Tech Mahindra Ltd
NSE:TECHM
| US |
|
Fubotv Inc
NYSE:FUBO
|
Media
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
C
|
C3.ai Inc
NYSE:AI
|
Technology
|
| US |
|
Uber Technologies Inc
NYSE:UBER
|
Road & Rail
|
| CN |
|
NIO Inc
NYSE:NIO
|
Automobiles
|
| US |
|
Fluor Corp
NYSE:FLR
|
Construction
|
| US |
|
Jacobs Engineering Group Inc
NYSE:J
|
Professional Services
|
| US |
|
TopBuild Corp
NYSE:BLD
|
Consumer products
|
| US |
|
Abbott Laboratories
NYSE:ABT
|
Health Care
|
| US |
|
Chevron Corp
NYSE:CVX
|
Energy
|
| US |
|
Occidental Petroleum Corp
NYSE:OXY
|
Energy
|
| US |
|
Matrix Service Co
NASDAQ:MTRX
|
Construction
|
| US |
|
Automatic Data Processing Inc
NASDAQ:ADP
|
Technology
|
| US |
|
Qualcomm Inc
NASDAQ:QCOM
|
Semiconductors
|
| US |
|
Ambarella Inc
NASDAQ:AMBA
|
Semiconductors
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
1 179.65
1 747.45
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
|
|
Fubotv Inc
NYSE:FUBO
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
C
|
C3.ai Inc
NYSE:AI
|
US |
|
|
Uber Technologies Inc
NYSE:UBER
|
US |
|
|
NIO Inc
NYSE:NIO
|
CN |
|
|
Fluor Corp
NYSE:FLR
|
US |
|
|
Jacobs Engineering Group Inc
NYSE:J
|
US |
|
|
TopBuild Corp
NYSE:BLD
|
US |
|
|
Abbott Laboratories
NYSE:ABT
|
US |
|
|
Chevron Corp
NYSE:CVX
|
US |
|
|
Occidental Petroleum Corp
NYSE:OXY
|
US |
|
|
Matrix Service Co
NASDAQ:MTRX
|
US |
|
|
Automatic Data Processing Inc
NASDAQ:ADP
|
US |
|
|
Qualcomm Inc
NASDAQ:QCOM
|
US |
|
|
Ambarella Inc
NASDAQ:AMBA
|
US |
This alert will be permanently deleted.
Tech Mahindra Ltd
You don't have any saved screeners yet
Good day, ladies and gentlemen, and a very warm welcome to the Tech Mahindra Limited Q2 FY '20 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I'm now glad to hand the conference over to Mr. C. P Gurnani, Managing Director and CEO of Tech Mahindra. Thank you, and over to you, sir.
Good evening, good morning, and welcome to Tech Mahindra Q2 FY '20 results. I know all of you have seen the announcement on behalf of your company. I'm happy with the performance of quarter 2. We have had a great quarter -- record quarter in deal wins, one of the largest deals in Tech Mahindra's history. We are also pleased to end H1 with the highest TCV across both enterprise and communication verticals. Our pipeline remains robust. Overall, a very great broad-based revenue growth, practically across all the geographies in constant currency terms. I'm also very happy with the digital transformation. The digital revenue have crossed the 0.5 billion mark this quarter. Contribution from digital revenues stood at 39% of the quarter's revenue. Clearly, our focus on this gen technologies, our focus on TechMNxt has put us in a good position. To augment our digital offerings, we would also like to report and announce the acquisition of Born Group, a very, very effective content, creative and e-commerce agency headquartered out of New York. And I'm happy to welcome a team of Born, the employees of Born into the Tech Mahindra family. I know that Manoj will take us through the highlights of the quarter, but in general terms, important is to salute the teams that have worked for communication teams, which have worked for enterprise, retail, high-tech, healthcare vertical have done very, very well. We did see some headwinds from the manufacturing sector, primarily because of the auto sector. EBITDA margin are now at 16.5%. There is an expansion of almost 130 basis points. So clearly, our focus on 5G, focus on network services, focus on mobility, focus on blockchain and the data services in AI continue to help us transform our clients, help our clients grow their business and actually help us in the New Age service offerings. So I think as I look back, and I remember when we presented the TechMNxt charter to you, we did talk about some of the platforms that we would be developing for ourselves. We have now delivered the latest version of AI platform, GAiA. It is again powered by Acumos. It is helping us build better partnerships with some of our key clients. I am also very happy that my team had shared with all of us that Tech Mahindra prides itself on business, on digital transformation, but we are also very proud of the work that we do with the community, the work that we do on sustainability, and the work that we are doing in making some of the initiatives where our employees are not only self-learning, our employees are also transforming themselves. But more importantly is they participate with the society and practically at all locations around the world. So it is indeed gratifying that our employees participating in sustainability. We have won award from Dow Jones, we're under both categories, which is the Dow Jones Sustainability Index in World category as well as Emerging Markets. Tech Mahindra is one of the few, just 1 of the 3 Indian companies across all sectors to be included in the DSI World Index. So I'm only saying is that your company continues to be a company with a purpose, continuing to build technology processes, continuing to build deep customer relationship, continuing to progress well on operating metrics, and so contributing to the society and making sustainability as one of our important clients. So thank you, again, for joining this call. I do believe we have a healthy pipeline for the FY '20, a decent deal win momentum, and I do believe that both Manish Vyas and Jagdish Mitra and Vivek Agarwal will supplement Manoj, our CFO, after he presents the financials of Q2 2020. So thank you very much. I may not be on the rest of the call, but I'll try and participate as much as possible. So over to you, Manoj.
