On track to exit FY 24 with 17-18% EBIT margin: Debashis Chatterjee, LTIMindtree

"Even if you look at manufacturing and even if you look at consumer goods, it is a lot of focus right now. So overall, I do not think there is any concern in terms of specific industry. There could be some slowdowns from time to time but overall, we are in a good place," says Debashis Chatterjee, CEO & MD, LTIMindtree.

So no cuts in spends or no massive budget cut or anything that you are witnessing, right?
We have not come across any budget cuts. We have not come across any major cancellations. The only thing which we have come across is slowdowns. And as I said, we kind of live in very paradoxical times. And there are deals which we have won but we have not been able to ramp up the way we wanted. So those are the things which we hopefully, they will ease out over a period of time. But otherwise, I do not think there is anything to be concerned about.

So that was about the BFSI vertical specifically but then there was some worry about high-tech, retail as well that was showing signs of slowness. Does that continue?
Well, I think if you look at the industries in which we operate, most of the industries are doing okay. There could be cyclical things from time to time but BFSI and high-tech particularly are those industries where we are betting quite strongly.

Even if you look at manufacturing and even if you look at consumer goods, it is a lot of focus right now. So overall, I do not think there is any concern in terms of specific industry. There could be some slowdowns from time to time but overall, we are in a good place.

So structurally, there is no slowdown. There could be transient issues but sure, go on.
No, it is a transient. I would say it's a transient thing which we are seeing but I can only say that it is a very interesting time where every client is behaving in a different way. And even within the same industry, two clients are not behaving the same way. But we are dealing with that.

Well, I am sure LTI MindTree knows how to deal with that because you have been doing that for many, many years. But just coming back to the point, apart from BFSI, North America is also a very important vertical for you given the fact almost 70% of the business comes from there. And there at the start of the year, we had seen the sudden drop in terms of business. People were not spending too much. But has it changed now because all that worry about a hard landing has changed to soft landing to probably no recession. Are things incrementally getting better?
Well, I think North America continues to be a strong market for us. I think what we have to understand is the kind of deals that we are working on have changed. If I look at a year back or even 18 months back, most of the deals that we are working on were transformation and through the pandemic, the transformation kind of accelerated.

But in the last one year, we have seen that most of the deals are kind of cost takeout or efficiency-led. That is the only change that we have seen. If I look at my pipeline right now, most of my deals are led by efficiency. But there is also an interesting phenomena that is happening; many of the clients who have been doing a lot of transformation, they do not want to completely stop the transformation. They want to slow it down.

But at the same time, they are looking at cost takeout or efficiency deals, which will kind of help in terms of funding the in-flight transformation so that is the interesting phenomena that we are seeing right now. And there are quite a few deals that we have already won in that area, where we are not only helping the client in terms of the efficiency but also helping in terms of funding the in-flight transformation through the efficiency measures. And that is something which is happening in North America as well.

That was visible in your earnings as well because while everybody was talking about the revenue slowdown a bit, the deal with momentum was very strong even in the quarter gone by. But there was also this fact that the decision making was also slowing down a bit. What is your take in terms of the deal pipeline that is there right now? Would you still say it is very robust and the conversions as well in terms of deal wins will continue to be high?
Well, if you look at overall deal pipeline, I would still say it is very robust up to our satisfaction. But we have to also understand the opportunity that we have. The opportunity that we have is post the merger, LTI MindTree becoming one single entity.

And again, if you look at the overall vision that the group has, Mr. Naik has, SN Subramaniam has, we have been always talking about how do you mine the clients? How do you build strategic logos? And that can only happen through cross selling and up-selling. And that is what we have been focused on and that is working out very well. So when you talk about deals, you have to look at both the aspects.

And I think, yes, the overall, we may not be seeing a lot of large deals being shaped up, but we can shape some of the large deals as we go along with our existing clients.

Given the fact that you are now looking at a larger kind of deals, and LTI MindTree, as you said, together has become eligible for a lot bigger deals, but that has opened up a lot of competition as well. And now you are not just competing with, let us say, just the top five in India, but globally as well, Cognizant, Accenture, and the likes and everybody else as well. Does that mean that pricing is becoming a bit of a problem for the industry? Competition is high, limited amount of deals?
Well, first of all, even when we were erstwhile MindTree and erstwhile LTI, we were still competing so there is no change in that. It is just that we are much more formidable as we are at this point of time, in terms of size and scale and capabilities that we have brought together. But I do not think, at this point of time, there is anything to worry about pricing, per se. It is fairly stable.

So then, fair to say that 17-18% margin band by the end of the year?
Well, we have set the 17-18% exit rate that is what we are aspiring for by Q4. And we have a plan. We have a very specific program within the organization to improve the margin and that is why we have made a commitment that 200 basis points over the next four to five years. We are pretty much on track.