mindtree: Customers considering more expensive take-out offers: Mindtree CEO

Mid-tier IT service provider Mindtree’s customers are handing out more cost-cutting deals that can be rerouted to focus on business expansion, its top executive said.

“Earlier, we reported that some customers had started discussing cost reduction rather than just talking about transformation deals. The order backlog that we closed (in the second quarter) contains a good part of the major managed services contracts which aim to reduce costs. If you can reduce some of the system costs, you can reinvest that money in transformation,” chief executive Debashis Chatterjee told ET.

The comments come amid macroeconomic challenges in the United States and geopolitical unrest impacting energy prices in Europe.

“If there’s an initiative they’ve already started to maximize their revenue, they don’t want to stop that initiative. But at the same time, they want to find the dollars. This is where the cost-cutting conversation is happening as well,” Chatterjee said.

He also said his merger with group company L&T Infotech is pending regulatory approval and is expected to be completed by the end of the current calendar year.

He said the merger would result in revenue synergies that would be highlighted, while cost synergies would be considered later. “We really want to get into the market and figure out how we can gain market share,” he added.

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He also said there were “absolutely” no plans to lay off people post-merger, even though there were overlapping roles and responsibilities.

In May, the two midsize IT companies, controlled by construction giant Larsen & Toubro, announced an integration plan to create a service provider valued at around $3.5 billion.

Chatterjee also said the “worse is over” in terms of specific customer issues and expected project slowdowns in its retail vertical and Europe due to geopolitical issues.

In the second quarter, the UK & Ireland market fell 26.7%, while the consumer packaged goods (CPG) vertical market fell 11.5% year-on-year.

The Bengaluru-based IT company has seen a balanced preference for profitability-based deals and business transformation deals, but this is a recent shift. Of the $518 million in deals closed in the quarter ended September, the equation for cost-removal and transform deals was 50:50.

“Earlier, like (even) two quarters ago, customers were mostly doing transformational transactions during the Covid-19 pandemic, like changing their business models,” he added.

The deal won by the company in the first half of the fiscal year surpassed $1 billion for the first time ever.

Mindtree announced its second quarter results on Thursday.

It posted a 31.5% year-on-year increase in consolidated revenue to Rs 3,400 crore, while net profit rose 27.5% to Rs 509 crore, beating estimates on both fronts.

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