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MindTree Ltd
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Ladies and gentlemen, good day and welcome to the Mindtree Limited Q4 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Amisha Munvar, head of Investor Relations at Mindtree. Thank you, and over to you, Ms. Munvar. ]
[ Thank you, Janet. ] A very warm welcome to this conference call to discuss the financial results for the fourth quarter and the year ended March 31, 2021. Trust all of you and your loved ones are safe and in good health. Today, on the call, we have with us Mr. Debashis Chatterjee, Chief Executive Officer and Managing Director of Mindtree; Mr. Venu Lambu, Executive Director and President, Global Market, Mindtree; Mr. Dayapatra Nevatia, Executive Director and Chief Operating Officer, Mindtree; and Mr. Vinit Teredesai, Chief Financial Officer, Mindtree. We will begin with a brief overview of the company's Q4 performance, after which we will have the floor open for Q&A. [Operator Instructions]Before I hand over, let me begin with the safe harbor statement. During 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 as outlined in the quarterly fact sheet uploaded on our website. We do not undertake to update those statements periodically. With this, I pass it on to Debashis for his opening remarks.
Thank you, Amisha. Good evening, and good morning to everyone on the call. Trust you and your loved ones are safe and doing well. As we close FY '21, we are fully aware that the year presented unprecedented challenges that none of us could have ever anticipated. However, all of us have reason to the occasion and demonstrated extreme resilience and adaptability. I'm very proud of how we at Mindtree, have overcome every challenge to be there for our clients and Mindtree Minds when they needed us the most. As the market environment continues to be dynamic with promising news of the COVID-19 vaccination trial on one side and the risk of resurgence of infection on the other, we are monitoring the situation carefully. The Q4 results of USD 288.2 million in revenue and 21.9% EBITDA margin confirms the strength and resilience of our business model and the relevance of our market offerings. We have defined a clear path for profitable growth and we continue to execute on the 4x4x4 vision, focusing on building deeper strategic relationships with our clients, seamless, secure delivery, robust partner ecosystem, strategic investments in capabilities and constantly future-ready talent. The business rebound in FY '21, despite significant challenges and ongoing uncertainty across industries is a testament to our proactiveness and agility, along with the client confidence we have earned. During the year, we were able to construct and win many first of a kind engagements for Mindtree, both from complicity and from tenure perspectives. Our investments in building the strength of our front-line sales team, along with the solutioning and delivery teams have helped us immensely in our ability to deliver transformational projects at scale. With this, let me provide some more details from Q4 and full year perspectives. Continuing our sequential growth momentum. In Q4, we delivered U.S. dollars revenue growth of 5.2%, making it our second consecutive quarter of 5% plus growth. Our quarterly revenue of USD 288.2 million is also the highest of our revenue for a quarter. After providing the wage hikes across the organization effective Jan 1, our EBITDA for the quarter was 21.9%. For the full year, revenue is at USD 1,076.5 million, and EBITDA is at 20.8%, which is a 650 basis points improvement from last year. We ended the full year with a healthy order book of nearly USD 1.48 billion, representing year-on-year growth of 12.3%. For the last quarter, amongst industry segments, communications, media and technology grew 4.1%. Retail, CPG and manufacturing grew 8.6%. Banking, financial and insurance declined 1.1%. And travel, transportation and hospitality grew 16.1% sequentially. For the full year FY '21, communications, media and technology grew 20.7%. Retail, CPG and manufacturing grew 0.6%, while others showed de-growth. Amongst the geographies for the quarter, North America contributed 76.6%. Continental Europe, U.K. and Ireland, together contributed 15.7%, APAC and Middle East contributed 7.7%. Our focus and investments in Europe have begun to yield results. Continental Europe, U.K. and Ireland together grew 8% sequentially. The revenue contribution from our service lines for the quarter were: customer service at 38.6%; data and intelligence at 16%; cloud at 19.4%; and enterprise IT at 36%. The need of our clients is to maximize efficiency as well as leverage disruptive technologies and trends for enduring success. And we are partnering with many of them on their transformation journey. Let me touch upon a few examples of deal wins in the past quarter. We signed a multiyear engagement with a global leader in design and manufacturing of household appliances to transform their online retail experiences into it. We have been chosen as a strategic partner by a leading global travel software and technology company to modernize their passenger reservation platform and accelerate their cloud transformation journey. We have been selected by a leading bank to provide sales force transformation services across multiple geographies for their asset management division. A robust delivery backbone and disciplined execution have been key to our success. Enterprises across sectors are increasing focus on leveraging data, cloud and disruptive technologies to thrive in the new normal. While ensuring the business IT foundation is resilient, efficient and agile. Let me share details of a few engagements that we delivered during the quarter. A large multinational paints company wanted to modernize their mobile application, which lets users visualize their walls to differentiate in real-time with a focus on new -- with a focus on user experience and scalability. We reengineered their application ground up, leveraging augmented reality. Our application on the Google Play Store received all-time high ratings and enabled 40% growth in the user base. A large technology giant wanted to optimize their technology documentation platform, which ran on legacy technology. We partnered with them to modernize the platform, leveraging Azure Solutions while introducing new features to enhance collaboration. As a result, sales performance improved significantly with 0 downtown. Health care and humanitarian organizations have been at the forefront of our economy and physical recovery through the pandemic. And efficiency and time to market is critical for them. We are proud of our work with an American humanitarian organization, where we implemented a cloud-based automated solution across more than 100 collection