Q3FY23 Review: LTIMindtree: Margins below expectations, focus on integration

23 Jan 2023 , 11:02 AM

LTIMindtree’s (LTIM’s) Q3FY23 revenue growth of 1.9% cc QoQ (16.3% cc YoY) was below IIFLe of 3.0% cc QoQ, primarily due to higher–than-usual furloughs. Ebit margin at 13.9% (-360bps QoQ) were also below IIFLe of 15.5%. Growth in Q3 was led by Manufacturing & Resources (+11% QoQ) and BFSI (+6%); while Hi-tech (-4%) was impacted by furloughs and Health & Public Services (-5%) was impacted by completion of certain government projects.

Decline in margins was due to furloughs, higher employee expenses and merger- related costs. LTIM has started reporting their total order inflow, which stood at USD1.25bn, implying a book-to-bill of 1.2x. Management expects sequential growth momentum to accelerate and to recoup a large proportion of the margin decline in Q4. Overall, the merged entity is expected to operate at similar profitability to the erstwhile entities in FY24, with potential 200bps cost and USD1bn of revenue synergies over the next four to five years.

Analysts of IIFL Capital Services, lower EPS estimates by up to 4% and maintain Buy with their 12-month Target Price to Rs 5,150 (from Rs 5,350), based on 24x 2YF EPS. They forecast 14%/22% USD rev/EPS Cagr over FY23-25.