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Steady quarter; deal wins to unlock growth

LTIM reported a mostly in-line operating performance in Q1. Revenue grew 2% QoQ to USD1,153.3mn (0.8% cc), meeting our expectations. Revenue growth was broad-based across verticals, led by Consumer, Healthcare, Life Sciences & Public services, and BFSI. EBITM expanded by 50bps QoQ to 14.3% on the back of savings from the Fit4Future program (100bps), negating the seasonal visa cost and forex headwinds. Deal wins remained strong, with TCV of USD1.6bn (book-to-bill: ~1.4x), and marking the third consecutive quarter with order inflow exceeding USD1.5bn. The management continues to see demand opportunities in cost-saving initiatives, vendor consolidation, and tech modernization, amid the uncertain macro environment. The management is confident of the revenue growth momentum sustaining in Q2, backed by deal booking and robust pipeline as well as margin improvement aided by the Fit4Future program. We tweak FY26-28E EPS by 0-1%, considering the Q1 performance. We retain ADD on LTIM and TP of Rs5,400, at 26x Jun-27E EPS.

Results Summary

Revenue increased 2.0% QoQ (0.8% cc) to USD1.15bn, in line with our estimates. EBITM expanded by 50bps QoQ to 14.3%, also meeting our expectations, of 14.4%. This improvement was primarily driven by the Fit4Future cost optimization program, which contributed ~1% improvement; this was partially offset by the seasonal visa cost and forex impact. The top-5 and #6-10 clients grew 0.5% and 8.2% QoQ, respectively. North America and Europe saw growth of 1.8% and 9.7% QoQ, respectively, in USD terms, while RoW declined 6.0%. Growth was broad-based across verticals – Consumer (up 6.2% QoQ), HLS (4.8%), BFSI (1.6%), Tech, Media & Communications (0.8%), and Manufacturing & Resources (0.3%). TTM attrition was flat QoQ at 14.4%. Total headcount saw a marginal decline of 0.5% QoQ to 83,889. Utilization (excl trainees) was up by 230bps QoQ and down by 20bps YoY to 88.1%. What we liked: Broad-based revenue growth, healthy deal intake. What we did not like: Weak cash conversion (OCF/EBITDA: 63%), weakness in Tech segment margin.

Earnings Call KTAs

1) While the macroeconomic environment remains challenging, the company is confident of a good performance on the back of disciplined execution and unwavering client focus. 2) Key transformation initiatives driving the growth momentum include focused sales transformation to improve large deal-win rates, the Fit4Future program aimed at rebaselining costs and enhancing agility, and a strategic pivot toward becoming an AIcentric organization. 3) BFS clients are still cautious in terms of spends, due to the uncertain macro environment. Management focus is on accounts with high-growth potential. 4) Growth in the Consumer vertical was driven by large-deal ramp ups. The travel and transport sub-segments saw a decent uptick in demand…(contd)…

…(contd)…5) The Manufacturing and Resources segment grew sequentially on the back of large-deal ramp ups negating headwinds from pass-through seasonality. Segment margin, though, was impacted by ramp-up of a few large deals, with improvement expected as these stabilize. 6) In the HLS vertical, margins declined due to cyclical volume drops, although they are likely to recover with improvement in volume and revenue. Further, the completion of a public services project also weighed on margins. 7) Current utilization at 88.1% is higher than preferred, due to deal wrap-ups and strong momentum; however, the company aims to slightly reduce it over time (in a comfortable range of 86-87%), to better align capacity with the incoming demand and to maximize the revenue potential. 8) NextEra, the company’s JV in Saudi Arabia with Aramco Digital, became fully operational this quarter. 9) LTIM onboarded ~1,600 freshers in Q1. 10) SG&A expenses increased in Q1 vs Q4, due to seasonal factors like marketing events and related travel costs, along with lower recoveries from doubtful debts versus previous quarter. 11) ETR for Q1 was 27.3% (vs 26.2% in Q4) due to a one-off tax impact on the repatriation of some capital from one of the subsidiaries.

Update on AI/Gen AI

i) LTIM launched BlueVerse, an Agentic AI ecosystem, which includes AI Advisory for accelerating innovation, AI Foundry for building solutions, and an agent marketplace with >300 industry and function-specific AI agents. ii) LTIM has also launched GCC-as-a-service, an AI-powered industry offering that provides modular, unit-based framework for clients to establish, optimize, and scale their capability centers effectively. iii) The company is extensively implementing AI internally across multiple functions and service lines, with 62 initiatives spanning seven product lines and nine business processes. iv) It delivers measurable outcomes with AI and GenAI, such as 25% improvement in the mean time to resolution for a manufacturing company, and 80% reduction in complex logic writing time for a financial services firm, among others.

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