sites nationwide, helping them achieve more than 98% reduction in non conformance and significant dollar savings per year. For a large American credit reporting agency to manage -- who wanted to modernize the business-critical user engagement platform. We helped in migration to Google Cloud platform, along with decommissioning their on-premise infrastructure. I would also like to recap on a few milestones achieved during the year. We rolled out our simple and robust strategy of 4x4x4 and have started executing on it. We returned to broad-based profitable growth, keeping focus on long-term annuity deals. We built a strong and experienced leadership team across the organization. We successfully set up and scale our strategic partnerships with key hyperscalers and industry leaders, such as Microsoft Azure, Databricks ServiceNow and Google Cloud platform and many more. We simplified and streamlined our operational processes and delivery, enabling us to deliver continued margin improvement. We have ensured the physical, mental and emotional wellbeing of our Mindtree Minds with several interventions and assistance programs. In addition, we are rolling out a comprehensive COVID-19 vaccination plan in India for all Mindtree Minds and their families. Regarded some significant analyst recognitions, such as Mindtree recognized as a leader in the ISG provider lens sales for ecosystem partners 2021 reports. For Salesforce implementation, integration and managed application services for large enterprises across the U.S. and as a leader in the ISG provider lens, mainframe services and solutions, 2021 in the U.S. As a major contender in the average peak metrics assistant 2021 for software product engineering services. Our employee value propositions have shown consistent improvement across the board, reflecting an improved utilization, better offshoring and continued reduction in attrition. I take this opportunity to appreciate and thank the leadership team and all Mindtree Minds for their collaborative spirit and unrelenting dedication. People-friendly policies, higher standards of corporate governance, along with promotion of diversity and inclusion, have always been at the forefront of Mindtree, which has been reaffirmed by the recognitions won during the quarter. First place in Workforce Planning and Staffing Solutions category in the People First ACE awards presented by National HRD Network. Winner of the Golden Pickup National Award 2020 for corporate social responsibility. Second runner up position in the Best Employers for Women large category by the associated chambers for commerce and industries of India, which is associate. Winner in the excellence in employee welfare initiative by the BW Businessworld HR excellence about 2021. With encouraging demand traction and our deal means, we have accelerated the process of talent acquisition, both campus and lateral to twice earlier volumes, leveraging online assessment tools and new referral platform and our close-knit partner ecosystem. Learning enthusiasm amongst the Mindtree Minds continued with an approximately 50% increase in learning hours year-over-year on virtual platforms. We ended Q4 with over 23,800 Mindtree Minds, including a net addition of more than 1,600 minds. With continued focus on employee engagement initiatives, our attrition dropped to 12.1% on an LTM basis for the quarter from 12.5% in Q3. I would now like to turn it over to Vinit to walk you through our Q4 and full year financial highlights. Vinit?
Thank you, Rishi. Good evening, good morning to everyone on the call. In an extremely challenging year, our teams rose to the occasion. Our performance has been consistent and robust. We delivered a broad-based revenue growth of 5.2% quarter-on-quarter and 3.5% year-on-year in the dollar terms. Ex travel and hospitality vertical, our revenue growth was 8.1% and overall revenue growth declined by 1.1% for the full year. Our reported EBITDA margin for the quarter is at 21.9% compared to 23.1% in Q3. For the full year, it is at 20.8% as compared to 14% in FY '20. The drop of 120 bps in EBITDA margin versus the prior quarter was primarily driven due to an impact of 240 basis points from our planned wage hike. FX headwinds of 50 bps and a tailwind of 170 bps from the revenue growth and operational efficiency. The effective tax rate for the quarter is 24.3% as compared to 26.6% in Q3. And for the full year, it is at 25.9%. Net Forex gain for the quarter is USD 2.3 million. Profit after-tax margins for the quarter was up 15% as compared to 16.1% in Q3. PAT in absolute terms is USD 43.3 million resulting in an earnings per share of INR 19.20 for the quarter as compared to INR 19.80 in Q3. For the full year, profit after-tax margin is 13.9%, an increase of 580 bps compared to FY '20, and EPS for the full year is at INR 67.4, an increase of 76% compared to FY '20. Our continued efforts in collections during the quarter led to the reduction of DSO by 1 day. For the quarter, the DSO stands at 60 days. EBITDA to operating cash flow is at 76.8% for the quarter and 120.5% for the full year. Free cash flow to EBITDA is at 68.5% for the quarter and 116.4% for the full year. Our utilization for the quarter was at 84.3% from 83.1% in Q3. Our contractual pricing for the quarter remained stable. Our order book for the quarter increased 20% sequentially and is at USD 375 million for Q4. As of March 31, our cash flow hedges are at USD 996 million, hedges on balance sheet are at USD 132 million and options at USD 18 million. The [ PREPA ] rating upgrade from India Ratings last month reaffirms our commitment to delivering stakeholder value-based on strong operational principles. Our approach is to create value for all our stakeholders by balancing investment needs and return to stakeholders. The Board of Directors have recommended a final dividend of 175%, that is INR 17.50 per equity share of par value INR 10 each. After including the interim dividend of INR 7.5 per share, the aggregate dividend for the fiscal 2021 amounts to INR 25 per share. ESG has been always a focus for Mindtree and reinforced in the mission statement. Mindtree leads across dimensions in ESG scores through [ conscientious ] efforts over the years. We focus on themes such as energy efficiency, supporting education, disability, growing digital talent globally and a diverse and inclusive Board. Our Investor Day, annual report and sustainability report will carry the operating KRAs for FY '21. With continued positive impact on society, we undertake a holistic approach to refine the ESG and assign measurable impact metrics over the next few quarters. As a part of strategy refresh and focus areas, we'll be reporting industry vertical, health care and realignment of few clients across industry verticals, starting from Q1 of FY '22. I now hand over to DC to cover on demand and outlook.
