LTM Limited (LTM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and Welcome to LTIMindtree Q3 FY '20 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nitin Mohta, Head, Investor Relations, LTIMindtree. Thank you, and over to you, Mr. Mohta.

Thank you, Tanvi. Ladies and gentlemen, good day, and welcome to the LTIMindtree Quarter 3 FY '23 Earnings Conference Call. Please note that this conference call is being recorded. Today on the call, we have with us Mr. Debashis Chatterjee, Chief Executive Officer and Managing Director; Mr. Sudhir Chaturvedi, President, Markets; Mr. Nachiket Deshpande, Chief Operating Officer; and Mr. Vinit Teredesai, Chief Financial Officer. We will begin with a brief overview of the company's Q3 FY '23 performance, after which we will open the floor for Q&A. Please note that the numbers presented in our earnings release and fact sheet and referenced in today's call pertain to the performance of the combined entity LTIMindtree, unless stated otherwise. For the convenience of our investors, our Q3 FY '23 fact sheet has an addendum that presents comparable quarterly performance of LTIMindtree for the past 7 quarters starting Q1 FY '22. During the call, we could make forward-looking statements. These statements are considering the environment we see as of today and carry risks and uncertainties that could cause our actual results to differ materially from those expressed in today's call. We do not undertake to update any forward-looking statements made on this call. I'll now turn the call over to Mr. Debashis Chatterjee for his opening remarks.

