Q4FY23 Review: LTIMindtree: Near-term cautious, medium term positive

28 Apr 2023 , 10:32 AM

LTIMindtree’s (LTIM’s) Q4FY23 revenue growth of 0.7% cc QoQ (13.5% cc YoY) was below IIFL Securities’ estimate of 2.0% cc QoQ, as macro uncertainty resulted in delayed ramp-up of certain projects. At 16.4% (up 250 basis points QoQ), EBIT margin was above IIFL Securities’ estimate of 15.8%. Increase in margins was due to absence of furloughs, lower integration costs and operational efficiencies. 

Order book remained healthy at USD1.35 billion (+8% QoQ), implying a book-to-bill of 1.3 times. Management expects growth in Q1 to remain subdued, on the back of slower decision-making; but is confident of delivering double-digit growth in FY24. Margins are expected to continue to trend higher towards erstwhile entities’ profitability over FY24. Analysts at IIFL Securities have lowered their EPS estimates by up to 3% and their 12-month Target Price to Rs 5,350 (from Rs 5,500), based on 24x 2-year forward EPS, on the back of lower revenue growth expected in FY24. LTIM is trading at 19x FY25 estimated P/E, at a 5% discount to mid-cap IT services peers. Given the cross-selling opportunities, scale benefits and merger related cost synergies, analysts at IIFL Securities believe the multiple can expand over the medium-term. Key risks: Merger integration, Attrition.