Thank you, Vinit. With our sustained growth momentum, we are confident about the opportunities ahead and the outlook for FY '22. Clients appreciate the value that we create and recognize our ability to deliver transformational engagements. Our pipeline continues to be robust with a good mix of annuity deals. We continue to cross-sell and upsell within and across our client base, growing our order book 20% sequentially to USD 375 million. Being mindful of the uncertainty introduced by the pandemic, we are geared up to respond to the increased opportunities and business traction. It is our endeavor to deliver double-digit growth in FY '22, while sustaining EBITDA at 20% plus levels. I now pass this back to the operator to open up to questions. Operator?
[Operator Instructions] The first question is from the line of Sudheer Guntupalli from ICICI Securities.
Yes. Gentlemen, thanks for giving me this opportunity and congrats on a some good set of numbers. We see quarterly revenue run rate in BFSI vertical has stagnated in the $50 million run rate for almost 4 years now, even before you join. This is little surprising given this vertical is on the forefront of digital adoption, and we actually take pride in the center of our offerings in this area. So any structural problem that you had identified, be it in the go-to-market strategy, so on and so forth, which might be driving this revenue stagnancy? And any steps you are taking to kind of address this issue?
Well, I think it's not -- there has been growth in BFSI from time to time. But specifically, for this particular quarter, we were expecting certain closures, which has not happened, which has been pushed to Q1. The -- and apart from that, the Q4 weakness was a bit cyclical as well. As the budgets are getting firmed up, we do anticipate good momentum across our clients and especially in the areas of cloud and data, security and DevOps. We are also seeing good traction in mid-tier banks. We are very hopeful that BFSI will be coming back in the coming quarters, especially given the fact that we are -- some of the deals that we are very close to closing, they will start ramping up as we go along. I don't think there is any structural efficiency per se, but it is -- it all depends on the portfolio of clients that you have been having. And as we go along, I think our vision is to add more and more strategy clients. So as that happens, things will change. That's what we hope. Vinit, do you want to add any additional color?
No, DC. I think one thing is we're very focused is about getting the modest growth back in the subsequent quarters. But you're right, there are no structural issues. It's just the -- getting the offer mix right.
Sure. And my second question is, in FY '21, overall, the order book increased 12% odd. And even when you were talking about at the Analyst Day earlier, you're confident that Mindtree will be delivering industry-leading growth. Given the low base in FY '21 for many companies, definition of industry-leading can be as high as let's say, high teens kind of revenue growth. So I'm just trying to understand the bridge between the 12% increase in order book and high teens sort of a revenue growth expectation. Is that driven by the deal pipeline you are looking at for the first and possibly second quarter?
Vinit, do you want to take that?
Yes. Yes, I'll take that. So there are 2 aspects to that, Sudheer. Firstly, yes, the order books that you did not just for this quarter, even the previous quarter, would start yielding revenue as we complete the transition and so on. So that's one factor which will contribute to the industry-leading double-digit growth that DC mentioned. The second is, yes, there are -- our pipeline continues to be robust. We have a very strong pipeline, and we're looking for some good closures that will add up to the incremental revenue addition for the year. So it's a combination of both. The orders that booked during the year as well as the new deals that is going to come up in the quarters.
Sure, sir. And just one question for Vinit. I heard composition has remained more or less stable from the previous quarter to this quarter. So a little curious on why this is the case. As travel has not yet started, and the incremental growth for this quarter should have ideally ramped up offshore like it happened for other companies, which reported so far?
I'm sorry, Sudheer, can you repeat the question? I couldn't get you on the first part.
Yes, yes. So the effort mix if you see, it has remained more or less stable on a sequential basis. So since travel has not yet started, intuitively, we would have expected the incremental growth for this quarter to largely ramp up offshore like it happened for other companies. So just trying to understand why is -- why has it remained largely stable from previous quarter to this quarter?
No. I think so the mix of our -- the demand and how we have engaged right now, there has not been any material change. As you rightly said, the travel has not yet picked up. So it has remained pretty much on the same line. So I don't think so there is any structural change that has happened in this particular quarter.
No, Vinit. My question is if travel has not yet started. So the incremental growth should have largely ramped up offshore. Thereby, ideally, there should have been a little bit of a shift towards offshore, which is what other companies are reporting. But in your case, that did not happen. So I'm just trying to understand.
