Bengaluru-based IT services company Mindtree Ltd, which was acquired by Larsen and Toubro Ltd (L&T) in June 2019, is in the midst of a business transformation. In an interview, Debashis Chatterjee, CEO and managing director, talked about his strategy and how he is getting the company’s margins and growth back on track. Edited excerpts:
Taking over as CEO at a period of transition, how has the journey been so far and what are your priorities?
Mindtree was going through a lot of changes when I got on board on 2 August. As I looked at the first 90 days, the priorities were to provide stability to the overall environment. But there was a lot of apprehension in terms of the plans of getting some of these changes out of shape and changes in management, etc. In the first 90 days, I spent a lot of time on site, meeting a lot of strategic clients. The good news is none of the clients moved away from us. The even better news is that when I met the clients, I think everybody was very positive about Mindtree. Then in the next 90 days, the focus had to shift into some of the other areas. There are two priorities for us. One, given that margins had taken a hit, we had to focus on getting the margins back on track because the budget was low. We also had to focus on how to get growth back. And, that has been a phenomenon that has been going on. We did fairly well in improving the Ebitda from less than 10% to 15.6% in Q3. On the growth path, we realized we needed to get some outside-in perspective. So we are working with external consultants and the senior leadership to roll out a strategy for the next three years.
What’s the strategy for FY21?
Mindtree’s strength has been mostly on digital and there is tremendous focus in terms of going further on the digital journey that we have already undertaken. Recently, we launched Immersive Aurora in partnership with PTC, which is an experience centre for AR/VR (augmented reality/virtual reality), and has been well received by clients. Our growth is going to be further built on digital. Growth will be also very customer-centric. I want to stay focused on my key strategic clients and continue to build deeper relationships and partnerships with them. As we grow, we also understand the importance of creating longer tenured contracts or deals.
Your revenue share from fixed price contracts has increased in Q3 to 58.7% from 55.9% in Q2. What is the trend like?
The trend is to have a good balance between the fixed bit and the rest of the business over a period of time. But as we grow the business, it’s also important to look at the mix of the business, which will continue to be digital and project-based. The way we have done things in the past, clients love it. But I think there’s also an opportunity of creating longer-term annuity contracts, which will be lending to the fixed bit and will also be something that will be focusing on wherever there is an opportunity. So eventually, we want to get a healthy balance of both. So, essentially my endeavour is to see a slight increase in the fixed price contracts as we go along.
During the time of acquisition, were there some concerns about Mindtree continuing to run as an independent entity?
Both Mindtree and LTI (L&T Infotech) are into IT services and are very strong in their respective domains. The industries we serve in are complementary. So, there is minimal overlap. That’s number one. Number two, for large deals, we can actually work on a model, where you can imbibe strengths of both the companies and go for cross-selling and upselling. Having said that, there is no plan of merging the entities immediately. We have been given the independence by the parent company to run the show independently. Mindtree is just like any other listed entity running on its own.
The growth of BFSI and retail verticals has been weak in the past few quarters. How do you read into that?
Overall, if you see the growth of the industry verticals, there will always be some quarters in which there will be little variation, primarily for two reasons. One is client-centric, wherein the client may have certain aspects. Second, it’s the kind of work we do with the clients because in many cases, if you are doing a lot of project-based work, it might kind of ramp down and then we wait for the next project to start. But even within BFSI, if you look at the insurance part of our business, that is still growing. So, if you call out BFSI, I am more focused on the portfolio of clients that I have within my sector and that portfolio has been growing steadily. There will be some ups and downs, but on a yearly basis, I think there is good potential. And the same holds good for retail as well. Retail has been a little soft, but again, it’s a quarterly phenomenon, so we are hopeful that it will bounce back over a period of time.