Thank you, C. P., and good evening, good morning to all of you. So as C. P. articulated, I think we had a satisfactory quarter in terms of both improvement in revenue as well as improvement in EBITDA. Just diving a bit deeper on a constant currency basis. Revenues grew about 4.1% Q-o-Q to $287 million and about 7.3% Y-o-Y on a constant currency basis. Within that, enterprise business had a very strong quarter of 5.6% growth in CC terms, and communication grew about 2% in CC terms sequentially. As C. P. mentioned, I think the composition of growth is broad-based, except for one vertical where we had alluded that there is a weakness is in the auto segment, which is impacting manufacturing. So that's come about even in Q2. If I look at the EBITDA front, I think margins expanded about 130 bps sequentially and stood at 16.5%. I think if I look at the tailwinds, headwinds, I think operational efficiency, including certain benefits in SG&A, were about 100 bps. I think some improvement on synergies with the portfolio companies. And of course, the lack of reserve parts. While I think the headwinds were largely on account of partially, a few people, the salary hikes happened in Q2. So that had about a 20 to 30 bps impact. On SG&A, I think we do believe that normalized SG&A will be about 13.5% to [indiscernible] 13% because some of these factors keep going up and down in the SG&A line. Moving to some of the other metrics, I think DSO for the quarter did increase to -- by 4 days. I think most of the increase has come in the billed DSO. I think one of the things we were working on was to look at the unbilled and convert it more into billed. So I think given that, that has happened, I think I'm hopeful that over the next 2 quarters, we should be able to bring that DSO number down. If I look at the free cash flow for the quarter, it's about $73 million, which is about 50% of PAT. I think the one other item I wanted to point out was that we had a tax refund because we got a favorable refund order on one of the old matters. And because of that, the tax rate for this quarter is 16.9%. We had all mentioned earlier that our normalized rate will be between 25% to 26%, so that's something which we've got almost as a onetime benefit on the tax line. Cash and cash equivalents was slightly north of $1 billion during the quarter versus $1.2 billion as of 30th June. We paid out a dividend of about $229 million. From a head count perspective, we added about 5,700 people -- or 5,750. Hedging, as we -- as you know, we follow a steady hedging policy. Because of that, I think our current hedge book is about $2 billion compared to about $1.7 billion a quarter back, and that's in line with the policy we follow in terms of the hedging. So overall, I think without diving deeper, I think we are on track in terms of what we had mentioned in the previous call. And I think that's -- with that, I'll throw the floor open for questions. Thank you.
[Operator Instructions] Our first question is from the line of Sandip Agarwal from Edelweiss.
Congratulations on good set of numbers. C. P., I have one question only. We have seen some kind of strength coming back very strongly in enterprise again after 1 or 2 quarters of some softness. So what is your sense there? Have we seen the worst, at least, in that space? And also on telecom, are you seeing clear signs of new budgets coming up? Or it is some kind of beginning of 5G kind of CapEx in preparation of that. What is your sense on those 2 areas?
So I think C. P. might be in a bad zone. So let me pick that up and direct that question. I think from a perspective of kind of very high level, and then I'll ask Jagdish to expand on it for the enterprise segment. I think from a perspective of enterprise, as I said, our drag was coming because of a few factors. And I also mentioned in the past that as the quarters progress, that drag will go away. And I think we are seeing some of that happen. So enterprise will be on a steady growth path is what we believe. But clearly, I think this quarter has been extremely strong. So maybe it will moderate a bit, but it will be steady is what we believe. And Jagdish, you want to expand on the opportunities and what's driving enterprise growth?