If I can answer. This is again a portfolio mix that you have, the clients in there are a lot of transformational deals that we have commenced in the last 2 quarters. And some of these transformations have to be -- you need to have folks at on-site also. So it depends on the kind of engagements we have. So I don't think there has been a significant jump to offshore in Q3 itself. If you go back to the last quarter metrics, there has been a significant jump in Q3. But -- so I think what you're talking about was already achieved in Q3. And what you see right now is just to sustain the transformational engagement that we have started. And also -- there is also another component, which you should know is we started the near-shore center in Poland. So those things also need to be considered.
[Operator Instructions] The next question is from the line of Vibhor Singhal from PhillipCapital.
And congrats on a very strong and difficult year that you all have seen. So this is my question is on the deal flow number. We saw the deal flow for the quarter at a decent 20% up sequentially. But on a Y-on-Y terms, I think we still kind of fell a bit short. And also, I think as we look to chase industry-leading growth next year, as you mentioned, the deal flow appears to be a little bit on the softer side. I guess you mentioned that some of the deals that you were expecting in Q4 were not able to close. So how does the overall deal pipeline look like? And how can we actually basically look at this deal flow number grow in the coming quarters?
Yes, thank you, Vibhor. I think the way to look at it is, we would look at the full year. Like if you look at the overall order book right now, it's $1.4 billion, and it's a 12% growth over the last year. I mean there are always cyclical things in terms of specific client behaviors where some closures happen in this quarter, some will happen in the next quarters. But what we care about is overall, for the full year, we are very confident -- we are very happy with the order book that we have closed. As far as pipeline is concerned, I can only say that the pipeline in the company, the deal pipeline is -- has never been so high as it is right now. In fact, the last 2 quarters, we have been having the highest deal pipeline. So given the very strong pipeline and given the full year order book that we have closed. We are very confident that the momentum that we have gathered in the last 2 quarters with a 5% plus sequential in 2 consecutive quarters. We are very confident that we should be able to continue with that momentum. And we have enough deals to fall back on. I don't know, Vinit, you want to add any additional color?
Just one specific point result is that one is the growth in terms of actual order bookings. The other dimension is also to look at the quality of the deal. The quality of the deal, which has a larger duration than we used to have earlier, whether it is the longer duration transformation projects or multiyear engagements. So that also helps us to get the accelerated growth. So one is the net increase, the other is also the quality aspect.
Sure. Vinit, if I could just squeeze in one question for [ Vinit ]. You mentioned that you are looking at EBITDA margins of 20% plus going ahead. So just wanted to pick your brain on basically what is our take on the salary hike for FY '22. I mean, is it going to be [indiscernible] or slightly back ended. And taking that into account and that utilization is already at 84%, do you see the kind of -- do you see multiple headwinds to the margin and probably impacting us to basically -- difficult for us to achieve that 20% kind of a number?
See, we have just now rolled out and completed our complete first increment cycle. We are -- we have planned and factored in a certain amount of selective increment that we will be needing to do as a part and parcel of our FY '22 story. That is being factored in. And I say that we'll be able to sustain the 20%-plus EBITDA margin. See, we have not yet made a decision in terms of when and how we'll be doing that increment. But there is definitely a certain amount of planning that is being already factored in.
And take -- all that taken in some margins would still be ahead of 20% is what we maintain?
The EBITDA margin will -- yes, that EBITDA margin of 20% is something we are still confident of sustaining.
The next question is from the line of Abhishek Shindadkar from Elara Capital.
Congrats on solid execution. My question is on the client metric. Now if I see the year-on-year growth movement in top 2 to 5 and 6 to 10 clients, and as well as the quarter-on-quarter growth, there seems to be that 2 to 5 and 6 to 10 is actually decelerating. Now one of the reasons could have been that travel customers could be part of top 10 or maybe top 20, and one of the reasons could be that. But the travel actually growth is accelerating. I mean, the year-on-year decline is decelerating. So how should we understand the mix here? That is first question. And the second question is on margins. Now the improvement in '21, we saw almost 300 basis points of tailwind coming from lower travel cost. How much of that is sustainable or could come back in '22? If you can just answer that.
Okay. So Abhishek, if you just talk about the client metrics. Obviously, the client metrics, given the fact that we had quite a few travel clients within our top 20, it does look a little skewed. So let me try to explain to you in a slightly different way. If I take for my top client, my top client has grown 29% year-over-year. And if I take the 2 to 10, the next set of clients, there is a de-growth. But if I consider the travel and hospitality clients, if I take them out, then there is a growth of 28% within the top 2 to 10, if I just leave as 2 travel clients. Same way, if I just look at the top client and then take the 2 to 20, the next set of clients. There is a de-growth for the year-over-year. But again, if I just take out 3 travel clients, we have a growth of 18% year-over-year. So the client metric, essentially, what I'm trying to say is that the travel growth is some that in some agents, there are green shoots, but the base has shrunk significantly from where it used to be pre COVID. So that will take -- our expectation is that at least a couple of more quarters to kind of say that we are back on the growth, it may take a little longer as well because it's all -- it's not within our controls. But what we can assure you is that if I look at the remaining part of the portfolio, our vision of looking at the strategic clients, selling into the cross and upselling into the strategy clients and growing those portfolios that strategy is working out extremely well. So that's what I would say in terms of client metrics, how you should look at it. I think, overall, the entire decline of travel, we have been able to manage the growth in the other accounts very well, and that's the testimony of 2 quarters of 5-plus percent of sequential growth, 2 consecutive quarters. In terms of margin, yes, you are right. I mean the travel has kind of reduced and -- but there has been also a significant program that we launched almost 18 months back in terms of how do you look at your overall margin improvement. So I would say that even when travel comes back, I don't -- I'm not sure whether it will come back fully the way it was earlier. And there are enough shapes and balances and controls we have put in through a very rigorous process where we will be tracking -- we will always look at improving the margin as we go. I don't know, Dayapatra, do you want to add any color on the margin?
