MindTree Ltd

NSE:MINDTREE

Earnings Call Transcript 2022-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to Mindtree Limited Quarter 4 FY '22 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand over to Mr. Vinay Kalingara, Head of Investor Relations, Mindtree. Thank you, and over to you, sir.

[Vinay Kalingara;Mindtree Limited;Head of Investor Relations, executive]

Thanks, Aditya. Welcome to this conference call to discuss the financial results for the fourth quarter ended March 31, 2022. Today on the call, we have with us Mr. Debashis Chatterjee, Chief Executive Officer and Managing Director, Mindtree; Mr. Venu Lambu, Executive Director and President, Global Markets, Mindtree; and Mr. Vinit Teredesai, Chief Financial Officer, Mindtree. We will begin with a brief overview of the company's Q4 and FY '22 performance, after which, we will open the floor for Q&A. 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 carry a risk in terms of uncertainty because of which the actual results could differ from those outlined in the quarterly financials available on our website. We do not undertake to update those statements periodically. I now pass it on to DC for his opening remarks.

[Debashis Chatterjee, executive]

Thank you, Vinay. Good evening and good morning to everyone on the call. Thank you for joining us. We are pleased with our industry-leading profitable growth in FY '22. Our ability to deliver solid business outcomes even during times of momentous change, uncertainty and disruption validates our vision, strategy and capabilities. Our three-pronged approach of accelerating core portfolio, expanding emerging portfolio and incubating new portfolio has helped us sustain our growth momentum while staying ahead of the market trends and customer needs in delivering digital transformation at scale. Our fourth quarter revenue came in at strong USD 383.8 million, sequentially up 5.2% in constant currency and 4.8% in USD terms. For the full year, our revenue grew 31.1%, and we delivered an EBITDA margin of 20.9%. Our EPS for the year was INR 100.2, a growth of 48.7% over last year. We ended the year with a healthy order book of USD 1.6 billion, representing a growth of 16.7% over last year. We are proud of our remarkable progress on the strategic growth levers outlined as a -- at the start of this year, driving profitable growth, wallet share, white space opportunities, geographic footprint, market penetration and hyperscaler partnerships. During the year, we added 33 new logos. With focused upselling and cross-selling, we grew the revenue share of our focus 100 accounts to nearly 90%. The number of $20 million accounts doubled from 7 to 14. We incubated the Health Industry Group and acquired Industry 4.0 capabilities through Mindtree NxT. In line with our rapid growth, we expanded our presence in Germany, Finland and Denmark and bolstered our nearshore capabilities in Europe with a center in Poland. We also expanded our delivery footprint in India with an additional facility in Pune and our first development center in Kolkata. Hyperscaler partnerships are vital to our value proposition. As a result of our aggressive investments in building industry-aligned hyperscaler capabilities and offerings, we achieved the status of ServiceNow Elite partner in less than a year, launched as many as 30 new solutions on Google Cloud Platform and earned advanced specializations in analytics, AI and machine learning on Microsoft Azure. As a born-digital company, we have enjoyed an edge in driving next-generation technology capabilities and innovation ahead of the curve. We have been at the forefront of delivering differentiated experiences using blockchain, AR/VR, IoT, AI, geospatial and other cutting-edge technologies. With these technologies now forming the building blocks of the metaverse, our innovative work provides us a natural head start in advancing our proposition for this fast-growing ecosystem of alternative reality. We are excited to announce that we are increasing investments in metaverse solutions and capabilities to extend our technology and design thinking leadership into an integrated, consulting-led metaverse offering. Complemented by our immersive technology experience center, Immersive Aurora, our metaverse offering will enable customers to accelerate and optimize their transition to the meta economy. To us, digital transformation at scale is about delivering continuous change and value from core to edge to experience, leveraging integrated capabilities and solutions informed by a vision of the future. Our growth narrative is powered by our ability to comprehensively fulfill this mandate. For example, a growing number of our focus 100 accounts are now full stack accounts, cutting across all our service line capabilities. This speaks to our strategic relevance and effectiveness across the full spectrum of digital transformation. We continue to see an increasing number of deals evolve into larger strategic engagements. For example, what began a year ago as a story point-based, omnichannel digital transformation engagement for a large, high-tech multinational conglomerate has since expanded into enterprise IT and IoT platform development across different divisions. Our product development engagement that we began last year with our professional services company has quickly expanded into enterprise IT platform development in a studio model across all 4 of our service lines, leveraging our strong hyperscaler partnerships. In driving more complex, change-focused digital work, customers are increasingly choosing us to address higher-end needs. A multinational bank and financial services company, for example, recently partnered with us on a broad range of digital engineering, MarTech and regulatory requirements. Creating conditions for transformation to keep pace with the rapid market and technology changes is vital in the new normal. By adopting a product-centric model, we are enabling an increasing number of customers such as large -- such as a large credit reporting agency and a global mobility solutions provider to align business and IT through customer and data journeys for faster innovation and time to market. We are actively enabling health care organizations across the health ecosystem to adopt the best of digital innovation and consumer centricity from digitally mature industry sectors for driving better personalization in this age of consumerism. Across all our industry groups, we continue to grow focus accounts, scale strategic new logos, diversify our customer portfolio and pivot to outcome-based engagements. Our Communications, Media and Technology business grew 5.2% sequentially and 23.1% for the full year. This growth was driven by product engineering and customization, digital marketing, selling and commerce, enterprise IT platform development and cybersecurity services. We saw continued strength in technology where we helped our customers develop and roll out innovative and intuitive