Ladies and gentlemen, good day, and welcome to LTIMindtree Q1 FY 2023 Earnings Conference Call. Please note that this conferenice call s 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. Let me outline the agenda for today's call. We will begin with a brief overview of the company's Q1 performance, after which we will open the floor for Q&A. During the call, we could make forward-looking statements. These statements consider the environment as we see 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 DC for his opening remarks.
Thank you, Nikin. Good evening, good morning to everyone on the call. Thank you for joining us today. LTIMindtree is all about creating a bigger, better, and bolder future for all our stakeholders. Our recent inclusion in Nifty 50, India's leading stock market index, is a testament to our unwavering commitment to shaping a bright, brighter future for our stakeholders. We are grateful for the trust you have placed in our vision, strategy, and ability to deliver exceptional results. This recognition has filled us with renewed enthusiasm and optimism for our journey ahead. We are pleased to report that our revenues came in at a healthy $1.06 billion in Q1, a growth of 8.2% in constant currency and 8.1% in dollar terms year-over-year, despite a challenging ongoing macroeconomic environment.
The growth was driven by strong performance across our major industry verticals and geographies. Our sequential revenue growth in dollar terms was 0.1%. Adjusted for the seasonal pass-through that we had in Q4, our sequential revenue growth would have been 0.9%. For the quarter, our manufacturing and resources vertical has achieved strong growth, registering a 14.9% year-over-year increase in dollar terms. BFSI, our largest vertical, continues to grow up 12.1% year-over-year in dollar terms. Furthermore, I'm pleased to share that our high-tech media and entertainment vertical is at a billion-dollar run rate. These three verticals account for 75% of our revenues, and their performance gives us confidence to maintain a continued upward trend.
Geographically, North America, which accounts for 73% of our revenues, registered a year-on-year growth of 10.2%, while Europe grew by 7.3% year-on-year, both in dollar terms. Our EBIT margin for the quarter came in at 16.7%, up 30 basis points sequentially, and our net margin was 13.2%, 40 basis points higher than the last quarter. We added 19 new clients in the quarter. We also increased our count of $10 million-plus customers by 9 year-over-year, bringing the total to 88. Our order inflow for the quarter came in at $1.41 billion, registering a growth of 16.9% year-on-year and 4.9% sequentially.
We continue to observe a growing trend in deals focusing on efficiency to allow companies to fund their ongoing transformation initiatives. Our persistent efforts to explore cross-selling and upselling opportunities within our existing accounts have yielded positive results. I would like to call out a few important deals that we signed this quarter. We won a large strategic five-year deal to drive efficiency savings for a high-tech client. This was a vendor consolidation deal and required presence in multiple locations globally, Canada, Poland, and India. This deal win is a reflection of our current scale and our capabilities to service clients across multiple global locations and a wide set of capabilities. For an insurance measure, we won a large multi-year managed services engagement for cloud and infrastructure services, displacing the incumbent. This deal is a good example of our cross-sell capabilities across cloud, infrastructure, and security domains.
For a large existing client of LTIMindtree, we engaged with the marketing function to become the strategic transformation partner for their integrated media platform. This platform involves innovative media solutions and automated ad buying. This deal is an example of our upsell capabilities in the digital and interactive services domain. Our interactive data, cloud, and enterprise apps service lines remain significant drivers of growth as clients across industries continue to invest in these areas for their transformation and efficiency needs. Data, one of our largest service lines, is fundamental to generative AI, which we believe will become the catalyst for the next phase of the autonomous enterprise. This technology will have a significant impact on our ability to serve clients across our offerings. To this end, we are proud to have launched Canvas.ai, a pioneering generative AI platform designed to accelerate the concept-to-value journey for businesses.
As clients across industry segments adopt our platform, Canvas.ai, for their use cases, we are seeing encouraging early results. Application modernization use cases have shown 40%-60% productivity improvement in large legacy code conversions for cloud. Campaign management solutions has seen lead times to launch new campaigns shrink from weeks to days, and document summarization has reached first-pass accuracy previously impossible to achieve in a manual process. We continue to invest in the evolving Canvas.ai to be a secure and easy-to-consume generative AI platform, leveraging several LLM solutions and enabling the creation of multiple industry-specific use cases in partnership with our clients. Let me now turn to our industry verticals. Our banking, financial services, and insurance business grew 12.1% year-over-year.
The banking and financial services vertical is showing resilience despite the ongoing macro environment, due to the nature of our engagements in core systems, risk, and compliance. We have also seen new deals in this industry vertical from vendor consolidation initiatives. Some clients are continuing with their hiring freezes, and we see longer decision cycles and slower ramp-ups. Our high-tech media and entertainment business grew 1% year-over-year. With many of our large customers starting their fiscal year in the latter half of the calendar year, we anticipate increased spending. While decision-making timelines may be extended, this gives businesses a chance to explore new and innovative pricing models. Additionally, the need for efficiencies is creating an environment for companies to drive even more value for their customers.
