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Analyzing Q3 Results in Light of Trump Tariffs & Macroeconomic Challenges LTIM reported in-line Revenue, EBIT & PAT missed estimates.

• Revenue for Q3FY25 came at INR 96.6Bn up 7.1% YoY and 2.4% QoQ (vs consensus est. at INR 96.4Bn). • EBIT for Q3FY25 came at INR 13.2Bn, down 4.1% YoY and 8.9% QoQ (vs consensus est. at INR 13.6Bn). EBIT margin was down 162bps YoY and 170bps QoQ to 13.8% (vs consensus est. at 14.1%).

• PAT for Q3FY25 stood at INR 10.8Bn, down 7.1% YoY and 13.2% QoQ (vs consensus est. at INR 11.4Bn)

LTIM secures record TCV deal worth USD1.68Bn; Caution remains amid potential AI-driven productivity impact on a Hi-tech client:

• LTIM posted strong Q3FY25 with record TCV of USD1.68Bn, a 29% QoQ increase, signalling a solid foundation for future revenue growth. Deal composition focused on cost reduction, productivity, and vendor consolidation, with signs of recovery in short-cycle BFSI deals. Key wins included USD50Mn manufacturing deal, 2 major BFSI contracts, and 17 new logos. AI played a key role in LTIM's success, highlighting its "AI in everything" strategy. Q4FY25 growth looks promising, but caution persists due to potential AI-driven productivity impacts on a Hi-Tech client. While productivity gains are expected to be margin-neutral, the long-term goal is to strengthen client relationships & expand market share. We expect continued growth in Q4FY25 & stronger FY26 than FY25, driven by deal ramp-ups.

• The appointment of Mr. Lambu as CEO is positive development and should provide the company with the growth momentum it needs. We expect that his leadership will help address the top-level attrition that has been a challenge for LTIM

Conservative margin expansion outlook due to higher SG&A investments vs. 17- 18% medium-term guidance: EBIT margin for Q3FY25 came at 13.8%, down 170 bps from 15.5% in Q2FY25, primarily due to wage hikes impacting 220bps. Cost optimization efforts helped improve margins by 50bps sequentially, and favorable forex movements also supported EBIT. Management anticipates margin recovery in Q4FY25, but absorbing wage hikes will take time. LTIM targets EBIT margins of 17%-18% medium-term. However, we maintain a conservative outlook on margin expansion, factoring in higher SG&A investments and a challenging demand environment, projecting 100-150bps below guidance. However, long-term recovery relies on revenue growth, cost optimization, and better utilization for faster improvement. Attrition rates also remains elevated at 14.3%

LTIM faces higher risk than peers as 75% of Its revenue comes from North America(majorly US): LTIM could encounter revenue challenges due to uncertainty over the Fed's interest rate decisions and concerns about a potential US economic slowdown. With 75% of its revenue from North America, reduced IT spending or delayed contract renewals in key sectors may impact growth. Currency volatility also poses margin risks, though easing inflation and stable tariffs could boost demand.

View and Valuation: LTIM’s performance presents a mixed outlook, with margin pressures persisting over the past few quarters, which have hindered overall performance. Challenges in managing AI productivity are impacting the hi-tech client segment, and a conservative margin expansion outlook due to increased SG&A investments further weighs on prospect. Thus, we are lowering our target price to INR5,545 but upgrading our rating to ‘BUY’. This adjustment reflects a reduced PE multiple of 25x (earlier 32.5x), based on FY27E EPS estimate of INR 217.8.

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