Sure. Sure, Manoj. So thank you. I think you're right. We did have a fairy slow 2 quarters, and we're starting to see some turnaround. Manufacturing, which is still not growing at the level that it has been grown . We hope to see that it will start moving upwards from Q3 onwards, but the pipeline there looks good optimal process [indiscernible] mining, and oil and gas are starting to show -- and utilities are starting to show growth. So we are hopeful. I think similarly in other sectors, BFSI, HNS (sic) [ NHS ], retail and travel transport, which has shown tremendous growth this quarter. I think in some of them we'll even out because all -- they have primarily driven by some of the deals that came in this quarter. But overall, if I tuck them together, the pipeline is looking good, I think, driven by primary digital transformation and our ability to build in the enterprise solutions there across the board. If you remember, we started that business strategy to put together packaging our solution portfolio into business outcomes, and that's starting to show a better pipeline. So long and short of it, I think we should expect growth from the year.
So your other question was on telecom. And I think our perspective, as you know, we did around some deals and a large proportion of these wins are from the telecom segment. And I will invite Manish to talk about the trends and opportunities on the telecom side of things. Manish?
Yes. Absolutely, Manoj. It's very clear that like we have been saying that 5G and the modernization of the network and hence, the underlying systems and processes to take advantage of the 5G [ penetration has begun ]. I think it's something which is, indeed, a big opportunity, will indeed be playing out in the next couple of years. As far as budgets are concerned, it is very clear that the telcos will spend money on building deep and wide networks because the 5G architecture is slighted -- or rather quite a bit different than how the 4G architecture was. With that said, we are still at a point where as far as the business solutions are concerned, they are evolving. As far as the system transformation is concerned, it's going to follow after the initial trials and the rollouts of the trial markets happen, which is going to be this year and early next year. As far as these budgets are concerned, it will be a combination of some new allocation, and there will be a reprioritization of the existing budget that people have. A more definitive commentary on this, I believe, will only evolve as 2020 starts sinking in. But the good news is, and we have pointed out in our analysis and our observations, that if there is any one macro level trend that one needs to observe and then learn from it. When 4G started happening only 4 operators were working on it the first year of its inception. 5G, about 20 operators are trialing or even partially deploying it as we speak, which I think is an indication that there is -- this train did leave the station and will continue to keep and gain momentum as we go along. Our opportunities are going to evolve depending on what kind of platform different people take. And we are, as you know, very closely monitoring, closely engaged and pretty significantly invested in this value chain.
Just one small question, if I can squeeze more from Manoj. Manoj, what is your sense on the margins? Like we have signed these large deals and already it has been hinted that initially, there is some pressure that's on margins because of it. So what is your sense for next year? I'm not asking for this year, but do you think that next year, all this pressure, after absorbing all the special margin should be better off of this year? Or any kind of indication you can give there?
So I think, Sandip, that's correct. I think if we look at the interim couple of quarters, 2 or 3 quarters, there will be some pressure on margins because of the transition. But if I look at FY '21, I think it would be our goal to pull back margins closer to the FY '19 levels, which is approximately 15%. Now I have not got it all mapped out, but in fact, internally, that would be our kind of target to pull up margins significantly compared to where we end up in FY '20. Also I think since there will be -- or, in some cases, the transition is over 2 quarters. In some cases, it might be 2 and 1. So I think we will give more visibility, but directionally, that's where our initial analysis says -- talks about FY '21 margin.
The next question is from the line of Diviya Nagarajan from UBS.
Congrats on the quarter. Couple of questions. Could you kind of throw some color on the enterprise side of the dividend? Where are these things coming from? And specifically, also in the quarter, you've seen some strong ramp-up in your retail and other sectors and also recovery in the BFSI side. Could you throw some light on that? And going forward, I'm not sure if you discussed this, what's the outlook on operating margins for the second half? Because I think Gurnani talked about some sample costs for the last year.
Thanks. Thanks, Diviya. So -- and I think Jagdish did mention some of the areas which we are looking at. But if I look at, except for manufacturing, which I have indicated was slow, but we are seeing all-round growth driven by 2 or 3 things. One is, of course, that our investments in digital are paying across the board. Second is, of course, our strategy in health care around building more synergy revenue. I think we are starting to see success there. I think in terms of quality of our type of deal wins, I think we are actually -- if you look at the press release, I think there is a fair spectrum of deal wins, including, I think we are seeing a lot of infrastructure and cloud migration kind of deals. We are seeing some on digital transformation on -- for some of the customers. But Jagdish I'll invite you to throw some more light and give some more flavor.