The media and entertainment industry is experiencing a positive shift towards AI-based products that cater to consumers' personalized needs. This trend is further fueled by the need for cost reduction and vendor consolidation, enabling us to stay competitive in this space. Our manufacturing and resources business showed a growth of 14.9% year-over-year. Manufacturing clients are continuing with their strategic investments in Industry 4.0 initiatives, supply chain modernization, and pricing. Our strengths in IoT, ERP, and data position us well for these opportunities. Energy and utilities clients remain resilient, as there is a significant investment in core systems modernization. Our strategic focus in the energy vertical lies in SAP engagements and exploring valuable data opportunities. Our retail, CPG, and travel, transportation, and hospitality business grew 4.6% year-over-year.
In our retail and CPG vertical, we are seeing increasing commitment from clients to take on long-term programs and focus on strategic initiatives like modernizing and rolling out ERP systems. We are also pleased to see the industry shifting towards predictive analytics and composite platforms that integrate a variety of data sources and analytical tools. With our diversified offerings across ERP, data, and cloud, we are well positioned to help businesses address their twin objectives of experience and transformation. The travel, transport, and hospitality vertical is experiencing robust demand for leisure travel, although the demand for business travel is yet to catch up. Our health, life sciences, and public services business grew 4.7% year-over-year. In the life sciences industry, big pharma companies are prioritizing divestment of lower-margin businesses. Cost headwinds from regulatory policies mandate a focus on efficiency.
The medical devices industry is seeing growing interest in as-a-service models. From a technology perspective, clients are looking at a combination of automation, data, cloud, and digital technologies to deliver their objectives of cost reduction, technology stack modernization, and pricing transformation. The healthcare industry continues to see significant investments in patient-centric programs, for example, value-based care. We are taking a unique approach of domain-centered solutions here. In terms of geographies, America contributed 73.1%, Europe contributed 15.2%, and rest of the world contributed 11.7% of our revenue. In Europe, our customers are carefully assessing their business needs and making strategic decisions about projects, budgets, and IT spend. However, there is still strong demand for application management and SAP rollout and support needs.
For the quarter, our LTM attrition was 17.8%, down from 20.2% recorded last quarter. In-quarter attrition was at a similar level to that in the last quarter, hence, we believe our attrition will continue to show a downward trend on an LTM basis. We are pleased to report that our utilization rate has shown a noteworthy improvement, reaching 84.8%. This was a result of our ability to deploy resources better, as systems consolidation post-merger helped improve visibility of available talent. I will now turn over the call to Vinit for Q1 financial highlights.
Thank you, DC. Good evening, and good morning to everyone on the call. We hope you had a chance to go through our first integrated annual report, which provides comprehensive non-financial disclosures for you to assess our business model and performance. Let me now take you through the financial highlights for Q1 FY 2024. Our revenue stood at $1.06 billion, up 8.1% on a year-on-year basis. The corresponding constant currency growth was 8.2%. The quarter-on-quarter growth was 0.1% in dollar terms, as well as in constant currency terms. EBIT margins continued to expand and came in at 16.7%, compared to 16.4% in the previous quarter.
We would like to call you out that we had a reclassification of around 1,000 people from delivery to sales and support this quarter, and this has contributed to an increase of 120 basis points in gross margin, 160 basis point in utilization, and increase in sales and support headcount by around 1,000. This change is a part of the harmonization process, is in line with the industry practice, and was effective first April 2023. Our sharp focus on managing our costs helped us deliver a 30 basis point quarter-on-quarter increase in EBIT margins. The bridge is as follows: increase in gross margins by 170 basis point, of which 120 basis point is on account of reclassification. 70 basis point due to operational efficiencies led by increased utilization and offset by seasonal visa cost of 20 basis point.
A corresponding increase of 120 basis points in SG&A cost due to the reclassification and 20 basis points impact on account of increased marketing spend. I would like to reiterate that the impact of reclassification, as mentioned above, is EBIT neutral. Net Forex loss for the quarter was $1.5 million, compared to a loss of $6.4 million in the previous quarter. Riding on our solid cash balances and increase in prices over all asset classes, we had an investment income of INR 135 crores this quarter. PAT margin for the quarter was 13.2%, compared to 12.8% in the previous quarter. The effective tax rate for the quarter was 25%, compared to 22.9% in Q4 of FY 2023.
Basic EPS was INR 38.90 for the quarter, compared to INR 37.70 in Q4 of FY 2022. In Q1, the bill DSO remained at 60 days. The DSO, including unbilled revenue, was at 93 days, compared to 91 days in the previous quarter. The operating cash flow to PAT has continued to improve to 89.8% this quarter, as against 88.5% in the previous quarter. Our cash and investment balances stood at INR 1.13 billion or INR 9,235 crores, compared to INR 8,355 crores in Q4 of FY 2023. Return on equity for the quarter was 26.8% versus 28.6% in Q4. Our utilization, excluding trainees in the quarter, was 84.8%, compared to 81.7% in the previous quarter.
