LTIMindtree jumps 4%, investors cheer higher-than-expected margins

LTIMindtree was trading over 4 percent higher in the early trade on October 19 after the IT services player posted in-line revenue growth in the September quarter on strong deal wins despite a challenging demand environment. The positive commentary from the management buoyed the counter.

LTIMindtree reported revenue of $1,075.5 million, up 5.2 percent from the year-ago period. The growth was driven by strong performance across its major industry verticals and geographies, said analysts.

Profit after tax, however, was down 2.2 percent YoY at Rs 1,162.3 crore.

Despite slipping 70 basis points from the previous quarter, the margin of 16 percent was above estimates.

Also read | LTIMindtree Q2 net profit declines as profit margin contracts

One basis point is one-hundredth of a percentage point.

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Deal flows

The company reported strong deal inflows at $1.3 billion for in the September quarter. Analysts, however, said the fast-growing deal book didn’t translate into growth, with a deteriorating book-to-bill ratio. Cautious client spending and delayed decision-making made the demand sluggish.

“Clients continue to prioritise higher RoI projects, with efficiency and cost takeout deals continuing to gain share,” Emkay Global said.

Management guidance

Despite weak discretionary spending, prevailing uncertainty and anticipated higher-than-usual furloughs in the third quarter, the management is confident of delivering a better performance in the second half of FY24, Motilal Oswal said.

The performance will be backed by a ramp up of deals, sustained momentum in deal activity, expected broad-based recovery and a strong pipeline.

High-single-digit growth in the second half of the financial year looked unlikely due to sluggish execution and an uncertain growth outlook, global brokerage firm Namura said.

Margins

The EBIT margin of 16 percent was a “positive surprise”, brokerages said. EBIT is short for earnings before interest and taxes. LTIMindtree posted the number despite absorbing wage hikes across the entire workforce including promotions.

The margin was affected by “wage hike impact of -200 bps (basis points), operational efficiencies and absence of visa costs of 70 bps and improvement in utilisation of 60 bps,” said Nuvama.

The management remained confident of about 17-18 percent exit EBIT margin for FY24.

One basis point is one-hundredth of a percentage point.

At 10.33 am, the stock was trading at Rs 5,365.10 on the National Stock Exchange, up 4.07 percent from the previous close.

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