products. In communications, we enabled our customers to drive continuous product innovation and faster deployment, while the work for our media customers involved creating next-gen experiences, leveraging digital technologies. Our Retail, CPG and Manufacturing business was down 2.4% sequentially because of a ramp down in a retail account. However, we delivered a strong full year growth of 45.4% on the back of continued demand for reimagining and maximizing customer journeys and supply chains as hyperpersonalized omnichannel experiences and connected ecosystems of products, experiences and operations rose to the top of the agenda. We enabled our customers to strengthen their edge to experience proposition powered by real-time insights and 360-degree views of the consumer and the value chain. The imperative to innovate and scale fast has meant more deals centered around agile, cross-functional digital engineering ports. Our Banking, Financial Services and Insurance grew 8.9% sequentially and 19.1% for the full year with marked traction in accelerating future capabilities, reimagining experience, modernizing the core and driving strategic data integration programs to enable new product innovation. We are enabling customers to become more like digital natives and reimagine their businesses with newer offerings. Our integrated capabilities combined with pointed domain-specific offerings developed through partnerships have strengthened our go-to-market strategy, helping us differentiate and win new logos, including Tier 1 financial institutions in the U.S., Continental Europe and Australia. Our Travel, Transportation and Hospitality business grew 9.2% sequentially and 54.6% for the full year. Our FY '22 results crossed the prepandemic levels driven by domain-led capabilities in consumer, in customer experience, data intelligence and core transformation offerings delivered through a product-centric model. Many of our new logos in the newer subsectors beyond airlines and hospitality are well on their way to becoming the top clients for us. We enabled customers to reimagine and reinvent their business models to meet the connected consumers' needs for seamless experiences, hyperpersonalization, health and safety and contextual offerings in an increasingly contactless world. In its first year, our health business contributed USD 17.3 million to our revenue for the full year as our investments in building capabilities and opportunities pipeline in this vertical, together with our differentiated, consulting-led approach, showed further results. In the latest quarter, we won 4 new logos, including 1 large digital transformation and product engineering deal with a leading American health services business. We recently made a strategic investment in COPE Health Solutions, a health care consulting and analytics leader in the U.S., to accelerate our growth in this sector by tapping into opportunities arising from value-based care, population health management and personalized health care. In terms of geographies during the year, North America grew 25%; Continental Europe, U.K. and Ireland grew 58.7%; and APAC and Middle East grew 39%. Among our service lines in FY '22, Customer Success grew 42.9%, Data & Intelligence grew 30.5%, Cloud grew 29.4%, and Enterprise IT grew 15.4%. Through FY '22, we deepened our hyperscaler partnerships to deliver greater market impact, be it enabling a tech company to shape the future of travel, an online payment app to power an annual exchange of $2 billion without bank affiliations or a sportswear manufacturer to enhance customer loyalty and retention through e-commerce. In addition to expanding our domain and technology capabilities and partnerships, we doubled down on nonlinear growth opportunities led by platforms, accelerators and consulting. For example, we launched an AI/ML-powered platform for enterprises for all scales to manage their service experience in multi-provider environment. Our connected operations offerings spanning assets, processes and personnel saw strong demand from customers looking to turn insights into actions through autonomous operations. We took a leap forward in helping enterprises transform their omnichannel customer service with our cognitive customer service suite that delivers intelligent agent assistance and real-time sentiment analysis powered by applied AI. To help organizations design, build and manage intelligent security operations, we introduced consulting services around managed security operations center. We made aggressive investments in creating an innovation and collaboration ecosystem to facilitate the adoption of technologies such as blockchain, AR/VR and low code, no code at speed and scale. Our new platform- and framework-based offerings in testing and DevOps saw increased traction. To deepen our capabilities, we created centers of excellence in areas such as digital engineering and platform operations while incubating solution groups with our existing customers. Many of these new tech offerings are getting embedded in our current solutions and have the potential to be large deals. Through the year, we are -- we were ranked highly in more than 75 analyst reports for diverse digital capabilities. On the supply side, we continue to augment our employee experience through more creative, agile and personalized approaches to employ career development and change management. We are pleased with the early results of our program aimed at identifying and grooming critical talent on an ongoing basis. It is key to our one-size-fits-one employee engagement and career enablement strategy, which consists of policies and processes customized to specific talent communities and includes monetary as well as nonmonetary elements such as role rotations, upskilling and workforce flexibility. Our net headcount addition in FY '22 was over 11,200, more than 6x the headcount addition in the preceding year. We closed FY '22 with a global headcount of more 25,000. Through FY '23, we expect our hiring of fresh graduates to increase significantly with our revamped training program for fresh graduate hires, including candidates starting in the last semester of their engineering degree program. We have already significantly cut down the time required to make early career talent ready for client projects. In FY '22, our reskilling and upskilling initiatives, including key digital technologies such as AI, AR/VR, data analytics and cloud, covered nearly half of our global workforce. Following a successful launch earlier in the quarter, our internship program for enabling technology professionals to restart careers after a break with personalized train-and-deploy model is now being scaled to the next level. For the fourth quarter, our LTM attrition was 23.8%. Attrition continues to be an industry-wide issue. We expect the situation to gradually stabilize over the next few quarters. I will now turn over the call to Vinit for Q4 and full year financial highlights. Vinit?