Sure, DC. So basically, like you rightly said, travel. I would never even in the new normal. And a few quarters back, the operational efficiency program that we have started with has been delivering good results for us, and that's what is reflected in the margin growth for us. And we are very confident of continuing the focus on operational efficiency, plus the growth that we are expecting next year. Both put together will ensure that we continue with 20% margin trajectory.
That's helpful. And just one follow-up, if I may. Sir, you've guided in your press release for a double-digit growth. Now with the exit rate that we have and the booking number that we are talking of. And the fact that large companies are providing a number to the guidance. What is that is preventing you from putting a number for next year? I mean, are you seeing any risk? Or there is some unknowns that you want to kind of bake into the numbers?
No. I think we normally don't provide numbers, but at least we are telling -- we are very confident of doing a double-digit growth. We are pretty bullish about that at this point of time.
The next question is from the line of Manik Taneja from JM Financial.
Am I audible?
Yes, you are.
Yes. Just wanted to pick your brains around a couple of industry trends. Number one thing is that are you seeing clients becoming much more comfortable with offshore delivery, and that's something that's obvious from the metrics. But are customers much more 8.2 higher billing rates for offshore deal. With some overlap in U.S. working time? That's question number one. The second thing that we've been on the journey of client rationalization. Just wanted to understand where are we in that journey?
You're actually breaking up a little. Can you please repeat that?
The second question or the question number one?
Venu, if you got the first question?
Yes, I got it, DC. I think the first question just for DC's benefit as well. I think it was -- are we seeing any increase in the billing rate in offshore, right? Look, I think we did appreciate that most of the world economies are under -- still under significant stress, right? So while a lot of our customers are increasing the spend on the digital transformation, they need to cut this spend on the traditional IT services as well. So I think if -- and they're not shying away from spending more and more to accelerate the digital transformation. So the basket size of the spend is increasing. But not necessarily the individual billing rate. But having said that, there are some specific skill sets, where customers are showing a bit of willingness to pay a couple of dollars, extra for that. But in general, it's not a trend that we see. In general, the points on giving a cost-competitive solution, giving solutions, which accelerates their time to market. Those are bigger agenda, especially the time to market is a bigger agenda is what I see. So hence, there is no specific trend to conclude that there is going to be an increase in billing rate at the moment. It's going to be steady and stable, though.
Yes. Just to add on to what Venu said, I think there are also quite a few engagements that we are able to look at more of outcome base rather than just your T&M kind of a scenario. So that also is something that we need to take into account. And your -- I think your second question was in terms of tail account rationalization. I think this is something that we talked about a long time back that we want to focus on a few set of our strategic clients and make sure that we can upscale -- upsell and cross-sell into those clients and build deeper relationships with those clients. And that has been a strategy that we adopted. And keeping that strategy in mind, we have also come out with this 4x4x4 where we have this 4 service lines, which we felt are very relevant for digital transformation at this point of time. So overall, the program is going on well. This kind of slowdown during the pandemic because we did not want clients to be inconvenienced during the pandemic. But our view is that we don't want to rationalize the long tail at the inconvenience of our clients. We want to make it as smooth as possible. And the second thing is as we rationalize the scale, we also don't want to have any impact from revenue from our perspective. So keeping all those things in mind, I think it's almost 25% to 30% of the original -- of the tail of original number of clients, which is a tail which we have already rationalized. So what you see right now, we are adding quite a few marquee logos, very strategic to our growth. But at the same time, we continue to rationalize. We -- just to get the numbers, I think we rationalized about 70 clients in terms of this year. So that process will continue as we go along. Does it answer your question, Manik?
Yes. Thank you.
The next question is from the line of Mohit Jain from Anand Rathi.
Two questions. One is on the TCV duration. If you could give some number for FY '21 versus FY '20? And second is now, of course, no discussion is complete without top client discussion in Mindtree. So in the last 3 quarters, it is going a little slower than travel, actually, in terms of incremental dollars added, which is contrary to the management commentary. So do you think this trend may sustain in FY '22, given that we are at a very high base in [ top line ] versus travel vertical?
Yes. Sorry, I didn't follow this again. Part in terms of top line and travel. Can you just...
Top client is adding -- in terms of absolute dollars incrementally added, top line is now growing at par or slower than the travel vertical in the last 2 quarters. So is this something which has to do with the base effect, and therefore, we should expect this to continue in FY '22?