Thank you, Nitin. Good evening, and good morning to everyone on the call. It is an honor to be part of this historic moment as we report our first ever earnings as LTIMindtree. We are proud to have entered the elite league of top-tier IT services companies by merging LTI and Mindtree in a record time. What makes the feat even more remarkable is that we achieved it without taking our eyes off the business. This is validated by our strong growth in our very first quarter as a merged entity. It signifies the perfect launchpad to capitalize on a broader range of opportunities created by the growing appetite for digital transformation across every sector. I'm pleased to report that the combined entity has started out with a quarterly revenue run rate of more than USD 1 billion. For the quarter, our revenues came in at a healthy USD 1.05 billion, up 16.3% year-over-year in constant currency. We are pleased with our top quartile growth performance despite it being a seasonally soft quarter due to furloughs and fewer working days. We expect our sequential growth momentum to accelerate in Q4 as the impact of furloughs eases. We delivered an EBIT margin of 13.9%. As expected, our Q3 profitability has seen a one-off impact of merger-related integration costs to the tune of 100 basis points. With the bulk of the integration cost behind us and in view of the growth tailwinds ahead, our endeavor is to return to our normalized profitability in Q4. We are pleased to report a robust order inflow of USD 1.25 billion. Although LTIMindtree began operations only in the middle of the quarter, we are encouraged by early indications that the merger rationale is beginning to play out as expected. This ranges from complementarity of clients and solutions opening up [indiscernible] to increase participation in multiyear, multi-tower deals by stitching to [ other ] end-to-end solutions. I will cite a few examples later in my prepared remarks to illustrate this point. Digital transformation as a means to serve the dual objective of driving revenue growth as well as cost efficiencies is an ongoing business imperative. We are at a point where technology and experience transformation have become so integral to business strategies that it is not easy to reverse our stalled digital transformation programs. With our expanded well-diversified offerings as a combined at-scale entity, we are better positioned to help businesses address both objectives of digital transformation. LTIMindtree combines LTI's engineering and Mindtree's experience DNS, blending their problem-solving and digital-first trends into a unique value proposition that spans core to experience to edge. Clients across sectors recognize this value proposition. In several instances, our increased scale has started paving the way for our elevation to a Tier 1 partner. We are pleased with our client conversations around cross-sell and upsell possibilities. While we see a higher level of caution baked into spending plans across sectors on account of macroeconomic dynamics, there have been no program cancellations to date. Although some clients have deferred certain projects and are taking relatively longer to make decisions, the overall focus on longer-term transformation remains intact across sectors. For now, there is a marked emphasis on initiatives that generate cash conservation and speedier ROIs. In a number of instances, clients are focusing on cost takeout to fund their in-flight transformation projects. However, the pressing urgency to drive technology-led innovation to prepare for future opportunities holds a significant long-term upside for our full stack end-to-end capabilities and deeper cross industry exposure. With that, let me now turn to our businesses. Our banking financial services and insurance business surged 22% year-over-year. We are pleased to share that banking and financial services portion alone is at an annual run rate of USD 1 billion. The continued revenue momentum was driven by significant deal wins, including new logos, rate increases and a growing pipeline of large deals. While marketing, technology and operations, cloud, risk and compliance and M&A integration drove sustained demand, we are seeing cost optimization, customer experience transformation and regulatory or efficiency-focused initiatives emerge as the key areas of focus. In case of an American multinational financial services company, where erstwhile Mindtree was supporting [ Martech ] operations, we have now expanded our engagement with erstwhile LTI's Temenos capabilities to modernize the client's core banking platform. In insurance, we are a partner of choice to global insurers in digital transformation and core platform modernization across segments, that is Property & Casualty, Retirement & Health and Life. The merger has resulted in an increased breadth of coverage in this sector, especially in life and annuity. We have also deepened our domain expertise with significant skillsets across all major core insurance platforms. For example, based on our enhanced competencies, a North American specialty insurer has chosen us to modernize and migrate to the cloud its core platform spanning multiple product lines and countries. Notably, the revenue from insurance platforms has hit the USD 100 million annual revenue run rate. Our Hi-Tech, Media & Entertainment business grew 9% year-over-year. The strong growth momentum that we witnessed in the Hi-Tech vertical earlier in the year decelerated on account of furloughs. We continue to see demand across operations transformation, managed services and cloud engineering. Within Media & Entertainment, we secured renewals of some of our large managed services deals. In particular, we are seeing strong demand for platform services and application modernization, leveraging cloud for OTT streaming. Our Manufacturing & Resources business grew 8.8% year-over-year. The growth in Manufacturing was the result of an improved outsourcing pipeline and good deal wins, especially in the automotive sector. We are seeing good continuity of spending as well as cross-sell opportunities in ERP, customer experience transformation, IoT, AI, cloud, infrastructure and security. Our resources portfolio continued to see traction with clients focused on the digital transformation of core operations. We are pleased with the opportunities we see across areas such as advanced [ metering ], operational technology, security, asset management, ERP-led large-scale transformation and cloud adoption and modernization. Our Retail, CPG and Travel, Transportation and Hospitality business grew 10.7% year-over-year. Within Retail & CPG, clients are being cautious because of high inflation. Even so, they continue to invest in digital and data platforms to drive their digital transformation journeys. Our Travel, Transportation & Hospitality business witnessed robust growth. We expect the momentum to continue in this business, except for the real estate portion of the portfolio that could experience headwinds due to the increase in interest rates. In the case of a global airline, an existing ERP client of the erstwhile LTI, we have expanded our engagement into other cutting-edge business areas, leveraging erstwhile Mindtree's domain knowledge. Our Health, Life Sciences & Public Services business grew 11.9% year-over-year. The strong performance of the Health & Life Sciences business, which grew 23.6% year-over-year, was partially offset by the project-specific softness in our Public Services portfolio. In the Health segment, we are seeing traction in consumer health care where clients are concentrating on areas such as remote patient monitoring and home health care. Life Sciences clients are focused on clinical transformation, leveraging digital engineering and cloud capabilities. We see significant market opportunity in Health & Life Sciences, and continue to make investments to drive further growth. In terms of geographies, North America contributed 72.3%, Continental Europe, U.K. and Ireland contributed 14.9% and APAC, Africa and Middle East contributed 12.8% of our revenue during the quarter. I take this opportunity to thank our expanded family of about 90,000 talented professionals for their dedication and hard work in seamlessly supporting our clients through the merger. We have undertaken a number of employee engagement initiatives and are encouraged by the response. An important part of the merger exercise has been to determine exact talent synergies and requirements for the combined entity to maximize its potential and the opportunities ahead. With that done, we are now ready to increase the momentum of hiring in line with our business demand. As anticipated, attrition is showing clear signs of stabilizing. For the quarter, our LTM attrition was 22.4%. While we do not typically call out quarterly annualized attrition, it is pertinent to highlight that our quarterly annualized attrition declined by more than 6% to around 18%. We believe there is room for attrition to trend down further. I will now turn over the call to Vinit for Q3 financial highlights.

