Mindtree Limited (MINDTREE) Q3 FY22 Earnings Concall Transcript

Mindtree Limited (NSE:MINDTREE) Q3 FY22 Earnings Concall dated Jan. 13, 2022

Corporate Participants:

Vinay Kalingara — Head of Investor Relations

Debashis Chatterjee — Chief Executive Officer and Managing Director

Vinit Teredesai — Chief Financial Officer

Venu Lambu — Executive Director and President, Global Markets

Analysts:

Vibhor Singhal — Phillip Capital — Analyst

Manik Taneja — JM Financial Services — Analyst

Dipesh Mehta — Emkay Global Financial Services — Analyst

Mohit Jain — AnandRathi Institutional Equities — Analyst

Abhishek Shindadkar — ICICI Securities — Analyst

Ashwin Mehta — Ambit Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to Mindtree Limited Quarter Three FY ’22 Earnings Conference Call. [Operator Instructions] And there will be an opportunity for you to ask questions after the opening remarks. [Operator Instructions]

I now hand over to Mr. Vinay Kalingara. Thank you and over to you.

Vinay Kalingara — Head of Investor Relations

Thanks, Adithya. Welcome to this conference call to discuss the financial results for the third quarter ended December 31, 2021. Trust all of you and your loved ones are safe and in good health.

Today on the call we have with us Mr. Debashis Chatterjee, Chief Executive Officer and Managing Director, Mindtree; Mr. Venu Lambu, Executive Director and President, Global Markets, Mindtree; and Mr. Vinit Teredesai, Chief Financial Officer, Mindtree. We will begin with a brief overview of the company’s Q3 FY ’22 performance, after which we will open the floor for Q&A.

Before I hand over, let me begin with the Safe Harbor statement. During the call, we could make forward-looking statements. These statements are considering the environment as we see today and are subject to risks and uncertainties as described in the Company’s earnings release. We do not undertake to update those statements periodically.

I now pass it on to DC for his opening remarks.

Debashis Chatterjee — Chief Executive Officer and Managing Director

Thank you, Vinay. Good evening and good morning to everyone on the call. Thank you for joining us. Wish you, your families, and your colleagues a very happy and prosperous 2022. I hope all of you are staying safe and healthy. We are pleased to report strong revenue of $366.4 million sequentially, up 5.2% in constant currency in what is a seasonally soft quarter, because of furloughs and holidays.

In USD terms, our revenue grew 4.7% sequentially and 33.7% year-over-year in the third quarter. Our order book comprising a healthy mix of annuity and transformational deals stood at $358 million, up 14.6% year-over-year taking our year-to-date TCV to more than $1.2 billion.

Our EBITDA margin, a measure of our operational rigor and efficiency came in at a healthy 21.5%. Profit after tax or PAT for the first nine months of FY ’22 stood at $158.8 million exceeding the PAT for the entire FY ’21. Our revenue growth momentum not only validates the discipline execution of our strategy, but also speaks to the broad-based secular demand for our digital transformation offerings.

Our sharp focus on four service lines as a part of four-by-four-by-four strategy has helped us build integrated capabilities necessary for digital transformation at scale. Such transformation is iterative and delivered over multiple sprints. We are therefore seeing an increasing number of deals come with a long tail of growth evolving into larger strategic engagements. This is evident in the growth of our accounts. For example when one of the world’s leading sportswear manufacturers embarked on a journey to become a connected company for delivering personalized customer experiences across all physical and digital touch points, they chose us as a strategic partner.

Though the engagement began with data and quality engineering services, we are today driving a range of highly complex and mission-critical digital transformation initiatives for the company. We are redesigning the Company’s e-commerce platform and digitalizing its value chain by leveraging diverse capabilities. These include core modernization, e-commerce and digital marketing, experience design, data analytics, artificial intelligence, cloud, automation and digital security.

The goal is for the company to stay ahead of changing customer behavior and market demands by adopting a data driven direct-to-consumer model. In the case of a global consumer durables company, our role as a digital experience partner has quickly expanded across capabilities from digital commerce and marketing to DevOps, cloud, and automation. As part of the outcome based engagement, we are today responsible for delivering direct-to-consumer e-commerce applications across 18 global markets. Through our integrated capabilities, we are able to deliver faster deployment and robust performance even though peak demand periods that see over a million orders a week.

For a large insurance major migrating its customer policy system to the cloud, we develop templates to model, provision and manage cloud assets; substantially reducing the time took [Phonetic] and cost of migration. We also migrated their customer data aggregation platform to a cloud-based data lake. As part of this transformation initiative, we leveraged our integrated capabilities across cloud, data, and enterprise IT service lines.

Let me now provide some color on the growth of various industry segments. Our communications, media, and technology business grew 6.1% sequentially and 24.5% year-over-year. We are helping communications service providers and original equipment manufacturers to accelerate the rollout of their 5G offerings, IoT platforms and edge devices. We are enabling information, media, and entertainment companies to digitalize their content chains and scale direct-to-consumer platforms. And we are partnering with technology companies to help them engineer, implement and support innovative and intuitive products.

In the quarter, one of the world’s largest technology companies selected us as a preferred supplier for product engineering and cloud professional services to enable it to scale even faster. A fast growing US-based technology company chose us to provide product engineering services to accelerate time to market. One of the leading global hyperscalers have signed an annuity contract with us, as a part of which we will support product and platform operations and provide security services across geographies. Our strategy accounts in this sector have grown significantly and we continue to sign on and scale new logos.

Our retail, CPG, and manufacturing grew marginally quarter-on-quarter, following a very strong Q2 and grew 51.7% year-on-year. We are seeing good traction in consumer experience, core modernization, supply chain transformation, smart factory solutions and intelligent enterprise resource planning.

