Tech Mahindra Ltd (TECHM) Q2 FY22 Earnings Concall Transcript

Tech Mahindra Limited (NSE:TECHM) Q2 FY22 Earnings Concall dated Oct. 25, 2021

Corporate Participants:

CP Gurnani — Managing Director and Chief Executive Officer

Milind Kulkarni — Chief Financial Officer

Harshvendra Soin — Global Chief People Officer and Head of Marketing

Rohit Anand — Senior Vice President Finance

Manish Vyas — President, Communications, Media & Entertainment and Chief Executive Officer, Network Services

Analysts:

Mukul Garg — Motilal Oswal — Analyst

Gaurav Rateria — Morgan Stanley — Analyst

Sandeep Shah — Equirus Securities — Analyst

Nitin Padmanabhan — Investec — Analyst

Ruchi Burde — BOB Capital — Analyst

Vibhor Singhal — PhillipCapital — Analyst

Rahul Jain — Dolat Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Tech Mahindra Limited Q2 FY ’22 Earnings Conference Call. [Operator Instructions]. I would now like to hand the conference over to Mr. C.P. Gurnani, MD and CEO for Tech Mahindra. Thank you, and over to you, sir.

CP Gurnani — Managing Director and Chief Executive Officer

Hi. Thank you. Good evening, and good morning. Welcome to Tech Mahindra quarter two FY ’22 results. Thank you all for joining us today. Thank you all for being with us through these few quarters, which for many of us on a personal front, has been a challenging quarter on the business side. It’s been an exciting quarter. Your company’s mantra for fashion and purpose to drive sustainable profitable growth. I think we have been able to now deliver consistently for several quarters now.

I know my team of 141K people, 141K associates are very, very happy to report highest sequential growth in the past decade. We have remained committed on our margins. We have also seen that your company’s investments on 5G-driven technologies, your company’s commitment to customer experience management is showing results not only in CME, but in all the key growth verticals, BFSI, HLS, high-tech. I mean, it just — the impact is across the geographies and across various verticals.

As you know, that — we believe that technology spend cuts across customers in various segments and the technology spend is also fueled that the digital transformation wave is almost a necessity and is doing a multi-year growth curve right now. Our quarterly performance reflects some of the efforts your company has put in. We are reporting a revenue of 1,472 million. At constant currency, it’s a 7.2%. For telecom, it is 7.7%, for enterprise business, it is 7%. The deal momentum continues. We are reporting a deal wins of about 750 million. And we believe that the trajectory of similar deal wins can be continued. High tech sector has grown reasonably well, and I think will continue to grow. HLS and BSSI are leading the growth for the enterprise segment.

Our EBIT margins have remained flat despite of the supply-side pressures. We did announce an acquisition of Loadstone, which helps us in scaling some of the OTV and digital product engineering business. The Board has also authorized a special dividend of INR15 per share. And as we have discussed our capital allocation policy in detail, this only shows that we remain committed to return excess cash to the shareholders while we have continued to invest, we have continued to invest in acquisitions, which help us build capabilities.

So overall, I can only say is that happy to see growth across all the geos, happy to see growth led by competencies, growth, which reflects our confidence that we hired 15,000 associates so that we are invested in talent for future growth also. Overall, thanks to the vaccination drive, we are seeing increasing number of people coming to office. So personally, we have not put any, what I would say any legislation as yet of people trying to work from office. I think most people want to come to work. We only request them that for other’s safety of others, they should be double vaccinated. But in general, we are seeing hybrid working evolving on its own.

My — me and my management team would be meeting all of you on 11th of November, 10th of November is when we do an informal dinner in Pune and 11th is when we have meet the management, hear directly from the management, showcase some of the presentations and demos. So I look forward to meet you all in person or virtually again on 10th and 11th November. I’m happy that my management team has joined today’s session.

To take you through the numbers, I’m going to request our CFO, Milind, to take over the proceedings from now. Welcome, Milin.

Milind Kulkarni — Chief Financial Officer

Thank you, CP. Good evening to everyone or good morning depending on the time zone. Let me cover the company financials in a bit more detail. So our revenues for the second quarter were 1,472.6 million as against 1,383.6 million in the quarter one, which is a sequential growth of 6.4%. We had a currency headwind of 80 basis points. So on a constant currency, we had a 7.2% growth.

As C.P. said, this is the highest growth — sequential growth in the last decade. And both CME as well as enterprise verticals have grown quite well. CME vertical grew by 6.7%, while enterprise vertical grew by 6.3%. Within the enterprise vertical, technology, BFSI and HLS showed a healthy growth — showed a very healthy growth. We had another quarter of strong deal wins, and we reported a TCV of 750 million.

And again, what is satisfying is broad-based across the verticals. On operational front, our EBITDA for the quarter was about 270 million, a growth of 6.1% quarter-on-quarter. Our EBIT margins were flat at 15.2%. Now the tailwinds came from — in terms of operating leverage as a result of growth. They are partially — they were offset by lower utilization because as we recruited about 15,000 people in the quarter, and the utilization dropped by about 1%. And higher subcon cost as we are not able to depute many of our people abroad due to travel restrictions. And subcon costs tend to be higher than the cost of our associates.