[Vinit Teredesai, executive]

Thank you, DC. Good evening and good morning to everyone on the call. I'll begin summarizing a few of the highlights of the quarter. Continuing our consistent performance throughout -- through the year, our sequential revenue growth was 4.8% in dollar terms and 5.2% in constant currency. This is the fifth consecutive quarter of 5% plus sequential growth in the constant currency. For the quarter, our reported EBITDA margin was 21%, and the EBIT margin was 18.9%. PAT margin for the quarter was 16.3% as compared to 15.9% in Q3. Earnings per share was at INR 28.7 compared to INR 26.5 in Q3. The effective tax rate was 24.5%. Our DSO for the quarter was at 60 days, an improvement by 4 days. For the quarter, operating cash flow to EBITDA improved to 92.2% from 87.7% in Q3. Free cash flow to EBITDA was at 82.7% compared to 77.6% in Q3. Utilization was 83.1% compared to 81.5% in Q3. Our order book in Q4 is USD 390 million. Now to summarize our full year performance. We ended the fiscal year 2022 on a strong note with a revenue growth of 31.1% in dollar terms. Revenue in rupee terms grew by 32.1%, crossing the INR 100 billion and with an EPS over INR 100. Our order book for the full year was USD 1.6 billion, an increase of 16.7% over FY '21, and this positions us well as we enter FY 2023. For the full year, reported EBITDA margin was 20.9% compared to 20.8% in FY '21. EBIT margin was 18.6% compared to 17.5% in FY '21. PAT margin was 15.7% compared to 13.9% in FY '21. Absolute PAT was USD 221.6 million, reflecting a growth of 47.7%. EPS for the full year was INR 100 -- INR 100.2, an increase of 48.7% over FY '21. Effective tax rate for the full year was 25.2%. As of March 31, our cash flow hedges are at USD 1.5 billion, hedges on the balance sheet are at USD 184 million and options of USD 6 million. Our cash and investment balance were at all-time high of USD 474.6 million. The Board of Directors have recommended a final dividend of INR 27 per share, taking the total dividend for FY '22 to INR 37 per share. In 2021, Mindtree received a rating of AA in the MSCI ESG Ratings assessment with continued progress on ESG commitments that we have set out to achieve through 2030. In March 2022, India Ratings affirmed the India -- IND AAA rating for Mindtree for the second consecutive year. This is a strong recognition of our financial prudence, efficient working capital management and governance practices. I'll now hand it over back to DC for the business outlook.

[Debashis Chatterjee, executive]

Thanks, Vinit. Change is playing out at the breathtaking [ space. ] Industry lines are blurring like never before. [indiscernible] businesses and revenue streams are emerging. New edge technologies are gaining unprecedented prominence. The urgency to shift from legacy to cloud is pressing. Organizations are more convinced than ever that the time to become more resilient and future-proof is now. Each one of these trends is creating more opportunities for us, and we are continuing to strengthen our position as a partner of choice by becoming more consulting-led, outcome-focused and global in scale. Our focus going into FY '23 will be on delivering even greater value to customers by dialing up full stack engagements; driving more effective sell-to, sell-with and sell-through relationships with hyperscalers; shifting from run IT to product-centric models; elevating our edge to experience proposition; enabling and unlocking the competitive potential of industry convergence; and strengthening next-gen delivery capabilities for integrated solutions. We are confident that our focused strategy, disciplined execution, customer trust and team diligence will support our endeavor to continue delivering industry-leading profitable growth. With that, let me open the floor for questions.

[Operator]

[Operator Instructions] First question is from Sandip.

[Sandip Agarwal, analyst]

DC, Vinit and Venu, congrats on a good set of numbers. How difficult is the manpower situation compared to what we have seen in the previous quarter? Where do you see this situation moving around? When will we be able to control this? That is number one. And how much of this situation is impacting our execution as of now? So any idea on that? And third, right now, without travel supporting too much and hospitality supporting too much, we are able to post such a good number. So when this comes and fire for us, where do you think the growth rates will be? Do you think that FY '23 could be far better than FY '22 because a lot of these problems will probably resolve? So your views on these 3 will be very helpful.

[Debashis Chatterjee, executive]

Thank you, Sandip. See, first of all, as far as the manpower situation is concerned, I presume you're talking about attrition, which, as I called out, it is a phenomena, which is prevalent within the industry, and everybody has to deal with it in certain ways. You need to have your own strategy. So we have been able to demonstrate growth as well as EBITDA in spite of whatever situation has existed over the last 2, 3 quarters. So we have got mechanisms to deal with it. I mean there are various engagements that we do. We have been trying to do a control in terms of attrition. As I said, the LTM attrition is still on the rise, but we are hoping that it will stabilize and gradually come down over a period of time and which will help the overall situation. But having said that, I think it is also important for us to navigate through this in terms of whatever we need to do. For example, as a company, we have increased the freshers' hiring. We have also launched a program called EDGE program, where we are hiring a lot of B.Sc.s and BCAs and helping them to not only just work, but also get a degree from BITS Pilani. So a lot of initiatives have been launched to navigate through that. And we are hopeful that -- we are very confident that we should be able to manage the situation as we go along. And in terms of your other question on travel, actually, interestingly, we are already at a revenue where we are beyond the prepandemic levels in terms of travel. So I think the travel vertical has done fairly well, and it has grown almost like on a -- if you look at the last 4 quarters growth, almost like a 10% CAGR growth across travel. So we have expanded our travel vertical, as in we were initially focused on mostly the airlines and the hotels, but at this point of time, we are also focused on food and beverage, surface transport, so on and so forth. So hopefully, those -- there are logos that we have closed, which will also grow in our travel and transport and hospitality vertical. And it's a little too early to call out anything beyond that, but our endeavor is to have industry-leading growth even in FY '23 and industry-leading profitable growth. So beyond that, it's difficult to comment anything further. Venu, Vinit, do you want to add anything?