Connected experiences have gained prominence as a result of a long drawn pandemic. This is driving the need for connected products, factories, operations, employees and supply chains to deliver real-time insights that can be leveraged for better productivity, supply chain fulfillment and customer service. Connected ecosystems are also providing impetus to our IoT and edge computing offerings. In the run up to its digital factory initiatives, we are selected as a partner by a global automotive manufacturer to transform its applications portfolio leveraging Mindtree NxT capabilities. We signed an annuity contract with one of the largest home improvement retailers in the US to support agile-based application development and maintenance.

We were also selected for a digital transformation program by an Australian online automotive marketplace. Our banking financial services and insurance business grew 4.2% sequentially and 19.4% year-over-year hitting an annualized revenue run rate of $250 million. Customers in this sector are increasingly driven by the need to realign technology portfolios, accelerate adoption of future technologies, modernize legacy infrastructure and reimagine channel strategies.

During this quarter, a large credit reporting agency selected us to build a specialty finance platform that help it drive rapid growth through differentiated data assets and new products. We were selected by leading credit card provider in the US as a transformation partner across multiple service lines. While a leading US Fintech company chose us to modernize its core banking platform. A leading indexed annuity carrier in the US selected us as a strategic partner to accelerate the development of new channels and elevate the customer service organization through superior digital experiences.

Coming to our travel, transport, and hospitality business. We crossed the $200 million revenue run rate this quarter, growing 7.4% sequentially and 56.4% year-over-year. Revenues from this business are at pre-pandemic levels and we continue to be deeply involved in key transformational initiatives at our customers and expanding our strategic footprint with them.

Our relationship with one of the major American Airlines is a case in point. It began with the quality assurance program. Today, we are working with them to optimize and transform their network operations to significantly reduce the resolution time for choke points, thus providing superior passenger experience. We were selected as a strategic partner by a Global Vacation company to create competitive differentiation in the leisure travel segment by transforming customer engagement across marketing, sales and services for all its brands globally.

Our strategy to diversify beyond the Airline and Hospitality sectors is yielding good results. We won deals with the Rail company in the UK and a Fast Casual Restaurant Chain in the US. For a major Europe-based travel technology company, we are developing a platform that will enable its partners to manage its properties more effectively and respond quickly to changing customer needs. We are helping a global real estate franchisee and a brokerage service provider and a global provider of mobility solutions to reimagine their services portfolio and market positioning through data-led technology transformation.

Health Care, our youngest industry group contributed $4.8 million to our revenue. During the quarter, we expanded our engagement with a US-based managed healthcare and insurance company. We are advising the company on transforming its legacy system around order intake and supply chain processes into a cloud first digital native ecosystem to accelerate growth and optimize costs. We continue to synergize our services — our service line capabilities for accelerating growth in the healthcare market.

In terms of geographies, North America contributed 73%, Continental Europe, UK and Ireland contributed 18.6% and APAC and Middle East contributed 8.4% of our revenue during the quarter. Among our service lines, customer success contributed 42.9%, data and intelligence contributed 14.8%, cloud contributed 19.1% and enterprise IT contributed 23.2% of our revenue for the quarter. We won one of the largest data and intelligence deals this quarter. It involves delivering business finance, performance management services to the CFO organization in a leading accounting and advisory organization.

In the cloud space, we won 10 deals this quarter on the back of a significantly expanded relationship with the hyperscaler. We are partnering with one of the largest financial services and payments software companies as a managed service partner for its payment solutions, providing banks with an end-to-end payment as a service offering initially focused on the Nordics, the UK and Ireland.

Industry and partner recognitions continue to validate our capabilities and experience. We were named as a major contender in Everest Group’s 2022 peak metrics assessment for mainframe services, advanced analytics and insights, IoT services supply chain solutions and platform IT banking services. We also earned the AI and machine learning on Microsoft Azure Advanced Specialization. Our ability to bring innovative ideas and future ready talent to support rapidly evolving transformation needs is what differentiates us. We are re-organizing ourselves to turn this differentiation into an even stronger competitive advantage.

As a part of our ongoing endeavor to sharpen our strategic focus, operational agility and customer value, we elevated Senior Mindtree exists to larger roles this quarter. Radhakrishnan Rajagopalan was appointed as Company’s Global Head for Technology Services and Suresh HP took on the role of Global Delivery Head.

As we enter the next phase of growth, we are strengthening our employee value proposition by driving a talent mindset across the organization and making talent an integral part of the organizational fabric. An important step in this direction is to bring the entire employee lifecycle ranging from outreach and recruitment to carrier development under an integrated talent function. To lead our integrated talent program, we welcomed Suresh Bethavandu this quarter as the company’s Chief People Officer.

We also named Paneesh Rao as our Global Sustainability Head to drive our enhanced ESG commitment. We are continually building upon our highly engaged people centric culture aligned with our work ethos focused on purpose, caring, learning and delivering results. We onboarded more than 4,500 Mindtree minds this quarter, taking our global headcount to more than 31,900. For the quarter, our LTM attrition was 21.9%.

To meet the growing client demand for our services, we have re-energized our recruitment engine. We are not only on track to meet our aggressive hiring targets for FY ’22, but also expect to significantly increase hiring in the coming quarters. As part of our work of the future talent strategy, we’re also tapping into Tier 2 and Tier 3 cities and setting up offices in Coimbatore and Warangal. With a rejuvenated campus hiring program, we expect our hiring momentum from campuses to increase by 40% to 50% through FY ’23. Mindtree EDGE, our unique learn and earn program for B.SC and BCA graduates continues to progress as planned.