So now if I — moving below EBIT line, our other income was similar as last quarter at about 38 million. The tax rate for the quarter was high at 29.4% due to one-off tax charges in one of our subsidiaries. This is as against 24% in the last quarter. The — I mean, better way to look at it in the first half tax rate, it stood at about 26.7%. And we expect our normalized tax rate to be in the range of about 26%. Due to this one-off tax charge in the quarter, the net profit margin was 12.3% as against a decline of about 100 basis points over quarter one.

We had a healthy quarter in terms of free cash flow and our free cash flow for the quarter was about 188 million, about 104% of our PAT for the quarter. Our DSO days were down from 93 to 92 despite acceleration in the sales. We continue to follow our rule-based hedging policy. The total hedge book as on 30th September was about $2,392 million as against $2,221 million in Q1. Based on hedge accounting treatment, a gain of $21.2 million. Last quarter, it was about $7.5 million has been taken to P&L, and a gain of $61.6 million has been taken to reserves. Last quarter, that was lower at about 23.1 million.

And this gain increase in hedge gain is because of the appreciation of the — sorry, depreciation of euro and sterling against the USD. USD-INR have remained almost the same level in the quarter. We had a cash equivalent — cash and cash equivalent of about 1,626 million. And — In line with our capital allocation policy, Board has announced a special dividend of INR15 per share. The record date is, for the interim dividend is 5th of November. So overall, good set of numbers. We continue to — we look to maintain our growth momentum and the margins as we enter the second half of the year.

With this remarks, I now open the floor for questions. Thank you.

Questions and Answers:

Operator

Thank you. [Operator Instructions] The first question is from the line of Mukul Garg from Motilal Oswal. Please go ahead.

Mukul Garg — Motilal Oswal — Analyst

Thanks. Two questions from my side; one on revenue, and one, on employee addition. On the revenue side, what was your performance versus expectations this quarter, what — especially in the communication vertical, what led to such a strong growth? Should we expect this to continue? And what portion of it was contributed by the large deal wins which we had in Q4?

On the employee side, exceptional employee additions this quarter from your side was 15k. But your utilization continues to remain almost at all-time high levels ex of trainees. So was there a meaningful impact on the net number from end of quarter additions for trainees? And would this have any impact on your cost in the third quarter?

Rohit Anand — Senior Vice President Finance

Thanks, Mukul, this is Rohit. Thanks for the question. So maybe I’ll first talk about the headcount additions and then talk about revenue, and then I’ll pass it on to Manish to talk a little bit more on comps. So just on the headcount side, we’ve added, as you quoted, we’ve added close to 15,000 people. If you look at the split — it’s equally split between BPS and IT. IT has grown approximately 7,000 people.

The additions have kind of ramped up through the quarter. So it’s not a quarter ending phenomena. It’s been through the quarter increase. And if you look at the utilization, we’re down 100 bps versus last quarter. So that’s an account of that, that Milan already quoted. So we continue to monitor this very closely. We have our system processes that we established in terms of operational efficiency, how we continue to get people, train them and make them billable from a project requirement standpoint.

So as you kind of correlate that to the demand environment, you correlate that to the deal wins that we’ve announced, right, in the last quarter, the previous quarter, all of this is related in that way, right? So we continue to see and fulfill that demand for this addition and that’s the momentum from a pipeline perspective that we see as we move forward.

And in BPS side, typically the next quarter is a seasonal quarter for us. It’s a ramp up. So that’s the reason you see an increase there as well. So that’s on the headcount. If you look at revenue, on the comp side, there are a few factors driving growth. We’ve got 5G, which we’ve articulated last time, which is becoming relevant for us, and we’ve invested in that, as you know, being a strong player in that field for a while, it’s very, very important for us, and we continue to see results coming out of it.

And then similarly, the other side of the growth in comps is also coming from legacy to digital modernization, right? So those are factors that is helping us. From a large deal contribution perspective, you’re right, we continue to see that growth momentum. We had $1.8 billion and then $750 million for the last three quarters flow. And comps was a significant contributor in all of that, where the deals are ramping up, and you see the growth coming through those as well.

So I’ll let Manish also talk a little bit more specific on comps to respond to you, Mukul.

Manish Vyas — President, Communications, Media & Entertainment and Chief Executive Officer, Network Services

Thank you, Rohit. And Mukul, thank you for your question. But I guess there’s only one thing that I can add to what Rohit said. Two things. One, like you pointed out, the growth is pretty secure now. In terms of the growth lever that we had always been pressing, whether it is 5G, whether it is modernization or large deals or account development. They all seem to be working quite fine as we speak. And hence, the question to your broader question that do we expect the growth momentum to continue. We do expect it to continue. We expect a lot more focus that we will continue to bring in digital transformation in helping service providers and others in their 5G journeys, both at a network level as well as at process-end systems. And we will continue to be on the forefront of helping our clients transform their legacy, all the traditional systems. That also continues to remain a pretty strong focus area for us. And yes, I guess that’s between what Rohit said and the two things I added, I hope that answers your question, Mukul.