[Vinit Teredesai, executive]

No, DC. You covered it.

[Operator]

Next question is from Vibhor.

[Vibhor Singhal, analyst]

DC, Vinit, Venu, congrats on great set of numbers. So 2 questions from my side. The question for you, DC, is I think this year, we clocked 31% Y-on-Y growth, the industry-leading growth that we have done this year. And you've guided to another industry-leading growth next year as well. So this year, if I see, our growth was largely driven by the recovery in retail and travel vertical, if I look at in terms of the percentage growth that these verticals reported. Going forward, FY '23, do you believe the same verticals could be the driver of growth? Or as we have seen in the last quarter a very strong pickup in BFSI, would BFSI also be a strong proponent of the growth, industry-leading growth that we basically would be expecting next year? And my second question is for Vinit. So Vinit, just wanted to check about the salary hikes for this year. What is the quantum that you are expecting? When would they be rolled out? And specifically, on the on-site salary cost, are they expected to be higher than before in lieu of the overall rising global inflation? And with all that tied together, do we still maintain that 20% plus EBITDA margin guidance?

[Debashis Chatterjee, executive]

Thanks, Vibhor. So let me just answer the first question, and I'll request Venu to chime in. See, as far as the growth in FY '22 is concerned, I think it's fairly broad-based. It's not -- if you look at BFSI, BFSI grew 19%. CMT grew 23%. Of course, retail has been a phenomenal growth, about 45%. And then if you look at travel, it had ramped down because of the pandemic, so travel had more than 54% growth. So overall, the growth has been fairly broad-based. And from an overall future standpoint, also at a broad level, we expect the broad-based growth continue across industries, across geographies. Yes, there will be aberrations from time to time. But at an overall level, I think the sentiments are fairly bullish. Venu?

[Venu Lambu, executive]

I agree, DC. Look, I think we want to grow across all the sectors and considering that we have the newer sectors like health care, which is really just coming out of its incubation period, so there's so much to grow in that. And so is the case in terms of the value we can create for retail and CPG customers, high tech as well as the BFSI. So it's really hard to pick up which sector will grow faster, but there is a demand outlook, which is sort of consistent across all the sectors that we are focusing on.

[Vinit Teredesai, executive]

Thanks for the question. So you had 2 questions, mainly on the salary hike, both offshore, on-site, and timing. So our endeavor is to stick to the salary cycle in the second quarter of the next financial year. We [ aspire ] salary hikes in the -- to be in line with the industry requirements. And at this point of time, after considering all that impact put together, our endeavor is to still aspire and deliver, stick to that 20%-plus growth.

[Vibhor Singhal, analyst]

Got it. But on the on-site level, is there any incremental pressure that we are facing because of supposedly higher global inflation and which might require us to give higher salary hikes than before?

[Vinit Teredesai, executive]

Nothing than what we are seeing differently at this point of time.

[Operator]

Next question is from Vimal Gohil.

[Vimal Gohil, analyst]

My question on demand and attrition has been answered. Just a question on cash flows. Sir, if you can just highlight. So the OCF, operating cash flow, if I look at the operating cash flow, it has sort of dropped this time around led by higher trade receivables. Matter of timing or how should we look at the free cash flow conversion or OCF conversion just going forward?

[Vinit Teredesai, executive]

No, I think our cash flow conversion, what you're seeing for the full year, is basically because we had a laggard in fact, in the first quarter of this FY '22, and that's what has impacted the full year. But if you look at the quarter-on-quarter, actually, our free cash flow as well as operating cash flow has improved quarter-on-quarter.

[Vimal Gohil, analyst]

I'm sorry, your receivables should come down going -- should normalize going forward during the year?

[Vinit Teredesai, executive]

I think this is our sweet spot of 60 to 65 days. That's what we intend to look at it, and we'll try to maintain our DSO within that range.

[Operator]

Next question is from Manik Taneja.

[Manik Taneja, analyst]

Am I audible?

[Debashis Chatterjee, executive]

Yes.

[Vinit Teredesai, executive]

Yes.

[Manik Taneja, analyst]

Yes. So thank you for that outlook on the margin front. If you could help us understand what margin or operating levers [ actually ] would be -- probably be a tailwind for you going into FY '23 and what could be a headwind? And also, if you could talk about how should we be thinking about subcontracting expenses for us because in the last couple of quarters, we had seen a decline there. This quarter, we've seen an increase. So what's driving the quarterly volatility here?

[Debashis Chatterjee, executive]

So Manik, the fundamental thing is that when you talk about margin, and I think I have addressed this in my previous commentaries, is that we have a pretty robust program to look at margin in a very systematic fashion and look at all the levers that contribute to margin improvement. And all the levers may not be filing all at the same time, and all the levers may not be even applicable to all the industries or the service lines at the same time. So the good news is that we have a good handle in terms of how we manage margin from -- over quarters. And I think we have demonstrated that over the last several quarters. To your specific question in terms of headwind and tailwind, I think I would rather like look at -- there are certain levers in terms of margin where there are certain cost levers and there are certain levers which can help us in terms of revenues from our clients. So like, for example, if you are talking about billing rates, et cetera, that will be something that we'll continue as a -- consider as a revenue lever. And for niche skills, et cetera, we do see in pockets where we are able to command a premium. So that helps. But if you look at some of the other levers, which are cost levers, which could be utilization, which could be pyramid, again, they will be kind of working in tandem to ensure that we can have a good control on the margin because we are also very keen to make sure that we invest in our business as we go along. Specifically, since we talked about subcon, the role of -- the fundamental issue is we get subcons because we want to ramp up some engagements in a very fast manner in a very short time. And that's where we need subcons. And if you continue to have subcons for a longer duration in the engagement, then obviously, it will tend to dilute your margins. So I think the way we have run our margin program is to ensure that if you have subcons, get the subcons but get them also off at some point of time once the situation stabilizes and you're able to replace them with FTEs. That's a normal process that we follow. I don't know whether I've been able to answer your question. Vinit, do you want to add anything?

