LTIMindtree Ltd (NSE: LTIM) Q2 2025 Earnings Call dated Oct. 17, 2024
Corporate Participants:
Vikas Jadhav — Head of Investor Relations
Debashis Chatterjee — Chief Executive Officer and Managing Director
Vipul Chandra — Chief Financial Officer
Sudhir Chaturvedi — Whole-Time Director & President, Markets
Nachiket Deshpande — Whole-Time Director and Chief Operating Officer
Analysts:
Sulabh Govila — Analyst
Nitin Padmanabhan — Analyst
Vibhor Singhal — Analyst
Manik Taneja — Analyst
Rishi Jhunjhunwala — Analyst
Abhishek Kumar — Analyst
Abhishek Pathak — Analyst
Rahul Jain — Analyst
Aayush — Analyst
Girish Pai — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to the LTIMindtree Q2 FY ’25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I will now hand the conference over to Mr. Vikas Jadhav, Head of Investor Relations, LTIMindtree. Thank you. And over to you, sir.
Vikas Jadhav — Head of Investor Relations
Thanks. Good day, everyone, and welcome to LTIMindtree Quarter Two FY ’25 Earnings Call.
Today, on the call, we have with us Mr. Debashis Chatterjee. He is the Chief Executive Officer and Managing Director. Mr. Sudhir Chaturvedi, President, Global Markets; Mr. Nachiket Deshpande, who is our Chief Operating Officer and Mr. Vipul Chandra, who is our Chief Financial Officer.
So, we’ll begin with a brief overview of the company’s quarter two FY ’25 performance, after which we’ll open the floor for Q&A. Just want to kind of remind you that during the call, we could make certain forward-looking statements. These statements consider the environment as we see as of today and carry risk and uncertainties that would cause our actual results to differ materially from those expressed today in today’s call. We do not undertake to update any forward-looking statement made on this call. You can find this forward-looking statement in our earnings release also.
With that, now, I turn over the call to DC for his opening remarks.
Debashis Chatterjee — Chief Executive Officer and Managing Director
Thank you, Vikas. Good evening and good morning to everyone on the call. Thank you for joining us today.
I’m happy to report that Q2 was a good quarter marked by broad-based sequential growth we experienced across all our verticals and geos, and several multi-year deal closures in manufacturing, energy and utilities and DSS verticals. We consolidated our standing in an existing account through vendor consolidation and long-term revenue commitment securing a $200 million plus TCV over a five-year period. Our large deal pipeline remains robust, with several deals nearing final decisions. These positive trends are reflected in the strong hiring of over 2,500 employees during this quarter. We also opened 22 new logos during the quarter.
With that preamble, let me summarize the numbers. I’m pleased to report a sequential growth of 2.8% in U.S. dollar terms against the backdrop of a largely data flow IT spend environment. Q2 revenues stood at $1.13 billion, and was up by 4.4% in constant currency and 4.7% in dollar terms on a year-on-year basis. On the margin front, the EBIT margin for the quarter stood at 15.5%, an improvement of 50 basis points sequentially, and the net profit margin was at 13.3%. Q2 order inflow stood at TCV of $1.3 billion.
In a continued challenging macro environment, the need for a substantial shift and pivot towards AI is quite clear to us. To lead in this new AI influenced business environment, we did a complete LTIMindtree level pivot to an AI-first approach, which continues to drive our success amid these disruptive times. I will today share with you our AI strategy, which is anchored in three [Technical Issues]. AI in everything, ensuring we reimagine [Technical Issues] everything for AI, creating a supportive ecosystem for all AI innovation to scale within the enterprise and lastly, AI for everyone, democratizing AI for the benefit of all stakeholders.
Let me elaborate further on these three components of our AI strategy. First, we will adopt AI ourselves and transform the way we work by infusing AI in everything we do. For example, we are enhancing experiences with the help of GenAI augmented creative and content. We are also running and optimizing campaign operations with AI power tools. Our knowledge fabric driven agent and copilot-based IT operations is helping unlock the next level of efficiency and productivity. We are leveraging AI for legacy modernization.
For security operations, we are focusing on AI-driven threat detection and response. We are using Vision AI for Industry 4.0 use cases like defect detection in metals. We are reimagining platform operations with an AI-first approach in areas such as underwriting, claims processing and customer service operations. We also recognize the challenges our customers are facing in scaling AI for the enterprise, which could be in the form of trust in data, cost of scaling, AI safety, adoption or human impact.
To address these challenges, we collaborate with our customers to engineer platforms that enable AI at scale. This commitment forms our second principle, everything for AI, which encompasses preparing data foundations and infrastructure for AI, building trust and observability, and implementing the right controls for generative AI applications. Just to illustrate the scale we have achieved in a short span, the LTIMindtree AI platform we launched earlier has been adopted in 40-plus customer environments to achieve the same.