Thank you, DC. Good evening, and good morning to everyone on the call. It is great to be with all of you for our first quarterly earnings as LTIMindtree. We celebrated the historic inception of LTIMindtree through a green gesture by planting one lakh saplings, one for each member of the LTIMindtree family across 6 states in India. Let me now take you through the financial highlights for Q3 of FY '23. We are happy to start our combined reporting with a strong quarter on the top quartile performance. Our revenue stood at [ $1.05 ] billion, up 14% on a year-on-year basis. The corresponding constant currency growth was 16.3%. EBIT margins came in at 13.9% as compared to 17.5% in the previous quarter. The impact of furloughs and fewer working days was 130 basis points. Integration-related costs amounted to 100 basis points, and increased employee and operational costs resulted in an impact of 130 basis points. Net ForEx gain for the quarter was USD 5.9 million compared to USD 2.5 million in the previous quarter. PAT margin for the quarter was 11.6% and compared to 14.5% in the previous quarter. The absolute PAT in Q3 was INR 1,000 crores. The effective tax rate for the quarter was 23.6% as compared to 23.9% in Q2 of FY '23. Basic earnings per share was INR 33.80 for the quarter as compared to INR 40.20 in quarter 2 of FY '23. In Q3, the billed DSO stood at 61 days compared to 56 days in the previous quarter. The DSO, including unbilled revenue, was 90 days compared to 85 days in the previous quarter. For the quarter, operating cash flow to PAT was at 65.8% versus 63.6% in the previous quarter. Our robust cash management led to cash and investment balances of USD 978 million or INR 8,086 crores compared to INR 7,703 crores in Q2 of FY '23. Return on equity for the quarter was 30.3% versus 32.6% in Q2. Our utilization, excluding trainees, in the quarter was 82.9% compared to 83.5% in the previous quarter. As of December 31, 2022, our cash flow hedges stood at USD 3,878 million, hedges on the balance sheet were USD 370 million. The Board of Directors has recommended an interim dividend of INR 20 per equity share. I now hand it back to DC for an update on integration and our business outlook.

Thank you, Vinit. As you are aware, LTIMindtree came into existence effective November 14, 2022. Since then, both organizations are fully aligned under the new jointly evolved organization structure and vision. Thanks to our extensive change management experience, all vital aspects of the integration, including ongoing client projects, knowledge transfer and talent realignment, are progressing as planned. We are ready with the roadmap to realize the revenue and cost synergies presented by the merger. It encompasses a wide spectrum ranging from further diversification of offerings, cross-selling, upselling and cross pollination of learnings and capabilities to gain wallet share across our expanded portfolios, to pyramid optimization, working capital efficiencies, inorganic growth and operating leverage resulting from scale. It is evident that we are embarking on our journey as LTIMindtree from a position of strength. Our end-to-end services portfolio, comprehensive capabilities, strong sales engine, proven account mining and healthy balance sheet position, position us well to continue delivering industry-leading revenue growth as a combined entity. As clients are still finalizing their IT budgets for next year, we will have greater clarity on the exact spend only later during the fourth quarter. Notwithstanding any near-term impact of budget changes on short notice, we still remain upbeat about the longer-term demand for our end-to-end offerings. In a rapidly converging world, giving rise to newer business models and revenue streams, our promise is to help businesses harness the full power of technology and reinvention to get to the future faster. We are now ready to tap into our enhanced diversity of scale and capabilities to advance towards that goal and look forward to reporting many more successes in the coming quarters. Let me now open the floor for questions.

[Operator Instructions] The first question is from the line of Sudheer Guntupalli from Kotak Mahindra Asset Management.

