LTIMindtree shares tank 13% on weak December quarter performance

LTIMindtree shares fall: LTIMindtree faced a challenging third quarter with a disappointing 0.7 per cent quarter-on-quarter (QoQ)/3.1 per cent year-on-year (YoY) revenue growth, falling short of the estimated 1.2 per cent QoQ constant currency (CC), analysts said.

Notably, shares of LTIMindtree plummeted as much as 13.40 per cent to hit an intraday low of Rs 5,436 per share on Thursday.

The lacklustre performance was attributed to higher-than-expected furloughs and a continued slowdown in discretionary spending. Despite these challenges, the company secured strong deal wins at $1.5 billion, up 15 per cent QoQ/20 per cent YoY, indicating a divergence between short-term growth concerns and medium-term potential.

The Q3 Earnings before interest, taxes (EBIT) margin declined 60 basis point (bp) QoQ to 15.4 per cent, missing estimates by 40 bp. The decline was influenced by higher furloughs and pass-through revenues, despite a reduction in the workforce. 

Notably, attrition moderated to 14.2 per cent, and utilisation improved to 87.4 per cent. However, the management's indication of a delay in achieving over 17 per cent EBIT margin by Q4FY24 raises concerns about the company's margin recovery cycle and the extent of further cost optimisation, brokerage firm Motilal oswal said in a note.

Strong deal flows

Despite facing challenges in the near term, the Bengaluru-based company demonstrated resilience with strong deal flows. The decision to defer the aspirational margin band suggests limited room for additional cost optimisation, and the impact of a large deal scaling up in the short term. 

The company is anticipated to grow at a sub-10 per cent rate YoY in financial year 2025 (FY25), resulting in a 9.7 per cent Compound Annual Growth Rate (CAGR) over financial year 2023-financial year 2026 estimate (FY23-26E), the brokerage firm said.

While uncertainties in discretionary spending and the deferred margin band contribute to a cautious outlook, the company's weak performance is counterbalanced by its resilience in securing strong deal wins.

The company's revenue stood at $1.08 billion, registering a 0.7 per cent QoQ CC growth, below analysts' estimate of 1.2 per cent QoQ CC. The growth was driven by the Manufacturing & Resources vertical, while the BFSI, Hi-Tech, Media & Entertainment, and Retail segments experienced weakness.

The challenging macro environment has intensified, leading clients to exercise caution, slowing decision-making processes, and delaying deal-closure activities. 

Discretionary spending across LTI's client base has decreased, requiring time for recovery. The company expects a gradual growth recovery in Q4, with a pipeline of deals predominantly focussed on cost optimisation and efficiency, which typically take longer to achieve full potential than transformation deals.

While LTIMindtree faces uncertainties in the near term, the management's positive outlook on the deal pipeline and its focus on cost-optimisation deals underscore a potential divergence between short-term challenges and long-term growth prospects.

Motilal Oswal reiterates its ‘Neutral’ rating with a target price (TP) of Rs 6,600.

As of 11:04 am, shares of LTIMindtree were trading 10.49 per cent lower at Rs 5,619 per share.