As mentioned above, 160 basis points of this improvement is on account of reclassification. As of June 30, 2023, our cash flow hedges stood at $3.59 billion, and hedges on the balance sheet were $400 million. We are pleased to announce that both CRISIL and India Ratings and Research have reaffirmed their AAA stable long-term rating for LTIMindtree. We were ranked 30th in the Financial Times Climate Leaders Asia Pacific 2023 amongst the 275 leaders for best performance in the reduction of GHG emissions intensity over 2016-2021, relative to revenue. Recognitions like these are testament to our deep and continued efforts on the ESG front. I now hand it back to DC for the business outlook.
Thank you, Vinit. We continue to see good sales activity and a healthy win ratio across our key markets and industry verticals, resulting in a robust deal pipeline. We continue to see delays in decision-making and hiring freezes. We remain confident about our value proposition along with the prospects of cross-selling and upselling to our existing accounts, especially with dedicated efforts towards our Focus 100 initiative. We are already seeing multiple deal conversations and wins through these efforts. As an organization, we have strategically positioned ourselves to help our clients in their transformation as well as efficiency agendas. Our ability to play effectively in both these areas gives us the confidence to continue our profitable growth trajectory, even in the current dynamic market situation. Let me now open the floor for questions.
Thank you, DC. A few points while we wait for the question queue to assemble. All participants will be in the listen-only mode during the Q&A. If you would like to ask a question, please use the Raise Hand option on your screen. You will then be prompted to unmute your line and ask the question. Request you to please state your organization's name before asking your question. I request that each one of you keep the question to one and a follow-up, to allow as many participants as possible to ask questions. The first question is from the line of Sandeep Shah.
Yeah, thanks. Thanks for the opportunity. The first question is, DC, how do... The first quarter has gone as per anticipation, or is there any negative surprises versus what we anticipated in terms of a growth at the start of the quarter? If yes, will it impact our target to achieve a double digit constant currency growth? Do we still reiterate the same? If yes, don't you believe the ask rate of 4.5% in the next Q3 is a very high ask rate? Just wanted to know the margin target for the full year.
You've given me a question and as well an answer. First of all, Sandeep, if you ask me how did the Q1 play out, I think the Q1 played out the way we expected. We expected Q1 to be soft. What Q1 did not, Q1 did not, you know, play out well is, we thought that some of the aspects of the delays and some of the aspects of the hiring freezes that our clients had, especially in BFS, where clients had, you know, put a freeze on onboarding. We thought that some of those things will go away by end of Q1.
That is one area where things have not improved, things have not changed, which, you know, makes us believe that, you know, some of the planning that we had anticipated earlier, that is not going to be working the same way. I'll tell you the reason behind it. You must have heard us say that, most of the deals these days are longer-term, efficiency deals. What happens in these efficiency deals, they are longer tenure, but they also have a transition involved, and only after the transition you get into the revenue cycle. It is important to close those deals sooner, so that you get the benefit of those revenues for the rest of the year.
long story short, I think, given the Q1 played out the way we wanted from an overall revenue perspective, but Q1 did not play out the way we wanted in terms of the overall, you know, slowness in decision-making, as well as the freezes which tend to be continuing, which is where we feel that, you know, when you talk about the growth target that we had set earlier, that becomes challenging. At the same time, we will always have it as an aspiration. That's the first part of it. Sudhir, you want to add anything?
Yeah, I'll just build on one thing there, Sandeep. I think what was a positive in the quarter was the increase in the pipeline. Our pipeline went up 10% quarter-on-quarter from Q4 to Q1. Our large deal pipeline also went up significantly. As DC said in his opening remarks, you know, the sales activity continues to be strong, notwithstanding the fact that we saw some deals move from Q1 closures to Q2, overall activity increased during the quarter.
Yeah. Vinit, do you want to tell him about margin?
Yeah. Sandeep, on the margin target, while, you know, the growth obviously is one of the important factors to support the margin, we are still working on building up, working on the efficiencies that need to be driven down into the organization. Our expectation, we are still confident that we should be in the 17%-18% margin range, EBIT range, as a part of our exit for FY 2024.
Okay. Thank you. I will come in the follow-up.
Thank you. The next question is from Manik Taneja.
Hi, thank you for the opportunity. We just wanted to understand our hiring plans for the year, as well as the wage increments that we plan for this year, given what we've heard from some of your peers.
Yeah. Let me talk about the hiring plans. I mean, you know, for the last three quarters, we have been very focused in terms of ensuring that the bench that we have from a combined organization standpoint, we need to leverage the bench. That was the priority that we put in place, and the hiring was based on how we utilize the bench. What you see right now is a healthy utilization, which is a testimony to the fact that testament to the fact that it's working well, the way we anticipated. As far as hiring is concerned, based on you know, the opportunities of the pipeline, it is not going to be any different. We'll continue to hire as it is required.