By remodeling and strengthening our flagship training program for fresh graduate hires, we have been able to accelerate fresher’s deployment to client projects. The broad range of carrier and development opportunities resulting from our growing and diverse client technology and geographical footprint makes us an attractive employer. The power of our brand is also reflected in the sustained success of our employee referral programs. Our focus continues to be on complementing external hiring with internal talent development.

During the quarter, external certifications were 50% more than those in the preceding quarter. Measures such as redefined carrier framework and rule rotations continue to facilitate more effective carrier enablement.

I will now turn over the call to Vinit for Q3 financial highlights. Vinit?

Vinit Teredesai — Chief Financial Officer

Thank you, DC. Good evening and good morning to everyone on the call. Our strong financial performance in the third quarter validates the strength and continuous execution of our strategy. This is the fourth consecutive quarter of 5% plus revenue growth in constant currency terms. Despite seasonal headwinds this quarter, we grew all dimensions of our business and deliver strong EBITDA margin, while continuing to invest in our business.

In line with our endeavor to maintain 20% plus EBITDA margin, the reported EBITDA margin at 21.5% this quarter, compared to 20.5% in Q2 FY ’22. 100 basis point increase in EBITDA margins over the prior quarter was due to 60 basis points from business growth and operational efficiency and 40 basis point impact of cross currency movements.

Our reported EBIT margin for the quarter was 19.2%, compared to 18.2% in the preceding quarter. The effective tax rate for the quarter was 25.5%, as compared to 25% in Q2 FY ’22. Net forex gain for the quarter was $5.5 million. Profit after tax margin for the quarter was 15.9%, as compared to 15.4% in the previous quarter. PAT in absolute terms grew by 32% year-on-year to $58.3 million.

Earnings per share was INR26.50 for the quarter, as compared to INR24.20 in Q2. Our DSO for the quarter stood at 64 days. Our cash and investment balances were at all-time high of revenue $412.7 million. For the quarter, operating cash flow to EBITDA improved significantly to 87.7% versus 63.6% in the previous quarter.

Free cash flow to EBITDA was at 77.6% verses 52.6% in the previous quarter. Annualized return on capital employed for the quarter was 44.5%. Return on equity for the quarter was 36.2%. Our utilization in the quarter was 81.5%, compared to 82.9% in Q2. Our contraction pricing for the quarter remained stable. As of December 31st, 2021, our cash flow hedges were at $1.50 million, hedges on the balance sheet were $145 million and options of $9 million.

And now I’ll hand it back to DC for the business outlook.

Debashis Chatterjee — Chief Executive Officer and Managing Director

Thank you, Vinit. The demand environment for our integrated capabilities continue to be robust. Digital transformation and hyper personalization remain high strategic priorities for our customers and continue to merit a significant proportion of technology spends. These investments are largely independent of market cycles and being driven by long-term strategic imperatives around delivering modern enterprise architecture, resilient infrastructure, scalable digital-ready foundation and innovative experiences.

While it is too early to predict the impact of the evolving pandemic situation. We remain confident that our strategy of growing existing relationships, diversifying [Phonetic] our customer mix and strengthening industry partnerships will continue to deliver meaningful results. Customers are looking for speed and agility in reaching the end state of their digital initiatives faster than planned. They are looking for flexible, nimble and transformation first partners, who can help them scale and scale fast. This is where we have an edge [Phonetic]. We are confident in our ability to sustain our strong momentum and our endeavor is to continue to deliver industry-leading profitable growth.

With that let me open the floor for questions.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] First question is from Vibhor Singhal.

Vibhor Singhal — Phillip Capital — Analyst

Yes, hi. Am I audible?

Operator

Yes. Go ahead sir.

Vibhor Singhal — Phillip Capital — Analyst

Yes. Hello, sir. Thanks for taking my questions and congrats on a great performance yet again. DC, my question was on the demand environment and the deal flow. We are hearing a lot about large deals being broken up into small parts by a lot of clients and as you also mentioned that clients are looking for nimble footed, kind of, vendors, who can around things quickly?

So how does that basically help us. I mean we’re being in the sweet spot in terms of our size, we should be able to basically garner a large market share in that sense of those deal flow. But our deal flow has been, kind of, stable I would say for the past two to three quarters not a very strong jump that we are looking at. So how do you see this evolving in terms of translating into higher deal flow for us in the coming quarters?

Debashis Chatterjee — Chief Executive Officer and Managing Director

Thank you, Vibhor. So let me just start and then I’ll request my colleague Vinu also to add on. See as far as the deals are concerned the nature of digital transformation deals are more of iterative and very short cycles. So essentially what happens that when you are selected as a partner you are governed under a overall master service MSA. But then, you know, you will be doing projects one after another and you know once you start working on the projects and the needs are developing for the clients you continue to build that relationship and that relationship also becomes bigger and bigger. So though you may not able to see a pipeline in the form of a multi-year, kind of, a thing to start with. But the deals eventually transferred [Phonetic] into a multi-year initiative and engagement. But you know the deals will come in terms of iteration. So that’s the way it is working.

And the good news is that, you know, we have — we are at this point of time, if you look at the strategy that we have adopted. The four service lines enterprise — I mean customer servicers, data cloud and enterprise IT. You need all these four capabilities very strongly to provide the integrated capability to any of the clients. So I think we feel and some of the prepared remarks that you heard a lot of opportunities where we are actually supporting our clients across multiple service line, which is very important, because if you have that capability then only you can participant in this iterative deals and I know this smaller size deals, but you know that there will be something which will follow.

Vini, you want to add anything?

