The continued decline in subcontracting costs and pyramid restructuring has led to better management of margins | Mindtree Q3FY22 Conference Call

Revenue grew 4.7% QoQ and 33.7% YoY. Fifth consecutive quarter of +5% QoQ revenue growth.

Margin improvement: The QoQ 100bps point increase in EBITDA margin was due to 60bps (basis points) improvement from business growth and operational efficiency and 40bps impact of cross-currency movements. Continued decline in subcontracting costs and pyramid restructuring have led to better management of margins.

Moderate TCV numbers but growth has been good as it has been successful in winning a large number of short-cycle digital transformation projects which have expanded into larger engagements due to cross/up selling.

Travel, Transport & Hospitality (TTH) vertical is back to pre-pandemic level revenue on the back of diversification from traditional sub-verticals of Airlines and Hospitality into companies in car rental, Food & Beverage and other businesses.

After rationalization of ~150 non-strategic accounts since the takeover by L&T, Mindtree claims that it has added 75 strategic accounts

Mindtree’s growth continues to be driven by Customer Experience and Data Analytics part of Digital rather than the Cloud part. Such deals by their very nature tend to be in the revenue maximization bucket of projects for their customers where budgets tend to be less of a constraint.

Total Contract Value (TCV): US$358mn, up 14.6% YoY, comprising a healthy mix of annuity and transformational deals resulting in year-to-date deal TCV crossing US$1.2bn.

Attrition rate:  LTM attrition rate increased to 21.9% in 3QFY22 from 17.7% in 2QFY22 (12.5% in 3QFY21).

Utilization was reported at 81.5% compared to 82.9% in 2QFY22.

To meet the increase in demand and tackle the attrition situation, it has started hiring from Tier-2/ Tier-3 cities and is also setting up offices in Coimbatore and Warangal. Hiring momentum from campuses is expected to increase by 40% to 50% in FY23 with aspiration to hire 1,500 freshers per quarter going ahead, which will also help in optimizing costs.

Guidance: ~20% EBITDA margin aspiration on the back of operating efficiencies (higher off-shoring and utilization), employee pyramid restructuring, subcontractor cost control, etc.