The third principle of our AI strategy is AI for everyone, and this focuses on empowering people and humanizing AI. We aim to achieve this by firstly developing copilot and navigator apps tailored for every persona. Next, creating AI solutions that are human by incorporating the right guardrails, bias management and trust and lastly addressing use cases that leverage AI for the betterment of humanity and contribute to solving global challenges. We are already seeing positive outcomes from this strategy, both in terms of value delivered to our customers and the impact on our generative AI based deals and pipeline.
For example, for our financial services major, we have doubled the first time resolution percentage for the contact center. Our AI in everything strategy is driving success across our service line offerings and industry verticals, enabling us to win deals by leveraging generative AI capabilities. Let me share with you some examples of AI-powered wins for the quarter. A U.S. global manufacturing leader chose LTIMindtree as a preferred partner for its global application management and transformation services.
We used our AI-first next-gen operations framework to enhance efficiency, foster innovation and speed up transformation. This opportunity arose from vendor consolidation, where we became the sole partner for the customers from four existing vendors. This was the largest multi-year deal for LTIMindtree. A major global financial institution selected LTIMindtree to collaborate on modernizing their wealth data platform. We utilized advanced automation technologies along with GenAI to improve customer experience and broaden the customer’s global market reach. This was achieved by developing a new data taxonomy, adopting cloud technology for faster service delivery to clients and partners, modernizing mainframes and reducing operational costs.
Merchant [Phonetic] selected by a leading U.S.-based energy utility company as its long-term strategic partner for end-to-end IT operations in the AI-first model. We have won an infrastructure transformation and managed services deal from an engineering major on the back of our AI-powered IT operations solution. We are clear about the role of the ecosystem in this pivot. We are consistently launching AI solutions and offerings through our partner ecosystem, which not only amplifies our AI strategy, but also acts as a powerful channel for growth.
For instance, LTIMindtree and IBM have launched the IBM AI Innovation Center at Bengaluru’s Hebbal campus. This center will develop top-tier solutions to speed up clients AI adoption. It will highlight advanced technologies and innovative AI, machine learning and data science solutions featuring IBM watsonx. We are empowering our workforce by providing them with Generative AI tools and training through our educate platform, Garuda. This platform offers tailored training pathways based on employees skill levels and technology backgrounds, which are curated programs for both our internal service clients and partners. Currently, 63% of our workforce is trained and equipped with GenAI capabilities.
To summarize our AI pivot and what it means for our business, we remain committed to investing in developing our AI intellectual property as well as vertical and horizontal solutions. These investments are poised to deliver substantial results by fostering innovation, enhancing operational efficiency and driving a competitive advantage.
Let me now spend some time on our industry verticals. Q2 growth was led by the BFSI vertical, which registered a sequential growth of 4%. Bank focus on cost cutting through restructuring, along with our strong relationship and execution track record, have benefited us in gaining market share. We have a robust large deal pipeline in this vertical, with a few deals in the final stages. We are seeing more BFSI clients working towards getting data ready for AI.
After a significant sequential growth of 7.9% in Q1, in the technology, media and communications vertical, Q2 witnessed a further 1.9% sequential growth with a year-on-year growth of 12%. While cost optimization continues to remain the dominant theme for both hardware and software vendors, there has been a focus on infusing AI and GenAI in products to enhance customer experience. This is expected to scale up further as the market matures.
The manufacturing and resources vertical witnessed a steady growth of 0.7% on a sequential basis and 5.8% on year-on-year basis. We see continued traction in ERP, while also gaining market share in vendor consolidation, leveraging our AI in everything theme. As mentioned earlier, we closed the deal of over $200 plus million in TCV in this vertical. Our consumer business experienced sequential growth of 2.6%, aligning with the overall company performance. Growth in Q2 was driven primarily by the TTH and retail sectors. We are employing AI to enhance customer engagement and as an entry strategy for some of our smaller verticals.
Following a 7.9% drop in the Q1 revenue, the healthcare, licenses and public sectors vertical experienced a 5.9% sequential growth. In terms of geography, America, which contributes 75% of our revenue, has grown by 7% on a year-on-year basis. Europe contributed 14.4%, and the rest of the world contributed 10.6% of our revenue.
Let me now hand it over to Vipul. Okay. Sorry, my apologies. Let me talk about the people front. On the people front, our headcount rose to over 84,000 at the end of the quarter as we added 2,500 plus employees during the quarter. For the quarter, our LTM attrition remains stable at 14.5% compared to the 14.4% last quarter. We onboarded 1,100 plus freshers this quarter. This quarter, we introduced an initiative called LTIM Rhythm, our vision of the future of workplace. LTIM Rhythm encapsulates our commitment to fostering a collaborative, flexible and dynamic workplace environment that not only caters to the evolving needs of our clients, but also ensures the holistic development of our associates. This also helps us in implementing our strategy of AI for everyone, which we articulated earlier.
I will now turn over the call to Vipul for the financial highlights.
Vipul Chandra — Chief Financial Officer
Thank you, DC, and good evening, everyone, on the call.