As far as the FY 2024 plans are concerned for hiring pressures, that also will be as per plan. I don't think there is any change to that, but we are in a comfortable position right now. I mean, I don't think we have any constraint on the supply side at this point of time. As far as wage increase is concerned, we had planned wage increase in July, and we have enough confidence in our, in ourselves in terms of going ahead with the you know, wage increase. We are going to do the wage increase in July, and we are not going to change any of our initial plans.
Okay. If you could help us with the quantum of the wage hikes for the year?
That will be in line with, you know, the industry standard, what we are expecting. It will be pretty much as per the plan that we had laid down at the beginning of the year.
Oh. Thank you.
Thanks, Manik. The next question is going to be from the line of Kawaljeet Saluja.
Hey, hi, this is Kawaljeet Saluja from Kotak Institutional Equities. You know, a couple of questions, most of it related to your order book. First is, you know, just wanting you to react to your order book because, you know, deal win seems to be trending, but the announcement that you have made seem to be overwhelmingly towards managed services, which have a longer tenure for execution. The other aspect related to order book is that typically there has been a seasonal bump or strength in the order book, resulting from Mindtree's, you know, seasonal strength historically. Does that, you know, seasonality still remains or, you know, it's already become too large for that to play out?
The second part of the question, which I'll come later, but, yeah, that's the first part of the question.
Hi, Kawaljeet. Let me let me answer the second part first here. I mean, what you said is right. I mean, there will be, you know, the account that you're talking about is part of LTI and Mindtree, and it's still a significant account, so that seasonality will always be there. I can only say that there is some kind of... You know, even if you initially those deals, say, three years back, used to be renewed every year, but there is a different, there is a more TCV factor in those renewals as well. As far as the order book is concerned, you are right. I think we have called it out earlier as well, that the order book, the deal flow is more in terms of efficiency-oriented.
In some of these deals, it's a combination of efficiency and transformation. We had announced one deal last quarter, which is on onsemi, which is the clients are willing to sign up for efficiency, and at the same time, they're willing to use that, those dollars which can be coming out of efficiency deals over a longer period and continue the in-flight transformation as well. We see a flavor of those kind of deals more and more. These are the only characteristic about these deals are they're longer tenure, which is good, but in terms of the revenue realization, it takes a little bit of time because it always involves a transition from a potential incumbent or, you know, so, you know, from the client directly.
That, that's one thing which we need to keep in mind when we talk about these deals. Any more to add, DC?
Basically, the only build I'll do, Kawaljeet, is that, you know, if you look at both, last quarter with a $1.3 billion dollar order book and the $1.4 billion dollar order inflow this quarter. When you combine the two quarters, you know, that's quite a healthy mix across all our verticals and regions. In fact, the three verticals that contribute to 75% of our revenue, which is BFSI, high tech, and manufacturing and resources, you know, also account for a majority of the order book. Yes, it's correct that the order book is vectored more towards longer-term managed services deals, but it is broad-based, and it's, you know, there is a good concentration in our core, three core verticals.
Got that. Actually, can you share some ACV trends, because that would be useful? The other part of the question related to your deals is that while in, you know, the I part of BFSI, there were plenty of deals, it was conspicuously absent, you know, of any mention of banking deals here.
No. DC just talked about a banking deal in our prepared remarks right now, which is a good example of our cross-sell opportunities. In fact, our insurance vertical is doing strong. In fact, we're seeing some good core modernization programs underway in the insurance vertical. You can also see it reflected in some of the product companies in the insurance space, and we are benefiting from that. You know, insurance is actually doing well for us at an overall level.
Any sense on the ACV trends? If you can just throw some light on it, that would be very helpful.
Kawaljeet, typically, as we have mentioned in the past, that, depending upon obviously the portfolio of clients and the sectors in which it happens, Whatever deals we sign in the first half, around 60%-70% of that translates into the ACV, in the next four quarters. That trend continues.
Thanks, Kawaljeet. We'll take the next question from the line of Sudheer Guntupalli.
Hi, this is Mohit from Anand Rathi. My question was related to.
Yeah, go ahead, Mohit. Sorry.
Can you hear me now?
Yes. Yeah.
Okay. It was related to BFSI. Now we have seen this marginal drop this quarter, say minus 1%. You guys have also ramped up a little bit on deals, and in the opening remark, you spoke about some benefit or some clients at least opening up the execution part, while some continue to be in pause. As we enter Q2, Q3, and some of the clients are also looking at almost half the year gone by, with, let's say, four months in pause. What are your expectations here? How are talks progressing from July onwards, and what should we expect specifically in this vertical?