[Vinit Teredesai, executive]

No. I think -- so DC, you have covered most 2, 3 more levers, I would say. As you know that in the last couple of quarters, we have actually been pretty much fast-tracking our flattening the pyramid strategy. We have been adding more than 1,500-plus freshers in the -- per quarter. We have also been able to ensure that many of them are able to get build -- absorbed into the projects and get built on a very quicker note. We do get certain premium pricing for certain niche skills. So these are all the tailwinds that we'll continue to look at it. As we said that, though, there are a few headwinds in terms of operational costs like travel, offices, et cetera, that will at some point of time return. But we don't anticipate that they are going to come in one go and we are going to be at the prepandemic levels. We are having a stringent discipline as far as our travel costs are concerned. We are sort of reducing the footprint, though we are increasing the sort of diversity of available office options for people. So all these put together are definitely helping us in terms of giving us that confidence.

[Manik Taneja, analyst]

If I can ask one more. If you could talk about -- we recently made a minority investment in the U.S. If you could talk about the strategic rationale for such a thing.

[Debashis Chatterjee, executive]

Venu, you want to...

[Venu Lambu, executive]

Yes, sure. Let me take that question. Look, I think the investment that we made in COPE Health Solutions is in line with the strategy that we had in terms of how can we grow our health care business. And one of the strategic capability that you need actually to sort of grow the health care business is an access to domain capabilities, right? And health care -- the COPE solutions is pretty much focused on the payer and the provider market segment. They come with very significant capabilities in actually advising customers on the business strategy, which involves applying a lot of domain solutions and domain context. And the fact that now we have invested in that company and we have a representation on the Board and we have a joint go-to-market defined along with them, it gives us a great opportunity actually to combine our technology and digital capabilities, bringing the COPE Health's domain capabilities so that we get the jump start into the -- our newer sector, right? And this is something which is used more as a springboard to get to the core of the health care customer base with the complementary skills of both COPE and Mindtree. Now that essentially is the rationale why we went about, and we're already working with them in a few customers as we speak. I hope that...

[Operator]

Next question is from Vikas Ahuja.

[Vikas Ahuja, analyst]

So I have only one question. So normally -- so now if you see globally, many companies have started highlighting cost impact led by maybe macro risk inflation in the U.S. or maybe slowdown in Europe. Do we think the cyclical headwinds emerging could, in the near term, derail what otherwise would have been a strong structural trend? Are we building in any risk around it, which means our growth could be materially different from what we have achieved in FY '22?

[Venu Lambu, executive]

I'll talk -- sorry, DC.

[Debashis Chatterjee, executive]

No, go ahead.

[Venu Lambu, executive]

Okay. Yes. So I'll comment about the growth and, Vinit, you can chip in with regard to the risk related to the margin and so on. Look, as we speak today, we have a robust pipeline, which we are confident that it will continue to strengthen and it will continue to grow in the near term, right? It's very difficult when you're sitting in the beginning of the year to comment in terms of how the Q3, Q4, what would be the demand outlook in that particular quarter. But at least in the near quarter, I don't see any headwind with regard to the demand or the pipeline size that we have. It continues to be robust. And so we're confident of that. Look, whether there is an inflation problem -- the second part is that whether there's an inflation problem or there is a need to access customers faster. The technology plays an important role both to drive the cost-saving mandate as well as to enhance the revenue maximization mandate of our customers, right? I think it's just that you need to have the solutions and offering portfolio that can actually address both the mandates. So if we're having those kind of conversations with customers, I'm pretty confident that we'll continue to have that kind of traction going forward, either to address the efficiency part or to address the change for using the digital capabilities. Vinit?

[Vinit Teredesai, executive]

No, nothing I actually could comment.

[Venu Lambu, executive]

Okay. Those are the comments on that.

[Vikas Ahuja, analyst]

Sure. We know also -- just assuming in case of no macro impact, do you think, if we exclude the pent-up part in FY '22, we can replicate what we have achieved in FY '22 in FY '23?

[Venu Lambu, executive]

Look, I think DC covered it in the initial briefing that our endeavor is actually to deliver the industry-leading growth as we get into FY '23. Yes, that's aspiration, I would say, right? And that's the goal we will work towards.

[Operator]

Next question is from Mr. Nitin.

[Nitin Padmanabhan, analyst]

Am I audible?

[Operator]

Yes.

[Nitin Padmanabhan, analyst]

Yes. Great. So my question is around pricing. Just wanted your thoughts on that. One is obviously existing contracts, newer contracts. And obviously, there are some where there are in-built productivity benefits. If you could just give a sense in terms of how are you thinking about how this sort of filters through on a portfolio level on a going-forward basis? And second, considering that there is a lot of inflation-led headwinds for customers, just thinking out loud, as we go towards the tail end of the year, if those inflation just sort of hurt their earnings, the ability to get pricing becomes possibly a little more difficult. So how are you visualizing the flow-through of pricing into the overall portfolio? How should we think about it from a Mindtree portfolio perspective?