Let me take you through the financial highlights of the second quarter of FY ’25, starting with the revenue numbers. Our Q2 revenue stood at $1.13 billion, a growth of 2.8% sequentially and 4.7% on a year-on-year basis in dollar terms. The corresponding constant currency growth was 2.3% quarter-on-quarter and 4.4% year-on-year. Our EBIT margin expanded by 50 basis points to 15.5% as compared with 15% in the previous quarter, vis-a-vis, on account of absence of visa costs.
Net forex gain for the quarter increased to $9 million compared to $1.6 million in the previous quarter. Leveraging our strong cash position alongside efficient investment management, we achieved an investment income of INR212 crores this quarter. The effective tax rate for the quarter was 25.8% as compared to 25.6% in Q1. PAT margin for the quarter was 13.3% as compared to 12.4% previous quarter. Reported PAT climbed to INR1,252 crores this quarter compared to INR1,135 crores in last quarter. Basic EPS was INR42.3 for the quarter as compared to INR38.3 in Q1 FY ’25. Billed DSO increased to 60 days versus 55 days in FY 25, which is still a reduction of eight days versus Q2 of the prior year. The unbilled DSO, however, reduced by two days. The total DSO was at 81 days compared to 78 days in the previous quarter.
We continue to focus on our delivery and collection efficiency to move towards our aspired target DSO of approximately 75 days. The operating cash flow to PAT was 74.3% as against 109.9% in Q1. Free cash flow to PAT came in at 54.5% compared to 88.6% in Q1. The cash and investment balances stood at $1.43 billion or INR11,974 crores compared to the INR11,334 crores in Q1 FY ’25. Return on equity for the quarter was at 33.8%.
As of September 30, 2024, our cash flow hedges stood at $3,907 million. Hedges on the balance sheet were $326 million. Our utilization, excluding trainees in the quarter was at 87.7% compared to 88.3% last quarter. This is in line with our continued investments for our growth momentum. The Board of Directors have recommended an interim dividend of INR20 per equity share. We’re pleased to announce that LTIMindtree has attained a rank of 13 across sectors and rank five in IT and communication sector in Businessworld’s India’s Most Sustainable Companies Top 50 Listings of 2024.
We’re also looking to use our ESG capabilities to help our clients achieve their ESG goals. In line with this, LTIMindtree has launched a new comprehensive digital transformation ESG platform, Smart Spaces 2.0, which can help with end-to-end ESG reporting across key factors while delivering predictive maintenance and repair inputs. These recognitions and options serve as a testament to our proactive approach in integrating sustainable practices.
I now hand it back to DC for the business outlook.
Debashis Chatterjee — Chief Executive Officer and Managing Director
Thank you, Vipul.
Despite the challenging environment, our growth remains steady and in line with what we had indicated in the last quarter. We are cautiously optimistic about this momentum carrying forward into Q3. However, historically, Q3 experienced a seasonal headwind, as well as due to furloughs and fewer billing days, which could moderate this momentum to some extent. Additionally, wage hikes for all employees in Q3 are expected to put pressure on our margins. Nevertheless, our strategic shift towards AI has resulted in a robust buildup in our deal pipeline, with strong deal wins, sustained deal traction in our key verticals and significant hiring in Q2, including freshers, we are well positioned as we move into the latter half of the fiscal year.
With that, let me now open the floor for questions.
Questions and Answers:
Operator
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. The first question comes from the line of Sulabh Govila from Morgan Stanley. Please go ahead.
Sulabh Govila
Yeah. Hi. Thanks for taking my question. The first question is around the deal pipeline. So, just wanted some color around that. How has that grown and what’s the nature of the deals that you have? Are you witnessing more short cycle deals than you did in the last quarter? And is that reflecting into better ACV trends?
Debashis Chatterjee
Sudhir, do you want to take that?
Sudhir Chaturvedi
Sure, DC. So, I think, from a large deal momentum perspective, the pipeline continues to be strong. It has grown. It’s over $5 billion right now from a large deal perspective. In terms of the demand trends that we’re seeing, we’re seeing significant traction in the BFSI vertical, as you can see in our growth numbers as well. And that vertical is also characterized by having a demand, which is, I think, short cycle, perhaps the wrong term. What we are seeing is that we are actually doing both a combination of deals, as well as being opening new logos as well as the new MSAs also that we mentioned last time in our call where we spoke about how we’re being chosen as a preferred supplier. So the combination of factors that is now resulting in a pipeline that has a combination of large deals, as well as demand from a — as well as being on the right side of vendor consolidation as well as demand from a slight increase in discretionary spend.
Sulabh Govila
Understood. Secondly, wanted to check what’s leading to softness in the top six to 10 client bucket. The revenue in this bucket has gone down from $85 million a quarter to now $75 million, $76 million in the last two, three quarters. So is there any client specific issue here that you’re facing?