Yeah. I'll take that. If you look at BFSI grew 12% year-on-year for us, and I think, Mohit, you actually raised an important point. You know, what we are seeing is, for most of our clients, you know, they work on a calendar year basis, right? For six months, this calendar year, their own spend has been muted. We are seeing some signs where they're looking to see, you know, for the rest of the year, what are the programs that they continue to fund. I think as of now, you know, we are not seeing, I mean, I hate using the word budget flush, but there is nothing in that direction, just to give you a sense of.
You know, people are looking to do programs, you know, where the ROI is clear, where there is clear benefit that the business is getting, or where there is a need from a risk and compliance perspective. You know, those are the programs that are getting funded. You know, what we are seeing is, I think what was, you know, what we are seeing is that what DC talked about, the continuing hiring freezes still continue. We'll, we want to see whether, you know, I think it's about the next couple of months where we'll figure out whether they will continue to stay for the rest of the year or they will start to ease off in this quarter. Rest of their calendar year.
Yeah. Second one was this reclassification of 1,000 odd employees. Does their job profile change, or do they continue to do the same work? It is a change in reporting, wherein these 1,000 guys are now calculated as part of G&A.
Nachiket, you want to go ahead?
Yeah, I think the job profile doesn't change. It was, you know, the, as we were bringing both the companies together, each of us had sort of slightly different way of categorizing certain functions. As we, as part of our merger synergies, looked at industry standard practices and adopted those. The, what they were doing or what the functions they are part of remains the same, it's just that those functions are now reported consistently to the rest of our peer group in how they are classified.
Okay, got it. Perfect, sir. Thank you.
Thanks, Mohit. We'll take the next question from the line of Sudheer.
Yeah. Am I audible?
Yes, we can hear you, sir.
Yeah, yeah. First question is to DC. Looks like there is a very sharp growth recovery in the top account. Is this possibly related to any budget flush in that account, given their fiscal closes in June? Is it more sustainable and broad-based high-tech recovery, given this vertical probably witnessed the earliest onset of a downturn, and a lot of pain related to that might already be in the base. Any color from the top account on how the budgets for their new fiscal are shaping up, given it sets the tone for a lot of tech activity?
Sudheer, first of all, we don't talk about any more top account, because that's not fair, because we have a top 5 account which we want to focus on. I can only say that if you look at the top five, there is a decent growth in terms of the top five accounts. As a part of our top 100 program, we are going to stay very focused in terms of the Focus 100 accounts, and which will also reflect in the growth of the top 20 as well as top 40 accounts. That's what we should be looking at. To your specific questions, in terms of high tech, I would say, first of all, some of the fiscal years are the, you know, July to June.
Overall, in terms of high tech, we can see very good momentum in high tech, including whatever, you know, all the accounts that is part of that portfolio.
Got it, DC. Second question to Sudhir, an extension of what I think somebody asked earlier. A divergence between the strong order booking and weak revenue booking for almost three quarters now. Some part of it obviously can be explained by the changing deal mix, tenures, et cetera. Some part is being attributed to the delays in ramp-ups because of the macro overhang. If I look at the two, three global banks which reported results so far, suggest tech spends continue to be healthy in June despite the banking panic.
If I the crux of the problem lies in ramp-ups not keeping pace with the order booking, and parallelly there are no material budget cuts, is it fair to expect one or two lumpy quarters of ramp-ups going ahead, which may translate into sharp pent-up revenue growth, but for LTI and of course for the industry as well?
Yeah. If you look at, you know, any, I mean, you know, the combination of revenue that we have is a combination of what we have from a annuity or a multiyear, you know, spend perspective, as well as the discretionary spend that tends to happen usually within the year, right? As we know, I think discretionary spend generally has been under pressure across the industry. BFSI is similar. What we are seeing is, I think we are seeing a good long-term trend in terms of us, you know, as I keep going back to not just our order book, but also our pipeline, the size of our pipeline, overall pipeline, the number of large deals that we're chasing, and the value of the large deals that we are now, we are part of spinning in.
That sets us up for good multi-year growth.
as DC said, yes, these deals will have a lag because, you know, they involve slightly longer closure timelines as well as transition timelines, et cetera . At that point, you know, it's just a question of seeing when, you know, the entire set of deals start to materialize in terms of, their, the revenue contribution that they make. You know, we'd like to see some return of discretionary spending, because then there is no headwind towards, you know, the growth that we get from these large deals.
Sure, Sudhir. Just one last question. Any budget cuts that you are seeing in your broader portfolio of key clients, let's say the top 100 clients?
Actually, you know, what's interesting is we read the recent Gartner article. They've talked about a 5% growth in budgets even in this this year. I think the thing is the budgets on paper exist. The decisions are being, you know, a lot of these decisions are going to the board. They are taking more cautious decisions in quarter as they wait to see what, you know... See, it is a paradoxical time, right? Where, you know, governments are looking to see what they can do about inflation, so are central banks, whereas, you know, unemployment is low and various other indicators suggest that demand is healthy. I think clients are, you know, also trying to figure out this paradox and taking decisions accordingly.