A couple of questions. It looks like the weakness in both revenue and margin was largely led by the erstwhile top Hi-Tech account. Is this entirely furlough led or any part of this was driven by certain, let's say, client-specific spending bottlenecks or maybe our internal sales or delivery bandwidth issue, given that we are also going through integration? And naturally, there would be some distractions during the quarter.

So let me give you some high-level comments, and then I'll let Vinit and my other colleagues comment. See, as far as the margins are concerned and as far as the integration is concerned, we have been very upfront that we will see some onetime impact of integration. And what you see in terms of the drop in margin -- and as Vinit articulated, 100 basis points is due to the onetime integration cost, which we -- and a majority of that, which is already -- we have already baked in Q3. You know that Q3 is a seasonally weak quarter, and we tend to have furloughs during this quarter and also the number of working days are a little less. So given all these things, we knew that there will be some impact on -- because of furloughs. And to add on to that, we have also seen that because of some macroeconomic conditions, some clients, we have witnessed a little higher furlough than what we are anticipated. So that's the furlough part. And which is, again, we hope that as we get into Q4 and beyond, but the impact on the furlough is not going to remain and the majority of the loss that we had because of furloughs should be coming back. In terms of your other point in terms of sales and delivery, et cetera, I don't think there is any issue over there. I think the structures are all laid out. But you have to also appreciate that we just had 6 weeks of time beyond 14th of November for us to really share data, understand some of the synergies, et cetera. So we had anticipated some of these things as we went along. But our overall endeavor and confidence is that come Q1 of fiscal FY '24, we should be able to again get back to our industry-leading profitable growth story as we have demonstrated as the 2 independent entities erstwhile earlier. So I hope that clarifies and Vinit anything to add?

Sudheer, and the specific point which you mentioned, while I want to call out any specific client, I wanted to clarify that there is no weakness found on that erstwhile top account that you are referring to.

Sure, DC and Vinit, thanks for that. So basically, a lot of this will be regained in the subsequent quarter if it is just a furlough/working day kind of an impact. Is that understanding correct?

I think that's a fair understanding.

And Vinit, you mentioned there is an increased employee cost of 130 bps. So is this a sort of onetime bonus or anything you have given to employees because of the integration? Second related question is that I think some of your exchange filings earlier suggest that the earlier ESOP plan is being distributed to -- the brands are being distributed to some employees. So if you can speak about how broad-based the coverage would be and what percentage of senior employees would be covered and how they would be taken care of, given that naturally, when the corporate actions happen, it is natural for everyone to expect some sweeteners or retainer benefits.

No. So when I mentioned on account of operational aspect, I -- we need to understand that as some of the revenue which has got eliminated the percentage of employee cost to that extent has gone up. There is a sort of a once in a quarter seasonal impact of as the [ freshers ] come into the mainstream, some impact of their annual increment comes into the play. And ESOP, yes, that's a new cost that has come in, in this quarter and -- but it's only for the part of the quarter. So there will be a little bit of additional uptick in the next 3 quarters. After that, it may start a little bit subsiding down based on the current grants that have been given. And you have to look at the cost. As such, our cost base the percentage has not gone up. It is only because of the sort of a revenue that has gone down because of the furloughs, it looks like the percentage of the employee cost has gone up a little bit.

Sure. And one last question, if I may. Even if you expect there is some incremental ESOP related costs, you still believe that we'll be able to reach back to our earlier profitability levels by the next couple of quarters?

Yes, the whole intention of this merger was obviously to get revenue and cost synergies over -- cost synergies over a period of time and revenue synergies on the front ending side of it. As we enter into that, our hope is that starting from FY '24, we should be able to come back to our industry-leading profit industry-leading profitable growth story.

The next question is from the line of Vibhor Singhal from [ Nuvama ] Equities.