Mukul Garg — Motilal Oswal — Analyst

Sure. That was quite clear. Thank you both for answering the question.

Operator

Thank you. The next question is from the line of Gaurav Rateria from Morgan Stanley. Please go ahead.

Gaurav Rateria — Morgan Stanley — Analyst

Congratulations on spectacular performance. Two questions. The first question is about if you can provide some color on the kind of deal activity, which you had won during the quarter. Is it a few very, very large deals that contributed to this? Or there is a large number of smaller deals? And similarly, within the pipeline, if you can provide some color of what kind of deals are there? And what proportion of the overall deals are like 5G related? Any color on the kind of pipeline also will be very helpful.

Rohit Anand — Senior Vice President Finance

So from a deal win, it’s quite broad-based actually. There’s — it’s quite spread out in terms of geography, in terms of the segment and the competency. So it’s quite spread. There’s no one call out that I can really make that is significant from a value perspective, right?

When you look at the type of the wins that we’ve had. So maybe I’ll give you some flavor of the areas that we’re kind of working with the customer. So One of the examples is that we won a multiyear strategic deal with a Fortune 500 company in transforming the global applications from digital, which was legacy, right? So that’s one example that I spoke earlier as well. We’re also working with one of the largest electricity distribution utility company to implementing their large customer information system, right? That’s another area that we’re working on.

We’re working with a large automotive OEM for engineering services for their vehicle modernization, data collection, data center, etc, right? We are working with one of the largest railroad companies in North America, providing mobility managed services. So it’s kind of quite broad-based if you really look at it, and contribution is from everybody. So it just helps us feel better about the momentum, right? When you look at the pipeline, as we move forward, we continue to see the buildup of the pipeline in the same fashion that we’ve seen in the last two, three quarters.

We’ve given adequate focus from a frontline perspective on building the pipeline, qualifying it and the right support team helping with the client partners, the customer-facing team to help them position the technology in front of the customers. Specifically to 5G, I would say, quarter-over-quarter, continuously seeing more and more pipeline being added by the team, more pipeline getting converted into TCV wins and then that’s adding to our increased contribution in revenue as well.

So as Manish had articulated earlier also, 5G contribution is becoming important for us as we see more activity and returns to the investment that we’ve done in this space. Anything that Manish, you would like to add on the pipeline details around 5G?

Manish Vyas — President, Communications, Media & Entertainment and Chief Executive Officer, Network Services

No, I think the only thing I would say is to continue the rhythm and the momentum as we had described the last quarter. 5G is going to be a dominant part of both our wins and hence engagements as well as our funnel and pipeline. And that is a positive sign. We have been consistent about this for a few years now that our investments that we have been making in the ecosystem, on the network and within the telecom service provider infrastructure and systems have continued to reap good benefits for us. And I can assure you, all of you, that your company will continue to remain more invested in this tailwind than ever before as we go forward.

Gaurav Rateria — Morgan Stanley — Analyst

My second and last question is around the margins, if you could lay out some of the puts and takes, headwinds and tailwinds as far as the second half is concerned? And how should one think about margin given the challenge around rising attrition, which potentially can further increase in the coming quarters. Thank you.

Rohit Anand — Senior Vice President Finance

Thank you. So from a margin perspective, while we are at constant quarter-over-quarter, as Milind has articulated, there were operating leverage, which is favorable for us, which is the growth that we’re seeing adding to the margin. But with added headcount, we’re seeing a lower utilization as well as the higher subcon costs, right, due to restrictions, travel and visa requirements, etc. So those are the current phenomenon. And obviously, the supply side challenges have increased, cost is adding to that pressure.

Now when we look at our strategy around hiring from campuses, doing more fresher intake, help training them, getting them do the projects ready to be deployed, I think that’s helping us to mitigate some of this pressure, and we’ll continue to take that action as we move forward. So that’s kind of where we’re looking at the margin from a positive and negative standpoint.

As we think about second half, I would say, some of the travel might come back as some of the economies open up, but still not significant while our subcon cost, which is at very elevated levels right now has a potential to be replaced by full-time employees. So that’s kind of offsetting [Technical Issues].

The operating margin of the deal — the momentum from a pipeline perspective continues to be strong. So that story will continue to play out. And then if you look at, while I can’t give guidance in second half as per our policy, but at the beginning of the year, we stated that we’ll have double-digit organic growth, and we’ll deliver 15% EBIT positive of that. So I think we will continue to stick on that view from a margin standpoint as we continue to see a growth environment.

And I think from an attrition standpoint, quarter-on-quarter good part is that it’s stabilized for us while we continue to monitor and take corrective actions with our CPO, Chief People Officer, and the team. I think that’s a positive sign that has stabilized for us. So that’s the way we look at it.

