Mid-size company Mindtree believes that greater concentration on mining and its focus on fewer clients have paid off. Krishnakumar Natarajan, CEO and Managing Director, spoke to Business Line on how the company is getting called into large deals and asserts that client spending in developed markets will be better this year.
You have seen your top clients contribute more to revenues. Was it a conscious strategy?
There are two or three components to this. First, over the last couple of years, we started focusing fewer segments and verticals. Our account mining strategy was a conscious strategy. If you look out client base, we had 337 customers a couple of years ago, but now it is a little over 200. So on a percentage basis over top 10 customers have had greater contribution to revenues.
Most of those big deals are around IT infrastructure outsourcing. Our infrastructure business has been growing and that can be seen from the fact that it contributed around 17 per cent of our revenues in the last fiscal. That has also come from differentiated positioning based on standards. Our platform automates a lot of tasks. Clients can view in real time as to what is happening in their IT infrastructure, it helps.
In the past, you had mentioned that you were not called in big deals. Has that changed now?
We are getting called and are making specific efforts to win these deals. We increased our connect with third party analysts and had greater engagements. Once we keep doing all that, we are more visible.
Are you eyeing any particular sweet spots like $40-50 million is better than chasing larger deals. Very often, it is stated that large deals come at lower margins…
Large deals may not start with high margins. But if you have tools, over the long-term, you can work on improving margins and smaller deals can become large.
We hear that retail did not do well in the US in the recent quarters. But the segment seems to have delivered well for you, as has manufacturing. How?
Within retail there are differences. If one were to simplistically look at retailers focused on lifestyle spends of customers, they got impacted by severe winters and the seasonality. However, retailers that are looking at home improvement, there has been significant traction there. Discount retailers came under pressure, but that was not the case with home improvement retailers. Within manufacturing, we are not present in process manufacturing or heavy engineering, but are into the automotive space where we have a strong presence.
You have recently announced Manisha Girotra (an ex-UBS investment banker) on your board. Are acquisitions on the anvil?
BFSI is important as it is 45 per cent of the overall client IT spends globally. Girotra brings in the connect and this will help Mindtree strengthen this vertical further.
There has been increased focus on fixed price contracts. But these projects tend to be of shorter term. Are you comfortable with that?
The type of contract depends on the stage of maturity of a client with a vendor. In the early part of the project, time and material is what they go for. After they get comfortable, they come to us and tell us that we have such and such problem. Very rarely you have a client who comes in fixed price in the beginning. Clients want to experiment in a small way in the beginning. These are getting my feet wet kind of engagements. As discussions revolve around business problems and outcome over time, the clients may be more comfortable with fixed price contracts.
Are client decisions slowing down as client CFOs and the board are supposedly getting more involved?
Not really. People are more prudent about investment and are questioning more. They ask what is it that we are going to do and how it would benefit us. We see CMOs (chief marketing officer) playing an important role as customer experiences are getting important and that is what a CMO is accountable for.
Your utilisation is sub 70 per cent. Is such a large bench maintainable?
Our definition of utilisation is very stringent. It is the total hours billed upon the total available hours. So when some forms report 80-85 per cent utilisation rates, they could be taking into account even a person gets deployed only for the last four days of a month. Having said that, we are tightening and there are opportunities to squeeze in more utilisation. We took a large number of campus recruits in 2012. But we are training our bench and putting them on new projects. So, over time utilisation would improve.
So, is there a target where you will be comfortable?
We target at least a few percentage points more. So a level near 74 per cent utilisation would be our target.