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Revenue growth recovers; BFSI commentary turns positive

LTIMindtree reported a mixed performance in Q1FY25; revenue growth of 2.5% QoQ (2.6% cc) was higher than our estimate. After a weak couple of quarters, ramp up of the recently won deals and investments in high-priority transformation programs aided in revenue growth pickup in Q1. EBITM expanded by 30bps QoQ to 15%, but fell slightly short of our estimate. Order inflow was stable at US$1.4bn (book-to-bill: ~1.3x) in Q1, whereas TTM dealwins of US$5.6bn was up 10% YoY. The management highlighted that while the overall demand environment remains largely unchanged, there are some green shoots of recovery, particularly in the BFSI and CMT verticals. Even as cost takeout and vendor consolidation deals remain dominant, they are seeing some recovery in high-priority transformation project spending which gives confidence on growth momentum continuing in Q2 as well. We largely retain FY25-27E EPS (less than 0.5% change). We maintain REDUCE on LTIM with a TP of Rs5,250/share at 25x Jun-26E EPS.

Results Summary

Revenue grew 2.5% QoQ (2.6% in CC terms) to US$1,096mn, slightly above our estimate of US$1,091mn. EBIT margin expanded by 30bps QoQ to 15%, but fell short of our estimate of 15.2%. Margin expansion was aided by absence of the projectcancellation impact and operating efficiencies (100bps) and partially offset by higher visa costs (-50bps) and higher SG&A expenses. Top-5 clients grew 4.3% QoQ, adding almost half of the sequential revenue addition in Q1. Among verticals, growth was driven by CMT (7.9% QoQ), BFSI (2.9%, returned to growth after four quarters of decline), and Manufacturing and Resources (1.8%). Healthcare, Lifesciences and Public Services saw a sharp decline of 7.9% QoQ, whereas Consumer Business declined 1.4%. North America saw strong growth of 4.4% QoQ, followed by 1% growth in Europe. ROW declined 7.4%. TTM attrition was flat QoQ at 14.4%. Total headcount saw marginal growth of 0.3% QoQ to 81,934. Utilization (excluding trainees) jumped up by 140bps QoQ/350bps YoY to 88.3%. What we liked: Steady operating performance, growth in top-5 clients, BFSI’s return to growth in Q1; growth momentum likely to sustain through FY25. What we did not like: Slow progress on EBITM trajectory, weakness in top 6-10 clients (-1.8% QoQ).

Earnings Call KTAs

i) The top-3 verticals (BFSI, Manufacturing, and CMT combined: ~80% of revenue) and the largest geography (US) have performed well sequentially. This is attributed to a measured uptick in IT spending for critical initiatives, with clients balancing innovation and fiscal prudence. ii) Deal intake continues to be driven by cost takeout and vendor consolidation programs. Further, it is witnessing AI-play and AI-driven re-imagination across deals. iii) BFS customers are starting to scale up high-priority programs, some of which were paused during last year. Regulatory compliance continues to be a key spend area, followed by data plus AI, consumer experience, and vendor consolidation. iv) Growth is driven by business model transformation and platform operations in CMT. Tech and Services is seeing broad-based growth. v) Manufacturing clients continue to focus on areas of ERP transformation, data modernization, and Industry 4.0. vi) A number of customers are progressing from the PoC stage and looking to deploy AI use-cases across the enterprise. vii) Wage hike is expected in Q3. Revenue growth, pyramid optimization, and tightening discretionary spending remain the key margin levers. viii) The company on-boarded 1,400 freshers in Q1, clearing the backlog. Hiring momentum is likely to pick up in Q2, considering anticipated growth and elevated utilization level.

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