervasive. Clients are spending more on technology in spite of some of the uncertainties. Digital has become such a sweet spot for us, it's become so core to our client strategy. So it's technology, politics and many things have gone into the estimates from a macro environment when we looked at it. And then the factors that are internal to Mindtree. Our pipeline, our assessment of where our large clients priorities are, where do we see strength areas, where do we see weakness, et cetera. So it's a composite -- or what shall I say, determination that went into the growth forecast for next year. Difficult to call out anything more granular at this stage. I think as the quarters progress, if any of those, what shall I say, parameters change and therefore, our growth visibility changes, we'll keep updating you from time to time. But at this point of time, I would say, we are very proud of all the things that we accomplished so far. That puts us on a path to continue to deliver our low-teens growth for next year as well.
So Diviya, this is Pradip here. From a margin perspective, we see 3 broad areas of work. So one is in purely the operational parameters, leveraging the pyramid, et cetera. You can see that we are also looking at hiring more campus minds and so on and so forth. So we see an operational benefit coming through from that piece of work. The second is in the area of pricing. Given the kind of digital offerings we have, we see an opportunity where, particularly, we're adding value to customers and where the digital deals become larger, an opportunity to get a larger set of margins in those kind of projects. And the third is purely an area of identifying waste because there are costs, which we incur, which are neither beneficial for the customers nor for the Mindtree Minds, nor for any other stakeholders, including investors. So a combination of these 3 elements is what we are building our plans on.
Follow-up -- as a follow-up, could you also help us with what the currency assumptions are for your fiscal '20 margin guide?
So right now the -- whatever we are calling out as a 100 to 120 basis points is excluding an impact of currency on a constant-currency basis. So we'll have to see how the currency elements pan out. That we -- that is not what we have factored in this. So there's a like-to-like basis constant currency improvement of 120 -- 100 to 120 basis points.
The next question is from the line of Princy Bhansali from Anand Rathi.
In terms of CapEx, I wanted to ask, for the FY '19, the CapEx seems high? So what's the reason for that? And what do we expect for FY '20 in terms of CapEx?
So yes, this is Pradip here. In our line with our plans of investing onshore, we clearly are seeing a number of requirements of investing in our respective geographies. So we're continuing to invest, for example, even in the current quarter, we've had our Reimagination Center opened in San José as well as Salesforce Center-of-Expertise (sic) [ Salesforce Center-of-Excellence ] in Minneapolis. And these kind of investments will continue going into the new year as well. Therefore, we continue to see investments in CapEx as a mechanism to drive our -- a, our growth momentum forward, and also a mechanism to make sure that we have a local workforce which can support our onshore work.
Okay. And in terms of subcontracting cost, what should we expect it for FY '20? Do we expect it -- any -- to further reduce it or on the same levels?
Yes. So we have seen -- actually, during the year, we have seen a marginal increase in subcontracting costs in terms of percentage revenue. It is not a material number, but it is still something that we'll obviously closely monitor. We have been operating at around 7% of revenue as our subcontracting cost, and we see that[Audio Gap] maintain those levels. We could see some minor uptick in that based on the current trends, but it is something we'll wait and watch. And obviously, we'll have to factor that into our pricing with our customers.
Okay. And in terms of the top 6 to 10 accounts, when should we expect some growth in those accounts?
Top 6 to 10 accounts.
Growth momentum, I think, is reasonably broad based out of the customers that we are currently carrying as our top 10 clients. Obviously, the growth rate will vary between different clients. But across, I would say, thematic basis, our top 10 as well as our top 11 to 20 customers have a lot of potential and many, many positive, what should I say, interactions with clients in both those buckets. So confident of growth on a broad based across both those buckets.
Okay. And lastly, after that accounting change, will the IFRS reporting remain same? Is that correct?
It will remain the same. Yes, absolutely.
The next question is from the line of Ruchi Burde from BOB Capital Markets.
Congratulations to the management for several milestone achievement and also the stellar growth during the quarter. My question is regarding the growth mix that we see. This quarter, we have traditional revenue or core revenue growing at bit faster pace than the digital revenue, which seems like a trend aberration. So I was curious if you could give us reasons around at what led to that. Especially, was -- the tight talent market in U.S. had some role to play here?
Thank you so much, Ruchi, for your wishes. I don't think there was anything specific in the growth momentum for this year. Digital, like I said, continues to do well. Just anecdotal that maybe if we had a few more wins in the traditional kind of offerings compared to digital in this quarter, but don't see anything, I would say, pointing to a change in trend or anything like that at this stage. Both the story that we have on digital across both domain and technology as well as some of our differentiated offerings on the run, both are getting very strong validation from both clients as well as analysts.