Gaurav Rateria — Morgan Stanley — Analyst

Just to add a question, do we foresee any further levers from improvement in the subsidiary or portfolio company margin or bulk of it has already played out?

Rohit Anand — Senior Vice President Finance

It’s in the progressive states right now. I think some of the companies have gone through the transformation of the centralization, as we call it. Some are in their journeys towards it. So it’s still work in motion. So we’ll continue in terms of how we move forward to see that event.

Operator

Thank you. The next question is from the line of Sandeep Shah from Equirus Securities. Please go ahead.

Sandeep Shah — Equirus Securities — Analyst

Thanks for the opportunity and congrats on good execution. Just on the communication side, Manish, wanted to understand that what we are hearing from large caps and the mid-caps is the large transformational deals, clients are in a matter of urgency despite spending, instead of spending time on in the process of articulating 2 to 4 years deal. They are breaking down into smaller deals and awarding fast. Is it the same trend are you witnessing in the communication for you to say the growth momentum may continue?

Manish Vyas — President, Communications, Media & Entertainment and Chief Executive Officer, Network Services

Sandeep, yes, I got it. Can you hear me?

Sandeep Shah — Equirus Securities — Analyst

Yes.

Manish Vyas — President, Communications, Media & Entertainment and Chief Executive Officer, Network Services

Excellent. Sandeep, thank you for that question. And yes, that indeed is one of the trends that we are seeing as far as transformation is concerned. The way we like to characterize it as these are large transformations. The speed is of essence. There is a level of urgency in modernizing the 4 big pillars that we have been calling out very clearly as areas of transformation for our customers. One is from an infra compute standpoint cloud, from a customer engagement standpoint, the overall customer experience journey and digitizing that in terms of sales and commerce and service or both, network modernization, which is largely driven by again cloud and 5G.

And of course, from an engineering standpoint or from a software transformation standpoint, that also is another big lever. So what’s going on as far as digital transformation is that the clients have put together the not start aspiration of where they want to be. They recognize that you can’t just have one single large project that defines that because things evolve every single day. That’s the new mantra as far as trying to emulate that webscale development models.

And hence, what appears to be smaller deals are actually larger programs, which are broken down into a giant project. And we are indeed as well seeing a lot of that trend as we speak right now.

Sandeep Shah — Equirus Securities — Analyst

Okay. Helpful. And Manish, just a follow-up. I think growth in that communication has on a YoY basis has come back strongly. So with 5G now becomes a clear tailwind on the demand, do you believe at least a double-digit growth in the foreseeable future over the next 2 to 3 years, quite achievable going forward?

Manish Vyas — President, Communications, Media & Entertainment and Chief Executive Officer, Network Services

We will continue to remain focused on that. And like I said earlier, our funnel continues to look strong. Our engagements across these four transformation pillars is good. And the urgency that the clients are showing towards transforming themselves also remain very positive. So all in all, the indications are pretty good.

Sandeep Shah — Equirus Securities — Analyst

Okay, okay, okay. And last question was just on marginal follow-up. Generally, Q3, Q4, directionally, we have more tailwinds than the headwinds because some of the Comviva license sales also comes as a tailwind to the margin. So this time also, it could be true?

Or you believe supply side pressure will negate the tailwinds and margin at best can be maintained as a whole? And everybody else is showing a quantum jump in the offshoring while our offshore levels is one of the industry lower. So why we are not forcing this as a big margin lever going forward?

Rohit Anand — Senior Vice President Finance

Yes. So Sandeep, I think maybe on offshoring first, we’ve been articulating and if you look at the trend from last probably 5, 6 quarters, we’ve improved our offshoring to almost 150 to 300 basis points. There’s been a significant improvement on this metric as we’ve articulated and delivered on it. So we’ll continue to drive this metric as we move forward.

Right now, obviously, it’s about, from a demand standpoint, it’s about ramping up of new deals, ensuring that we get them on the right platform, from a start perspective. So it’s a ramp-up phase of going on. But this metric is an important one, and we’ll continue to track that in long term, right? So that’s a lever for us.

When you specifically talk about the quarter, I think obviously, I won’t guide it, but I can talk about tailwinds and headwinds. So as you rightly pointed out, that’s a seasonality that we see typically with the Comviva business, though that seasonality is reducing slowly for us in terms of quarterly increases. So that’s going to be a factor. But to your point, the supply side pressures do continue.

We continue to see that as we move forward. And similarly, onshore demand, the restriction from a travel and visa standpoint is also not get over. So I think all of that factors continue to play in. So all in all, these are the positive and negative that we see from a margin standpoint as we move forward. And we’ll continue to drive our portfolio kind of centralization playbook that we’ve laid out earlier in the year, we’ll continue to drive operational efficiency and operating leverage, which is what you’ve seen in the last two quarters as we see deal wins, as we see the pipeline grow. So that’s an area that we see in the positive direction as well.

