Furloughs From Q3 Affected Us In Q4 FY23, But We Are On Track For FY24: LTIMindtree COO

The merged IT conglomerate LTIMindtree on Thursday reported revenue growth of 21.9 per cent year-on-year (YoY) in Q4 FY23 to Rs 8,619 crore as against Rs 7,128 crore in the same quarter a year ago. But the company also reported its quarterly net profit to be flat at Rs 1,114.1 crore, up only 0.5 per cent year-on-year (YoY).

LTIMindtree's order inflows for the quarter came in at USD 1.35 billion, which helped it close the full-year order inflow at USD 4.87 billion. It has added 31 new clients for Q4.

At market closing time on Friday, the Mumbai-based IT firm’s shares traded at Rs 4,419.30, up 2.29 per cent from Thursday at BSE.

BW Businessworld’s Rohit Chintapali spoke with Nachiket Deshpande, COO and Executive board member at LTIMindtree, to understand the reason for softer numbers in Q4 FY23 and the outlook for FY24. Excerpts:

LTIMindtree’s Q4 net profit was flat as expenses grew and margins shrank. What were the reasons for the softness? Is it due to decreased client spending?

It was largely because of the furloughs that hit us in Q3 FY23, all of them did not come back. And for those who came back, their start was delayed. That has caused softness in our Q4 numbers. When we did our earnings call for the last quarter in Q3 as a combined entity, we talked about recouping the margin by about 200-250 basis points. We were able to come to the higher end of that projection. Our EBIT has improved by 250 basis points. That came based on operational efficiencies but, of course, some big EBIT also because of the furlough coming back and also the absence of a reduction in the integration-specific expenses in Q4, which we had called out earlier as well.

We are actually on track. In FY24, we have committed to being at the same margin levels that both the companies (LTI and Mindtree) used to deliver in the past. And we feel confident that in FY24, we will be able to deliver at those margin levels. In the PAT terms, in q4 all the recovery in EBIT hasn't flown to PAT and that was because of the FX losses as compared to FX gains in the previous quarter.

The impact in Q4 was felt due to slow client decision-making. Is it because of the cost considerations on the client's part?

It is because the deal types have changed. A good portion of the deals in our pipeline, or the deals that we have won are in the category of cost-efficiency, vendor consolidation and some bit of transformation kind of combination. And when you do vendor consolidation deals, they are always proceeded with the transition period because you are taking over from the existing incumbent or a combination of contractor incumbent and internal employees. That typically has a slow start. Hence, the revenue conversion gets delayed because of this transition. And many of the customers were also still calibrating their spend for CY2023, which also resulted in them considering cost till they were sure as to which programs and platforms they want to spend money on.

BFSI was one of the highlights of your Q4. But there were some freezes from your client's side as well. Could you elaborate on that?

Some of our clients have had hiring freezes in Q4. Some of that was driven by macro considerations as the financial markets around the world had a bit of a scare. Most customers took a pause as they were evaluating their own exposures and the impact. Fortunately, the customers we work with did not have any impact on both events. But that pause when they were evaluating what does it mean for them, they basically paused their spending on technology, especially around discretionary projects. Those were the hiring freezes that affected the return of furlough in Q4.

Your headcount came down in Q4 ...

For Q3 and Q4, we did not onboard any freshers and we reduced our onboarding for any proactive hiring. We did this because we were going through the merger and needed to have better visibility and inventory of the skill base across the merged organisation. We took a pause post-14 November as we consolidated our organisational structures. Then, we consolidated our systems in this quarter. Now, we are in a better position to do our manpower planning the way we used to do. As we get into FY24, we will be back to our usual base where our headcount addition will be aligned to our revenue globally quarter-on-quarter (QoQ).

Are you looking at hiring freshers in FY24? Is there a number you are targeting?

We don't target a specific number. Whatever we have targeted for FY24 from an internal perspective, we are on track to onboard them. And normally, we onboard most of our freshers in the first three quarters of the year. So, in Q1-Q3 FY24 we will be working on onboarding. We are on track with the original plan.

High-tech and Media & Entertainment were important for LTIMindree in FY23. Do you see any problems coming up with these segments in FY24?

We are seeing a very healthy deal activity and good conversations with our customers in the High-tech and Media & Entertainment space. Even in FY24, we are confident that the sector will grow in line with the rest of our industry segments. We are not seeing any challenges, neither specific to the customer or at a sector level.

Are you expecting certain sectors to do well in Q1 FY23 as BFSI goes through its travails?

In FY24, we expect our growth to be broad-based – across all sectors and geographies. Of course, it might not be uniform in every quarter. There will be some crosses and minuses based on the spend patterns. 

North America is the biggest revenue generator for LTIMindtree. But how do you view the Indian market?

In India, we have been very particular in picking up the right kind of projects. We have a very large component of public sector work in India and within this scope. We work with the Central Board of Direct Taxes (CBDT), the Ministry of Corporate Affairs, the financial crime unit, and many more. Our focus within the government or public sector is around analytics because we believe our advantage is in terms of our capabilities and IP. We provide that value and also build those projects at a reasonable margin.

In the private sector, we focus on BFSI. And we are working on a lot of cloud-related transformations with leading private banks in India. We also focus on a fair amount of work with other SaaS providers like ServiceNow and Salesforce.

Also Read: We Doubled Our Cloud Revenue In India For 7 Consecutive Quarters YoY: SAP’s Thomas Saueressig