Venu Lambu — Executive Director and President, Global Markets

You know, just additional commentary that when you apply these requirements at a — in the context of the sectors that we address. We are essentially trying to address the revenue maximization mandate of our customers, right? So hence the opportunity that is visible for us to go after is huge. As our client’s revenue increases, because that’s why people want to do digital transformation, so that they can enhance customer experience. They can build some good insight, use cloud as a catalyst and so on.

So since it is pretty much stacked to the clients revenue maximization mandate. Unlike the run mandate, which has got a fixed budget and a declining budget. I think this budget will increase in line with the customers changing revenue pattern. So it’s a great opportunity for us to be there. Though it is a shorter and iterative in nature, the sprints are numerous. So hence it’s a great opportunity for us to grow with that trend.

Vibhor Singhal — Phillip Capital — Analyst

So if I understand it correctly we are trying to say that maybe this entire deal flow or the strong demand environment might not be reflecting in the deal flow absolute number that we report, but in the next few quarters I think the revenue maximization part of that should definitely translate into higher revenues for us?

Venu Lambu — Executive Director and President, Global Markets

That’s correct. It’s fair to say.

Vibhor Singhal — Phillip Capital — Analyst

Got it. Sure. Sir, my next question was to Vinit. Vinit, I think we’ve had very strong margin expansion. I think we’re continuously surprising on margins front every quarter-after-quarter. So if I just look at the margins profile of this quarter. I think our gross margin level also expanded and we’re now well over 40% in terms of gross margins and there was also almost a 70, 20 basis point benefit from lower subcontracting cost. So I think subcontracting cost as a percentage of revenue has come down from I think 11.5% at the peak to now less than 10%.

So just wanted to tie this up, these two things up with the, kind of, supply side challenges that we have. So despite the supply side challenges, we know the higher attrition which is there for us and the industry and the salary hikes that we have to give. How is it that we are able to expand our gross margins and reduce the subcontracting cost and do you believe it is sustainable going forward as well?

Vinit Teredesai — Chief Financial Officer

Yes. Thanks, Vibhor. As you rightly pointed out that the subcontractor cost is one of the operational levers that we are able to utilize it for scale up, scale down and that has a pretty much good impact on the margin story.

The second also aspect is also the fact that we are able to get a good traction of fresher’s and — to the available community, which is actually helping us also managing our delivery, but keeping our cost at a minimal level. So these two or three parameters, I would say, continue to remain and our endeavor is to see more and more fresher’s get infused into the system and see how quickly can they be bought into the billable section. So that has been our endeavor and that’s how we will continue.

On the margin story, we have always said that, you know, 20% plus EBITDA margin on a sustainable basis look somethings that we are looking to continuously aspire and deliver and that’s where our overall planning exercise goes around.

Vibhor Singhal — Phillip Capital — Analyst

Got it. So in this case let’s say in this quarter like we exceeded that guidance and we reported around 21.5% EBITDA margins. Going forward if our margins is comfortably of — height for the guidance. Are we basically — would we be looking to plough that some of that part back into the business in terms of let’s say higher S&M spend to grow? Or we would just let the path of profitability take its own course?

Vinit Teredesai — Chief Financial Officer

No, absolutely not. Our intent is definitely to see whatever margins we are able to make above 20% is to invest back into the business. It does not mean every quarter we will be able to deploy that money back into the business. So as and when the right opportunity comes in, we think we are geared up to make those investments and still deliver profitable a growth story of 20% plus that has been mentioned in the past.

Vibhor Singhal — Phillip Capital — Analyst

Got it, got it. Can I just ask one more question. One last question on my favorite.

Operator

Can you please?

Vibhor Singhal — Phillip Capital — Analyst

Okay, sure. Yes, I’ll come there — I’ll come the queue back again. Thanks a lot guys.

Operator

Thank you. Next question is from Manik Taneja. Please unmute yourself Mr. Manik.

Manik Taneja — JM Financial Services — Analyst

Yes. Hi, thank you for the opportunity and once again congratulations on the great execution. I just wanted to pick your brains around what’s helping Mindtree to manage its subcontracting cost. For most of the industry, we are seeing subcontracting expenses go up. So just trying to understand what’s driving this phenomena for us? That’s question number one.

The second question that I had was with regards to the client addition fed that we are seeing. So since that time the ownership change happened we were essentially focused on reducing the tail accounts and over the last couple of quarters we are seeing this trend change. So do you think we are passed this phase off rationalizing the long tail of accounts. And now we should probably see expansion in terms of number of accounts and when do we start seeing progress in terms of customers moving to the higher revenue buckets, because for all practical purposes the number of $50 million or number of $100 million plus customers have remain unchanged for the last several years for the company? Thank you.

Debashis Chatterjee — Chief Executive Officer and Managing Director

Thank you, Manik. In terms of subcontractor cost, let me answer, and then I’ll let Vinit add. See I think Vinit has already answered that in the last question. But this is an important lever that we always monitor and if there is a spike in demand then we probably have no other choice, but to look at more sub-cons to cater to the demand. But again when we do that we also have an immediate plan to how to rationalize that over a period of time as the — once the fulfillments happen we need to replace the subcontractors and get into more FT mode. And again the pyramid correction also is something that we do.

I will only say that this is not something that can happen only in one quarter. Because if you have heard our commentary, I have told earlier also that there is a very strong process that we have put in place where we monitor all the levers that is required to manage the margin and that is why the confidence is there where Vinit says that and of course I also believe and I say that we can hold on to the — our margin band. Because we feel that we have the processes in place, the levers in place, the discipline in place where we can run the business in such a way. Apply all the parameters and still deliver the margins. So I would say that this is just a part of the overall process that we have laid out. We will — the subcontractor cost may go up and down, but it will get rationalized over a period of time.

