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LTIMindtree: LTIMindtree CEO Debasis Chatterjee says deal delays consistent across all business sectors

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Delays in deal closures hurt LTIMindtree in the June quarter, helping explain its underwhelming revenue and profit scorecard despite an encouraging order pipeline, but CEO Debasis Chatterjee believes stronger offshoring demand undergirded by cost efficiencies helped expand operating margins at the newest member of the elite Nifty 50 club.

“We expected quite a few deals to close in Q1, but (those) got dragged into Q2,” Chatterjee told ET. “The decision making process- there has been consistent delays across all the sectors.”

India’s sixth largest IT firm said it was witnessing delayed decision making and hiring freeze from clients’ side despite a “robust” deal pipeline. It reported the total contract value of deal wins at $1.41 billion compared with $1.35 billion last quarter, with a large focus on cost-efficiency deals.

Also read | LTIMindtree’s Q1 net profit up 4% to Rs 1,152 crore, misses Street estimates

The uncertainty due to the weak macroeconomic situation is causing a lag between IT sector deal wins and the subsequent conversion of those engagements into revenue. Clients are often delaying employee onboarding or investments into projects, said Indian IT powerhouses announcing their first-quarter results last week.

“Many of the cost takeout and efficiency deals that we are chasing right now- offshore can work really well with it and we are getting the advantage of that,” said Chatterjee.

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The company is still seeing transformation deals as well as discretionary spends, but they are funded by savings from cost efficiency objectives.“We are very well positioned to have capability on both sides of the spectrum -to save cost and also help the clients in discretionary spending in terms of some new experience programmes led by transformation and digital,” he said. Currently, cost efficiency is central to all opportunities.

Voluntary attrition for the quarter stood at 17.8% compared with 20% last quarter. Headcount was 82,738, down by 1,808 over the quarter amidst an uncertain macro environment.

Also read | Will 2023 be a lost year for IT?

He said that Q1 was the first quarter when the two merged companies – Larsen & Toubro Infotech and Mindtree- consolidated their bench (employees who are available to join client projects) post-integration in December 2022.

“One priority was that before we start hiring people very aggressively, we need to make sure that our internal deployment is done efficiently,” he said.

Taking all employee costs and margin levers into consideration, the company expects to close Q4 of the current fiscal at around 17-18% operating margin. The company had redeployed around 1,000 employees from delivery team to sales and support team as a one-off exercise.

He added that deal activity, however, has also been good in most sectors barring retail which has seen lower activity. He said it was difficult to call out when the hiring freezes and delayed decisions would clear.

“It is only in banking and financial services, but not insurance, where we see this hiring freeze,” he added, calling the mismatch between deal wins and revenue conversion as “paradoxical”.

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