I think if we see a stability in interest rate regime, which we are likely to see, then I think clients will have a lot more confidence in terms of releasing the budgets that they've already actually planned for, during the financial year, at least as per projections that, you know, the likes of Gartner have made.
Thanks, Sudhir. That's it from my side. All the best.
Thank you. The next question is from the line of Sulabh Govila.
Yeah. Am I audible?
Yes, Sulabh, please go ahead.
Yeah, sure. Thanks for taking my question. First one is, you know, with respect to the growth that we envisaged for this year, which is FY 2024, do you expect the remaining quarters to be paced out equally across the quarters? Or would you say that 2H would shape up with a stronger growth momentum versus what you think about Q2?
Well, I think, you know, as you can make out, you know, as we have, indicated, that some of the concerns that we have are more in terms of, the freezes in terms of onboarding that we see in some of the BFS clients, as well as, you know, the delayed decision-making. That's something which we hoped that by Q1, it should be easing out, which did not. I don't think we can predict in terms of when it will be, you know. Otherwise, you know, there is nothing for us to believe that our H2, will be any different from the H2 of, you know, last year, for example. I think the only thing which we expect is, or well, the only thing we are hoping is some of the freezes and some of this decision-making is, you know, faster. And I think that will help us in terms of, looking into the rest of the year.
Understood. Understood. Just a quick follow-up on the, you know, as you mentioned on the banking side of it. You mentioned last quarter that there were several deals which were in the final stages of closure. Given that we've seen continued caution with respect to freezes and the decision making, and based on your recent conversation, would you say that some of these deals could come through in Q2, or do you think they can take much longer?
We are hoping at least, I know at least a couple of those deals have already come through. We closed them at the far end of Q1. We are hoping that some of the other deals also will come through hopefully, you know, if there is no further delay in terms of decision-making. It's anybody's guess now. As Sudhir rightly pointed out, you know, this is really a paradoxical time. I don't think any client is talking about cutting their budgets. There is a significant activity in terms of deals, you know, it's quite healthy activity.
You have seen our order inflow, but the delays that we are experiencing in terms of some of the decision making as well as, you know, even after closing the deals, the ramp-ups are also not happening the way we expected. It's much slower than we anticipated. These are the kind of things which are paradoxical, and we are just hoping that, you know, it will all clear up. It's something that we have never seen in the industry, to be honest.
Thank you. Thanks for taking my question.
Thank you. The next question is from the line of Vibhor Singhal.
Yeah, hi. Thanks for taking my question.
Yeah, go ahead, Vibhor.
Yeah. hope I'm audible?
Yes, yes, you are.
Yeah. Sorry for that. Yeah, thanks for taking my question. Basically, my question was on the two verticals, high tech and the retail as well. Just wanted to dwell a bit on the high tech vertical. After two consecutive quarters of very sharp sequential decline, we've seen a good recovery in this quarter. Just some color on that, do you believe this is something more of a reflective of the trend that we could see going forward as well, and we could see the high tech vertical we could maybe call out that maybe the high tech vertical has bottomed out for us, and we could see continuous of the growth that we saw in this quarter?
On the retail vertical side, just wanted to peek a bit, this was a vertical which probably saw the impact of the macro weakness of the first. Any green shoots there, any signs of recovery there, or any client conversations that would help you to gauge that, okay, this vertical could probably start recovering in the next, maybe, whatever time frame that you would like to call out for?
Vibhor, let me just, you know, answer the second question of the retail, and then I'll request Sudhir also to provide some color. See, as far as retail is concerned, it is still a lot of apprehension over there. I guess this is one vertical which is also, you know, connected to the overall inflationary pressures in the system. Retail still continues to be an area of, you know, we have to wait and watch and see. This, you know. I don't think I can see, you know, any signs of something radical happening over here in the next, you know, next quarter as well.
As far as high tech is concerned, definitely, there are some closures that we had in the last 2 quarters, which are resulting in terms of revenues in, you know, Q1, as well as we'll continue to, you know, show the revenue realization or transition will happen in Q2 as well. Overall, I think the amount of deal activity in high tech is pretty healthy, and including the, you know, some of the larger clients we have in high tech. Overall, I'm much more, you know, much more bullish in terms of high tech at this point of time, in terms of the activities that we are seeing. Sudhir, you want to add anything?
No, I think you said it, DC. The activity levels in high tech are strong, and I think, you know, if you look at the overall market, at least from, you know, the high tech stocks, globally tend to be, you know, at least the majors are at, new highs. There's an expectation, you know, most of them, as DC said earlier, start their financial year in July. You know, we'll look to see how they plan out their spending for the, for their, financial year, in the coming months.