And in terms of client additions specifically, Manik, I must say that you are right, there was a time when we had to rationalize the long tail of clients. In fact just to give you some idea over the last, you know, ever since the management change happened, we rationalized more than 150 tail accounts, tail clients from the time the management change happened and we have added more than around 75 new strategic logos. So essentially it is our endeavor to ensure that we can get into more of $50 million accounts etc, it doesn’t happen overnight, it — but we are — we have a robust plan with our account mining plan, the cross-selling and the up-selling that we are doing, putting the service line sales strategy in the markets with all these thing that’s what we want to do.

But if you look at our fact sheet the number of clients, which are in the range of 20 to 50, as well as 10 to 20 that has kind of gone up a few notches this particular quarter and it will continue to happen. So the — it’s not to say that the long tail is completely rationalized whenever there are still some way to go, but our endeavor is to focus on limited set of clients; focus on the strategic clients; do cross-sell and up-sell and put a strategy around the top 100 clients, and that’s exactly what we are doing and you will see the results. We have already seen the results in the last eight quarters. We’ll continue to see that as we go along.

Venu, Vinit, you want to add anything?

Venu Lambu — Executive Director and President, Global Markets

No, DC. I think you’ve covered.

Vinit Teredesai — Chief Financial Officer

Yes, you’ve covered DC.

Manik Taneja — JM Financial Services — Analyst

Thank you, DC. If I can just ask one bookkeeping question. If you could help us understand the number of fresher’s that we’ve added this quarter, as well as in FY ‘ 22 year-till-date, because you spoke about probably looking at 40% to 50% higher fresher intake in the next year? Thank you.

Vinit Teredesai — Chief Financial Officer

Yes. Roughly I would give a rough number of around 1,500 fresher’s are getting added per quarter.

Operator

Thank you. Next question is from Dipesh.

Dipesh Mehta — Emkay Global Financial Services — Analyst

Yes, thanks for the opportunity. A couple of questions. Just continuing on the previous question about fresher addition related things. So broadly you’re indicating around 6,000 fresher addition are likely to happen this year? And on that base we intend to have almost 50 percentage of the debt [Phonetic] — that is right understanding or I misunderstood it?

Debashis Chatterjee — Chief Executive Officer and Managing Director

Yes, see the thing is, let’s look at a macro level. At a macro level, you know, if you have to have your margin story intact and if you have to focus on growth and you also need to, you know, looking at all this macro at a broad level, we have to add many more fresher’s than we used to have in the past. And from that perspective as I explained in my prepared remarks that we have designed the new structure now with a little bit of reorg and make sure that the entire talent strategy is owned by one person end-to-end. So the number of fresher addition it’s not fair to call out a number, but we will see significant fresher additions as we get into Q4 as well as beyond.

Dipesh Mehta — Emkay Global Financial Services — Analyst

Fair, DC. I just want to get the number, right? 6,000 is what likely to happen broadly for FY ’22, right?

Vinit Teredesai — Chief Financial Officer

So it has not been completely 1,000 to 1,500 right from the beginning. This is the latest set of run rate that we are talking about. But if I had to look at this going forward, we do want to ensure that every quarter we are able to add at least as many amount of fresher operations.

Dipesh Mehta — Emkay Global Financial Services — Analyst

So this is more for futuristic in next few quarters rather than in the last three quarters?

Vinit Teredesai — Chief Financial Officer

Yes, right.

Dipesh Mehta — Emkay Global Financial Services — Analyst

Understood. And can you help us understand, because now we are focusing heavily on employee pyramid correction. Can you share some data, which help us to understand, because if I look our employee core versus cost versus industry-wide attrition and related implication on cost structure. Our employee cost is continue to be lower than hiring. So number of people, which we have, let’s say, this quarter 7.5% headcount addition, employee cost is up 5%, obviously pyramid is helping you plus onsite also reaching all those things. Some of these sectors playing out, but if you can give some sense about how pyramid has improved for us over last four, five, six quarter that would be helpful?

Vinit Teredesai — Chief Financial Officer

I would — again not specific to the numbers, Dipesh. But as I said that more and more fresher addition is helping us in terms of getting infused into the system. The second part is getting these fresher’s quickly on their training and then onto the projects and getting them build. We had quite some good success stories in some of our industry verticals whereby the fresher acceptance was very, very nice and they have become a sort of a case study for the other industry verticals to sort of follow.

So we want to ensure that this is — this continues. In today’s world, if we want to sort of ensure that our employee cost base does not increased exponentially then the fresher addition strategy is going to be the key for us and we’ll continue to add.

At the same time we are — as DC mentioned in his opening comments, we are also trying to look at getting some talent and some of the Tier 2, Tier 3 cities like Coimbatore etc, which could also help us in terms of not only managing the demand, but also managing the attrition, because these cities are traditionally having more attrition rates, compared to some of the Tier 1s. So that’s how it is.

Dipesh Mehta — Emkay Global Financial Services — Analyst

Great. Let me just ask it slightly differently. Now generally large cap companies you have 50% of their gross addition as fresher’s. Mid cap used to be somewhere around 30%. Do you think Mindtree has reached to a level where we can have 50% of gross addition as fresher’s. We have system in place, we have good visibility about demand and this is a structure, let’s say, we can implement over next two, three year perspective. Whether we are on their journey? That is if you can provide some broad color?

And last question is about onsite/offshore mix. If I look now our offshore mix has reached to at least it appears historically high level. How you think over next two year, three year perspective, do you think this is more sustainable level we reach or do you think still there is a scope to improve for that? Thanks.