Debashis Chatterjee
I think it’s fair to look at the — we always look at the top 40 clients. And if I look at — and we also don’t tend to look at on a quarter-to-quarter basis. We rather look at an overall yearly basis. And I think from that perspective, we are doing fairly well. I mean, if I look at my top five, top 10, top 20 and top 40 client segments, there is definitely — the concentration risk is slightly reduced. But at the same time, if I look at the top 40 clients, they have still grown this quarter sequentially. I mean, in fact, all the buckets, top five, top 10, top 20, top 40, there is a sequential growth which is good for us. So overall, I think we have — the account mining is working, which is what our focus has been and we are happy about it.
Sulabh Govila
Understood. And the last question is on the margins for Vipul. What should be the impact of wage hike that we should be baking in 3Q? And what would be the offsetting factors, some of the offsetting factors that can help you negate the impact?
Vipul Chandra
So in terms of our wage hike impact, you could take it maybe approximately 200 basis points, which will be partly offset by our continuing operational efficiency, which we had started driving any which way — just few quarters back and which are continuing. So, some of those operational efficiency drivers will continue to kind of offset and the growth that we are also looking for. Some of these things will partially offset the impact, but may not be the full impact.
Sudhir Chaturvedi
Thanks for taking my question.
Operator
Thank you. The next question is from the line of Nitin Padmanabhan with Investec. Please go ahead.
Nitin Padmanabhan
Yeah. Hi. Good evening. So, we spoke about furloughs. So are furloughs similar to what we have seen in the prior year? Is it better? Is it worse? That’s the first one.
The second is what are the areas where you continue to see weakness in the market from a vertical perspective? Where would you want to see some improvements?
And finally, with regards to the large deal, which you announced, that is the vendor consolidation with an existing client, if I’m right. And if that is the case, then in which vertical is this and by when, do you expect to start seeing ramp up there? Thank you
Debashis Chatterjee
Yeah. So, Nitin, let me just try to answer one by one. Your question on furloughs, I think we all know — I mean, we realized that last year the furloughs were a little more than what we had anticipated. So, our expectation this year is that the furloughs will be back to the regular levels that we used to have. So it is not going to be as high as it was last year. So that’s on the furloughs. If you ask me about specific areas, if you look at the growth that we have, in fact, all the five segments that we report our revenues on, all the segments have grown. But I would have liked my travel and travel tech to do a little better because there are certain situations where some of our clients are dependent on specific issues, which we don’t have much control. And that is one area where we are hoping that some improvement happens as we go along. And from your large deal perspective, the deal that we talked about and I think we called on in our opening remarks as well, it is part of our manufacturing vertical and it is a combination of both our renewal as well as additional — significant additional scope. Almost, you can say, half-half. And that’s how we kind of scoped it through. That’s how it is a $200 million plus deal. And the transition has already started for these deals. So the deal will start ramping up in Q3.
Nitin Padmanabhan
In which geography would that be?
Debashis Chatterjee
In the U.S.
Nitin Padmanabhan
U.S. Sure. Thank you so much, and all the very best.
Debashis Chatterjee
Thank you.
Operator
Thank you. The next question is from the line of Vibhor Singhal with Nuvama Equities. Please go ahead.
Vibhor Singhal
Yeah. Hi. Thanks for taking my question, and congratulates me on a solid quarter. Just two questions from my side. Firstly, on the BFSI vertical, very sharp recovery from what we saw, especially in the last two quarters of the last financial year. You also talked about some of the deals in BFSIs, which are there in your pipeline and we should be able to close very soon.
So just to look at the outlook in the sector, do you expect the growth momentum in this vertical to continue, especially after the interest rate starts also coming in? What are the specific areas in this BFSI that you are looking at in terms of higher expense, let’s say, for capital markets or insurance or which part of your businesses? Any color on all those assets leaning into? And then I’ll have a follow-up question.
Debashis Chatterjee
Yeah. Thanks, Vibhor. So if I understood the question, let me just give you some color on BFSI. First of all, very pleased with the growth coming back in BFSI. But specific to — specifically about the growth, it is primarily led by BFS, but it is — the growth is fairly broad-based across all the clients that we have. The growth is — we have been winning these deals in two scenarios. One scenario is wherever we have been incumbent and there is a vendor consolidation, it has worked out favorably for us and also in a situation where we have not been present, but it is a new logo for us. We have won that kind of deals as well.
I must say that bulk of the wins that we have had in this BFSI has been mostly cost take out and efficiency-oriented deals. Having said that, our strength in governance, regulatory and compliance also helped in terms of driving some of the spends in this area. And I can only say that the cautiousness that we had in terms of discretionary spend, that has not significantly changed. So, we still see not much of discretionary spend coming back. But as I articulated in whatever opportunities we are getting, there is a significant momentum that we have generated.
Vibhor Singhal
Got it. So the discretionary spend does remain on hold. That we have not seen any change from, let’s say, the last quarter.
Debashis Chatterjee
Yeah. I don’t think it’s fair to say that there is any — I don’t think there is much change in terms of discretionary spend. It is yet to come back.