Understood. Secondly, I wanted to pick your thoughts around the package implementation practice that we have. For some time it's been running soft. So could you help us, what's going on? Is it a more secular trend that you see where Mindtree need to churn its offering? Or is there something client specific that's driving the soft momentum in the package implementation?
I think from an overall broader-market perspective, there are 2 parts to our package implementation story. One was around the Oracle Suite of technologies and the second was around the SAP Suite of technologies. On the SAP side, our market positioning as well as wins are extremely strong. Both the talent that we had originally with the Mindtree as well as some of the talent that came into the Mindtree's fold through the acquisition of Bluefin position us really well within the ecosystem for SAP. Also very strong connects with the SAP partner team and therefore, get pulled into a lot of client conversations through that. So the SAP part of our business is doing very well. It's the Oracle part of the business that is going a little bit slower. Therefore, going forward, our primary strategy will be to focus on SAP.
The next question is from the line of Dipesh Mehta from SBICAP Securities.
Two questions. One about the -- if I look geography-wise, Europe remained relatively weaker. So if you can provide your perspective how you look Europe entering into FY '20? And I think the weakness in Europe is for now a couple of years. So if you can provide some perspective of how you want to drive growth in Europe going forward. Second question is about the lease accounting change which you reported. If I understand correctly, you expect EBITDA margin to expand, but EBIT margin to decline to that extent. So if you can provide some more details on it what likely to play out in terms of that accounting change. And third is about partly addressed earlier, but deal intake, if we look at it, there is not material growth. So how one should look deal intake number and then consider it with the potential revenue growth? If you can provide some thought around it?
So I'll take the first question, Dipesh, this is Rostow. On Europe, I think it was 1 or 2 client-specific issues that sometimes leads to -- in this quarter, slightly sort of slower growth there. Previously, for the previous 9 months, I think we got hit a little bit because of currency because the -- some of the European currencies moved differently compared to the dollar. But overall, I think our growth story in Europe has impact people, additions, front-end sales presence, market positioning, all of those are very strong in Europe. Many very interesting wins in Europe as well. So overall, quite confident of our growth on Europe. Hand it over to Pradip to give you all the background on the accounting change.
Yes. So you're right, absolutely, that in terms of impact this will actually have a positive impact on EBITDA and impact which will be neutralized at an EBIT level. Overall, at a PAT level, we see a minor impact, a minor drop as a consequence of this change. That's what it is. So 150 basis points improvement at an EBITDA level. And finally at a PAT level, this is getting neutralized, and a minor impact, maybe 20, 30 basis points at a PAT level negative impact.
Understand. And last one is about deal intake and revenue growth. If you can provide some thought around it?
So overall momentum on our business is very, very positive. Overall pipeline is growing quite well, lifetime high pipelines for Mindtree. Deal win ratio is continuously increasing. So many things on the deal intake are very positive for us right now. And some of our newer go-to-market approaches in terms of sell with partners, offering with sales, et cetera, are also -- are being received very, very positively by clients. So very -- all of that makes us highly confident on growth momentum for next year.
Rostow, I was just looking about $1 billion-plus deal intake, what we have. And now -- last year also, we have almost similar kind of intake. Whether it has any implication about moderation in growth, that is what I tried to unleash.
Don't sense anything like that at this stage.
The next question is from the line of Kawaljeet Saluja from Kotak.
[Technical Difficulty]
Kawaljeet, you're not audible.
Audible now or?
If you're on speaker, please turn that off. You're sounding very different.
Just one. Is it better now?
Yes.
Much better.
Okay. Congratulations on the $1 billion revenue milestone, actually for you and the entire management team. The question that I have is something which the earlier participants also asked. I think you have been talking about a fairly strong deal pipeline for the last 3 quarters, but I presume that strong deal pipeline should translate into TCV of wins as well. And TCV of wins have fairly moved. So what explains the disconnect?
It depends, like I said, quarter-to-quarter, clients on budgeting cycle, et cetera, right? Like, for example, some of our largest clients have a July to June kind of a cycle, in which case they're not that much of wins in the calendar first quarter. So the variation occasionally from quarter-to-quarter depends on clients' purchase cycles, and to some extent also in terms of competition and the -- clients deal decisions, et cetera, so that's what leads to the difference from time to time. Lastly, occasionally, you also get the bump up because suddenly in one quarter, if you win a very large deal and then there obviously the TCV signings in that particular quarter get a big boost because of that. So it was, what shall I say, anecdotal, tactical kind of factors like that, that move the needle from one quarter to another quarter. Overall, from a trend point of view, many things, like I said, in terms of Mindtree positioning, messaging, client traction all of those things are positive, that's what gives us the confidence on future growth.