[Debashis Chatterjee, executive]

So look, there is a pricing element which is related to the niche skills, right? And if you look at the niche skills, are predominantly focused on helping customers to transform into the digital models, right? So that means they're essentially addressing the revenue maximization mandate, right? So if those skills are oriented towards the revenue maximization mandate of our customers, there is an appetite for clients to actually pay more, right? But if the skill sets are related to addressing the efficiency mandate, we know where you're supposed to drive the cost down, either through automation, increased productivity or in some cases, even the rates could get under pressure, as you rightly mentioned, that every -- most of the customers will end up facing the headwinds of inflation, they look at how much cost they can reduce in their businesses. So I think it's -- there is going to be pressure in driving savings in the legacy or in the traditional part of the scope. But there will also be significant investment dollars coming in, in the digital space, right? I think it's all about balancing it right within our portfolios, right, at the account level and then growing it up to the sector level. If we can get those balance right with the right capabilities using our 4 service lines, I think some of the headwinds we might face with regard to the cost saving pressure, we can mitigate it by focusing more on the digital dollars that we can get. So that's actually how I would...

[Nitin Padmanabhan, analyst]

So just to sort of maybe ask in a different way. So if you look at the wage inflation or the salary inflation that you could see this year, do you think the -- whatever increase in realizations that you may see will completely offset that? Or do you think it will only partially offset that? How are you seeing it?

[Debashis Chatterjee, executive]

Look, it's difficult to say a like-to-like offsetting part of it. I think the wage inflations, whether it's in India or outside India, is one aspect of it and how do you manage that cost? But the pricing is more about what customer pays you for certain skill sets, right? So hence, I do believe that it's not fair to start relating to the like-to-like mitigating of the cost element. But I can only say there is an opportunity for increasing price for certain niche skill sets. And it's left to us in terms of how much we play that part of the business more while balancing it out on the cost saving part of the business.

[Operator]

Next question is from Rishi Jhunjhunwala.

[Rishi Jhunjhunwala, analyst]

Can you hear me?

[Operator]

Yes.

[Rishi Jhunjhunwala, analyst]

Okay. Good. A couple of questions, right? So first of all, on your hiring. So your headcount growth this year has been almost 47%. It's not like it is coming on the back of underhiring that you might have done in FY '21. And on top of that, versus pre-COVID levels, your subcontracting expenses are also up. So how do we read this significant delta between headcount growth of 47% versus revenue growth, which was more like at 31%? So 16% higher growth. Does it mean that for next year, unless we are going to grow substantially better, the headcount intensity will drop significantly?

[Debashis Chatterjee, executive]

Let me take a stab at it, and then Vinit and Venu can chime in. I think we all acknowledge the fact that there has been -- the attrition has been one of the challenges in the last 3, 4 quarters. So what you see in terms of numbers, as you described, are just to ensure that we cover for the attrition. And as we control the attrition, as the attrition numbers come down, I think the difference that you see over there should be also reducing. Now that's one aspect. The second aspect is that from a business standpoint also, there are a lot of opportunities which are purely outcome-based and which are tied to business outcomes of clients. And as we do that, we should be able to also deal in the headcount and the revenues to a certain extent. So that is also something that will help as we go along to change those numbers as you described. Vinit, do you want to add anything?

[Vinit Teredesai, executive]

Yes. Rishi -- and also for that, large section of our addition has also contributed because we have done a lot of fresher hiring as compared to the past years. So that is one important element that you should keep in mind. Subcontractors, as DC mentioned, is something which we sort of pick up and tick down depending upon how the requirements as subcontractors are typically bought into play when we had to ramp up very quickly. But a very disciplined amount of sort of contractor cost management, this is something that we manage pretty well. We have a program that [ concern roles and manage costs ] to ensure that [indiscernible] [ on that front. ] And the last point is a lot of hiring is also to ensure that we are building a capacity for our demand that is -- and the pipeline that is with us. And the today's market when the talent is absolutely a critical part, we had to ensure that -- this is one part of the investment that we had to ensure that we have built in our numbers. So that we are able to take advantage of the growth that's coming on our way.

[Rishi Jhunjhunwala, analyst]

So I understand the logic behind hiring. The only point I was trying to get a clarification was that in case -- suppose next year, you're looking at a 30% revenue growth. In order for you to balance out the additional hiring you have done this year, effectively, let's say, your hiring will be less than 15%, right? So is that a right understanding?

[Vinit Teredesai, executive]

That's not correct because if the growth is on the same times -- same lines as what we have delivered in FY '22, then the hiring will also be in line with that because that is all from an incremental perspective about how we'll be entering the subsequent year. So hiring is always done right now ahead of time. So I don't see you should correlate that 2 points.

[Rishi Jhunjhunwala, analyst]

Fair enough. And just very quickly, your hedge book has gone up substantially if you look at it versus 1 year ago and 2 years ago, of course, to a large extent also, a reflection of your revenue growth. But at $1.72 million with a hedge rate of 82%, if we were to remain at 76% for the next couple of years, we are almost looking like INR 1,000 crores worth of hedging [ edge. ] Is that the right way to look at it?

