LTIMindtree tanks 14% as Q3 earnings miss estimates, brokerages predict more pain

Despite achieving its highest ever quarterly deal pipeline in Q3, the management of LTIMindtree expects a challenging macroeconomic environment and delays in client decision making to remain a drag on its performance in Q4 as well.

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Shares of LTIMindtree plummeted 14 percent in the early trade on January 18, a day after the company released its Q3 earnings which missed the Street’s estimates on all major fronts. In addition, weak management commentary triggered a cautious outlook from brokerages that anticipate more pain for the IT major in Q4.

At 9.44 am, shares of LTIMindtree were trading at Rs 5,569.20 on the NSE. Volumes in the counter were also shot up as 9 lakh shares changed hands so far, significantly more than the one-month daily traded average of 4 lakh shares.

The company’s net profit increased 0.6 percent sequentially to Rs 1,169 crore in Q3, while revenue rose 1.2 percent on-quarter to Rs 9,016 crore. Operating margin also contracted to 15.4 percent in Q3 as against 16 percent last quarter on account of high furloughs and low discretionary spends.

The company’s net profit, revenue as well as operating margins missed Moneycontrol estimates.

However, the company managed to record its highest-ever quarterly deal pipeline at $1.5 billion in Q3, despite facing higher levels of seasonality and higher than expected furloughs.

Regardless, the management sounded caution, hinting at an overall weak environment to continue in Q4 as well. “Against a continued background of challenging macroeconomic environment and delays in client decision making, we expect Q4 performance to remain similar to the current quarter,” Debashis Chatterjee, CEO of LTIMindtree, stated during the company’s earnings conference.

Taking the cautious management commentary into account, brokerage firm Nomura sees no signs of a significant demand revival yet for LTIMindtree. The firm has a ‘reduce’ call on the stock with a price target of Rs 4,600.

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The company also delayed its ambition to achieve 17-18 percent operating margin by a few quarters on account of hiring.

This did not sit well with brokerages as HSBC feels LTIMindtree’s worsened Q4 outlook and a pullback on its margin ambitions suggests medium-term portfolio headwinds. The brokerage also cut its price target on the stock to Rs 5,160 to factor in lower growth and margins, however, it retained its ‘hold’ rating.

Brokerage firm Nuvama Institutional Equities also lowered its price target for LTIMindtree by 5 percent to Rs 7,000 but maintained the ‘buy’ call on the stock. The firm feels that LTIMindtree’s management commentary did not exude much confidence as the company grapples with delayed decision-making and weak macros. On that account, Nuvama also slashed its FY24/25/26 EPS estimates for the stock sharply by 3.2 percent/8.9 percent/ 5.2 percent.

On the other hand, Incred Equities went ahead and downgraded the stock to ‘reduce’ with a price target of Rs 5,675, disappointed by the company’s Q3 miss on earnings. The firm believes LTIMindtree weak revenue also delays its aspiration to achieve 17-18 percent EBIT margin range in FY25 as well.

Also Read | LTIMindtree Q3 results: Net profit jumps 17% to Rs 1,169 crore, revenue grows 5%

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