BackAmid macro uncertainties, LTIMindtree's growth plan fails to cheer investors
In Q4, margins are expected to see a sharp sequential uptick of 200 basis points and the management expects to revert to normalised Ebit margin range of 17-18% in the next few quarters
PremiumIT services provider LTIMindree Ltd (LTIM) at its first investor day meet after the merger outlined its growth strategies under the LTIM One plan. Among the key highlights was the management’s endeavour to consistently deliver industry leading profitable growth. LTIM eyes $1 billion in revenue synergies over the next four–five years.
Secondly, LTIM expects Ebit margin to reach 19–20% by FY27. Ebit is earnings before interest and tax. Better utilisation, improved operating efficiencies and SG&A leverage would aid margin expansion. Remember in Q3FY23, the company’s Ebit margin took a knock due to furloughs and one-off integration costs. In Q4, margins are expected to see a sharp sequential uptick of 200 basis points and the management expects to revert to normalised Ebit margin range of 17-18% in the next few quarters. One basis point is 0.01%.
Further, its large deal pipeline continues to remain robust with 68 large deals worth a total contract value of $3.2 billion. According to analysts at Antique Stock Broking Ltd, following the merger, the company is now in a better position to be invited for large deals and absorb ramp-up costs.
However, as things stand, against the current backdrop of weak global macros, investors don’t seem too excited about the company’s plans. On Wednesday, the stock traded flat at ₹4,599 apiece on the National Stock Exchange. According to the LTIM management, while there has been a delay in decision making by clients, there have been no cut in technology-related spends.
The management also clarified that it has insignificant exposure to crisis-hit Silicon Valley Bank and overall, exposure to US regional banks is negligible. Overall, the LTIM management remains upbeat on the outlook of BFSI, in spite of the ongoing uncertainty.
Nonetheless, the stocks’ valuation is rich with an FY24 price-to-earnings multiple of around 26 times. “We remain positive on the medium-to-long term growth prospects of LTIM, but current valuations offer a limited upside and near-term growth moderation, due to softness in Hightech & Retail as well as macro uncertainties," said analysts at Emkay Global Financial Services Ltd.
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