Sure. Sure, Manoj. Thanks. Thanks, Diviya. So we have broad variety of deals really across the board, as Manoj said. And it's varied across regions and I'm sort of happy rather that it's covering a wider aspect of our capabilities that we invested in. Manoj mentioned digital. I talked about digital, but again, digital plays out in various ways. So if I look at EUV, for example, our deal wins are primarily being with our platform play. So we started to see a lot of that work in a particular industry sector and more in BFSI and trying to see more of a platform play for us, which is invested for a while now. Similarly, if you look at other regions, whether it is North Asia, whether it's Europe or U.K. or U.S., part of it is around cloud and infrastructure movement. Digital deals leading the way. So while digital opens up the door, the [Audio Gap] for example, in travel transport and hospitality, which you mentioned, a large amount of the transformation was led by digital initiatives for bringing together a complete enterprise transformation. So even ERP transformations are now led with digital play and we are glad that we are seeing some of that. The large deals that have actually fueled a large amount of the growth Manoj touched upon, one of the key parts which we are driving. And health care has definitely taken the lead in terms of our synergy revenue between HCI and what we do, particularly in Tech Mahindra coming together and one large deal or 2 large deals in that area. High tech, which has been a key area for us, again, around digital and cloud has shown a large deal. So I would say that [ C ] sealed wide, across our capabilities that it's a good sign because it's testing out our strategy and our propositions to the customer. And going forward, I see a similar variety in the pipeline, which consists of all the investment that we are doing and starting to showcase in our pipeline. I hope that answers your question.
And on the margin for the second half, including the ramp-up cost you are targeting? And I believe you've spoken about 15% for next year. But what are we looking at this year?
So Diviya, I think there will be a margin decline of anywhere between 150 to 250 bps compared to last year. It's a broad estimate because, obviously, there are moving parts here. It's what we believe will happen.
The next question is from the line of Nitin Padmanabhan from Investec.
Manoj, on -- so this quarter, it looks like the head count on these software professional side has sort of come off. Utilization has gone up. And all the head count additions appear to be on the BPO side. And in the context of the transitions that are coming in the next 2 quarters, do you think that we'll end up -- and because utilization is at the higher end. Do you think that the drop in margins or the expectation should be more towards the lower end?
So I think from my perspective, really, we're playing with a range. And I think there are multiple moving parts still. So I really don't know where we'll end up. We have various scenarios working on both sides. So that's on the margin front. I think your other question was on...?
The head count additions being lopsided on BPO and on -- the software side actually coming off by 2,000 odd people.
So if I look at that, I think some parts of our business are short-cycle implementations. And when we include head count, we obviously include temporary head count also. So more -- so the decrease we are seeing is largely on account of some such declines, which are happening. And that's on the -- obviously, the health care side of our business. Other than that, I think we have had a little bit of growth, I think, on the IP side. But on the BPO side, I think our business is doing fairly well and it shows consistent growth. And that head count addition is in line with the growth. And so to me, that's been a standout performer in terms of leading growth BPO has been, and that has been there for some quarters.
Sure. And then just 2 quick follow ups. One is -- so would that mean that we could see some kind of a negative seasonality because of HCI next quarter, considering this quarter appears to have been pretty strong on the other segment? Or do you think that just like what we saw last year, we could see some big dip there in the next quarter? And the second question was on manufacturing. Do you think it's all sort of bottomed out in terms of the headwinds on the auto side?
So I think on HCI, of course, the revenue streams have become much more stable now because I think there are synergy revenue streams also coming in. And I think we are seeing a steady stream of wins on that side. So I think the fluctuation of the volatility and kind of the size of the volatility is going to be much reduced. So that's on the HCI side. And again, as I said, it's a short-cycle business. So sometimes, you have ramp-ups over 2 months and then ramp-downs over 2 months. But to me, if I look at that business, it is in line with what we articulated that we will continue to build stable, steady, annuity kind of streams and that will minimize the impact of this. Because this business is what is giving us the entry into those customers, and which we are now converting into steady revenue streams. So on the manufacturing, I'll go back to Jagdish in terms of his view on where we are in terms of some of the challenges we have seen in the past, and what's the view from there. Jagdish?