But still Rostow, I believe the revenues have to -- the deal -- TCV has to move up, right? In the last 3, 4 quarter, it has barely moved up. So I mean, despite all the positives, if TCV is not moving up, what gives you the -- still underlying confidence in a subsequent year? I mean, if TCV is not capturing something that you know of. Actually, it's not capturing something that you know of and basically it's all of us should know.
So the only thing that the TCV does not capture is, occasionally, a portion of our wins is time and material so therefore, there is no contract value per se that you can ascribe to that contract. As is only when there is some kind a deliverable or a fixed, what shall I say, estimatable billing outputs, so that's what gets captured in the reported deal contracts there. But overall, like I said, there is a, what shall I say, rhythm that our business runs at and the -- our -- what are -- pulse of that rhythm is giving us the confidence for growth.
Okay. The second question is on the profitability. I heard Pradip's comments on the drivers of profitability improvement. Frankly, I think that's something which we have once again heard in the last 2 to 3 quarters. What is this -- different this time around on execution, which gives you the comfort of expansion moving to FY 2020?
Yes. Thanks, Kawaljeet, for asking this question. So I think what is giving us confidence as we enter the New Year is the kind of plans that we have cocreated internally as a team, whether it is the delivery team, the vertical team. I think we are going into the New Year with a very, very strong plan, which is aligned on all fronts, whether -- it's not just the revenue kind of alignment, but also a cost alignment, and a number of identified areas where we'll be working on. Obviously, some of these changes in cost structures, et cetera, do take a little bit of time. And those implementations and plans are in place, and we see the execution of that happening during the year, which is what is giving us confidence. We are seeing some green shoots happening in the prior quarter as well as in this quarter because you must remember that even while we maintained margins this quarter, we have continued to invest behind the business, whether it is investment onshore or opening of new offices, et cetera. Those costs are in the system, but they're getting neutralized via other efficiencies which are getting built-in. So we go into the New Year with that confidence, which is giving us the -- sort of a view that we will be growing margins in the new fiscal.
And last comment on that, Kawaljeet. Even this year, if you look at revenue growth for the full year was approximately 18%, but the profit growth was approximately 30%. So you're right. It's the same parameters, it just requires more consistent, continuous effort to deliver those results. And at this point of time on margins, our feeling is we don't need to do new things, we just need to do whatever we are doing in a more intense and a more rigorous and a more consistent way. So that's what the team is committed to doing.
That's fair. And just a final question. There was basically an increase in attrition in the recent -- in the most recent quarter. Anything to link the increase in attrition with the recent chain of events?
Absolutely none. As of now, I think the increase in attrition was relatively small. So don't see any immediate sort of impact because of the unsolicited bid from L&T at this stage. Continuously staying engaged with our people. And our people feel that as long as the strategy and culture at Mindtree remain constant, our people's commitment to Mindtree will also obviously continue at the highest level. Don't see any impact at this stage. Obviously, if anything changes in future, we'll come back and update you promptly, but don't see anything at this stage.
And just a final question and also I think I've taken up a lot of your time but still in case you allow me to. I mean, what has been the kind of questions that have been asked to the leadership team by the senior management -- by the people internally? What are the kind of question that have come up in town hall? What has -- how has the management addressed apprehensions, if at all, from the recent chain of events on the overall business and future of the company?
We'll going to have a longer conversation on this, Kawaljeet, simply because obviously it's a very important question. But at a headline level, for the purpose of this call, I think the comments were around a whole range of topics. Many, many comments came saying that there's so much of goodwill for the current management team, how we've all worked together and so on and so forth. So as I would say like an outpouring of support for the current management team. So that is one set of comments that came from our people. Other than that, some of the comments were around, did we anticipate this, could we have done something differently, asking for more details on what is the process, what will happen first, what'll happen next, what are the steps involved. So a lot of questions around clarifying the whole concept to them, et cetera. And in a small set of cases, there are also questions more specifically around individuals, their roles, changes, how this will affect, et cetera, et cetera. So there's a broad spectrum of reactions from the organization. But I would say the overwhelming majority was around support for the management team.
[Operator Instructions] The next question is from the line of Rishi Jhunjhunwala from IIFL.