Vibhor Singhal
Yet to come back. Got it. Got it. That’s really helpful. Secondly, we see on the high-tech vertical, of course, we had two quarters of very solid growth and this quarter was soft. So any color on that, given you spoke a lot about GenAI applications that we are working through the Canvas platform? So how is the spend in this vertical? How the users expect the hyperscalers also going to drive the growth in the vertical? And given that, will our relationship with the top client, that is also the high-tech vertical client, does that also help us in this vertical, not just immediately, but let’s say over the next three to four quarters?
Debashis Chatterjee
Well, Vibhor, the thing is, the tech clients, both the software as well as the hardware vendors, I think they will always look at the new technologies like AI, GenAI very aggressively. So the focus still remains significantly in terms of cost take out. And you must have also read the — you must have also heard that quite a few of our — quite a few tech clients, not necessarily just our clients, they have been also doing some layoffs. But as far as our portfolio is concerned, I don’t think there is anything to be concerned about as of now because we still have a good growth coming from across the board in terms of high-tech clients.
Vibhor Singhal
Got it. Got it. Just one last question if I could just squeeze in. In the last comment, we have mentioned that in large part of our pipeline, we have now pivoted towards cost takeout deals. So is that pivot now bearing us fruit, as you mentioned, one of the BFSI deals was cost takeout deals? And do we intend to continue on that path? Or do you believe in maybe in the next couple of quarters, we expect the to discretionary price to come back and then there could be some mix and match of the deal pipeline there?
Debashis Chatterjee
Look, I think the most important pivot that we have done is for us to be ready to support transformation as well as efficiency deals. I think that’s the biggest pivot that we have done in the last several quarters. And at this point of time, we have closed quite a few cost takeout deals and that is kind of driving the growth. Now, when the discretionary will come back, it’s very difficult to say. We’ll probably get an idea when the clients are going through their budget session, which is not very far away. But, of course, as we get to know, we can always share with you, but it’s a little too early to predict in terms of what is coming, given the fact that it has been on a pause for quite some time.
Vibhor Singhal
Got it.
Debashis Chatterjee
And I think what is most important for us is that, as I said, we can play on both the sides. We can play on the cost takeout side. We can play on the transformation side equally well. I think that’s the biggest pivot that we have gone through.
Vibhor Singhal
Got it. Got it. Thanks a lot, DC. Thanks for taking my questions, and wish you all the best.
Operator
Thank you. [Operator Instructions] The next question is from the line of Manik Taneja with Axis Capital. Please go ahead.
Manik Taneja
Thank you for the opportunity. DC, just wanted to follow-up [Phonetic] with regards to the near-term output that you suggested. If I understood correctly, you said the momentum that we’ve seen in first half or the first couple of quarters, there should be some moderation to that in the third quarter.
And the second question was for Vipul. If you could help us with the quantum of wage hikes that we have implemented, and are they implemented for the full quarter or unlike one of our group companies, is it a partial impact?
And the last one related to margins is if you could talk about your thought process, about the medium-term improvement in margins that we were looking to achieve in a couple of years?
Debashis Chatterjee
Let me take the first question and then I’ll request Vipul to cover the other two. So, Manik, as far as the H2 is concerned, we are cautiously optimistic about the momentum that we have generated. We had told in Q1 that the Q1 momentum will continue to Q2. That has happened. But at the same time, we are cautiously optimistic about this momentum carrying into Q3. Because historically, Q3 has seasonal headwinds as well as furloughs and fewer billing days, which could moderate this momentum to some extent. But at the same time, the deals that they have closed in the last two quarters, they have ramped up and they continue to deliver growth. So the momentum from that perspective will continue, but the follow impact is still not known. So, we have to just wait and watch.
Vipul?
Vipul Chandra
Yeah. So on the other two questions that you asked, I think I had mentioned that the impact of wage hike is going to be around 2% on our margin. That is a full quarter impact. As far as the margin improvement, your operational efficiency initiatives that I spoke about, largely it’s going to be driven — the revenue growth and the pyramid correction that we are working on. And as you have heard in the opening remarks from DC, that we have added 2,500 plus headcount in this quarter, of which 1,100 plus are freshers. So, we are working towards getting the utilization rate down, which we have talked about in the last quarter. At the same time, we are also focused on correcting the pyramids as we go along and some of those operating efficiencies will keep on [Technical Issues].
Manik Taneja
If I can just chip in with one more question, while not a substantial increase over the course of recent quarters, we are once again beginning to see an increase in terms of our onsite mix of headcount. Do you think we’ll continue to see this increase further given the nature of demand? Or you would have to extract some more efficiency from higher volume [Phonetic]?
Debashis Chatterjee
Let me request Nachiket to take that. Nachiket?
Nachiket Deshpande
This is actually not a strategic lever that we look at from an improvement standpoint. It is actually result of our business in specific deals. So, we don’t expect that to vary a lot, less another marginal increase in the onsite ratios this quarter, but it’s a quarterly fluctuation. I wouldn’t read too much into it.
Manik Taneja
Okay. And is there any timelines now for that 17% to 18% EBIT margin that we wanted to achieve in a couple of years?
