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Aiming to sustain industry-leading profitable growth

* At its analyst meet, LTIMindtree (LTIM) unveiled its ‘LTIM One’ strategy aimed at enabling it to realize full potential of the merger by driving a unified culture, GTM, and capability & experience across the organization, and delivering sustainable profitable growth.

* The company targets achieving USD1bn revenue synergies and delivering industryleading, consistent profitable growth by leveraging the expanded growth opportunities presented by its diversified vertical, cross-sell/upsell opportunities, partnership-led sales engine, LTIM One strategy and best-in class IP portfolio.

* The company expects Q4FY23 EBITM to expand by ~200bps QoQ, on the back of reduced impact of merger-related costs and furloughs. It plans to quickly retrace the normalized EBITM range of 17-18% and further scale it up by 200bps by FY27, via delivering cost synergies, SG&A leverage and operational efficiency.

* We remain positive on the medium-to-long term growth prospects of LTIM, but current valuations offer a limited upside and near-term growth moderation, due to softness in Hightech & Retail as well as macro uncertainties. We roll forward our TP to Mar-25E EPS and maintain HOLD with a TP of Rs4,850/share (earlier Rs4,600) at 23x its Mar-25E EPS.

Merger expands LTIM’s growth opportunities: LTIM aims to simplify, unify and provide clarity to stakeholders in these paradoxical times. It provided an update on its GTM, wherein it has made no change in client interfaces, but integrated a pre-sales and large-deals team, and fully aligned its global service line sales to the vertical and geo units. Management emphasized on its unified capabilities of Cloud (dedicated business units around each hyperscaler – Azure, AWS, GCP), Salesforce, Industry 4.0, Interactive, ERP, AI & Data, and Security. LTIM aims to realize USD1bn revenue synergies and deliver industry-leading, consistent profitable growth, supported by its resilient blue-chip account portfolio (includes 95 F500 clients), its large base account presenting cross-sell & upsell opportunities (average cross service index per account is 3, which it plans to scale up to 5), large deals pipeline (68 large deals of >USD20mn; TCV: USD3.18bn), strong alliances & partnerships, and new-logo addition. Company highlighted that 55% of its current revenue is derived from the areas of Experience, Data, Cloud and Cyber, which are almost unaffected by the macro conditions. While Management remains watchful of the elongating sales cycle and client cautiousness, it is confident about the medium-term prospects of the industry, as the secular tech spend cycle unfolds. The company has clarified that it has negligible exposure to SVB and that it has taken proactive steps to successfully mitigate any risk from balances carried with SVB as its bank.

Aspires reaching 19-20% EBITM by FY27: LTIM expects ~200bps expansion QoQ in Q4, backed by reduced impact of merger-related costs & furloughs. It plans returning to the normalized EBITM range of 17-18% soon, and further scaling up by 200bps by FY27, by bending the cost curves (scale advantage across capabilities, pyramid), SG&A leverage and driving efficiency in operations through disciplined execution (right-role-right-pricing, improving bench utilization, subcontracting costs optimization). As part of its capital allocation framework, LTIM plans to make the necessary organic & inorganic investments, steadily grow dividend per share, and deliver ROCE of >40%.

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