Okay. So I think what you need to understand is, let me answer the second question first before I go to the TCV question. See, the -- if you look at the travel growth that we had in the last quarter, which is double-digit growth for the last 2 quarters. The base is significantly shrunk. So I think there are green shoots, and we have a good team. We have not lost any of the clients during the pandemic. So as and when the clients are coming back, we should be also being to do it. But I don't think that has got any specific relation to the top client. But the way I want you to look at this is that our vision is to grow the top client, and we have grown the top client by 29%. But if you look at the overall client concentration of the top client with the overall revenues, last year Q4, it was at 23%. But if you look at this year -- or sorry, not last year, I'm talking about the previous year, it was around 23%. We jumped up to 30% because of we lost the travel portfolio because of the pandemic. But we closed at around 28%. So we want to grow the top clients, we want to grow the next set of 40 clients. But our belief is the strategy that we have laid out is the top client should continue to grow but the overall revenue from a concentration perspective should gradually come down as we go along. Does that give you a flavor, Mohit?
Yes, sir. And on the TCV tenure?
Yes. See TCV tenure -- we normally don't talk about it, but I can only tell you that when we talk about TCV, there are deals that we close which are multiyear deals. And when we talk about multiyear deals, there are quite a few deals that we have closed, which are 5 years, some of them 3 years, many of them 5 years deals, transformation deals, so mostly are 3 to 5 years deals.
Okay. And last for Vinit, sir, there is something known as transaction price allocated to remaining performance obligation. So how should we read that number, sir? I mean does it signify anything related to the longer-tenured business that you directly have?
So Vinit?
Yes, I'm sorry, I couldn't hear Mohit your question. Can you repeat it a little bit, sorry.
Sir, in the financial statements, there's a table which is transaction price allocated to remaining performance obligation? There are numbers year wise. So 1 to 3 has gone up dramatically, for instance. So does it to do with our longer-tenured business that we currently are into?
No. I think so -- yes, I would say, yes, okay. I think so, yes. And I'm just looking at that statement. It is -- it has to do with that, yes.
So that could give us a proxy of how we are moving ahead in the 3 years...
Yes, you can look at it that way.
And it does not, by any means, signify any liability or something with performance obligation is not to do with how do we execute to the client, right?
No, no, no. You should not read anything beyond that in that.
The next question is from the line of Rishi Jhunjhunwala from IIFL.
A couple of questions here. Firstly, on the vertical performance side you have 2 verticals. One is the BFSI, where if you really look at it, even travel got hit in 1Q, but has started recovering sequentially. BFSI still remains a big challenge. So I just wanted to understand where are we facing issues within BFSI? And on travel side, if we really look at on a year-on-year performance perspective, especially from profitability side, our margins have gone up by almost 500 basis points on the corporate side, but travel has gone up from 12 percentage point to almost 22 percentage points. And this is despite the fact that travel is down 30%, 40% year-on-year. So just wanted to understand whether are there any one-off reversal of pricing discounts or anything, which has led to this significant surge and as a result, EBITDA margin in travel would normalize in FY '22?
DC, can I take that question?
Yes, please take it.
Yes. So as you know that in the last year when the pandemic did strike, there were a few discounts that were being offered to few customers in the travel segment. Those have now all vanished away. And that's the reason why you're seeing the travel -- the margins reflecting higher for the travel vertical.
I'm sorry to interrupt. But are these sustainable? Or these are like reversals which have happened, and so margins will normalize a bit lower?
No, no, no. That's what I'm saying. Last year, we gave -- the margins were impacted because you gave some discounts. Now those discounts are not there. And we do not anticipate these discounts to return back in the near future, okay? So we do think that these margins are sustainable and maybe even better as the growth kicks in at some point of time for the travel vertical.
Okay.
Yes. And Rishi, on the BFSI side, we answered that sometime back, but still in your benefit, we were anticipating a couple of deals, which did not get closed, which got delayed, and we are expecting closures in this quarter. And as the budgets are getting firmed up with our BFSI clients, we see good momentum across the clients within areas of cloud, data, security as well as DevOps. And we are also seeing some good traction in the mid-tier bank. So we are expecting that BFSI also will revive in the coming quarters.
Fair enough. Just one last question, if I can squeeze in. If you really look at your breakdown from a delivery perspective, fixed price revenues have gone from 58% in 4Q last year to almost like 72% now for this quarter. So it seems like even large part of your renewals are also getting converted from timing material to fixed price. I just wanted to understand, I mean, how are these negotiations eventually been transpiring from a margin perspective? And are these one of the key drivers for the expansion that you've seen over the past 4 quarters?
Absolutely, spot on. And I think it is our endeavor to look at how we can convert more and more multiyear annuity deals. And as we do that, I don't think we will ever do anything to make it margin dilutive. That's not the intention over here. But I think our strategy of looking at more and more annuity deals, which can give you a multiyear continuity is working out well, and that's what we are focused on.
The next question is from the line of Dipesh Mehta from SBI Global.
A couple of questions. First about, I think you have covered BFSI in detail, but if you can provide growth outlook across other verticals particularly TTH. TTH has shown some traction. And I think you earlier alluded about some green shoot. How do you expect travel and hospitality to play out in FY '22? Second question is for Vinit. Now if I look -- we have given salary hike and we added 1,600 odd employees this quarter. And if I look your employee benefit expenses, it grew only 4% as quarter-on-quarter. So if you can help us understand what explains our relatively lower incremental growth in NPL equivalent expenses Q-o-Q?