Sandeep Shah — Equirus Securities — Analyst

Okay. Thanks and all the best.

Rohit Anand — Senior Vice President Finance

Thanks Sandeep.

Operator

Thank you. The next question is from the line of Nitin Padmanabhan from Investec. Please go ahead.

Nitin Padmanabhan — Investec — Analyst

Hi, good evening. Thanks for taking my question. I had a couple. The first is on the people front. How many freshers have we sort of hired so far and what’s the plan there? Two, in terms of margins, I think this was 2 years ago, we had two large deals. I think that was AT&T and Prudential. And at that time, we actually saw — because of transition costs, margins actually come off for that period. Do you think the current environment, the kind of deals that are being broken down into smaller deals, this is more sort of amenable to better margins? So that was the second one. And third, do you — the business doesn’t seem to be showing an operating leverage on SG&A this quarter. It’s actually almost grown similar to revenue or slightly higher. So just wondering why that is considering that we have a good 6%-plus growth. Is there any one-off in there that could sort of come off going forward? Those were the three. Thank you.

Rohit Anand — Senior Vice President Finance

So maybe, Harsh, why don’t you take the fresher related in the headcount addition question, and I’ll take the margins one after you.

Harshvendra Soin — Global Chief People Officer and Head of Marketing

Yes. Thanks, Rohit. And Nitin, thank you for asking that question. I think it’s a great question. As we all see, the retention being a clear challenge for most companies in IT in the industry. I think we’ve really sort of focused well on the build and buy strategy. And like you heard Rohit say earlier, we are investing heavily in building new skills, and therefore, our fresher entry strategy is very clear. We have almost doubled the intake of freshers and that has significantly impacted our availability of talent. Going forward, we will continue the same strategy and we are, as I said, heavily investing in upskilling these freshers so that availability of talent is always there.

Rohit Anand — Senior Vice President Finance

And just on the margin side, from first half probably respond on the SG&A part. So if you look at it, we’re also investing from a future growth perspective on sales and client partners roles. And I think that continues to be an important investment for us as we look forward, right? So that’s an area that we’ve invested and made more kind of capability build, if you will. So that’s an area that we’ll continue to drive.

And I think beyond that, there’s plus and minus across the various line items and nothing significant to call out from a trend perspective. Those are the main areas that we continue to invest on. And then you had one more question, sorry.

Nitin Padmanabhan — Investec — Analyst

Yes. The other question was — I was referring to maybe two years ago when we had AT&T and Prudential and there were sort of transition costs at that time when margins were under pressure. The question is, do you see the current environment where you have smaller — large programs being broken down to smaller deals? Are we — is this more amenable for margins? And are you seeing sort of pricing increases from customers considering the current environment? And how broad-based is that?

Rohit Anand — Senior Vice President Finance

Yes. So I think obviously, from a deal ramp-up perspective, we still have transition costs that is a headwind as you start the deal going up. But if you think about from a patent perspective, that gets into the baseline, right? Because we’ve had $1 billion of deal wins announced in 4Q and $800 million and then $750 million. So as we keep on doing that across the spectrum, that transition becomes a part of the run rate. So unless we see a huge kicker for a big deal, that factor will play out again.

And we’ll — as I had articulated at the beginning of the year also — when we look at the year, there might be quarterly fluctuations that we will see because of this phenomenon, which still now hasn’t really surfaced from the point of view of seeing too much of an upward or a downward trend. But I think from a trend perspective, the way to look at it is more from the full year perspective and that, I think, won’t make a difference as we move forward.

Nitin Padmanabhan — Investec — Analyst

Sure, that’s helpful. Just one last follow-up is I think most companies are hiring roughly 12% to 18% of their prior year headcount as freshers. Do you think we fall in that range?

Rohit Anand — Senior Vice President Finance

Yes. Harsh, would you want to respond specifically on that?

Harshvendra Soin — Global Chief People Officer and Head of Marketing

Yes. So as I said, Nitin, what I specifically outlined is that we’ve actually doubled the intake. So obviously, it’s very safe, we will see, but — there is a huge focus on hiring of freshers and upskilling them. So really from the last year we are almost going 2 times.

Operator

[Operator Instructions] The next question is from the line of Ruchi Burde from BOB Capital. Please go ahead.

Ruchi Burde — BOB Capital — Analyst

Thanks for the opportunity. My question is for Manish.

Operator

Ma-am, I am sorry to interrupt. May I please request you to speak a bit louder as your audio is not coming audible.

Ruchi Burde — BOB Capital — Analyst

Is this better?

Operator

Yes, ma’am. Thank you.

Ruchi Burde — BOB Capital — Analyst

Yes. So Manish, can you help us understand how Tech Mahindra’s capability has changed in comms vertical if you especially compare with the previous cycle when 4G upgrade was a theme? And has that changed the opportunity size or the tech spend that Tech Mahindra can capture? That’s my first question. I have a follow-up.