And congrats DC and the team for the successful integration of the business. So DC, a couple of questions from my side. One for you and one for Vinit probably after that. So in terms of the overall, I mean, we've seen very good growth in the BFS segment and also the vertical that basically in terms of a strong growth in the retail and transport vertical, as you mentioned. Just wanted to pick a win specifically in these 2 segments. I mean I think BFS they would not have been too much of a client overlap, but let's say, Retail or Travel or Hi-Tech. The client overlap that we've had -- I mean, the little client overlap that we've had in this, how is that process going on in terms of overall aligning the sales team and all? And to that extent, I mean, how are we equipped? I mean how much have we need progress in terms of allocation of all the sales heads, geography heads, vertical heads to the entire team? I mean are there any white spaces which are led to be addressed? Or is the integration and the allocation of roles and responsibilities completed at the company level? If you can answer that, I'll probably follow it up with a question for Vinit.

Thank you, Vibhor. See, as far as the -- if I understand your question correctly, if you are talking about the overlap of clients across the 2 erstwhile entities, they are very minimal. They are just a handful. And I think that was one of the exciting part of this integration because we can cross-sell and upsell to a host of 700-plus clients where only one of the organization was present earlier. So one of the things that we ensured that none of these clients see any change on the ground in terms of the teams that they have been working with, and we kind of took care of those aspects and all those designs are complete as we speak. So I don't think there is anything else that we need to address per se as we go along. And so there is no white space per se in terms of any of the accounts where we have to get new leaders and all those things. So this is like -- one of the objective of the integration was to ensure that we keep, the same leadership, the same client behaviors, the client confidence in terms of most of the clients. And you asked about BFSI, I think I can say that BFSI is one segment which had an overlap between the 2 organizations. But I'm happy to say that the growth that we have seen in BFSI, the accounts on both the sides have grown fairly well. And now obviously, we have an integrated BFSI practice where -- which kind of all come together. And BFSI looks extremely bullish for us. I don't think there is -- so far, we have not seen any indications that clients want to stop many of the programs that we're doing, especially BFS is very, very strong. And as far as Retail, Travel, Transport is concerned, I said that, that has also done well, but we do have some portfolio, which is on the real estate side. And obviously, given the interest rates increasing, there has been some impact on specific portfolio, which I think hopefully should come back at some point of time when the client is realigning their priorities and budgets. So I hope I've answered the question. Anything Vinit, you want to add to Sudhir?

Yes, DC, yes quite comprehensively. My second question for Vinit. Basically, please just wanted to delve a bit deeper into the margin bridge that you talked about. So as you mentioned, around 100 basis points was the integration impact which, of course, you and DC have called out, it's going to be a nonrecurring one and you'll see that reversal next quarter. The furloughs in the pure working days, of course, 130 basis points. That, of course, should take care of itself when the growth comes in [indiscernible] the quarter. Just on the increase in cost, if I can [indiscernible] once again. So the impact of this 130 basis points, I mean, if I understand correctly, you are trying to say that basically as a percentage of revenue that has kind of gone up. But I mean, is that -- has the cost gone up in terms of some retention bonus or annual increment, as you mentioned in this quarter, which is going to maybe even out in the coming quarters as growth comes in? Or is it going to be a recurring part and is part of the base now?

No. So it is the latter. It is part of the base and it is going to continue. The only thing is you'll not see an incremental impact coming up. As I mentioned, the major -- while it is from a percentage perspective, the cost has gone up a little bit, but compared to the revenue growth, the increase sounds a little bit more higher. Only component which is driving -- which has come up in this quarter which is driving down our cost a little bit is, as I called out, the cost on account of increased -- sorry, the annual increment that gets rolled out to the freshers as a part of -- after they come back into -- after they come into the mainstream [ population ].

Got it. And we are going to follow this Q3 incremental equipment cycles for the freshers hereafter? Or does it yet to be decided in terms of when we're going to provide those on an annual basis?

No, it doesn't -- it is not a Q3 cycle. It all depends upon when the freshers come into the -- come join us. So the impact of that gets scattered over a period of full year. So we don't take all the freshers in one go, we take them over a period of 4 quarters. And as each one of them -- each batch completes the annual anniversary, they get that incremental.

The next question is from the line of Mohit Jain Anand Rathi.

