Add LTM Ltd for the Target Rs 4,450 by Emkay Global Financial Services Ltd
LTM posted a mixed 2Q performance. Revenue grew 1% qoq to $1.2bn (1.1% CC), in line with our estimate, partly hit by softness in ME business (growth hit by 0.6-0.7%). EBITM expanded by 10bps qoq to 15.6%, below our estimate. Deal wins remained softer, with TCV of $1.26bn (book-to-bill: ~1.0x) and TTM TCV down 2.8% yoy to $6.3bn. Management remains unperturbed by the lower intake and indicated that focus remains on scaling AI revenue while aligning incentive structure to drive AI-native deals. Order inflow reflects growing proportion of AI centric deals, which are short-tenured, have faster revenue realization, and are iterative. AI revenue reached quarterly run rate of ~$165mn (13.4% of revenue; up >10% qoq). Gross margins on AI work are better than traditional services’, but the benefit is being reinvested in building capabilities and LTM expects it to flow into overall company margins over time. LTM expects growth to accelerate in 2H and targets FY27 growth and margins broadly in line with those in FY26 on a consolidated basis. It remains confident of FY28 growth acceleration, driven by AI-led deal ramp-ups, BFSI recovery, improving demand across core segments, and completion of the Randstad acquisition. Factoring in 2Q performance and higher forex losses, we cut FY27E EPS by 6.4%, while keeping FY28-29E EPS largely unchanged. We retain ADD and raise TP by ~2% to Rs4,450 (from Rs4,350), at 18x Sep-28E EPS.
Results summary
Revenue grew 1% qoq to $1,235mn (1.1% CC), in line with our expectation of 1.1% CC. EBITM expanded by 10bps qoq to 15.6%, below our estimate of 15.8%. Net profit declined by 4.7% qoq to ~Rs14bn, largely due to a one-off gain of Rs1.4bn in 1Q and was below our estimate. Revenue from top-5/10 clients declined 1.6%/0.9% qoq. Headcount was up 1.1% qoq to 88,835. Utilization (ex-trainees) was flat qoq at 86.4%. The company declared an interim dividend of Rs25/share. What we like: Acceleration in Financial Services, client addition in $100mn+ category. What we do not like: Margin miss, softness in Tech and Services, weak cash conversion (26% OCF/EBITDA)
Ex-Tech and Services and RoW, growth across verticals and geographies
Growth was led by Production (3.7% qoq CC), Financial Services (3.1%), and Consumer (0.3%), and partially offset by decline in Tech and Services (-4.0%). Across geographies, North America led growth (1.5% qoq CC) along with Europe (1.0%), offset by a decline in RoW (-1.4%). LTM added a $100mn+ BFS account, which scaled to this threshold at the fastest pace in the company’s history
AI deals drive faster revenue conversion and follow-on opportunities
AI-led deals are typically of short tenures (6–12M), enabling faster revenue conversion as these often begin with prototypes built on existing assets, bypassing the lengthy transition phase associated with traditional outsourcing deals. These initial engagements can then expand into larger, downstream opportunities across data modernization, application remediation, automation, and business process transformation, creating a broader and more sustained revenue opportunity.
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