LTIMindtree slides 3.5% as earnings lag estimates, management stays cautious

A sluggish demand environment has prompted LTIMIndtree’s management to change its growth guidance from ‘double-digit growth’ in FY24 to being in ‘leaders’ in the quadrant.

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Shares of LTIMindtree fell 3.5 percent in early trade on July 18 after the company reported lower-than-expected earnings for the June quarter and a cautious growth outlook from the management dented investor sentiment.

The recent entrant to the Nifty 50 reported a consolidated net profit of Rs 1,151.5 crore in the first quarter of FY24, marking a 4 percent increase from Rs 1,106 crore a year ago. Sequentially, the bottomline was up a little over 3 percent.

Revenue for the quarter jumped 14 percent on-year to Rs 8,702 crore, while it stayed flat sequentially. However, the topline as well as bottomline marginally missed the Street estimates of Rs 8,751 crore and Rs 1,209 crore.

The company’s EBITDA margin dropped to 18.8 percent from 19.5 percent in Q1FY23. Moreover, LTIMindree recorded total deal wins worth $1.41 billion in the quarter under review, while it also added 19 more clients to take the overall client count to 723.

At 9.21am, shares of LTIMindtree were trading 3.5 percent lower at Rs 4.960.30 on the National Stock Exchange.

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After the Q1 earnings, the management retracted from providing the FY24 guidance and acknowledged that double-digit growth seems challenging this fiscal. This commentary weighed on the stock.

Brokerage firm Citi also took notice of the change in management commentary to a more cautious one as it assigned a ‘sell’ call for the stock, with a price target of Rs 4,160. The firm also highlighted that delays in ramp-ups and hiring freeze in BFSI clients impacted the company’s growth in Q1.

Also Read: LTIMindtree Q1 Results: Net profit up 4% at Rs 1,152 crore, revenue jumps 14%

Morgan Stanley also feels that the cautious management commentary hints towards continued softness in demand based on client conversations. The firm also attributed longer ramp-up schedules and continued caution as factors behind the guidance pullback. Despite that, the brokerage house retained its ‘overweight’ stance on the stock along with a price target of Rs 5,450.

Aligned with the consensus view, JP Morgan also believes that the company continues to see delays in deal closures and conversions. As a result, LTIMindtree has revised its margin targets downwards to 17-18 percent by the end of the current fiscal. JPMorgan has an ‘underweight’ rating for the IT services company with a price target of Rs 3,800.

Nomura also cut its FY24-25 EPS estimates for LTIMindtree by 2 percent each to factor in the subdued Q1 earnings. The brokerage has a ‘reduce’ rating on the information technology major with a price target of Rs 3,940. The firm also feels that it is unlikely for the company to achieve double-digit growth in FY24 given the sluggishness in execution.

Contrary to the consensus, domestic brokerage Nuvama Institutional Equities maintains a rather positive stance on LTIMindtree. The firm expects growth to bounce back in FY25 for the entire sector led by a sustainable strong demand. On that account, the brokerage retains LTIMindtree as its top pick, as it believes the size and complementary
business profiles of LTI & Mindtree shall aid the merged entity outperform peers over the next three–four years. Nuvama has a ‘buy’ call for the stock with a bullish target price of Rs 6,300.

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