Mindtree was able to get to a margin run rate of 17-18 percent by the end of FY20 and the philosophy of maintaining margins within a band will continue even during the ongoing coronavirus pandemic, CEO Debashis Chatterjee told CNBC-TV18 in an interview.

Chatterjee, however, did not let out any specific steps on cost-rationalisation, such as a freeze on hiring or on salary hikes, steps that many of Mindtree’s peers in the IT industry have taken recently.

Mindtree closed FY20 with a strong performance in Q4, beating street estimates on revenue and profit growth. The mid-tier IT firm saw its highest deal wins in a quarter in Q4 at $393 million and the highest annual deal wins at $1.2 billion for FY20.

Mindtree’s rupee revenues came in at Rs 2,050 crore, a growth of 4.3 percent quarter-on-quarter and 11.5 percent year-on-year. The numbers are better than CNBC-TV18’s poll, which estimated a 1.5 percent sequential growth.

However, there is a concern is that the company saw only hi-tech and media grow, which expanded 5.2 percent sequentially, while other verticals declined in the quarter.

“We did extremely well this quarter. Hi-tech and media grew fairly well. But there is some softness and uncertainty across the board,” said Chatterjee. “Clients are getting used to new normal and focusing on digital. Digital spend will increase. We expect hi-tech and media to take the lead in growth,” he added.

Another concern has been around Mindtree’s exposure to the travel and hospitality sector, which contributes 16.2 percent to Mindtree’s revenue. The sector, however, has been battered by the coronavirus crisis.

“Travel and hospitality have never seen anything like this. They also don't know about when there will be recovery, and they are waiting for government interventions,” Chatterjee said.

He added: “Mindtree has been doing a lot of work on digital technologies. When the new normal evolves, there will be significant remote working and digital. We are in a good position to take advantage of that.”

The company’s revenue was also driven significantly by its top client Microsoft, whose revenue contribution to the company has grown from 19.8 percent in Q4FY19 to 24.8 percent at the end of FY20.

Chatterjee, who took over as Mindtree CEO in August last year after a bitter battle between some of the company’s founders and its new owner L&T, said the company is now focusing largely on top clients and has been rationalising tail accounts.

Chatterjee added that there were no concerns around client concentration.

“The Top client happens to be a digital native, we work across their diversified portfolio and mostly digital in nature. There was an opportunity to support them during the pandemic,” Chatterjee said.

“Our philosophy at Mindtree is to focus on limited set of clients and build deeper partnership with them. The growth of our top ten clients is a testimony to that. We have also been carrying out rationalisation of tail accounts,” he said.

Mindtree saw EBITA margins expand 150 basis points sequentially in Q4 to 17.1 percent. In fact, there was a 1 percent impact on operating margin due to donations made by the company to COVID-19, and EBIDTA margin actually improved by 250 basis points; 170 bps came from operational efficiencies and 80 bps came from a favourable currency movement.

“Margins show consistent improvement in terms of expansion through strong discipline in the system. That is in place and will continue,” Chatterjee said.

He said that the company wanted to get to a run rate of a 17-18 percent margin band and that the company was able to achieve it.

“We do see impact on margins going forward. But the philosophy of maintaining margins within a band doesn't change,” Chatterjee said. “The full year margin for FY20 was around 14 percent, but we were able to get to a run rate which we have achieved. We want to make sure the processes we have put in place remains. Barring the impact from COVID-19 we are on track to maintain our margin,” he added.

Mindtree, however, did not give any margin outlook for Q1FY21.

The company also did not call out whether it is looking at any cost-cutting measures through a freeze on promotions, salary hikes and curtailing new hiring.

“During the pandemic, we want to be with Mindtree minds. We don't want to create agony among our people,” Chatterjee said. “It all depends on how clients are going to recover. We will honour all offers. For lateral hiring, there are skill sets we keep hiring for,” he added.

Also read: Mindtree sees strong Q4 driven by Microsoft, prepares for softness due to COVID-19

First Published:Apr 27, 2020 10:49 AM IST