Sir, just a follow-up on the previous one. So I was not sure if you were following the same practice earlier, because this time, for the first time, we have this 130 basis point increment coming up in the third quarter. So while estimating ahead, should we assume that this will keep recurring every third quarter? Or will you sort of revert back to one [ wage hike ] cycle during the year?

Yes. You also need to understand Mohit that both the companies had a different intake cycle of the freshers. So now what you are seeing is basically a combined, in fact, so some will come in Q3, some will come in Q4. But with the growth, I don't think so this impact is a cause of worry. This will get easily absorbed. Our freshers intake and freshers absorption into the mainstream is very, very strong, and that's where we believe that once we are into the normal period in FY '24, we will be able to leverage this and gain momentum on our margins.

So the next hike we should factor in is approximately Q2 or Q3 for FY '24?

So Mohit, are you talking about the freshers? Or are you talking about the general...

No, the overall impact that we are going to experience in the margin.

So that we are not yet defined because both the companies have a different cycle. We are in the planning process right now. So in the next quarter, we'll be able to give color in terms of when to anticipate that impact.

Okay. And second was, is there any reclassification from gross cost to SG&A because of the integration? Because when I try to adjust your [ INR 80 crore ] amount for the 100 basis point merger-related expenses, even then it appears that SG&A has gone up quite sharply and because of which my EBITDA growth is not there, even on a Y-o-Y basis.

No, there is no reclassification apart from some marginal ones, but not -- nothing material to call out.

And this 100 basis point includes INR 50 crores that you have put in the footnote of the release?

That's right.

The [ stamp ] duty provision that the 100 basis points includes that provision as well? Or should we take into account...

No, that's right. That 100 basis points includes the impact of the INR 50 crores.

And last one on the revenue side. Is there any pass-through which we have experienced? Because LTA usually had a strong seasonality in second half, is there any breakup that you guys can give on pass-through that we would have got in the third quarter?

Yes, we do have a pass-through, but now in a combined organization, that number has become insignificant to call out.

So we will not get it going forward, is it?

No, we will. But the number from earlier -- from a $600 million to now looking at -- that number remains constant, that now on a $1 billion base has become insignificant for us.

Right. So we should safely assume whatever happened in 3Q should be the number in 3Q '23 as well?

Yes.

The next question is from the line of Sulabh Govila from Morgan Stanley.

So the first question that I had was with respect to the normalized profitability levels. So DC mentioned that we hope to return to these levels in FY '24 starting from the next 2, 3 quarters. So just wanted to understand what are those levels now? I mean LTI used to operate at 14% to 15% PAT levels and Mindtree at 20% plus EBITDA. So in a combined entity, how should we look at that?

So Sulabh, we are not giving any guidance. What we are saying is that we will return back to those industry-leading profitable growth. That's our aspiration and that's what we were confident on. As you know, that the levers are pretty much the common. We will try to leverage more on getting us much more, I would say, going to the customers, getting a little bit of a price increase benefit for the niche skills, keeping our utilization in check, keeping our headcount, given that the base has now become pretty strong. And also right now, out of the general macroeconomic caution, we will not go and do excess hiring than what is needed, leverage our bench very well. So these are a couple of things which we will be in a position to sort of use it very, very -- to our advantage and bring the margin back on track.

Understood. Understood. And with respect to Q4, if I may, I mean, out of this margin impact that we mentioned, how much of it is sort of reversing? Because it wasn't very clear to me if everything is reversing here with respect to furloughs and the merger-related costs.

See, the merger-related cost, as DC called out, most of that has been already baked in, in Q3 numbers. There might be some portion -- marginal portion not definitely not to the extent of 100 basis point impact coming up in Q4. Similarly, on furloughs, the impact is 130 basis points. Some portion may remain, but not to the extent of 130 basis points as what we have called about. So you can make the math and look at what to expect.

Okay. Sure. Understood. And then my question was with respect to the leadership structure that we have right now. So I just wanted to understand that which verticals and subverticals right now would have co-head structure, given that some of the verticals were -- or some verticals were overlapping? So how have you gone about that?