Vinit Teredesai — Chief Financial Officer

So, Dipesh, in terms of the journey definitely our intent is to have more and more fresher additions. I won’t call it by number whether we are there or not, but definitely from a journey perspective, if you look at FY, up to FY ’21 and how FY ’22 has planned out. I think so definitely we have made a remarkable progress in terms of our connect with the universities, getting the percentage slot, getting the best of the talent and all. I think so from a structural perspective we are all geared up. Eventually in the next couple of quarters as the — as this plays out even more better, we will be able to add more and more people. I won’t put a percentage at this point of time, but definitely we are geared up on that front.

On your offshore/onsite one. Yes, it has reached a peak level. I don’t think so there is right now a probability of this going up from here. At some point of time when the international boundaries open up and travel start becoming, you will see a little bit of a onsite ratio picking up. But when we say onsite, it does not necessarily mean the developed nations like US, UK. It can be also to some of our near shore development centers in the Eastern Europe.

Dipesh Mehta — Emkay Global Financial Services — Analyst

Thank you.

Operator

Thank you. Next question is from Mohit Jain.

Mohit Jain — AnandRathi Institutional Equities — Analyst

Hi, sir. Two, three questions. One is on the CMT vertical. So now our dependence and first if you could talk about the top client the outlook there in the CMT vertical overall that will be helpful?

And second is on the UK market, we had this phenomenal growth last time most of it was supposed to be recurring we had this question last con-call as well, and now there is some softness, are we know — we have to cross the hub, we should see growth from here on or what is your outlook broadly on the UK thing?

The third one is for Vinit sir on again employee cost. I’ll come back to that later. But if you could answer these two questions first.

Debashis Chatterjee — Chief Executive Officer and Managing Director

So your first question was Mohit was on CMT vertical or the top client?

Mohit Jain — AnandRathi Institutional Equities — Analyst

Sir both together meaning what is the outlook on — because top line is also accelerating you [Technical Issues] and then CMT vertical outlook overall?

Debashis Chatterjee — Chief Executive Officer and Managing Director

Yes, I think the commentary remains the same and consistent, because the top client is a very strategic client for me and we are where we are, because we are doing — delivering good work with the top client and the other thing is that when we say top client, we have to also understand that this top client is basically we are working in multiple LOBs within the top client. So there are multiple stakeholders within the top client and each relationship itself is a large relationship. So we should always look at the top client as a set of multiple LOBs within the top clients. That’s the way we kind of look at the top client.

So since it is multiple LOBs some of the LOBs will grow faster than the others and overall growth of the top client continues. And our endeavor is that top client should grow, but the concentration of the top client should come down slowly. The highest we had reached around 30% from there we have come down to 24% in terms of client concentration.

But just from a growth perspective, if I just look at the year-on-year growth, I have also said that we should not just go for one quarter movement of the top client, look at our overall yearly basis, because there are cyclical things happening over there. So overall, at this point of time, if you look at year-over-year the top client has grown around 17% and if you look at year-over-year. And if you look at the next set of two to 20 clients, the two to 20 bracket year-over-year that growth is almost 41%. So which means our strategy of growing the top client is intact. But at the same time our strategy of growing the other set of accounts through cross-selling and up-selling and doing more effective account mining and doing providing the selling the integrated capabilities, that is also intact.

So I hope that answers the question and I’ll let Venu comment on the UK part.

Venu Lambu — Executive Director and President, Global Markets

Yes, sure. Look, I think on the UK part if you actually look at it. When we spoke last quarter, we did speak about the continued demand that we see in supporting the major segment, which is where we have a lot of clients in the UK, which is the retail and CPG segment. And we saw that growth happening in Q2 and even if you look at from an year-on-year perspective for the corresponding quarter, we’ve actually grown more than 60%, right?

The UK growth has been almost 65%-plus on a year-on-year basis. So one particular quarter on a quarter-on-quarter basis is not really a reflection of any certain trend. It just happened to be that the retail and CPG sector, which is fairly dominant for us in the UK clientele base. This is typically a peak period, the Christmas happens to be the peak period. And during this peak period, the big transformation or the digital intervention projects don’t happen, because you don’t want to disturb the business continuity. So you keep this period more as a freeze period. So I wouldn’t read anything more than that, because this region has grown more than 60% year-on-year. So and I’m still optimistic about how UK I mean grow in the subsequent quarters as well.

Mohit Jain — AnandRathi Institutional Equities — Analyst

Perfect. Sir, few from Vinit, sir. One is on this employee cost. If you look at the breakup in the notes, there is this provident fund amount, which has sort of declined on a Y-o-Y basis. Is there a reversal or something, which has happened or change in policy?

Vinit Teredesai — Chief Financial Officer

No. Last year if you remember, Mohit, we had made the provision for one of the provident fund accrual that was needed and that’s the reason last year there was a one-time sort of a reclassification exercise that happened, but if you look at from a normal perspective, there is no change.

Mohit Jain — AnandRathi Institutional Equities — Analyst

Sir, I looked at nine month to nine month also there was a decline. So it look like.

Vinit Teredesai — Chief Financial Officer

It’s the same you know. It’s last financial year also…

Mohit Jain — AnandRathi Institutional Equities — Analyst

That’s a big — Okay. And second was on your receivable days like working capital seems to be going up quite sharply. So if you could help us understand, is this the new normal 80, 85 kind of days or do you think receivables will eventually come down. Last is on NxT was there some payout in the quarter, because this was acquired last quarter, right. So I was hoping that the payout could have happened in September?

Vinit Teredesai — Chief Financial Officer

So let — on the DSO, it’s a marginal uptick at this point of time. Our endeavor is to ensure that from our build DSO perspective, it remains within the 60 days to 65 days range and that’s what we endeavor to achieve. There are few pockets whereby you face a little bit of an extended credit terms, but nothing, but really to change the DSO. And as far as the NxT…

Mohit Jain — AnandRathi Institutional Equities — Analyst

Extended credit terms for few clients is it?