So -- yes, yes. So let me just address that manufacturing thing a little bit. So from our perspective, I think, obviously, the main challenge is automotive. Automotive cost, most of the decline that we saw in Q1 and Q2. We are now starting to see some amount of growth that's again driven by both automotive recovery, auto OEMs, and some amount of work within process. So anything within manufacturing, we're seeing a lot of incoming discussions around metal and mining, paper and pulp and in the segment of process. The markets that are actually starting to show up is different in different segments. So Europe, we are seeing factory and supply chain management type of work more and more getting delivered. While new markets in Japan, China and Australia are driving what I just talked about in the industry segment. So I'm expecting at least that broadly from our account perspective, we will start seeing growth from Q3 onwards in manufacturing.
The next question is from the line of Sandeep Shah from CGS-CIMB.
Just wanted to understand, would the [ AT&T deal win ] we got wrong. It looks like that it's an outsource of the applications which was considered to be for in the 4G world and is now getting outsourced with Telco. So just wanted to understand, with AT&T awarding this deal, and we work with most of the large telcos, both in the U.S. and the Europe, whether we can replicate this opportunity with the other telcos? And whether such kind of deals are in the pipeline?
Manish, you want to pick that up?
Sure, sure. Absolutely. I think it's a great question. No, I think the deal is really built around 2 or 3 guiding principles: one is transformation of network applications; two, helping or assisting the move and adopt of the cloud faster; and number 3 is to start working on re-architecture as we prepare for the domain 3 of the 5G era. All 3 principles or all 3 fundamentals of this deal at different scale may be depending on the job that we are talking about is replicable because our investments in both networks and network services, including [ premises ] and the cloud is something that has continued for a period of time. And I do believe that with the right opportunities, we may be able to replicate this.
Okay. Okay. And just, Manoj, your comment about this year's margin would be lower by 150 to 200 bps on a Y-o-Y versus first half margin at EBIT level was 12.2%. So are we seeing that in Q3 and Q4, the margins will actually increase because at 200 bps kind of a Y-o-Y decline rate, the H2 margin has to be 14%? So is it the right way of looking at?
Sorry, Sandeep, will you run the math by me again? You're saying it was 12.2%, and I said, it is 150 to 250 bps kind of decline as what we have anticipated, yes? So...
So in that scenario, I think -- even I think that Q2 margin looks sustainable in the second half because...
From that perspective, clearly, I think, as I said, there are some levers, and there are some pulls and pressures. So I think, on balance, this is what we believe will happen during the year, yes.
Okay. Okay. And Manoj, just last thing, is there any upfront investment in the last -- the AT&T deal? And how are we accounting for this business?
So I think I don't want to get into deal specifics, but whatever is there is in the numbers. So if you look at the numbers, it's all factored in there. Because it's a confidential deal structuring and I don't want to get into each deal and what has happened within the commercials of the deals, yes.
Okay. But just to clarify, there is no deferred kind of a cost sticking on the balance sheet out of this deal, right?
What do you mean by deferred kind of cost? I didn't get you.
Maybe on the dual deal duration, you may actually amortize that cost rather than actually -- if any cost has been implemented of that nature.
So there is no such thing, yes, if that is what you said.
The next question is from the line of Surendra Goyal from Citigroup.
So Manoj, just one small clarification. So you mentioned that in the SG&A, there are some one-offs. And based on the cash flow, it looks like there is some intelligence about [indiscernible] and bad debt. Could you just quantify that amount for Q2?
Sorry, what do you mean? Are you saying how much was a reversal of provisioning our projects? What I think the best way to look at, Surendra, is that if I look at that SG&A, the normalized level will be between 13.5% to about maybe 13.8%, 13.9%, that's the range, right? Because there are multiple ins and outs in it, yes.
The next question is from the line of Ravi Menon from Motilal Oswal Asset Management.
Gentlemen, congrats on the good quarter. So I just wanted to understand, if I read the balance sheet right, it looks like almost all the cash flow this quarter, we haven't actually seen any of that moving to cash as it it goes. Because even if you consider the dividend payout, it looks like we still lost pretty much, most of the cash generated this quarter. So could you just walk me through what were the primary uses?
I'm sorry, Ravi, our free cash flow is about $73 million, as I said. And I think if I look at during the quarter, we probably made an acquisition of Mad*Pow, which was closed during the quarter. I think that would explain the difference because that's below the free cash flow line, yes.
Got it. Okay. And secondly, HCI, you were talking about how the synergy is coming through and it's now going to be more or less, a little bit more stable. So should we expect that margin volatility issue you should actually be better for that because a lot of that you will actually have some contractors that scale down along with revenues side.