Vipul Chandra
So again, as I had mentioned in the last quarter as well, to get to that kind of a margin number, which we are aspiring for, the journey has gotten elongated, mainly because of the external environment as well. Unless and until the industry starts seeing double-digit kind of growth again, it’s going to be difficult to kind of move on that journey in a fast manner. So right now, I think the focus has to be more on maintaining the margin and wait for the growth to come back.
Manik Taneja
Sure. Thank you, and all the best for the future.
Operator
Thank you. The next question is from the line of Rishi Jhunjhunwala with IIFL Institutional Equities. Please go ahead.
Rishi Jhunjhunwala
Yeah. Thank you. Most of my questions have been answered. Just one basic understanding of the business as it stands now. Now, when LTI and Mindtree were two different companies, LTI used to have a revenue trajectory wherein second half used to be better than first half in most of the years in a normal spending environment. Is it fair to say that as a combined entity now, we are very similar to how some of our larger cap peers wherein first half, typically in a normal environment, would end up being better than second half?
Debashis Chatterjee
Well, I think — let me just take a stab at it. I mean, whatever you do, whatever you say, but it also depends on how clients spends are and how the overall macro looks like. So, that’s an experience that we had in the last fiscal. But at this point of time, as we see, the momentum that we have had in the first half and the deals that we have closed, the ramp up that has to happen, that momentum should continue barring the uncertainties and the seasonality that we have in Q3. I think we should just leave it there and see how it plays out rather than trying to get ahead of ourselves.
Rishi Jhunjhunwala
Right. The other question is just in terms of the kind of yield we are generating on our investments and cash. It seems to be north of almost 8%. So, just wanted to understand the nature of investments we are doing and are there any kind of — I mean, basically, what’s the nature where we are [Speech Overlap].
Debashis Chatterjee
Let me request Vipul to take that.
Vipul Chandra
Sure. So in terms of the investments that we are doing, I think most of the investments are in mutual funds on the debt side, either money market or G-Sec and corporate bond portfolio in the mutual fund. I think it has been — the better investment efficiency that we have been talking about has been more proactively shifting the duration in line with the changing interest rate environment in the market, which has helped us generate or catch the interest rate move properly as it has happened in the market.
Rishi Jhunjhunwala
Okay. Thank you so much.
Operator
Thank you. The next question is from the line of Abhishek Kumar from JM Financial. Please go ahead.
Abhishek Kumar
Hi. Good evening. Thanks for taking my question. I have two questions on furloughs, and let me ask them together. First, I just want to understand how to read furloughs? When you say furloughs this year would be more normalized furloughs, does that mean that the pressure on budgets are easy? And therefore — because furloughs generally coincide with budgeting cycle. So, does that kind of suggest that budgets next year could also be normal? That’s question number one.
And question number two is some of your peers have said that furloughs this year would be similar to last year. Well, that could be because of difference in portfolio clients, etc. So when we say it is more normalized, which areas or which verticals, we are seeing furloughs normalizing? And if there are any pockets where you see that furloughs could still be finished last year? Thank you.
Debashis Chatterjee
Okay. So it’s very — it’s a little too early to predict about the budget cycle, etc., given the fact that in the U.S., elections are also on our way. So as far as budgets are concerned, budget for this year was already tested and furloughs are normal. And what we’ve had last year, again, furloughs are also reflective of the portfolio of clients that we had and we really did not anticipate. So from that perspective, we are going to be definitely better compared to last year in terms of the furloughs that we — better from a positive way from our perspective. So, that’s all I can say that it is not — last year was a little different, but we’ll get back to a normal furlough year as far as this year is concerned, but difficult to talk about budget till the — with all the U.S. elections and all these things overhanging on us.
Was there a second question? No?
Abhishek Kumar
No, that was related to furloughs. Thank you. This is helpful. Thank you so much.
Operator
Thank you. The next question is from the line of Abhishek Pathak with Motilal Oswal. Please go ahead.
Abhishek Pathak
Yeah. Hi. Thank you for the opportunity. So, DC, on discretionary spend, our comments are, I think, slightly cautious as compared to the peers who have reported so far. I was just wondering, like, what’s the divergence here, I mean? Is it a portfolio mix? Or is it a more short-term election layered furloughed approach that’s leading us to be slightly cautious? That’s one.
And the other bit is, of course, the growth this time has been fairly broad based. So is it fair to assume that whatever recovery that’s happening on the client side is now finding more legs and it is becoming more widespread? And just if that is the case, how comfortable are we on the headcount? What’s the comfortable level of utilization that we think we should operate at? And in case growth really comes back in earnest, how would we sort of look at the hiring strategy from here on? Thank you.
Debashis Chatterjee
So, Abhishek, let me — you asked quite a few questions. Let me see if I can remember an answer. First is when you talk about discretionary, let me just take a step back and explain to you how we will normally classify the programs and the projects that we do for our clients. One is the efficiency, longer-term cost takeout. That’s number one. Number two is when clients are investing in terms of building out new applications, which is like — could be revenue facing applications, front-end applications, etc. That is pure discretionary spend. And I would say there is a third category, which is clients also have to deal with a lot of regulatory stuff like governance, regulatory compliance stuff from time to time, which is not exactly a maintenance, but they need to still spend money to get those things out of their way.