Vinit Teredesai — Chief Financial Officer

Few clients. There is an ask for a little bit higher period.

Mohit Jain — AnandRathi Institutional Equities — Analyst

So this is for the entire MSA like going forward also they will remain in that higher credit period?

Vinit Teredesai — Chief Financial Officer

Some clients again. As I said majority of our clients continue to deliver the money in the requested time-frame. And on NxT, the acquisition was effective July 1. So it happened in the last quarter. The first payout happened in the last quarter. This quarter we just had a working capital margin and amount being paid on account of working capital adjustment and that was the — roughly a close to a $1 million speed otherwise there is no other payment happened in this quarter.

Mohit Jain — AnandRathi Institutional Equities — Analyst

So that payout is complete now, right? As of 3Q?

Vinit Teredesai — Chief Financial Officer

There is a another payout, which will be happening in Q1 of FY ’23.

Mohit Jain — AnandRathi Institutional Equities — Analyst

Can you quantify that, sir?

Vinit Teredesai — Chief Financial Officer

It’s roughly around I would say $11 million — roughly $11 million to $12 million.

Mohit Jain — AnandRathi Institutional Equities — Analyst

Understood, sir. Thank you. That’s all.

Operator

Thank you. Next question is from Sulabh Govila. Please unmute yourself. Okay. We’ll go to the next. Next one is from Abhishek Shindadkar.

Abhishek Shindadkar — ICICI Securities — Analyst

Yes. Hi, thanks for the opportunity sir and congrats on good execution. I just have one question. Our sales and marketing headcount is up 25% year-to-date. And, you know, our TCV quarterly bookings still continues to be flattish in the $400 million range. So can you help us understand the mix of hiring in terms of farmers, hunters. And where would the hiring be reflected going forward? Is it more continued improvement in mining? Or there could be a material improvement in our quarterly bookings? Thank you.

Venu Lambu — Executive Director and President, Global Markets

Yes. You know, this is Venu here. Let me take that. If you actually look at our S&M headcount, it’s not just about having the account managers, time partners, BDM or service line markets leads. The S&M headcount also includes the capability that you need to build to do solutioning, to do the bid management and other aspects of the sales and marketing process. So hence it’s not necessarily a direct reflection of number of people, who are actually in the front. So that’s the first one.

With regard to the — where the focus is going to be? Look, we’ve been very clear that we wanted to expand the valid share of our existing customers as when we started the account rationalization. So we’ve made a very significant investment in actually client partner team, in our vertical teams, account managers, service line specialists and so on. So that investment will continue. As and when we acquire the new logos, we’ll continue to more invest in those accounts to expand and also in the existing relationship will bring the specialization to do that. So that’s how I look at it. You need the capability of acquiring the new customer as well. At the same time, we also want to make sure that we have the right team in place to expand our relationship with our existing customer. So I really don’t want to pick which one would be the most investment area in terms of priority, both are equally important. So that’s how I look at it.

And, you know, that — just additional commentary I would like to make is that we also made some announcement with regard to the geo opening, right? In the Asia-Pacific, we got the new geo leader, who is just about three months old in a system. And so is the leader in dark and so on. So there has been some new teams. We just come about over the last one quarter or so. So hence again it’s too early to relate to those additional outcomes to the additional booking. But the investments we are making is with a purpose that will continue to grow and will show that improvement on all these aspects.

Abhishek Shindadkar — ICICI Securities — Analyst

That’s helpful. Thank you for taking my questions.

Venu Lambu — Executive Director and President, Global Markets

Thank you.

Operator

Thank you. Next question is from Ashwin Mehta.

Ashwin Mehta — Ambit Capital — Analyst

Yes, hi. Can you hear me?

Operator

Yes.

Ashwin Mehta — Ambit Capital — Analyst

Hi, thanks for the opportunity, and congrats on good margin execution. In terms two questions from my side. One is on the travel vertical. So that on a last 12-month basis has given us almost one-fourth of our incremental revenues. Now given the Omicron scare, what is the near-term outlook of this vertical. Anything that you have felt in terms of your clientele here?

And the second question is around segmental margins, wherein the CMT margins have gone up by almost 280 bps this quarter. So what drove this disproportionate increase in margins and how sustainable that is?

Debashis Chatterjee — Chief Executive Officer and Managing Director

Thanks, Ashwin. So let me just provide some details. In terms of travel and hospitality, you know, there are couple of pointers. One is we have been also trying to diversify in this industry segment and go beyond traditional airlines and hotels per se. So we have been looking at surface transportation. We have been looking at food and beverage. We also have lot of car rentals within this. So essentially it is that we have been — we recognized the need to diversify and we have been doing that very consistently over the last three, four quarters.

The effect of Omicron is — we are watching it very closely and it is not evenly distributed within this sector. For example, if you look at car rentals that are actually seeing greater traction right now. Food and beverage, hospitality are cautiously optimistic, because of the situation. And of course there are softness that we see in terms of cruise liners, as well as business travel. So we are watching it very closely, but the fact that we have diversified gives us the confidence that we should not be — we should be able to tide over it over a period of time.

In terms of CMT specifically, I think there are two aspects. One, is I think Vinit touched upon the subcontractor. I think the — we have been very conscious in terms of subcontracts can come in, but over a period of time they need to be replaced. And the other aspect also is that there are situations where if there are very niche skills that we are providing for our clients. Some of this niche skills are premium skills and we are also able to build differently for those particular niche skills. So it cannot be just one factor, there are multiple factors like this which we look at and that’s why you see the uplift in the margin.

I’ll let Venu to add additional color if you want to.

