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Dolat Capital Report
LTIMindtree Ltd. reported constant currency revenue growth of 0.1% QoQ (our estimate: 2%), impacted due to delay in deal ramp-ups in banking, financial services and insurance and retail. Operating profit margin expanded by 30 basis points QoQ to 16.7% (our estimate: 16.4%) led by operating efficiencies part offset by visa cost.
Management highlighted that Q1 performance is broadly inline but some of the spend freeze actions in BFS client continues to extend into Q2 and thus would mean LTIMindtree would miss the double digit growth in FY24.
Given slip in Q1 growth and lower revenue conversion visibility outlook (our estimate: 8% CC in FY24), we believe the current valuations are bit stretched.
What to expect next quarter
We expect 2% QoQ growth in Q2 FY24 owing to ramp ups in deals of hi-tech vertical. Expect operating profit margin to expand by 6 bps QoQ (wage hikes not baked into estimates for Q2 – may impact OPM by another 150 bps in case it is effective entire Q2) offset by operating efficiencies.
We believe ramp-up if deal wins to remain muted for another one-two quarters thus impacting overall FY24 growth.
Valuation
We believe that LTIMindtree’s financial performance got affected due to delays in ramp-ups and hiring freeze of BFSI clients, and expect it to deliver mid-single digit growth in FY24.
However, as growth moderates, valuation may moderate further. We currently value LTIMindtree at 24 times on FY25E Earnings of Rs 163.7 with target price of Rs 4,380 per share (implies price/earnings-to-growth of two times; earlier 22 times and maintain 'Sell' rating on the stock.
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