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Motilal Oswal Report
LTIMindtree Ltd. posted revenue growth of 0.1% QoQ/8.2% YoY constant currency in Q1 FY24 versus our estimate of 0.5% QoQ. Adjusting for Q4 FY23 pass-through revenue impact, it grew 0.9% QoQ CC.
Growth was led by hi-tech, media and entertainment (+3.2% QoQ) and healthcare (+5.0% QoQ), while banking, financial services and insurance, manufacturing and retail declined QoQ. Ebit margin stood at 16.7%, in line with our estimate.
While LTIMindtree delivered strong order inflow of $1.41 billion in Q1, the management retracted from providing FY24 guidance and acknowledged that double-digit growth seems challenging in FY24. Management commentary mirrored its peers on low demand visibility, pushout of deal scale-up despite strong deal flow momentum, and a shift in new wins toward cost optimisation from discretionary deals seen over the last two years.
The management expects a pick-up in hi-tech to continue for the rest of the year on the back of strong deal wins. While the budgets remain intact, BFSI and retail continue to be impacted by slower decision-making and delayed ramp-ups.
Given the limited visibility on deal starts, we expect LTIMindtree's revenue growth recovery to be gradual, and estimate FY24 U.S. dollar CC revenue growth at 7.3% YoY. We continue to see LTIMindtree as well placed to gain from a healthy mix of cost-takeout deals and transformation spending.
We expect a strong recovery in FY25, with a USD revenue compound annual growth rate of 11% over FY23-25E despite weak macro.
LTIMindtree saw 30 basis points margin improvement in Q1 FY24 (inline), partially due to a lower employee base (down 2.2% QoQ). Utilisation was up 150 bps QoQ (on reclassified base).
The management remained confident about 17-18% exit Ebit margin for FY24 despite wage hikes in Q2 FY24.
We expect the company to deliver Ebit margin at the lower end of its guidance in FY24 at 16.5%, followed by a 140 bps pickup in FY25 to 17.9%. This should help LTIMindtree clock a profit after tax CAGR of 16.1% over FY23-25E.
Our target price of Rs 4,700 implies 23 times FY25E earnings per share. We maintain our 'Neutral' rating.
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