Venu Lambu — Executive Director and President, Global Markets

No, DC. I think pretty much covered that part. I think the TTH diversification is probably I would emphasize it once more. Look, when we started recovering this revenue post-pandemic or during the pandemic I would say we are still in pandemic. You know, over the last two years the strategy was not just about recovering the revenue that was — that went down in the first lockdown. The strategy was more about building resilient in the system. So the diversification of TTH requires a new lens to look at it, you know, the kind of customers that we are on-boarding or necessarily in the direct line of impact. So we fairly confident in the short-term of course you can’t predict how the new viruses or new set of variant should come about, but given where we are today, I think the diversification strategy would actually build the resilience in TTH.

Ashwin Mehta — Ambit Capital — Analyst

Thanks for the answers and all the best.

Operator

Thank you. Next question is from Vibhor Singhal.

Vibhor Singhal — Phillip Capital — Analyst

Hello?

Operator

Yes. Go ahead.

Vibhor Singhal — Phillip Capital — Analyst

Yes, hi. Thanks for taking my question again. DC just one question. I wanted a bit color on the retail and the BFSI segment, two separate segments of course. Now, our retail segment of course we saw a very strong growth last quarter and I think on the back of that base, I think on a Q-on-Q basis I think this was more like flattish. So just wanted to take your basically pick your brain on this part that how is the growth looking in that segment going forward as economies across the globe recover and the retail segment has seen, kind of, an uptick for almost all of our peers and overall industry as well?

Secondly just wanted to understand our strategy in the BFSI segment. Now given the size that we are, both in terms of our revenue and market cap. I think most of the other peers that we have, have a higher share of BFSI revenue in this segment. BFSI tends to be the bread and butter of most of our IT services company. We tend to have a slightly, kind of, a differentiating profile where our concentration of hi-tech travel and these segments are more. And travel is relatively lesser than BPS [Phonetic]. So where exactly do you think — so what exactly are the areas that we’re focusing on BFSI and what is our strategy for this segment. Not from let’s say next two quarters point of view, but from a, let’s say, next three to four years point of view?

Debashis Chatterjee — Chief Executive Officer and Managing Director

Okay. So, Vibhor, let me just start and then I’ll request Venu also to provide some additional color. See as far as the retail consumer goods manufacturing segment is concerned. Yes, it’s kind of a marginal growth on a quarter-on-quarter, but on a year-on-year basis, we still grew around 52%. And one of the thing is, we had a very strong Q2 in this particular area, in this particular vertical. But the other thing, which you also need to understand is especially for retail and consumer goods. I think all the transformation initiatives, they kind of take a backseat and during the holidays there are a lot of freeze that comes into place.

And as a result of which some of the initiatives that we’re working on that’s just kind of put on pause, but that doesn’t mean anything. Because that will again get restarted and already has got restarted as we get into the Q4. So that is probably, that is the reason why you’ll see that it is flattish, but at a — from an overall demand standpoint, I don’t think there is anything that we are concerned about. And of course, I mean, we have to watch the Omicron situation that’s kind of evolving very fast and we are very cautiously watching it.

In terms of BFSI, I would say, that you know the strategy that we have adopted is first of all we had to stabilize this, there were a bit of consolidation that happened early days post the management change. So we kind of went over that. Now it’s in a growth momentum and what we are seeing over here is that customers are very focused in terms of realigning their technology of platforms, portfolios. They are very keen to adopt — accelerate the adoption of future technologies, modernize the legacy infrastructure. So there is a lot of demand. So we will focus in terms of from a strategy standpoint, we feel that the four service lines, the integrated capabilities that’s definitely going to work. There is a lot of opportunities that we have through partnerships as well, through hyperscalers, as well as some of industry leaders in terms of the vertical platforms the product providers.

So we can — we are in the process of doing a lot of partnerships, so that we can tap into the — this particular segment and some of that we demonstrate — we kind of articulated in the opening remarks. But one thing which you have to also understand that this is a segment where it takes a little bit of time to build a relationship and grow the relationship, because BFSI is one segment where clients tend to be with the respective providers and they don’t change. So it takes a little bit of time, but I think our strategy is put in place and I’m sure over a period of time, we will continue to grow in this segment as well. Venu?

Venu Lambu — Executive Director and President, Global Markets

Yes, just additional commentary is on two areas. I think which DC touched upon in the beginning as part of the opening comments. The first one is the industry partnership, right? I mean, we announced Finastra partnership today [Phonetic]. I think partnerships like we already had a partnership with Duck Creek from a insurance standpoint and getting Finastra, the payments with regard to the BFS, sort of, strengthens our industry partnership story. So that is something which I believe is a big growth lever and we’ll continue to look for more partnership.

The second one again, which I think was touched upon earlier was the modernization agenda, right? I think the BFS and insurance still have a huge amount of the tech. They have a huge amount of technology debt if I must say so whether it’s a mainframe modernization or legacy modernization, app modernization, cloud migration. So these are the capabilities I think we are much stronger than we were before, because we have delivered successfully for some of the insurance and banking clients. It’s not just a question of replicating it cross more clients and get that, kind of, growth we want at the BFS. And we are happy because this has been the first year of a positive growth after the last year when we consolidated. Now that we have more strength and capability we leverage all that to grow it further.

Vibhor Singhal — Phillip Capital — Analyst

Got it. Thanks for taking my questions and wish you all the best.

Venu Lambu — Executive Director and President, Global Markets

Thank you.

Operator

Thank you. Thank you very much. We’ll take that as the last question. I would now like to hand the conference back to Mr. Vinay Kalingara.

Vinay Kalingara — Head of Investor Relations

Thank you all for joining this call and thanks for your continued support. Stay safe. You may now disconnect your lines. Thank you.

Operator

[Operator Closing Remarks]