Couple of questions. One on your top line growth. So there has been some normalization in growth. Of course, last 1 year was clearly very high growth, but we're seeing some bit of normalization. Just wanted to understand in terms of how things are shaping up there? Do you think a 20% to 30% kind of growth rate in your top client is something which is doable in the foreseeable future because this is being one area where there are typically concerns in terms of potential slowdown.
Rishi, great question. Maybe on a lighter vein, when a client does ask, well, that's the kind of performance you have seen from our last quarter. We have a lot of other objectives to describe it. I wouldn't call it crazy. We'd call it amazing. We'd call it awesome. We'd call it exceptional. So we like to use those kind of objectives other than crazy because they didn't come out of serendipity, right? It came because of very strong continuous relationship building, flawless delivery. So a lot of hard work went into convincing a very sophisticated user of technology to trust us and keep giving us more work. But on a broader note, I think we have continued to do everything we can to showcase value, showcase the Mindtree strength and get as much growth as we can out of our large customer. But also broad base that recipe and get growth out of our 2 to 10 as well as 11 to 20 clients. And some of that is playing out in this quarter, where our 11 to 20 clients grew faster than our top 10. So there's a recipe that Mindtree has for our -- in our account mining. Different quarters, different buckets deliver a little bit higher. Some buckets deliver a little bit lower that's just par for the course, but our plan is to get that growth from a broader set of customers. No comments on individual client growth rates because that's very, very client specific, and also in line with overall philosophy on not wanting to give guidance. No comments on the growth potential for any specific account.
Okay. And secondly, just on the L&T bid, a couple of things if you can update us on. One is that, till date, even now, has there been any communication with the L&T management with you all in terms of how this thing can progress? And secondly, any advice that has been informed by the independent committee in terms of the open offer price and the things around that?
So on the second part of your question, the independent directors have a very specific responsibility that the law casts on them, which is to analyze the open unsolicited bid and make recommendation to shareholders based on their analysis. They are working on it, and they will make the determination and their recommendations in due course. I don't want to do anything or say anything that is in any way presumptuous because that decision will be taken by them at the appropriate time. On the first part of your question, absolutely no touch points with the L&T team at this stage. If anything changes, then we'll obviously come back and update you accordingly, but at this point of time, no change.
Is there a time line by which the independent committee has to come forth with the recommendations?
So based on the legal provisions that they're working under, they need to make their recommendations before the open offer opens.
The next question is from the line of Sandeep Shah from CGS-CIMB.
Congrats to the whole team for a good year in FY '19, crossing $1 billion mark. Just first question, Rostow. If we look at the order book and -- is there any linkage to the event which has happened in terms of the L&T offer where clients may be in uncertain trajectory and may be deferring the project awards? Is there any link to read the order book? And you believe that may be getting sorted out or this may continue till the time no clarity is being emerging?
As far as our clients are concerned, I think their primary buying decision would depend upon the value proposition that Mindtree has provided, the technology solutions, the confidence that the particular deal team enabled to showcase to the customer, et cetera. So based on those parameters, we see no immediate impact at this point of time. But obviously, like I said, if anything changes in the future, we'll deliver at that stage, but at this point of time, not seeing any change in customers' perceptions of Mindtree due to this.
Okay, okay. So there is no single instance of such kind of an interaction with the client which is happening?
No, we are continuously in touch with all our clients, some of them have questions, many of them are extremely supportive of the Mindtree management team. My only comment is limited to the fact that this news has not changed our -- the way the pipeline has moved or deal disclosures or order losses or anything like that. So there is continuous conversation and this is obviously a very important topic that many clients want to know about. It has just not led to any deceleration of the momentum for us.
Okay, okay. And you also alluded a fact that the competitive intensity, to some extent, can also be one of the reason for the order book. So what do you mean exactly in terms of this? Is it leading to more competitive pricing for some of the digital deals which are, maybe, like 3, 4 years, where in terms of many players are now behind those kind of a deal? So what do you exactly mean by competition also impacting our order book?
I'm not sure where that impression came. At least I'm trying to remember, I don't think we've made any comment about anything there. But mainly the point is, it is a very, what shall I say, intense marketplace. Technology is a very fragmented marketplace as well. And there are many good companies that are present in our industry. So almost all our business is built on the basis of competitive kind of bid. So I think just on the basis of our growth estimates for next year, that was one of the parameters that we factored in when we gave the growth outlook for next year to be in the low teens kind of a range. But specifically on pricing, that is not playing to any sort of negativity for us at this stage. Our clients are convinced on the strengths that we have, and therefore, their decisions are based on the value that we are creating for our clients. So we are not seeing pricing getting compromised because of that.