Thank you, Dipesh. On the TTH, our view is that when this -- when this pandemic stuck, this is one vertical, which was the most impacted. We almost lost half of the revenues within 2 weeks of time. But the good news is we did not lose any clients. We have tremendous stickiness with the clients. We have been working with them for many, many years. And we also built a solid domain expertise in travel and hospitality. So given all those factors, we always knew that as there is an opportunity for TTH to come back, which and if you look at some of the transformation that's happening right now, like, for example, contactless. Contactless is something that is happening big way in TTH, whether it's a hotel, whether it's an airline and some of those initiatives, some of those transformations we are participating in those. So I would say these are the early green shoots of recovery within TTH, some discretionary work which is going on. And I don't think it has really come -- we cannot say it has come back full speed. But if you ask me about how much time it will take to recover, I don't think we have seen good recovery in the last 2 quarters in terms of green shoot, but we are at least a couple of more quarters away, at least a couple of more quarters away to see the levels that we want to see in terms of full growth. But our confidence comes with the fact that none of these clients have gone away from us. And all these clients, the relationship that we have, that's very robust. And I think they also will rely on us as they come back, we should be also able to grow along with them.
Yes, Dipesh. And on your question on the salary hike and the overall cost increase. See, one of the aspects also is to look at the overall growth that has happened. Our growth has been pretty robust. Our utilization continues to remain at a high level. We -- I mentioned this on the past calls that we are stepping up now on hiring. So eventually, this sort of utilization will not be sustained. The utilization will come down in in the future quarter. We do intend to maintain a certain portion of bench, which is healthy to cater to our growth in future. And also, there has been -- in the current quarter, there has been a little bit of an immediate demand that was being captured through subcontractors. And to that extent, there is a slight increase in the subcontractor cost in this quarter. But eventually, I would say it will all even out. Yes, the talent cost is one of the constraints we have, but we will -- we do have sufficient amount of levers available in our system to manage the headwind that is coming on our way.
Vinit, my question was a bit different. Let's say, if I look your salary hike and 1,600 odd employee addition, your employee benefit expense would have grown faster? Now utilize and another lever, what you're indicating, it is revenue implication. But if I look, absolute number of employee benefit expenses, their numbers would have grown, reflect these 2 things, right? [ How can ] addition?
Yes. And we continue to balance -- we have to also look at. We continue to balance our pyramid also. We look at people who are also getting added at a fresher level. And that also helps us in terms of managing our cost.
Is it possible to share some number about, let's say, pyramid '20 versus '21, how it has changed?
I would say in the last year, our intake on our freshers was significantly lower. We have increased that intake in FY '21, and we anticipate that intake will be even more stronger in FY '22. So we will continue to do that. We'll continue to manage this pyramid and we try to manage our cost within the defined parameters to ensure that our margins, that what we have booked [ claim for ] are sustainable.
Sure. And last, I think earlier question was partly answered, RCM and CMT, I think, you have not provided some color, how you expect them to appear?
RCM and CMT are 2 verticals where we have been seeing good traction and the traction continues. We are very bullish on these 2 verticals.
[Operator Instructions] The next question is from the line of Ashwin Mehta from AMBIT Capital.
One clarification. While it's not a lower base, what led to the doubling of the expenses this quarter? And in terms of subcontracting also, you did mention that these were possibly some opportunistic engagements. So do we think subcontracting will come back to the prior levels? Or as we've seen for almost everything in the industry, subcontracting could be back to the pre- COVID levels again?
Yes. Ashwin, I lost the first part of your question, I think I missed that. What was the first-line of...
The first part of the question was at our travel expenses on a quarter-on-quarter basis have almost doubled. So what explains that? And the second one was on subcontracting as to how do you see that trend going forward as it comes back to pre COVID levels or not?
Yes. I think, so on the -- Vinit, you want to take it?
Yes. No, no. So I'll just clarify on the travel expenses, it's mainly the cost, the cost that we have incurred for the visa applications that are scheduled to come up in Q1 of FY '22.
Okay. Yes. And on the subcontracting, I would say that it depends on the specific engagements and the deals and all those things. So -- but our goal is not to keep the subcontracting price when a subcontracting ratio increase too much. So that cost should not be. So we expect that over a period of time, it will again come back to the extent that we wanted to.
Okay. Okay. And just a clarification in terms of wage hikes for FY '22, is the understanding correct that you are looking at more selective interventions and what a full-scale wage hike in FY '22?
Yes. At this point of time, this is too early. But as Vinit has mentioned earlier, there is -- we are kind of keeping a very close eye in terms of what we need to do and when we need to do. But it's in the works. It's very difficult to comment details at this point of time.
The next question is from the line of Rahul Jain from Dolat Capital.
Most of them have been answered. But and sorry for boring further into the same topic which has been discussed. So this 12% growth in the TCV, is it also from a correlation of the kind of growth we are expecting, is it also benefited from the weak growth in FY '21, which would have boosted our overall order backlog because the back order book was strong in the beginning of FY '21 also. So is that a reason that can further give it flip from a growth confidence?
Vinit, do you want to take it? Venu, go ahead.