Yes. I think margin volatility has not been a big challenge in that business. It's been the revenue volatility as someone else also... So what the strategy there was that how do we actually leverage the connects and customer contacts and the offerings we have to build a steady stream of annuity revenue, which is where we have started to now move the needle on that. And that's -- and I think over a period of time, I think we'll see more and more of that kind of revenue stream actually minimizing the revenue volatility. Yes.
Great. And one last question on the manufacturing side. The automotive decline is primarily in the engineering services side or this is more IT?
I think we have seen, as I mentioned before, on the engineering side, we definitely saw it. And I think it came through in some of the results of one of our subsidiaries, Pininfarina. And also, we have seen some limited impact on the IT side, yes. But largely, I would say, engineering, yes.
The next question is from the line of Aniket Pande from Prabhudas Lilladher.
Sir, just wanted to understand your cash flow statement for this quarter. So there has been a decrease in your net cash in this quarter. Can you understand the breakup of that?
I thought I just answered it that we did an acquisition. So there are 2 parts to it, right. So we did -- I mentioned in the beginning that we gave a dividend of $229 million. And also, we made an acquisition, which closed during the quarter, which was the acquisition of a company called Mad*Pow, which we've paid for during the quarter. I think those 2 will explain it.
The next question is from the line of Sumeet Jain from Goldman Sachs.
Firstly, can you tell us the split of your deal wins into enterprise and telecom for this quarter?
I think telecom roughly would be about $1 billion odd. And then enterprise would be the balance of it. I mean I'm giving you a very rough number.
Got it. Got it, Manoj. And based on that and given that your pipeline is also strong and first 2 quarter deal wins also have been pretty robust. Can you give us some broad guidance as to where you can end up for your enterprise and telecom verticals for FY '20 in terms of...
I think I don't want to guide on any revenue number, but I think the only reason I did give a range around margins is because there are going to be sharp movements. But on the revenue side, I think we remain kind of consistent with what we have said in the past that, obviously, we will see more and more telecom move towards industry level growth in constant currency terms. And enterprise will lag, but it is picking up, right? So...
And then any visibility into these deal pickups, particularly in the telecom side. Will our FY '21 growth in telecom be higher than what we are probably shaping up this year?
I think maybe it's too early to say. We still have 2 quarters to go. So I think we'll talk about it at that point. But our goal would be that, obviously, both telecom and enterprise next year would grow at market rates. And that's where, I think, the overall structure of the company and all our efforts are towards.
The next question is from the line of Mukul Garg from Haitong Securities.
Manoj, this is just regarding the comment which was made earlier on the call that a lot of enterprise growth this quarter came from deals which were won this quarter. So should we read that as saying that this was more the effort of some early deployment in deals this quarter, and that might impact the growth for Q3?
So I wouldn't -- so first of all, I did state in the beginning also that I think when this quarter, I think, our growth was about 5.6% CC or 5.8% CC. I think we will see some moderation, but it will still be steady. That's what I said. And I think the reason that's happened is, of course, that clearly the ramp-ups on some of the deal wins were costed. And when we look back at it, I think in terms of some of the execution milestones, et cetera, that move faster, but it will still be steady going into Q3 and Q4, yes.
Got it. So we should assume that the weakness that you have seen in enterprise over the last maybe 1 year, it's probably stabilized now. And then you should see sustained growth in this segment going forward.
Yes. That's what it looks like. So if you look at manufacturing, I think Jagdish mentioned earlier on the call that we are seeing stability and growth coming back. I think we are seeing growth coming back in the BFSI segment, which has been another segment which has not done well in the past. And finally, I think as we look at Q3, seasonally, it has been strong for our retail vertical, and if I look at some of the other areas. So broadly, I think many of the drivers for the muted performance of the enterprise segment are in the past. And -- but as I said, I think the growth this quarter is something which is obviously very, very strong, and it will moderate a bit but it will be steady, yes.
Got it. And then on the communications side. While we understand the large deal win would kind of propel growth over the next 2 quarters, but there has been some commentary from other companies in communications space that telcos have kind of put some spend on hold. Is that something which you guys have also seen? Or is that an area which you have not seen any impact from so far?
So I think I'll just give a two-sentence answer and hand it back to Manish. But if you look at our presence across the telco patch, I think at any given point, some customer or the other goes through some cycle. And so from a normalized viewpoint, I think this is normal for the course. But Manish have you seen any specific change coming recently in any particular behavior of customers?
