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

28 Apr 2023 , 10:28 AM

LTIMindtree’s (LTIM’s) Q4FY23 revenue growth of 0.7% cc QoQ (13.5% cc YoY) was below IIFL Capital Services’ 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 Capital Services’ 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 Capital Services 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 Capital Services believe the multiple can expand over the medium-term. Key risks: Merger integration, Attrition.