Manish Vyas — President, Communications, Media & Entertainment and Chief Executive Officer, Network Services

Sure, Ruchi. Thank you so much. The — there are two things that have changed. The opportunity itself has changed in the industry. What people did in the 4G cycle and it is not exactly how it is happening in the 5G, it’s a bit more comprehensive as a transformation. 10 to 15 years have passed since people started investing in 4G. So you do need a lot of changes in terms of how the consumers and customers are buying and getting their experiences from their service providers. All of that has indeed changed the areas where the transformation projects are happening, number one. Number two, and hence, that also has compelled us over the last few years to invest and change our capabilities.

So I don’t think the — there is — broadly speaking, yes, it is in the realm of infra and software. But one specific thing, if I may add, that has changed for us, as against the 4G cycle, is the network capability. Towards the fag end of the 4G growth cycle, we have started building capabilities in the radio deployment and construction activity. And as you know that in a very focused fashion over the last 2, 3 years, we have decided to defocus from that area. But what we’ve also done over the last 3 to 4 years is we have actually dialed back up our investments in the digital part of the network, whether it is software-based network, whether it is now what we call a network on cloud, which includes core, whether it is transforming the legacy OSS into a more modern orchestration type of model.

And it’s a longer list, and we will definitely be sharing some of these details and we all meet on 10th and 11th of November at a technology level. But yes, to answer your question, the capabilities indeed are different at network as well as at our underlying process and system transformation. We have — there’s another thing that I may want to point out is the difference between our 4G engagements at a broad level versus now is used a lot more of the TechM IP and platforms as part of our solutions. That also makes a very compelling argument in terms of how we collaborate with the other ecosystem players, which is not just based on people but also based on people, software and IP. So that has significantly improved on the PSS side, in the OSS side and on the network cloud transformation as we call it.

So I guess that’s the second point I may want to highlight. And lastly, has that increased the target market for us, the target market for us in terms of the areas that we now play has indeed expanded for us. What I — and I’ve been saying this for some quarters that the cost of deploying the 5G network is not just theoretically, but also practically substantially cheaper than the cost of deploying and putting together a 4G network in the past. And hence, you don’t see a material change. But there is a change in the capex spend of telcos, but you won’t see a big substantial material change. It is not a new dollar, it is recycling of that dollar.

Your company now is in a much better position to take advantage of those opportunities because of the investments that we have made in the past. I hope that answers your question, Ruchi.

Ruchi Burde — BOB Capital — Analyst

Yes, that’s quite helpful. My follow-up is, now I mean we have been hearing from you more upbeat comments regarding 5G. In that light, have you seen any change in terms of competitive landscape be it the intensity with which the competitors are bidding or the new entrants in the market, new names that you may come across. Any comments on that would be helpful.

Manish Vyas — President, Communications, Media & Entertainment and Chief Executive Officer, Network Services

Sure Ruchi. I mean, I think that there has never been dearth of intensity in the market from a competition standpoint. There are only as many telcos that you can go to. Our advantage has always been, and we try and protect that advantage to our best ability, which is our access rights that we have. Across the world, the number of service providers that we work with and we have had long relationships which continue to remain our — something that we fortify all the time and we defend.

And however, given that the transformation is — has got different hues and different colors, competition also does come from different parts of the industry. Sometimes there are niche players, sometimes there are traditional players to relate more like us. And sometimes there are tech companies. So yes, there is — it’s a bit more complicated as a competitive scenario. But nevertheless, we feel pretty strong in terms of the positioning that we have carved for ourselves in this change landscape.

Ruchi Burde — BOB Capital — Analyst

Thank you Manish. All the best.

Operator

Thank you. The next question is from the line of Vibhor Singhal from PhillipCapital. Please go ahead.

Vibhor Singhal — PhillipCapital — Analyst

Good evening, thanks for taking my question. And congrats on a great set of numbers. My question was basically on a medium to slightly longer-term growth scenario, the hiring that we have done is exceptionally strong. I think we’ve never seen this kind of hiring in tech before 15,000 net hiring in this quarter, which definitely gives us the idea that the company is looking at a very strong growth environment.

This year, of course, as we have guided to a double-digit growth, but we know that this year, of course, the industry growth could actually be in higher teens. So we might be maybe falling a bit short of the industry average growth rate. But given the kind of hiring that we have done in this quarter and the quarter before that as well, do we see a, let’s say, a road map or a track on which we would like to travel and say that okay maybe two years down the line, three years down the line, we could basically match the industry’s growth rate in terms of our own capabilities and the demand that we see out there in the market?

Milind Kulkarni — Chief Financial Officer

So I think what we’ve said at the beginning of the year was double-digit organic growth, right? So I think when you look at 1Q and 2Q together, first half comparative, we should right now be in the range of north of mid-teens, right? So in terms of first half year-on-year growth, right? So if you look at second half and how we kind of look at the pipeline and the various other factors moving forward. From what we said in the beginning, I mean, that’s kind of something that is clearly demonstrated on — in terms of the first half numbers itself, right?