Got it. Just one last follow-up on the retail segment in terms of the travel vertical. As you mentioned in your opening remarks, that continues to see strong demand. I mean, is the demand again in the travel vertical across the board, or are we seeing the airlines and hospitality part also pick up now, which, as you had mentioned, are still not, but still not maybe back to the pre-COVID levels of a couple of quarters ago?
Well, I think, there is, you know, I would say travel and hospitality is seeing good traction. You know, barring the, you know, the business travel is not back to the same levels, but otherwise we can see very good traction in terms of travel as well as in the, you know, rest of the hospitality, hotels, et cetera. Hotels as well as, the, the, you know, the restaurant chains, et cetera. All these things are definitely showing good traction.
Got it. Thanks a lot for taking my questions, and wish you all the best.
Thank you.
Thanks. The next question is from the line of Ravi Menon.
Hello. Hi. Two questions. One is on the employee costs. you know, it comes down about 2% quarter-on-quarter, but despite that, employee costs are flat to slightly up. you know, this is even with an effort to shift slightly offshore by about 10 basis points. I want to check if there are any one-off costs in employee costs for this quarter, such as a bonus for people or some sort of wage adjustment as part of the integration.
No, Ravi, there is no one-off cost involved into it. This is partly driven by some of the policy harmonizations that we do as a part of these two companies coming together. You know, and also there is a slightly increase in the on-site. While the net headcount has come down, there's an increase in the on-site headcount versus the offshore headcount, which is also resulted into the, this is the new incremental headcount that comes in, so that is resulted into the cost being a little bit higher. Nothing, no alarming or nothing to worry about that.
Right. Thank you. Second question is on this rest of the world. You know, we usually have a seasonality with the faster going away, but this seems a bit more than usual. Is there anything that's vertically specific or client-specific in rest of the world?
Yeah. The rest of the world is client specific. you know, In fact, I think for us, we, you know, the biggest, the two biggest markets which contribute 90% of our revenue are Europe and the U.S., and both are, you know, U.S. is up 10% or North America up 10% year-on-year, and Europe is up 7.2% year-on-year. This is client specific. The business in this region tends to be a much more project specific, so as projects get over, you know, those kind of things. We are also being careful about some of the programs that we are entering, especially in the India market, you know, being cautious to make sure that we choose the right projects to bid.
Right. One last question on the cross-sell. You know, are you starting to see, you know, larger TCV deal wins in your cross-sell, upsell kind of opportunity?
Yes, the answer is yes. In fact, you know, on the what we are seeing with our increased scale and increased, you know, set of capabilities, in fact, one of the deals, the high tech deals that we talked about during the you know, in our opening remarks, you know, required us to have not, you know, firstly, presence in multiple countries across the world, right from North America to Europe, to Asia, to provide services not just out of India, but multiple nearshore locations for this client globally. As and, you know, it required a more extensive set of capabilities across, you know, essentially, you know, the entire space, the applications and infrastructure stack.
That combination is what, you know, we are certainly seeing. We are seeing it in terms of larger deal sizes, where we're being invited to by deal advisors, increasingly, in terms of that. Also, you know, in terms of the ability to do structured deals, you know, we have some of those also on the anvil that again, are a reflection of the health of our balance sheet. Ravi, you want to add anything?
Thanks so much, and best of luck.
Thank you, gentlemen. Best of luck.
Thank you, Ravi. The next question is from the line of Mukul Garg.
Hi. I hope I'm audible. Hi. DC, sorry to again nitpick on your aspiration for FY 2024 growth, was just wanted to get some sense on, you know, how we should look at it realistically. You know, even if we aspire or build in a good growth pickup from Q2 onwards, you seem quite far away from the double-digit growth which you guys were earlier looking for. Can you give us some realistic sense of in case when the deals which got delayed kind of play out in Q2 or in Q3, what can be the upper or lower variance of growth aspiration for FY 2024?
Well, I think, Mukul, it's very difficult to... You know, we are watching the space very closely, and the fact, as I said, the behavior is quite unprecedented, where, you know, the deals are closed, the start dates are delayed, or the decision-making process itself, which are supposed to close in a month's time, clients are still sitting on it, and they want to delay the decision-making or closure of the deals. I think this is not something which, you know, is difficult for us to control. I can tell you with a reasonable confidence that we still want to, you know, look at our overall objective of profitable growth, and that's something which we have been always talking about.
I would like this profitable growth to be in the, in the leader quadrant. That's all I can say at this point of time. You know, that's something which the, the team is pretty confident about.
Sure. You know, if you may ask another question, you know, either DC or Nachi can answer that, and this is slightly longer term. If I look at your headcount for development team, you know, it has been declining for the last Q3s, even adjusting for the 1,000 reclassification. Your utilization levels have picked up. Now, given that the deal flow and pipeline continues to be really strong, you know, are you at all concerned about, you know, return to high attrition in FY 2025 as demand picks back up? You know, are there any steps we are undertaking to avoid that scenario? Because this is something which is not just happening for you, it is happening across the industry.