No. I think we have maintained this commentary for a while that the telecom industry is indeed at the crossroads. There will always be some people who have defined their road map, like a few people in the U.S., that's where you are seeing the traction. And there are certain markets which are like Europe, for example, which is still at a point where they are reconfirming their game plan over the next 1 year or 2. And a lot more of these things will evolve sometime around February, March, early next year. So I would say it's a very similar path. There is nothing new and unique that is happening in terms of the spend patterns. There will be repurposing of the CapEx to try and modernize the network, modernize the systems. And at the same time, there will be intense pressure on OpEx. That I don't think is going away anytime soon, because the service provider industry is constantly searching and looking for their growth opportunities, and 5G is something that they are clearly going to be betting big on. So I don't think this will change anything that we have been saying about where our opportunities lie. We remain focused on the 3 priorities of a service provider. The need to help them run, which is optimize their operations better. The need to help them modernize, transform or change their system process faster and, of course, to find growth opportunities for them via cloud virtualization. And maybe sometime, another 12 to 15 months from now, we are starting to, obviously, leverage -- cross leverage our enterprise presence as we do more and more solutions in the 5G for enterprises. So I think with that kind of a story, I mean, it's evolving. Every day is a new day. And it continues, we continue to learn from the steps that the service providers are taking.
The next question is from the line of Vibhor Singhal from PhillipCapital.
So Manoj, just wanted your input on the European business. It's been around $340 million mark quarterly, in there, for us 10 quarters now, especially has been weak in the past 3, 4 quarters. It has got much to do with the weakness in the auto segment? Or do you believe -- or are there other segments also because of its kind of not showing any growth?
So I think you are right. I think if I look at the stream there, I think there are 2. The biggest contributor, I would say, is the auto sector. Also, I think there is a slowness in the market because of some areas' economic events, but that's the secondary factor. Today, I think the main factor has been the auto segment. Broadly speaking, if I look at Europe as a region, I do believe even that will start showing growth going forward is what we believe into the next couple of quarters, yes.
Okay. And in Europe, you have -- just to get some color, which would be the verticals in which we are kind of big? I mean I know telecom is, of course, there. But apart from telecom, which verticals would be big for us in Europe?
I think telecom, manufacturing, of course. I think financial services are a bit smaller in Europe. And I think those will be the top 3. So it's not going to be a big mix-in, but I think more manufacturing lead compared to the rest of the business, yes.
Sure. And lastly just on the retail segment. I think we have got color on most of the segments on HCI and banking as well. Our retail segment reported a very strong growth in this quarter. I know you have mentioned that this might not be sustainable, might basically come down, but overall, we have seen a lot of our peers calling out weakness in retail because of global uncertainties around trade wars and on. Do you believe that might also impact our numbers? Q3, of course, because of holidays and for those might be big. But beyond that, do you see retail probably sliding more into weakness?
So I think if I look at the growth this time, I think it has been a series of smaller engagements. It's not one particular client. It's been across the customers. And honestly, I think we are not a very large player in the retail vertical. But -- so I think some of the commentary made by our peers might be in the context of some larger customers. I will let Jagdish add more color. Jagdish, any views on retail, and how do we see it evolve into the future?
So Manoj, primarily given you're right, we are not a very large player in retail. Ours is an entry strategy more to digital, which tends to be small in the beginning and that started to play out. We see a lot of the deal wins in the customer experience space. So we've done that. We are starting to see a larger play in this arena, which we had called out earlier. These are all sort of work in the pipeline, primarily because we've seen both the physical part of the experience and the digital part of the experience has started to create traction in the market. And that's an area that we'll see opportunity growing. But mainly, retail spread well across. We've got some big accounts of retail in Europe, but they are limited to a few numbers. But overall, retail growth is driven by smaller account growths in digital and customer experience.
The next question is from the line of Neerav Dalal from Maybank.
I just missed the TCV numbers for this quarter. If you could give that, that's my first question.
That's $1.49 billion.
And I wanted some comments on the engineering R&D side. How is Tech Mahindra looking at this segment? And what is the outlook?
So I think -- Jagdish, you want to comment on what we are doing on the engineering side? I don't think we have Karthik on the call, but Jagdish, you have some commentary on engineering what's driving R&D?
Sure. Sure, Manoj. So engineering primarily even the recovery that we are seeing on auto and in manufacturing today, is been driven by primarily, a lot of work that we are doing on the engineering side. So that's been one key area of -- more than IT that we've seen growth around in the engineering side. On the product development as well as on the software engineering part of it our splay has primarily been in the high-tech area, and that continues to be the area of growth within engineering. But within a vertical primarily being driven with the next quarter's pipeline and growth around manufacturing.