Okay, okay. Just last thing on the guidance. If I just look at your fourth quarter annualized number, it comes to close to 4.7% growth. And when you say low teen, it looks like you are looking for a compounded Q-on-Q of 1.5% to 2%. So is it the seasonality built for H2? Or you believe that H1 may also have some softness because of the order book which we carry?
At this point of time, like I said, we only shared the full year growth guidance. Different years, we've had growth -- faster growth in the first half, faster growth in the second half, that is how business momentum sometimes changes from time to time. But our only comment was on the full year growth. We didn't make any comments on a quarterly sort of growth projections at this stage.
Okay. Okay. Just last clarification. The lease accounting will lead to 115 basis point or 1-5-0 basis point?
It is 1-5-0 improvement. Yes.
The next question is from the line of Abhishek Bhandari from Macquarie.
My question is more around this L&T's unsolicited bid. Now you know yesterday was probably the last date for any competitive open offer to be announced and it has not come through. So should we assume that your guidance bakes in further progress on that, whatever you want to call it, unsolicited bid from L&T Group?
So the guidance that we gave factors in everything that we know as of now, factors that are at an industry level, factors due to technology, factors due to clients, pipeline buying decisions, et cetera, as well as factors internal to Mindtree in terms of talent, pipeline and our readiness and our investments in infrastructure, everything else. So it factors in all the things that we know as of now.
Okay, let me ask you other way. If there is further progress on them trying to increase the shareholding, do you think there will be certain changes in the operating environment from within which might force you to change your guidance some time during the year?
No way of commenting on that because like I said, it is our strategy, our execution and our culture that has led to the results that we have delivered. So those are the factors that we have kept in mind while giving the guidance for the future. It's difficult for us to comment on -- in that sense, an unknown factor like how much shareholding will L&T end up with, and therefore, what impact it could have on business, et cetera, difficult for us to estimate and forecast.
Sure. And my second question is just a clarification on your EBITDA margin improvement operationally. You're referring to the fourth quarter number or you're talking about year-on-year FY '19 versus FY '20?
So I think the reference to 100 to 120 basis points was on the full year basis. So that is what I talked about. Those 3 levers that we will apply.
We will take the last question from the line of Harit Shah from Reliance Securities.
Congratulations to the management on number of milestones that you have been able to achieve this year. Just wanted to get a sense on the -- just the outlook for your BFSI vertical. So you've done pretty well in the fourth quarter. And is it -- so you grew by about 7% odd in FY '19. So do you expect some sort of an improvement in FY '20 specifically for this vertical? If you would just give some color on that front?
Yes. Your voice got cut off a little bit, Harit, could you please repeat your question?
Yes. Sorry, sir. Yes, so just -- my question was basically related to your BFSI vertical. So you've done pretty well in this particular quarter. And for FY '19, you grew by about 7%, which was, of course, well below your overall growth because of certain reasons you have already outlined at the past. So are those your -- maybe your relatively low participation in the digital side of the business in this vertical? Is that starting to see some sort of an improvement and because of that can we expect some improvement in FY '20 as far as this vertical is concerned?
Yes. So our BFSI vertical is beginning to do well in the recent past, so we expect that kind of a trajectory to continue. Nonetheless, I think the BFSI vertical will be slightly slower than the rest of Mindtree.
Okay, fair enough. And what is your likely effective tax rate for this year?
For 2000...
'18-'19.
'18-'19, we have ended up with about 25% on an average as the...
ETR.
For the quarter. And for the full year, it is in the 23% range, 23%.
Okay. So this is much lower than what you had earlier guided for. I think you had earlier mentioned about 26% to 27% in the last quarter. So what would be the main reasons for substantially lower tax rate?
So once again, I think we had explained in the previous quarter that we had, as a consequence of one of the mergers with our subsidiaries, a onetime benefit, which gave us ETR impact in that quarter or something like 12%. So that had an impact on the year ETR by 3%. And that is why you've seen the full year ETR in 2018, '19 being lower than our estimates. We had not anticipated what time the merger will come through, the merger came through in Q3. So that is something that we have given effect to last quarter's results.
Okay. Now my question was the tax rate for FY '20. So FY '20 was saying it'll be 23%, is that right?
No, no, no. I'm saying that what you asked me over the previous years, so that is what I...
No, no, no. Actually what I was asking -- okay, let me clarify, the question was for FY '20.
Okay. So FY '20, the range we're giving is within 27% to 28%.
I now hand the conference over to Ms. Amisha Munvar for closing comments.
Thank you, everyone, for joining the call on a holiday day, and look forward to interact with you in the due course of the coming quarter. Have a good evening.
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.