LTIMindtree Q1 Preview: Profit growth seen better than peers; FY24 guidance key

Sequentially, the software services exporter’s performance is likely to be muted, similar to its peers given the slowdown in technology spending amid a tough global economic environment.

The company, which recently joined the Nifty club, is seen reporting a nearly 1% sequential rise in consolidated net revenue for the quarter to Rs 8,757 crore, according to the average of estimates given by 13 brokerages.

However, the net profit growth will be much better than its peers given a better operational performance. The bottomline is seen rising 6.5% to Rs 1,186.40 crore.

On a YoY basis, the profit is seen rising 87% and sales a whopping 94%.

The city-based company will detail its quarterly earnings on Monday.

In terms of verticals, BFSI was weak for IT majors such as Tata Consultancy Services, Wipro, and HCL Technologies, and analysts expect it to be the same for LTIMindtree. The BFSI vertical made for more than one-third of LTIMindtree’s revenue in the March quarter.

After clocking deals worth $1.4 billion in the March quarter, it will be interesting to see the numbers for the June quarter.

Dalal Street investors will also closely track the company’s guidance for FY24. The company had guided for industry-leading double-digit growth in earnings for the current financial year.

Here is a summary of brokerage’s earnings expectations from India’s fifth largest IT company:

HSBC Securities
We expect revenues to be flat QoQ in constant currency terms. While there are green shoots in LTIMindtree’s hi-tech portfolio, BFSI remains weak in Q1.

We estimate margins to be mostly flat with a slight positive bias; cost optimisation and lower M&A expenses are tailwinds, though lower volumes could hinder meaningful margin recovery in the quarter.

JM Financial
We expect 0.6% constant currency revenue growth. Hi-tech vertical will show marginal growth off a low base after two quarters of decline.

However, BFSI could remain sluggish as large banks continue to tighten belts. EBIT margin will show marginal improvement as no wage hike will help.

Nirmal Bang Equities
We expect constant currency revenue to fall 1% QoQ in the second full quarter for LTIM after the merger was completed on 14th November, 2022. LTIM itself had indicated a softer start to FY24 and expected a pickup after 1 or 2 quarters.

However, its double-digit revenue growth guidance implies a very strong pick up starting 2QFY24, which we believe is highly unlikely. We think it would revise its revenue growth guidance lower.

We expect EBIT margin to contract by 40 bps QoQ, largely driven by lack of operating leverage and possibly higher costs on travel and facilities. With the macro environment in a difficult phase operational synergies from the merger may take longer to be seen.

TCV number for Q4 was$1.35 billion after$1.25 billion in 3QFY23. We will want to keep a close eye on this number for 1QFY24.

LTIM did indicate it is getting some advantage from vendor consolidation and the order book has many of these deals. Client mining is another area that we will closely watch.

Kotak Equities
We expect sequential growth of 2.3% in constant currency, driven by LTI’s portfolio of business. Mindtree’s portfolio of business has high exposure to impacted verticals of retail and hi-tech, which will be under pressure.

Revenue growth on a YoY basis is at a reasonably healthy 12.5%. We expect 230 bps sequential margin improvement due to absence of one-time merger costs and furloughs. Note that margin will still decline by 180 bps on YoY basis, attributable to investments in people for future growth.

We do not expect the departure of Venu Lambu, ex-co-head of sales, at the beginning of the quarter to impact the deal win momentum.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)