We have the last question in queue from the line of Amit Chandra from HDFC.
So my question is related to the activity in the [ D2 ] revenue. So we have seen strong growth in the [ D2 ] revenue. But activity it is not really -- why it has been falling now since the last 3 quarters? And in terms of the employee addition, there has there been a strong employee addition in the year now in this segment? So what is driving this employee addition on this? And why do revenue for employees falling down? And also, it also includes some additions into the '18 period?
So I think, Ritesh, if you are on the call, I think it's a geography mix issue and the kind of work what we are doing. But Jagdish, you want to pick that up?
Yes, absolutely. Thank you, Amit, for your question. So if I want to just break this down in 2 different parts. One is we continue to show, obviously, robust growth. Constant currency, we had about 4.4% growth quarter-on-quarter and 25% growth year-on-year. Now we did add about 6,900 FTEs through the course of the quarter. But you have to also bear in mind that some of those FTEs are midway in transition. So looking at a quarterly revenue per FTE will not always be the most appropriate metric. What it does account for, which Manoj alluded to, is the mix of geography, service line and things like that, which come into play. And at the same time, using technology effectively to drive superior business outcomes. So our promise of being the catalyst for one-office transformation still continues to resonate very strongly in the marketplace. And therefore, looking at some of these metrics on a quarter-by-quarter basis may not be the most appropriate because when you annualize it and look at it over a secular time horizon, you'll find a revenue per employee, it's more or less been in line with what the mix ought to be. That is the way we are ending at seeing it. So you might end up seeing some spikes [ mid-year ] as we have done in the near-term for some of the retail ramps that are coming up in the holiday season next quarter. But for the most part, it's not in variance with what we would expect it to be.
Okay. My last question would be on the acquisition that we have done, the acquisition with Born Group. So can you please throw some light on the strategies and on the synergies that we are actually looking at? And this segment is going to help EBITDA on a whole range of capabilities. So as -- and also what kind of benefits are you guys going to achieve on this?
So from a capability perspective, the Born Group is an agency with strong expertise in commerce, creative and content, which is a high growth segment. It helps both B2C and B2B businesses to operate in the digital world. So say, undertake technology implementation and integrated UX design and design of customer journeys, personas, user personas, et cetera. So it's a fully comprehensive offering, which is a very high-growth segment on its own standalone. And we expect to see synergies of taking that capability to our client base across industry segments as well as the ability for us to sell into the existing client base of Born, the commercial taking capabilities. There is minimal customer overlap and then from a vertical slant perspective, Born has a very strong presence in the retail consumer products segment. So we do expect to generate traction in that direction also. So I think from a basic standalone strong growth opportunity as well as significant synergy opportunity is how we see it. And it also strengthens our whole CMO offering with the new capability set.
And in terms of the vertical disclosure, so how does the [ 10 ] [indiscernible] the verticals you currently have within?
Sorry, how is it shifting the mix? So from overall perspective...
No, not shifting the mix. How is the mix in the exiting in terms of verticals is it influencing [indiscernible]?
Our largest verticals from Born stand-alone is the retail sector. And given the relative size of the acquisition, it won't change the overall mix for the company significantly, but it will accelerate our growth in that segment, yes.
If I can just add to what Vivek said. I think -- this is Ritesh. One of the things that we are most enthused about with the Born acquisition is the fact that we've been growing at both B2B and B2C businesses as we're looking to pivot to a direct-to-consumer model. And having a switched up capability, which cuts across creative content and commerce in an integrated fashion is something that is fairly unique and differentiated for them, leveraging global delivery. We're actually quite enthused with the team of employees that they are getting on board globally because that's the other thing that makes Born stand out is that they are global in terms of footprint. And it allows us to actually take this immediately across to our 900-plus clients, all the capabilities, whether it's the cross-creative content commerce, but also as Manoj alluded to earlier, on the downstream business that can come into play, particularly on the ERP side and others, which is where the influence revenue could come into play. So there are a whole stew of things that I think could come into baring as an outcome of the acquisitions there.
That was the last question. I now hand the conference over to Mr. Manoj Bhat for closing comments.
Thank you all for joining the call. We are all available offline for questions and comments. So please feel free to reach out. Thank you, again.
Thank you. Ladies and gentlemen, on behalf of Tech Mahindra Limited, that concludes this conference call for today. Thank you for joining us, and you may now disconnect your lines.