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LTIMindtree’s (LTIM’s) December quarter revenue, at $1.139 billion, was up 1.8 per cent quarter-on-quarter (Q-o-Q) (5.6 per cent year-on-year or Y-o-Y) in constant currency (CC) terms, marginally ahead of expectations.
Growth was led by manufacturing (+8.1 per cent Q-o-Q) and banking, financial services and insurance or BFSI (+3.4 per cent Q-o-Q, both in dollar terms).
The earnings before interest and tax (EBIT) margin was at 13.8 per cent (down 170 basis points or bps Q-o-Q, down 160 bps Y-o-Y).
Total contract value (TCV) of deal wins was at $1.6 billion, up +12 per cent Y-o-Y and book-to-bill was 1.5 times.
Net profit came in at Rs 1,087 crore and was in line with estimates.
Free cash flows/net profit improved substantially from 55 per cent in Q2FY25 to 107 per cent in Q3FY27, a positive.
Earning per share — at Rs 36.6 — was down 7.1 per cent Y-o-Y.
Strong sequential growth in manufacturing (+9 per cent), rest of the world (RoW) (+10 per cent) and the rupee (+15 per cent) suggest growth was pass-through led. BFSI growth (+4.2 per cent) was a bright spot.
But decline in hi-tech (-5.5 per cent), driven by artificial intelligence (AI)-led productivity pass-back to the top hi-tech account, may be concerning.
Clients’ productivity pass-back demand may continue to have an impact.
The management noted that it passed on benefits from productivity improvement due to GenAI to its largest tech client. This will likely continue in Q4FY25 as well, creating some headwinds.
Reversal of furloughs, continued strength in the BFSI vertical and ramp-up of deals will be the key drivers for growth in Q4FY25.
Higher growth in RoW (+10 per cent Q-o-Q) and India (+15 per cent Q-o-Q), alongside manufacturing, suggest growth was led by seasonal uptick in pass-through revenues.
Deal wins in Q3FY25, at $1.68 billion (+12 per cent Y-o-Y), were strong. Q3 is seasonally strong for renewals.
LTIM expects client demand in FY25 to be led by cost-takeout and select high-priority transformation projects.
While management was optimistic about a better FY26, it said political and economic uncertainty persists.
Its deal wins too, though healthy, had a fair share of long-tenured renewals, and were largely cost take-out deals.
LTIM believes its approach of sharing productivity benefits with clients will help it win more business.
Expect FY25 revenue growth to be 5.4 per cent Y-o-Y and 8.4 per cent in FY26, both in dollar terms.
Margin recovery may be slow. The management believes recouping of wage hike impact (-220 bps) could take 2-3 quarters, pushing back hopes of quick margin expansion.
LTIM clocked an EBIT margin of 13.7 per cent in Q3FY25 (-170 bps Q-o-Q) mainly due to salary hikes (two-month impact in Q3FY25).
The management noted that recouping the dip in margin would take a few quarters.
LTIM increased its headcount by 2.8 per cent Q-o-Q, given the high utilisation levels.
LTIM’s medium-term aspiration may hit 17-18 per cent EBIT margin.
Expect EBIT margins of 14.8-15.4 per cent in FY25 and FY26.
margin expectations.
Upside risks could be strong large-sized deal wins and higher-than-expected margin expansion. Valuations are likely to be conservative.
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