Now, I don’t know — as far as we are concerned, we try to identify our programs in these three categories, but for some, maybe the regulatory and the discretionary could be the same thing. So, we don’t know how people classify. But as far as we are concerned, we definitely have been seeing a lot of traction in the cost takeout. We have been seeing a lot of traction in terms of governance, regulatory compliance, wherever we work with our BFSI clients, for example. And especially on the discretionary when clients are trying to build new applications, I think it has been kind of on a pause for the last more than five, six quarters. And I think we probably have to see how the — once the U.S. elections are over, probably there will be some initiative from the clients in terms of looking at discretionary. But as of now, it is fair to say that for the — except for AI-related investment, which clients are doing, where we are participating with them, I don’t think there is any other area where clients are spending on discretionary. So, that’s the first part of your question, I think.
What was the second question?
Abhishek Pathak
Sir, just a bit around hiring and if the growth recovery is more broad based, what’s the comfortable level of utilization and how do we look at hiring from here?
Debashis Chatterjee
So, I think this quarter is a very good quarter for us, because we are able to report a broad-based growth and all the segments that we report on, every segment has grown, which is a very good news and which is a very positive sign. But, of course, we will expect that the growth continue to be broad based. So from your perspective, from our perspective of utilization, we definitely — we have always called out that we are operating at a utilization, which is probably slightly higher than what we would like. Our target utilization range will be something around 85%. That would be ideal.
And one of the reasons why we were operating for the last several quarters at a slightly higher utilization is also to ensure that we get the benefit and the benefit of the two organizations coming together, utilizing the bench from two organizations, so that we kind of reduce the bench and make best use of it. So, there was a specific design why we could operate at a higher utilization. But, obviously, as the growth comes back, we will be — we will aim to be at a 85% utilization, which will also kind of mean that there will be a headcount addition accordingly. We always try to add the headcount based on the business scenario. So, I think you can do the math and you can see that there will be headcount addition from this point as we go along.
Abhishek Pathak
Understood. That’s very clear. Thank you.
Operator
Thank you. The next question is from the line of Rahul Jain with Dolat Capital. Please go ahead.
Rahul Jain
Yeah. Hi. It would be great if you could give some color, both quantitative and qualitatively on the deal signing during the quarter?
Debashis Chatterjee
We don’t really talk in too much of detail. But, Sudhir, do you want to give some color?
Sudhir Chaturvedi
Yeah. I think we — I mean, we reported an order intake of $1.3 billion. I have mentioned the overall large deal pipeline also of $5 billion and being on the right side of vendor consolidation deals. The deal momentum continues to be good across. So, pipeline is also strong and healthy across the board. And so I think in terms of the verticals that we’re winning deals is, again, you can see it’s a combination of BFS as well as manufacturing are leading the deal win cycle. But we’re also seeing — we have opportunities across all our verticals in terms of the large deal activity that we’ve seen.
Rahul Jain
Thank you. And just one bit on the consumer side of the business. If you could give any color how we plan to revive growth prospect here? Again, the deal win does not feature this space. So, anything more input here would help.
Sudhir Chaturvedi
Yeah. And I think — go ahead, sorry, DC.
Debashis Chatterjee
I had already mentioned that there is some softness that we are seeing in a couple of our travel clients and our travel tech clients. I think that’s when there is — when I talked about the pipeline, the pipeline is across all verticals, including the consumer business. So, we expect as we enter the new calendar year, I think it will start to improve there.
Rahul Jain
Sure. Sure. That’s it. Thank you.
Operator
Thank you. The next question is from the line of Aayush [Phonetic] with B&K Securities. Please go ahead.
Aayush
Yeah. Hi. So, a couple of questions. The first is again on the consumer business. So just wanted to understand more that when we say that some of the clients are having some issues in the TTH vertical, so when are we expecting those clients issues to get resolved? Or are there any kind of green shoots to be available that we are seeing and the growth from the next quarter, or maybe like for the next to next quarter?
The second question is for Rajeev [Phonetic] on the margin front. So if I see that our SG&A costs has been trending upwards, not that much, but yeah, definitely, quarter-on-quarter basis, we see 12.5% becomes 12.7% as a percentage of revenue. So what sort of comfortable are we — a range are we having that can subsidize the SG&A expense? And are we like investing in towards hiring the sales people for the budget to chase a larger deal or some kind of investment are we doing there?
Debashis Chatterjee
So on the first question that you asked, since you are asking for something very specific, let me tell you that the travel and travel tech clients that are part of our portfolio, they’re also dependent on specific airline manufacturer, which is Boeing in terms of delivery. I think that is something, which is a well-known fact that there has been severe issues and I think they have been forced to scale back in terms of their spend, which is impacting us. I always say that what happens to us is a reflection of not only the industry, but the section of clients we have as a part of our portfolio and [Technical Issues] going through.
