LTIMindtree reports drop in quarterly revenue, margin falls further

LTIMindtree Ltd (LTIM), India's sixth-largest IT services firm, reported a drop in quarterly revenue for the first time since the company came into existence in November 2022. Its operating margin, too, fell 50 basis points to 15.7%—down from an initial guidance of 17-18% for FY24, which chief executive Debashis Chatterjee attributed to a decline in revenue from third-party partners.

The software services company’s revenue for the March quarter fell 1.3% sequentially to $1.07 billion, from $1.08 billion in the quarter ended December 2023. The IT company’s full-year revenue came in at $4.29 billion, up 4.4% from $4.11 billion a year ago.

The Mumbai-based IT company posted a net profit of $553.4 million for the financial year ended 31 March, up 1.36% from its $545.7 million FY23 net profit. However, the company’s net profit dropped 5.8% sequentially to $132.4 million for the March quarter.

“We had some higher than usual pass-throughs in Q3. The absence of those pass-throughs definitely meant that we had a lower revenue coming in Q4," said Chatterjee in the post-earnings press conference.

“The ramp-up of some of the large deals we had closed was slower than what we had expected, so slower ramp-ups also impacted the overall revenue,” he added.

Pass-through revenue refers to revenue generated via third-party partners of service providers, which typically helps companies earn extra revenue at lower cost.

After a quarter of no growth, Chatterjee, who took over the top job in November 2022 after transitioning from the erstwhile Mindtree Limited, expected the June quarter to be one where the company revives growth. LTIMindtree did not give a revenue or margin guidance for the next quarter—or for FY25.

On the revenue front, LTIMindtree’s performance was largely in line with analyst estimates for FY24 and the March quarter. A Bloomberg poll of 38 analysts expected LTIM to end FY24 with a net revenue of $4.27 billion. Its quarterly revenue was in line with expectations of 26 analysts polled by Bloomberg, who expected the company to post a Q4 revenue of $1.07 billion.

A Bloomberg poll of 37 analysts expected the IT major to report a net profit of $559.6 million for FY24, and $138.1 million for the final quarter of the previous fiscal. LTIMindtree missed the latter.

The company's operating margin dipped to 15.7% for FY24 and 14.7% for Q4, compared with 16.2% for FY23 and 15.4% in the December quarter owing to “macroeconomic conditions.” LTIMindtree had initially guided for 17-18% operating margin at the start of the year. The company also reports its operating margin in rupee terms.

Going forward, Chatterjee expressed caution. "As we got into the middle of FY24, we realized that some of the assumptions that we had made were not going the way it was because of various macro conditions. We have a robust margin plan, but we want to delay by quite a few quarters and we will again get back to that program as we need to. The plan that we had in terms of executing within a particular timeline that has been deferred by a few quarters," he said.

The results did not please analysts.

“The results were below expectations in terms of revenue and margin. LTIM’s top client account was struggling, which is why the revenue declined. The sluggishness will persist and there will be no reversal of the skeptical demand outlook scenario in the near-term,” said Omkar Tanksale, senior research analyst - IT, Axis Securities.

In comparison, mid-cap peer Persistent Systems Ltd’s revenue grew at a faster clip, both in yearly and quarterly terms. Persistent Systems reported a full year revenue of $1.19 billion, up by 14.5% from FY23 whereas its Q4 revenue came in at $310.9 million, up by 3.4% on a quarterly basis.

Persistent Systems ended FY24 with 23,850 employees, which is almost one-fourth the strength of LTIMindtree, which ended FY24 with 81,650 employees. LTIM’s employee strength declined by 2,896 from 84,546 as of March 2023 which is in line with the trend in large-cap IT companies.

On plans of fresher hiring, Chatterjee said the company aims to hire more than 500 freshers every quarter. 

In terms of geography, North America continues to be the company’s biggest cash cow. The company’s revenue from North America made up 73.8% of its FY24 revenue, or $3.16 billion. In 2023, North America contributed to 72.2% or $2.96 billion of its $4.11 billion revenue.

BFSI, which accounted for 37%, or $1.52 billion of LTIMindtree’s FY23 revenue, marginally increased its share of the revenue pie. The segment now contributes $1.55 billion of LTIMindtree’s $4.29 billion FY24 revenue.

The company’s 'Manufacturing and Resources' vertical grew the fastest in FY24, by 14.6%, compared with FY23. In absolute revenue terms, the industry contributed $793 million in the full-year. The same industry accounted for $694 million of the company’s revenue in FY23.

LTIMindtree was formed after the construction-to-financial services conglomerate L&T group conducted a hostile takeover of Mindtree in 2019, following which it merged its IT company, L&T Infotech, and Mindtree to act as one single company from November 2022.