[Vinit Teredesai, executive]

Yes. It's also -- we have also slightly extended our [ year of ] hedges from probably 3 years now to look at a certain portion of hedges for the -- towards fourth and fifth year. So that's on a constantly rolling basis. As you know that we actually accelerated our hedging program in a much structured and disciplined way since the beginning of last year. So that's what you are seeing it now. What we are right now doing is only 70% of our total net exposure that we are forecasting in the future years.

[Operator]

Next question is from Siddharth Vora.

[Siddharth Vora, analyst]

Can you hear me?

[Operator]

Yes.

[Siddharth Vora, analyst]

Yes. I also had a question around the healthy employee additions you had this quarter. It shows a number -- even if -- with that addition, we are on a higher utilization base. So have you added more on the laterals, which are getting what we saw on the job very fast, the kind of fresher additions you would have done for the year? What would be that number?

[Vinit Teredesai, executive]

Yes. See, I won't specifically comment. I can give you -- we are -- when we do the hiring, we do a combination of hiring. In the last 2 to 3 quarters, our hiring on the freshers is roughly in the range of 1,500-plus per quarter. So that's how -- and that has been consistent in the last 2, 3 quarters. So you can take that as a number -- as the base and do the rest calculations.

[Siddharth Vora, analyst]

Sure. And your employee addition -- so in terms of that employee number as well, your utilizations at 83% has been the norm for like last 4 to 6 quarters. You expect that level to remain? Or you want to lower that?

[Vinit Teredesai, executive]

See, utilization is all -- today, if you look at our order book to billing, that period is pretty small. So we are able to get our people built on a very, very quicker note. We are also able to get our freshers who are coming after the initial training, getting built on a very, very quicker note. So all these put together are definitely helping us in terms of a higher utilization. Ideally, our comfort level of utilization will be in the 80%, 82% range. So that's where we'll be looking at. And at some point of time, that normalization will also happen.

[Siddharth Vora, analyst]

Sure. And one more thing. So your client buckets have seen a very strong improvement in this year, commendable job. It's sustainable and you should see these client mining benefits continue? Any one-off over there?

[Vinit Teredesai, executive]

No one-offs, definitely. We are looking at basically -- so now in the last 2 to 3 years, we have rationalized some of the tail accounts, and that will continue as a part and parcel of our strategy. I think -- so we have done a pretty significant number of tail account rationalization, but at the same time, we also added new logos and new clients, and that exercise will continue. So our account mining strategy is definitely going to continue even in the future.

[Siddharth Vora, analyst]

Sure. Really helpful. Last, even in this quarter, your efforts have continued to shift on site -- sorry, offshore and not on site in spite of subcon costs being there or not seeing huge deviations. Any -- anything to call out over there? It's a stable number which you will continue?

[Vinit Teredesai, executive]

Yes. At least in the initial part, we don't -- we are not looking at clients asking our people to return back to offices yet. It's only in very few pockets we are seeing that phenomenon. But I'm sure as the COVID subsides in the European and other regions, there can be a potential increase in the second half for -- to increase at that point of time. There can be a shift between the offshore/on-site ratio slightly.

[Operator]

Next question is from Abhishek.

[Abhishek Shindadkar, analyst]

Congrats on a good execution. Just 2 questions. Vinit, you mentioned that your ability to convert the bookings to revenue is much better. So should we read that our mix of short -- tenured deals have gone up in the past few quarters? That is one. And second is kind of what's the thought in terms of -- our fixed price contract type has seen almost a 4% reduction in year, increasing time and material. So what are clients doing with us -- or because the general thoughts were that increasingly more FPP kind of work is happening, but we are seeing a change in our contract type. So any color there could be really helpful.

[Venu Lambu, executive]

I'll take the first question.

[Vinit Teredesai, executive]

I'll take the...

[Venu Lambu, executive]

I think the first question and the fixed price part are sort of interrelated. So I'll give general commentary, and you can add further to that, Vinit, right? Look, if you actually look at it, the point about having an opportunity to realize revenue at a much faster pace from the point of order booking is coming due to the nature of this work that we actually do, right? And most of the work, if it is getting pivoted more towards digital transformation, the concept of a long-term transition that you associate in the traditional IT services is not there in most of the scope, right? So hence, your day 1 is essentially your revenue kick off time, right? And that essentially is the context when we make a comment that we have a great opportunity in quite a few deals where we can realize the revenue at much faster pace than you associate with the traditional deal kind of construct purely because of the kind of digital work that involves without a transition. And that is also the reason, in my view, which is leading to the fact that when we talk about a digital transformation, you essentially have an end goal in the mind. That's an end vision. That's what a customer defines along with us. But the journey is something we have to navigate together. And when you start a journey of digital transformation, the scope at every milestone is not hardly defined, right? I mean it gets defined, it gets evolved as you start working on towards that. That is also the reason why customers would like to start with a T&M kind of a construct. But as the scope gets cleared and it sort of attains a sort of -- degree of certainty in terms of both duration and the quantum of work and the nature of the work, then it tends to get converted into a fixed capacity or a fixed price kind of a model, right? So I thought I'll just sort of correlate to the first aspect of it in terms of why it starts in a short deal and then it tends up being a large engagement and also the kind of contract that it evolves throughout the journey.

[Vinit Teredesai, executive]

And yes, the other thing is, I think -- so for us, both fixed price and T&M are both -- we need to do a balancing act between both of them. Our fixed price engagement helps us in terms of getting some good margin leverage. While on the other hand, the T&M helps us in terms of -- it does help also on the margin, but also mainly important base, it also helps us on the cash flow part of it. So we'll try to strike a good balance between both of them and -- which will help our business in terms of growing.

