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A weak quarter, but reset in progress

All eyes now on new management for turnaround

* LTIMindtree (LTIM) reported 4QFY25 revenue of USD1.1b, down 0.6% QoQ CC and below our estimate of flat QoQ CC. FY25 revenue stood at USD4.5b, up 5.0% YoY CC. 4Q EBIT margin at 13.8% was in line with our estimate of 13.8%. 4Q PAT stood at INR11.2b, up 3.9% QoQ/2.5% YoY and slightly below our estimate of INR12b. FY25 revenue grew 7.0% YoY, EBIT declined 1.2%, and PAT remained largely flat in INR terms. In 1QFY26, we expect revenue/EBIT/PAT to grow 8.3%/15.2%/7.3% YoY. We value LTIM at 26x FY27E EPS and our revised TP of INR5,150 implies a 14% upside potential.

Our view: Awaiting a concrete turnaround plan for growth and margins

? Microsoft productivity gain episode now done, but macro uncertainty could limit growth upside in FY26: There is no overhang of the Microsoft productivity pass-through beyond 4Q; however, we believe FY26 could be a year of mediocre growth. We expect LTIM to report ~5% CC growth in FY26E.

? A new cost-saving initiative, however we await concrete margin expansion direction: LTIM has launched its “Fit for Future” initiative to drive cost efficiency and improve profitability, starting in 1QFY26. This includes reassessing direct and indirect costs, optimizing delivery and sales structures, and continuing pyramid correction efforts. Though these steps align well with client demand for cost savings and modernization, management has not provided a tighter guidance range or timeline, which makes the margin expansion trajectory a tad vague, in our view.

? Long way to go; cut target multiple: We believe the new management has their task cut out, and the added macro uncertainty pushes back the prospect of a double-digit growth rate as well as normalized EBIT margins beyond FY27. We cut our target multiple by ~10%. A successful turnaround could lead to re-rating, and the current price offers valuation comfort. We thus maintain a BUY rating.

Miss on revenues and in-line margins (miss on consensus); deal TCV down ~5% QoQ

Revenue stood at USD1.1b, down 0.6% QoQ CC and below our estimate of flat QoQ CC. Reported USD revenue was down 0.7% QoQ/up 5.8% YoY. For FY25, revenue stood at USD4.5b, up 5.0% YoY CC.

* Manufacturing & Resources grew 2.3% QoQ and BFSI was up 1.2% QoQ. HiTech was down 1.5% QoQ, while Retail/Life Sciences declined 2.4%/14.0% QoQ.

* EBIT margin at 13.8% was in line with our estimate of 13.8%. For FY25, EBIT margin stood at 14.5% vs. 15.7% in FY24.

* Employee metrics: Software headcount declined by ~2,560 (-3.1% QoQ), utilization inched up 40bp QoQ to 85.8%, and attrition was up 10bp QoQ at 14.4%.

* PAT came in at INR11.2b, up 3.9% QoQ/2.5% YoY and slightly below our estimate of INR12b. FY25 PAT stood at INR46b, flat YoY.

* Order inflows stood at USD1.6b, down ~4.7% QoQ. FY25 order book stood at USD6b.

* The company declared a final dividend of INR45/share for FY25.

Key highlights from the management commentary

* FY25 was a year of consolidation; discretionary spending remained muted in 4Q.

* 2H momentum slowed due to ongoing macro uncertainty, which persisted in 4Q.

* Strategic initiatives for FY26: 1) Sales Transformation – Realignment of service lines and sales structure to target a broader portion of client spend via the AI economy. 2) Robust GTM – Focus on multi-service, multi-delivery, and multigeography models. 3) Fit for Future – Drive agility and profitability by reassessing direct/indirect costs, improving efficiency across sales and delivery. Margin improvement is expected to start in 1QFY26.

* Clients were largely in "wait-and-watch" mode during 4Q, but they are opening up now for conversations.

* LTIM is adjusting its portfolio from a higher discretionary mix to longer-term efficiency programs. Some closed deals failed to ramp up as planned; certain 4Q deals got delayed.

* Technology, Media, and Communications: Productivity gains delivered to the top client in 3Q and 4Q. No pricing reset has happened and no future impact is expected on pass-backs.

* Consumer: There were some client-specific issues in the Travel, Transport & Hospitality portfolios. Those clients are now planning new initiatives. No material impact observed from tariff-related changes.

* Headcount was ramped up in 2Q/3Q in anticipation of 4Q deal execution, which did not materialize, leading to a drop in headcount.

Valuation and view

* We maintain our BUY rating on LTIM, supported by its capabilities in data engineering and ERP modernization. The current stock price also offers attractive valuation comfort. While our FY26 estimates remain largely unchanged, we lower our FY27 EPS estimate by ~5% to account for the current macroeconomic headwinds. We now value LTIM at 26x FY27E EPS (earlier 30x), leading to a revised TP of INR 5,150, implying a 14% upside from the current level.

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