‘Anticipating Strong Deal Closures In Q3, Broad-based Growth Across Verticals In H2’

LTIMindtree reported its financial results for Q2 FY24 on Wednesday, which show a mixed picture of growth and challenges. While the company reported a 2.3 per cent increase in revenue from operations compared to the previous quarter and an 8.2 per cent rise from the same period last year, net profit displayed a modest 0.9 per cent quarter-on-quarter (QoQ) growth but a 2.2 per cent year-on-year (YoY) decline. This performance, though showing steady progress, has fallen short of certain market expectations.

Nonetheless, LTIMindtree is anticipating a strong second half of the fiscal year, even in the face of market uncertainties and slower discretionary spending. The company's robust order inflow, client base expansion and a decrease in the attrition rate are all factors that provide a solid foundation for discussion on how LTIMindtree plans to navigate the dynamic market conditions in the coming months.

In an interview with BW Businessworld, Sudhir Chaturvedi, President and Executive Board Member of LTIMindtree, delved into the company's performance during the second quarter of fiscal year 2024. Excerpts:

LTIMindtree has spoken positively on H2 FY24 despite persisting uncertainty in the markets and emerging war-like scenario. How do you rationalise this?

We remain optimistic about H2 FY24 despite ongoing market uncertainties and recent geopolitical events. Our confidence is grounded in a substantial order book, with deal signings of USD 1.4 billion in Q1 FY24 and USD 1.3 billion in Q2. These deals are expected to have a cumulative impact, primarily in Q4 FY24, but starting in Q3. However, the evolving situation in the Middle East presents a fresh challenge and its impact on client reactions remains uncertain.

While the recent geopolitical events introduce unknown factors, the company's approach is to maintain close communication with clients and adapt as needed. For the second half of CY23, our outlook remains cautious and we anticipate this cautious spending environment to continue into the first half of CY24. In this scenario, the focus on efficiency is paramount and LTIMindtree's AI-led intelligent operations are well-received by clients, aligning with the prevailing emphasis on efficiency and cost reduction in the market.

BFSI is your largest vertical. Has the situation improved in this vertical for you since Q4 FY23?

From BFSI perspective, I'm going to separate banking and insurance. Insurance has demonstrated resilience with a solid 10 per cent YoY growth. Despite significant losses due to recent weather events, insurance clients maintain investments in technology modernisation. Banking, on the other hand, is anticipated to face some impact, particularly in Q3 due to furloughs. Nevertheless, the company expects banking to return to a growth trajectory starting in Q4, thanks to recent deal wins and the current deal pipeline. What's especially encouraging is the broader picture of growth. The company is experiencing growth across all verticals and regions. In H2, this diversified growth pattern is expected to persist. The consumer-focused industries such as retail, consumer goods, travel, transportation and hospitality have a substantial deal pipeline, with expectations of robust deal closures in Q3 as well.

Nature of deals for LTIMindtree in recent quarters have largely leaned towards cost-efficiency, vendor consolidation and digital transformation. What's the outlook for H2 FY24? Do you see the nature of deals changing as you look at a brighter H2?

Looking ahead to H2 FY24, there's an optimistic outlook, driven by a record pipeline and an unprecedented volume of client discussions. Large deals have significantly increased since the merger, demonstrating the synergy's success. 75 per cent of the upcoming deals in our pipeline aim at cost reduction, as clients seek to enhance efficiency through reduced spending, vendor consolidation, and other enterprise streamlining initiatives. With around two and a half years of strong technology investments, this phase represents an opportune time for an efficiency cycle following a spending cycle. LTIMindtree's proficiency in the cost-reduction business is a key advantage, which offers immediate value to clients and enables them to allocate their savings toward future transformation endeavours. Consequently, the company appears poised for a promising H2 FY24, supported by a robust pipeline and a significant focus on cost reduction, aligning with prevailing client demands.

Could you elaborate on how furloughs are affecting your quarterly earnings and what is your outlook for the remainder of the year in light of this?

The impact of furloughs on quarterly earnings in Q2 and the outlook for the rest of the year is a crucial topic. Traditionally, banking and high-tech sectors have experienced furloughs, and this trend continues in the current year, with furloughs being slightly more frequent than the post-pandemic period. But they are returning to pre-pandemic levels. Other vertical sectors are also introducing furloughs, spreading the impact across industries. Despite this, we have factored the furlough impact into the guidance, affirming that H2 will outperform H1. The assurance of a clear growth trajectory in both Q3 and Q4 remains intact, reflecting confidence in navigating the challenges posed by furloughs across various sectors, which is a critical consideration, especially in these times.

Your attrition is on an upswing and headcount has increased as well in Q2 on the back of LTI-Mindtree merger. Are you looking to hire from campuses in the coming quarters?

Yes, we are going to go into campuses in the coming quarters.

How many freshers are you planning to hire?

We intend to align our hiring with the demand and supply dynamics, particularly in the context of the uncertain macroeconomic environment and cautious clients. While we are confident about our growth in H2 compared to H1, we are also committed to a prudent approach in matching supply with demand. It's worth noting that the supply of fresh graduates has become more accessible and we have the necessary capabilities to execute this strategy.