Hopefully, there should be some turnaround, but I don’t think it’s easy to say at what point of time things will change. And as far as the other thing within my consumer portfolio is there is the real estate. We have a few real estate clients who are also part of the consumer portfolio. And ever since the interest rates have been very high, there has been impact. But as the interest rates and the mortgage rates come down, I think hopefully there should be some — there will be more opportunities in terms of spend with those clients. I think that will be my way of looking at the consumer business.
I request Vipul to answer your other question.
Vipul Chandra
So, I think other question was on the SG&A costs going higher in this quarter and whether we are comfortable with this increase and it will come back. So answer to that is that we have had some seasonal events, sales events which come about in this quarter, either in Q1 or Q1. And that’s the reason for the increase in Q2 versus Q1. Minus the sales events, if we look at the SG&A, then it would have been probably a bit lower. So, we are operating efficiency steps, increased steps on controlling the SG&A costs as well.
Aayush
Great. Thanks. Just a follow-up for Sudhir. If you can just bit explain because we are having a bit more exposure to the SAP. So, what sort of traction are we eyeing for the SAP, because we have hired couple of hiring on the SAP front and what kind of demand are we seeing on that front?
Sudhir Chaturvedi
Sorry. I didn’t quite catch that question. Could you just repeat it again?
Aayush
So, I just want to understand more about from the SAP angle, like how are we eyeing the demand traction from the SAP and the hiring front, specifically for the SAP capabilities?
Debashis Chatterjee
Are you referring to SAP?
Aayush
Yes. Yes.
Sudhir Chaturvedi
Okay. Yeah. From an SAP perspective, we know that there is a — there has been an increase in demand because of the S/4HANA implementations that our clients are doing. Again, we are working on several implementations right now. We are a top tier partner at SAP. So that for us, the ERP segment, which is our core, what we call core service line offering is continuing to grow well and there’s good traction in that market. Again, some of that is reflective in the growth and the deal making that we’re seeing in the manufacturing vertical specifically.
Aayush
Great. Thank you so much.
Operator
Thank you. The next question is from the line of Girish Pai with BOB Capital Markets. Please go ahead.
Girish Pai
Yeah. Thanks for the opportunity. I have three questions. Did I hear it right that the wage impact will be about 300 basis points? That’s question number one.
Second, would the average resource cost for a GenAI skills infused IT services organization be higher?
And the third is with regard to mainframe modernization, especially in the BFS space, there’s been a lot of talk of GenAI changing the picture there. Are you seeing anything changing on the ground on this particular aspect?
Debashis Chatterjee
So let’s request Vipul to take the first question and then…
Vipul Chandra
On the first question, I think what I had said was 200 basis points, not 300 basis points. So, I think that’s the simple answer. And when it comes to the GenAI skill set, see, it will be across the spectrum. So if you talk about key talent, we can build algorithms, platforms and models that talent, yes, would be a expensive talent because it’s a very niche and very on-demand capability. But if you look at a large part of our talent pool, that will need knowledge of using GenAI in improving their significant productivity. And that’s where I think we are focusing on building the talent ground up, cross scaling and upscaling all of our talent to be able to leverage GenAI capabilities.
Of course, there are some additional skill sets that we would require as well in around data tagging, around content moderations and all of these skills that are needed in order to fine tune and train the models. That’s a very different skill set than what we traditionally had, and they also come at a very different price point and a different background as well. So, you need to look at it. It’s not one, two that will define, but there will be a continuum of those skill sets with respect to GenAI.
And the other part of mainframe modernization. DC already referred to one deal in his prepared remark, which included in the BFSI segment, which had a significant mainstream modernization component in it. And we are seeing a good traction around mainstream modernization, especially driven by GenAI teams, which can significantly cut the lead times and the costs required to monitor all those applications.
Girish Pai
Thank you.
Operator
Thank you. Ladies and gentlemen, we take the last question from the line of Manik Taneja from Axis Capital. Please go ahead.
Manik Taneja
Yes. Thank you for the follow-up opportunity. I actually wanted to pick your thoughts around the GCC activity that we are seeing, including with some of our larger hospitality clients recently. Would be great to get your perspective as to how you think this plays out for our business over the medium term?
Debashis Chatterjee
Well, Manik, GCCs are not something that is happening today. It has been there for several years. And we as a company have been very clear that we have to work with the GCCs and cohesive with the GCCs. Because if you look at the strategies of the GCCs, they will never — they have a very clear view in terms of identifying areas where they work with partners. So, we are working with many of our clients who also have GCCs working with them, with the U.S. teams as well as with the GCCs. So that will continue. So, I don’t think there is anything specific that we need to worry about. We just need to continue what we have been doing.
Manik Taneja
Great. Thank you, and all the best for the future.
Operator
Thank you. Ladies and gentlemen, this concludes our question-and-answer session [Operator Closing Remarks]