Nachi, do you want to take it?
Yeah. I think, you're right that the nature of the deal and the type of the deal is shifting, right? I think we talked about that. What it also does, on the talent front is it actually provides us a better lead time to plan as compared to shorter tenure, discretionary spend-based growth that we had seen in the previous, two years. Because that allows me to plan for skills better, it allows me to build certain skill sets instead of purely relying on hiring those from the lateral market.
Overall, both the lead time as well as cost for ramp-up for us, we can manage a lot better in current deal environment, and which is where, why we have been comfortable taking the utilization up, because each of these deal conversions allows us to do that correct planning and hire, you know, as needed in time. Of course, the availability of the talent has also improved, so need to hire ahead of time has also gone down. As regards to its impact on attrition when the growth comes back, I mean, of course, it's very difficult to predict. If you look at the nature of the demand, right? I think it's not just for us, but for everybody, it gives better time to plan talent.
As all of us, with this nature of demand, plan, are able to plan the talent better, we can operate at the attrition levels that we operated pre-pandemic, right? I think the last two or three years, I would say, is an aberration. As an industry, used to operate at a certain attrition level with a certain, you know, certain growth rate. With this type of deal flow, we feel confident that we can do that for FY 2024. Now, FY 2025, hard to predict. I think it all will again be a function of nature of the deals and the kind of pipeline we get into. Based on today's visibility, I think this allows us a better talent planning.
Thank you for the answers.
Thanks, Mukul. The next question is from the line of Nitin Padmanabhan.
Yeah, hi, good evening. This is Nitin Padmanabhan from Investec. My question was around two things. One is, you mentioned that, you know, sometimes there are delays in the start. In addition, the deals that you won, you also have a transition period, and revenues will probably accrue post that. The third was that I think the freeze on spending by some of your banking clients still continue. In that context, does it feel like Q2 would be softer than normal and one should actually anticipate a pickup in the H2, and Q2 actually can actually be softer than what we originally thought? That was the first one. The second was on the margins.
Considering that we have wage increases and we'll also have transition costs, would it mean that we will see a dip in margin? The makeup in the H2, you also have higher pass-through revenue. Does that make it difficult to achieve the 17%-18% exit? Does that become difficult? Those are the two questions. Thank you.
Let me answer the second question first, and then get to the first question. See, as far as margin is concerned, it is not something which you can achieve just in one quarter. It's a program that you need to run. You have to have a margin program running across the organization. Once we started bringing the two organizations together as a part of our harmonization, we also rolled out the margin program, which will look at, you know, the various levers that we can use for margin. I mean, it's not a rocket science, as in, like, you can only use so many levers in the, in our industry.
We know how to do it, and based on that, we are very confident that, you know, you know, at this point of time, the way we see the business, we should be able to, you know, improve margin over time. In spite of baking in the wage hikes and all those things, the exit could be still 17%-18% as, you know, as we have told earlier. As far as the, you know, specific... I think you articulated very nicely in terms of the three trends that we are seeing. One is the delays in onboarding. The second is, you know, the delays in, terms of ramp-ups. The, the revenue, you know, the revenue profile will be also different for, some of these reasons.
The freeze that we had in some of the BFS accounts. Given all the scenarios, I think, you know, we have to again watch this space. If the delays continue for too long, which we don't know, it's not something that, you know, we have a good visibility into it. If the delays continue for too long, then obviously we can't, we have to look at how, you know, these delays impact Q2. Otherwise, on the other hand, and this is what we mean by paradoxical things, that on the other hand, the amount of activities we have in terms of deals is also quite significant.
We have to just wait and watch and see, but obviously, our hope is that we should definitely have a better Q2 compared to the current Q1. We have to just leave it there for the time being. Sudhir, you want to add anything?
No, I think, you see, you covered it. I think we are well positioned because, you know, with the new scale, I think our market positioning of being, you know, having the capabilities, which are similar to the larger peers and having the speed and the agility and nimbleness that was there in the DNA of both the organizations, which still exists, I think that combination suits us well, to continue to be a challenger, to the larger peers, as well as to be a leader amongst the pack when it comes to, you know, some of the other deals which involve some of our smaller peers.
Perfect. Very helpful. Just one last one. Would it be possible to call out what proportion of the deals were, new this quarter?
We don't give a color of that, Nitin.
Sure. Perfect. Thanks, Sudhir, all the very best.
Well, thank you, Nitin. That was the final question. I'll hand the floor to DC for the closing remarks.
Thank you, everybody, for joining the call. I have one more announcement to make. I would like to take a moment to welcome Vinay Kalingara as the Head of Investor Relations for LTIMindtree. Vinay is taking over from Nitin Mohta, who has decided to pursue opportunities outside the company. On behalf of LTIMindtree, I thank Nitin for his contribution to the company, and wish him all the best. This concludes today's call. Thank you for joining, and I look forward to speaking with you all next quarter. Thank you.