Buy LTIMindtree Ltd For Target Rs.7,585 - Yes Securities Ltd
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Inline operating performance; Expects growth to bounce back
Result Synopsis
LTIMindtree (LTIM) reported inline financial performance for the quarter. Both, the revenue growth and EBIT margin were as per expectation. It reported constant currency growth of 0.7% QoQ, led by Manufacturing vertical (up 20.1% YoY); BFSI vertical (down 1.4% YoY). On reported basis, revenue grew by 1.2% QoQ in INR terms (up 0.8% QoQ in USD terms). There was sequential decline in EBIT margin (down 61 bps QoQ) led by impact of increase in SG&A expenses. Employee attrition continues to moderate as LTM attrition decreased by 100 bps QoQ to 14.2%.
The near term demand environment remains challenging as the clients remain cautious regarding the evolving macroeconomic situation and are taking more time for decision making, thus resulting in slowdown in discretionary IT investments. This continues to impact near term revenue performance. We expect revenue growth to pick up from Q4FY24 led by robust deal booking and strong deal pipeline. Employee attrition is expected to come down going ahead and should support operating margin. We estimate revenue CAGR of 16.4% over FY23?26E with average EBIT margin of 17.4%. We maintain our BUY rating on the stock with revised target price of Rs 7,585/share at 31.0x on FY26E EPS. The stock trades at PER of 29.6x/25.7x on FY25E/FY256 EPS.
Result Highlights
* Reported revenue of Rs 90.2bn (up 1.2% QoQ in INR terms; up 0.8% QoQ in USD terms). The growth was led by Manufacturing vertical (up 20.1% YoY); BFSI (down 1.4% YoY). Retail, CPG, Travel and Hospitality stood strong for the quarter (up 1.0% QoQ). The cc growth was 0.7% QoQ.
* EBIT margin decreased by 61 bps QoQ to 15.4%, led by increase in SG&A Expenses (up 24.5% QoQ).
* Reported healthy order inflow of $1.5bn for the quarter ($1.3bn in Q2FY24).
* Added 23 new clients compared to 30 new clients added in Q2FY24.
* Number of employees was down 1,061 QoQ to 82,471; LTM attrition was down 100 bps QoQ to 14.2%.
* Utilization (excluding trainees) was up 80 bps QoQ to 87.4%. Offshore effort mix decreased QoQ at 85.0%.
* DSO decreased by 6 days QoQ to 62 days.
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