Now yes. And if you think about — obviously, I can’t give guidance specifically on the second half because we don’t do that. But if you kind of look at the other trends in terms of deal wins, we’ve announced 750 million of deal wins, which I mentioned is quite broad-based.

We continue to look at talent base that Harsh has already articulated, it’s going to the campuses, and we’ve doubled that up from last year to this year in terms of our intake. I think from a momentum perspective and what we’re seeing, it’s a positive trend for us. We continue to look at industry-leading growth for this year. And as we move forward, we continue to work on our internal processes and operational excellence parameter where we have a lot of room, which we’ve articulated earlier as well on offshoring and few other factors that we can do better on to continue to give that headroom as we move forward.

So I think what I’d say is based on all these trends, the momentum is going to continue. And obviously some quarters, the ramp up will be more versus the other based on the way deals shape up, but the trend is going to be in that direction.

Vibhor Singhal — PhillipCapital — Analyst

Got it. Just a related question on the hiring, if I may just squeeze in one more question. So on the hiring front, basically, I think it’s after a long period of time, we have seen a good bench being built up. I mean generally our utilization, including and excluding training tend to be almost at similar levels. Basically, we now think that there is a limited bench that we can maintain. Given that this time of year we work mutilation numbers are quite different.

And of course, as we mentioned that we’ve doubled our pressure hiring, which would take some time to basically build up. Do you believe these subcon expenses could remain in the same range as they are right now for maybe some more — maybe 1 or 2 more quarters, and it’s only towards the beginning of the next year that we might see these screwing up? Or do you see this hiring basically replace the large part of the subcon almost immediately or in very near future?

Milind Kulkarni — Chief Financial Officer

Yes. So we continue to monitor that trend. And I think it will — while we continue to monitor and look at opportunities of substitution/replacement, given where we are and given the growth environment, we see this trend or this percentages that you’re currently seeing will continue for a bit, right? And as we look at getting deeper in terms of substitution replacement, we will look at opportunities that work for us to get the margin lever up, right?

So we have been continuously monitoring it. But if you look at the maximum, you ask me from a trend perspective, I think it will continue for some time until it goes back to the levels that we’ve seen in the past. So that will be a trend that we’ll continue to monitor, work on and drive as and when the restrictions from a travel, visa and other aspects from a hiring perspective continue to ease down.

Vibhor Singhal — PhillipCapital — Analyst

Got it. Thank you so much. Thanks for taking my question and wish you all the best.

Operator

Thank you. The next question is from the line of Rahul Jain from Dolat Capital. Please go ahead.

Rahul Jain — Dolat Capital — Analyst

Thank you for the opportunity. I have a similar question, which one of the other participant asked, but a small twist to that. You said your key edge in the 5G kind of an opportunity is the incumbent advantage that we have and the diversity of the peers that you need there. But what I want to essentially understand is that since this investment cycle by telcos and 5G has been far more delayed than the earlier anticipation. Can you say that the competitive intensity has thus changed very significantly — and does the total price as well as volume side of opportunities, both are getting hampered to some extent. And this incumbent advantage beyond that, if you can identify any other edge in this space.

Milind Kulkarni — Chief Financial Officer

Manish, do you want to take that?

Manish Vyas — President, Communications, Media & Entertainment and Chief Executive Officer, Network Services

Sure, sure. Rahul, I think I had said the incumbency as our platform and the license to play because we get called into conversations both proactively and otherwise. That’s not necessarily the only edge. What I also called out very clearly is that 5G is a more comprehensive and holistic transformation. It is not a one-trick pony of dialing a button on, say, putting together a new network. It also requires — and there are other projects that gets born in the digital space and the back office space and in the front-end customer experience side. So that is number two.

I’m sorry. And by that, what I mean is, if you recall, we have always said that TechM will continue to stay focused on the multi-pillar strategy within a service provider. And that means we will work with every CXO of a service provider because when a CEO calls for a 5G expansion, the onus is on different parts of the organization to also come to the party. And we are independently playing with each of these different parties within a service provider. It’s been a strength for us and it will continue to remain a focus for us. That’s the second part of the edge that I had called out.

And the third is our solutions that we have built this time around, whether it is in helping people adopt the telco cloud, both in terms of adoption and modernization, whether it is in terms of helping people realize and integrate their 5G network, both within the lab and otherwise, number two. Number three, the IPs that we have put together in helping people transform their monetization capabilities on both the consumer and the enterprise side. And that list goes on in terms of the IP and the solutions that we have built specifically. So that also continues to solve. So the fact that we have — we are present in each of these theaters. We have the start cast perform the transformation duties and which is really our solutions. And last but not the least that we have assembled a team that understands the lever that we need to press in helping our service provider customers realize the benefits of this transformation much faster. I think we are continuously being very steadfast on that investment, and we’ll continue to remain focused there as well. I hope that answers your question.