Yes, yes. Yes. If I understood correctly, you're essentially saying that the 12%, if I understood your question correctly, the 12% increase on the order book. Is that giving us the growth confidence on FY '22? Is that the question?
Yes. And I'm saying, let's assume, if we are looking for high strong double-digit growth, apart from this 12% growth in TCV that we start with this year. We also have some advantage probably coming from the last year order book, given that our revenues were soft in FY '21, but we again had a strong order book at the beginning of that year, which [indiscernible] must be sitting in the order backlog itself?
Oh, yes. Look, as I mentioned in the earlier question as well, it's a combination of both. The orders that you book for this current year, there is a revenue that flows into the next year as well, which is FY '22. So that part is pretty much there. Especially those multiyear engagement where you need to do transition, the steady state revenue starts kicking in after 3 or 4 months. So that aspect is there. And the second aspect, which will contribute to the FY '22 growth is the orders that we will book for the in-quarter itself as we -- over the next 2 quarters that we will book. So it's a combination of both for which -- because of which we are confident about the double-digit growth for FY '22.
Right. And just to understand our margin profile or at the expected margin profile a little better in FY '22. Can you just tell us the top 3 headwind and tailwinds because despite a very high-growth that we anticipate, we are expecting EBITDA margin to sort of stay flat. And of course, we have a lot of savings that has come from the SG&A, which will obviously come back to some degree. So any top 3 headwind, tailwind you want to quantify?
No, I think it's less of a headwind. And I would say we have mentioned this in the past that we will continue to do our operational efficiency program. But most importantly, now we have reached a stage whereby we want to reinvest a lot of that portion into back into business to support the future growth. So I would say that the 20% margin, what we are confident of is a reflection of that. And we will -- you will continue to see it does not mean on quarter-on-quarter, you will see that margins dipping down to necessarily 20%. In some quarters, we may continue to deliver higher margins. The headwinds are in form of people, cost and people and talent remain to be the one of the headwind. But at this point of time, we are confident that we have sufficient amount of machinery that has been geared up to tackle this headwind and deliver the growth that we are contemplating. Sorry, DC, you see probably...
No, no. I think the only thing I would say is, yes, some of the costs that went up in the pandemic will come back. So it's not -- there's no doubt about it. But as Vinit rightly said, we have the machinery in place now, and this is a program that we have [ in last ] for almost 6 quarters or more, which gives us the confidence that we have a good role in terms of operational metrics. And as Vinit rightly said, our focus right now is how do you reinvest in the business so that we can also continue the growth momentum.
Okay. Okay. So basically, you don't see the percentage of sales basis, much major movements coming into it or on an annualized basis, we are on a normalized cost, both for the employee as well as SG&A basis, and there would be only very minor swing to that numbers because we are already working on these things for some time now.
Yes. I would say that that's what we will continue to strive on and continue to manage other employee cost and other cost in that range.
The next question is from the line of Nitin from Investec.
Just a quick clarification. We have had maybe an all-time high kind of headcount addition. Just want to clarify, this 7% of existing headcount that new headcount that's come -- that's come towards the end of the quarter. And are they higher on the freshers side or lateral size? Just wanted your thoughts on those?
Dayapatra, do you want to take it?
Sure, DC. So it is mix of both [indiscernible] . So as you would have seen that we have a very robust demand and business is growing quite well for us, and that's leading to a lot of hiring in India as well as a geography. Thus, we have also started to do a lot of practice hiring. To meet the future demand. As you know, that talent position is quite tough in India right now. Every company is going after this in the same talent pool for certain skills. And therefore, we want to make sure that we have the right talent when we require them. And hence, a lot of proactive hiring is up toward next year also, we will be doubling up our effort in terms of hiring both [ tempers ] as well as [ lateral ].
Sure. And the other part of the question was I hire all these people or most of these people come towards the end of the quarter?
Hello?
Yes. I think it's fair to say that all those people can throughout the quarter. I don't think there's any -- we have been ramping up fairly uniformly across the quarter.
Yes. We do hiring throughout the quarter, and campus batch, of course, comes once or twice a quarter, depending on when we are taking them on both for the planning.
Well, ladies and gentlemen, that was the last question for today. I would now like to turn the conference over to Mr. Debashis Chatterjee for closing comments.
Yes. So as we focus on the application of our 4x4x4 strategy, we will strengthen our position by targeted investments, both organic and inorganic. And the investments will be in building domain strength in industry groups and specifically in health care, increasing our geographical presence, strengthening our alliances and partner ecosystem. crafting our unique culture and verticals, envisioning and embracing the future of work. We will continue to invest in this critical competitive advantages as we work to lead the organization through the next phase of growth. As we entered FY'22 we remain very excited about the momentum that we have, the positive impact we are making for our clients and our future-ready challenges. We aspire to deliver double-digit growth in FY '22 along with 20% plus EBITDA margins and creating long-term value for our stakeholders. Thank you. Stay safe and be in good health.
Thank you, everyone, for joining the call today. And as always, we look forward to speak with you in the coming months. Stay safe. You may all disconnect the lines, please. [
Thank you. On behalf of Mindtree Limited, that concludes this conference. Thank you all for joining. You may now disconnect your lines. ]