Yes, I think there are -- so you have to understand one thing -- that one of the things that we thought about as far as this merger is concerned, that we should have minimal impact to our clients. And that's why -- that was one of the prime consideration as we design the structure. And while designing the structure, we also ensured that we can get the synergies across the leadership and across the organization in terms of the various industry practices. So for example, we have now brought in the banking, financial services and insurance of both the erstwhile companies into -- under the leadership of one particular leader in the organization, under one market leader. So we have done some of those adjustments internally, just to share one example. But overall, we have ensured that there is zero disruption. And we feel that there's a lot of work to be done. There's a lot of cross-selling and upselling that needs to be done. And keeping that in mind, we have gone with the structure that we have talked about.

Okay. Understood. And it's the last question, if I may, just a bookkeeping one. Vinit, how should we expect on the tax rate going forward? Is the current the tax rate we should be building?

So for the next quarter, you may see it to be pretty much in the current range of 23.6% to 24%. From FY '24, you can anticipate it to be in the range of 25% to 25.5%.

Obviously, sir, this is subject to no changes in the budget.

The next question is from the line of Ruchi Burde Mukhija from Elara Capital.

[indiscernible].

Sorry to interrupt here, Ruchi, if you're using external headphones, we would request you to use the handset instead?

Is this better?

Yes. Yes.

Yes. Firstly, congratulations on the merger. I wanted to take your thoughts on the cost deals. We have heard from you, also from your peers that there are a lot of cost focus or cost optimization deals. Could you talk about in terms of tenure and other deal dynamics, how -- what do you see are the large tenures? Or any other characteristics that you would want to call out?

Let me give you some color, and then I'll request Sudhir to add. See, Ruchi, what happens is typically when clients are looking at cost takeout's, it has to be a multiyear transformation deal because you typically cannot do the cost takeout unless it's 4, 5 years tenure. So that's something which we are seeing right now in the marketplace. But what we need to understand is that the last 2 years, the clients have started so many transformation initiatives within their organizations, it is very important for them to continue with the transformation initiatives and not stop them. Because if they stop them, then they will lose the benefit of all the effort and costs they have spent. So keeping that in mind, given the fact that there are some uncertainties in the macro economy and the uncertainties in terms of recession, in terms of interest rates, all those things. Clients are now looking at how can they self-fund their transformation, which means that if you can look at opportunities of cost takeout and if you can take that cost out and fund your ongoing transformation. So we are seeing quite a few opportunities like that where clients are very keen to discuss in terms of cost takeout. And typically, there are 4 to 5 years or even 5 years or longer as well in some cases. And the only difference I would say is that it is purely -- it is very much keeping in mind that they want to continue with the ongoing transformation. So again, going back to the commentary that I made, there are certain situations where we see clients are slowing down their programs, but we have not come across any situation where clients are completely stopping their programs. Sudhir, do you want to add anything?

Yes. I think DC, the only thing I'll add is that the -- if you look at -- there are pockets of growth in every -- in some verticals and service lines. But from a cost perspective, there has been quite a significant investment in digital data and cloud-related technologies, especially over the last 3 years. Hence, clients are looking at the ROI from these investments and those they are structuring as multiyear deals, and that's where we see net new deal activity happening, besides the multigenerational outsourcing deals that continue.

Okay. I have one more question. Are you seeing your competition changing? This is I'm asking more in the context of multi-tower deals that DC spoke earlier. This I'm asking, keeping in mind that the formal or the legal entity took shape in mid-November, this merger was in making for close to 1 year. So have you seen change in competition, especially for large deals that you might be -- I would say, might be in pipeline for you?

Look, I think even if you look at the erstwhile entities of Mindtree as well as LTI, we were anyway winning deals and competing -- we were anyway competing and winning deals against the Tier 1s as well as mid-tiers, et cetera. So I don't think there is any change in terms of our competitive landscape. But the good thing is given the fact that we have brought the strengths and the capabilities together, our ability to support deals, which is typically core to experience to edge proposition, I think that's much more compelling at this point of time. And we think that, that is going to give us an edge in terms of stitching end-to-end solutions with many of the deals that we are pursuing right now.

The next question is from the line of Ravi Menon from Macquarie Group.