Rahul Jain — Dolat Capital — Analyst

Yes, yes. Just using your own analogy of CHR, when you see this to be a global launch or release, whatever you want to call it. As in when you see this — the real wave, of course, this has been asked several number of times, when you see the real 5G opportunity, both within the vertical as well as 5G and then horizontal will kind of a play out big way for us or maybe as an industry?

Manish Vyas — President, Communications, Media & Entertainment and Chief Executive Officer, Network Services

Yes. Actually — sorry, I missed that part of the question. Yes, you’re right. I think the — we’ve said 5G for us are playing at three parts. 5G for service providers, which has got different nuances, and I already elaborated on those. Second is 5G for ecosystem, which is where we are helping with R&D, product development and other realization services around 5G for our larger ecosystem that continues. And that’s already playing out not just in the telco but in the enterprise space as well. It’s already built into some of the growth that we are seeing there.

And the third element of growth that we will see is probably is going to follow the other two, which will be the 5G as a horizontal across our enterprise customers. So something that we work very closely with Jagdish and his team in deriving the value from a connectivity plus plus as you fill the next gen solutions for digital transformations for our enterprise.

Rahul Jain — Dolat Capital — Analyst

Yes, right. And just one more question, if I may. I think there was a earlier occasion as well on this element is that the deal from an absolute point of view, [Indecipherable] is a bit lower than the — some of the recent reporting by us. And of course, we understand these things would be lumpy as well as there was a comment that these are getting shorter in general.

But given the kind of a trend we have right now in the industry, what is the real annual benchmark to kind of a relevant for us, if you look at it from a 12-month power basis that this is the base number, or this is the range, which would be an ideal kind of a double-digit kind of a growth aspiration we want to maintain for next 1, 2, 3 year perspective?

Milind Kulkarni — Chief Financial Officer

So I think from — you’re asking more overall to the company? Or is it specifically to 5G?

Rahul Jain — Dolat Capital — Analyst

No, overall. Yes.

Milind Kulkarni — Chief Financial Officer

Yes. So from an overall perspective, as I’ve mentioned, if you look at the last 2 quarters’ trend, we’re in the range average at around 800 odd million added together with 1,550 million, which is a significant run up to our previous average that you’ve been seeing, which is around $450 million to $500 million, right? So hence, it’s almost 50% jump to that number. As we look at, I would say, pipeline, the deal flows, the closures and as you rightly mentioned, kind of lumpiness exists in terms of closing of contracts, etc. So there might be some up and down. Though these two quarters are pretty close to each other.

I think from a trend perspective, I would say, annualized basis versus if you look at the trend of — the number we had previously, we should see a similar increase on a baseline perspective from an annual basis, right? So I think — That’s the way you’re looking at a new baseline in our mindset.

Rahul Jain — Dolat Capital — Analyst

So when you’re saying that are you trying — are you trying to refer that a 20%, let’s say, growth on a TTM basis, normalized for some very big deal is the number one we should watch out for? Or the absolute $2.5 billion, $3 billion kind of a fourth-quarter bucket is what your referring to?

Milind Kulkarni — Chief Financial Officer

Yes, I think the second — the latter one. That’s kind of the better way to look at it right now.

Rahul Jain — Dolat Capital — Analyst

So on a $6 billion kind of a current run rate, if we do $2.5 billion, $3 billion, which is like 40%, 50% of the current size is what should be the effect.

Milind Kulkarni — Chief Financial Officer

Yes, so the way you look at our deal when since we’re doing only incremental deal win announcement, right? And this is greater than $5 million incremental. And some of the way peers and ours is different. So as a percentage of revenue, maybe that’s on the correlation that we can drive from a book-to-bill perspective, right?

But you just look at our perspective, while Q3 versus whatever the number you correlate to as an annualized revenue, it will be a different percentage. So there’s no apple-to-apple comparison that you would find, right? This is purely incremental more than $5 million, which is what we’re reporting and you look at the trend from a quarter-over-quarter growth perspective as you move forward.

Rahul Jain — Dolat Capital — Analyst

Right, right. So of course, from the leaking revenue as well sub $5 million adjusted for that, this is what one should look at?

Milind Kulkarni — Chief Financial Officer

Yes, that’s right.

Rahul Jain — Dolat Capital — Analyst

Fair enough. Thank you. Thanks for the color.

Operator

Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Rohit Anand for closing comments. Over to you, sir.

Rohit Anand — Senior Vice President Finance

Thank you. Thanks to everybody for joining for our con call today. I’d like to, first of all, wish everybody a very happy and a safe Diwali to you and your families and also repeat what CP mentioned, look forward for all of you to join us for our investor analyst meet on the 11th of November, either physically or virtually. Look forward to that participation when I can been share more of the TechM growth story with all of you. So that’s another event that is coming forward from the company standpoint.

So with that, thanks again, and thanks for your continued support.

CP Gurnani — Managing Director and Chief Executive Officer

Thank you. Thank you, everybody. Thank you so much.

Operator

[Operator Closing Remarks]