[Abhishek Shindadkar, analyst]

That is helpful. If I can ask a follow-up to Venu. If I look at the transaction price data that you've shared and that number as a percentage of exit revenue, it's almost doubled now from -- it's almost 52% versus 29% at the end of Q4 '21. Does that mean that our visibility is substantially better, at least for the next 12 months? That is one. And second, Vinit, so the converse -- conversely, we have been able to maintain margins despite a drop in FPP. Would that mean that once these short contracts become FPP as when you highlighted, that gives you additional lever for margins for FY '23?

[Venu Lambu, executive]

Look, on the first question, with regard to the long-term visibility, it's very difficult to comment or even give any steer on that for something which is 3 or 4 quarters down the line, right? But our endeavor is actually trying to see that one is how can we increase our book-to-bill ratio, how can we increase faster revenue realization against the order that gets booked, especially in the context that in the near term, we have a healthy pipeline. So that's -- that should give you a color in terms of how we see it in the near term. But anything 12 months, I guess, it's very difficult to comment or predict.

[Vinit Teredesai, executive]

See, it's -- yes, in theory, yes, fixed price contracts, as I said, does help us in terms of getting some margin leverage, but it all depends upon when and what time it comes in. But yes, in theory, yes, what you're saying is right. Your [indiscernible] is right.

[Operator]

We will take last question from Apurva Prasad.

[Apurva Prasad, analyst]

I hope I'm audible.

[Operator]

Yes.

[Apurva Prasad, analyst]

Great. So DC and Venu, you touched upon this part, but just sort of wanted to get your thoughts. So on the short-cycle deals, especially in the economic uncertainty environment, do you see a bigger impact on the discretionary side of the spend, particularly on the customer success area? And a part of this is -- probably can get reflected in the TCV. It looks like the correlation is not as strong as earlier. So do you see that correlation between TCV and growth breaking because of the short-cycle deals?

[Debashis Chatterjee, executive]

I think let me take a stab at it. I think -- see, as Venu explained, when you go on a journey of digital transformation, there will be short-cycle deals, but you will eventually have -- you work with the client and client has a vision. And you cannot leave it halfway. So what happens in a typical TCV deal is kind of sign up as a managed services for 3 to 5 years over -- and you have a visibility in terms of what is the revenue that can come. But in a typical short-cycle deal, once you are chosen as a digital partner for the client in terms of the digital transformation, you maybe see the short-cycle deals, but if you add 2, 3 years of work that we do, it kind of translates to kind of a TCV, which you did not have a view earlier, but you have a view over a period of time. So that's one thing which you need to keep in mind. And we watch this space very closely, and we have to -- we are working with our clients also very closely. So if there are scenarios where things do change, I think things may slow down a little bit, but that also might help in terms of getting some managed services constructs because clients may be, again, getting into the cost pressure. So I guess what Venu was articulating and what we watch very closely is that we need to play in both the areas. One is how do you help in terms of client maximize the revenues by participating in some of the transformation deals. And at the same time, we need to also keep an eye in terms of can you participate in more managed services constructs, which may be more tenured, maybe multiyear opportunities, but which will also be an efficiency play for the client. And I think we are capable of playing in both these areas. And I think that's where we want to leverage, and that's where we need to make sure that we balance it out clearly. Does that answer your question?

[Apurva Prasad, analyst]

And -- yes. Yes, that's helpful, DC. And just finally, you spoke about the full stack accounts building, focusing on that, and the product development expanding to enterprise IT scope. Any metrics that you can share around this and how this is progressing? And finally, on the top 6 to 10 client bucket declines, how should we read that?

[Debashis Chatterjee, executive]

Well, I think the first thing is as far as our strategy is concerned, we have very clearly laid out that we want to restrict ourselves to a focus set of clients and do more cross-sell and upsell. I think that is reflected in the fact that 90% of our revenues, $1.2 billion out of overall $1.41 billion has come from focus 100 accounts, which means that our mining strategy, cross-selling and upselling and all these things are working well, and we'll continue to rationalize the long tail as we go along. What was your second question, Apurva?

[Apurva Prasad, analyst]

6 to 10, DC?

[Debashis Chatterjee, executive]

Yes. 6 to 10 -- we can say 6 to 10, we can say 2 to 10. But I would say that let's look at overall 2 to 10. And if you look at -- or look at 2 to 20, take the top 20 accounts, excluding the top account, that grew for the full year 40.5% vis-à-vis the Mindtree's overall growth of 31%. So -- which again, means that if the 2 to 10 accounts -- 2 to 20 have grown 40%, then that's -- again, the account mining is working. The 2 to 10 grew around 34%, so which is again higher than 31%.

So if I just look at the top account and leave us at the top account, our endeavor is to make sure that the top account -- the next set of accounts grow faster than the top account and goes faster than the overall company average, which is what is working out fairly well. And again, the client constitution also has come down. I think the top account now is 25%, which was around 28%, 29% a year back.

[Operator]

I would now like to hand the conference back to Mr. Vinay Kalingara.

[Vinay Kalingara;Mindtree Limited;Head of Investor Relations, executive]

On behalf of the management, thank you all for joining this call and for your continued support. You may now disconnect your lines. Thank you.

[Venu Lambu, executive]

DC, I'll give you a call.

[Operator]

Thank you. On behalf of Mindtree Limited, that concludes this conference. Thank you for joining us, and you may now exit the call.