LTIMindtree Q4 Review: Near-Term Growth Outlook Remains Weak, Says Brokerages
The stock has underperformed year-to-date, but a material uptick in growth in F25 vs. F24 requires superior execution, and margins may have more headwinds than tailwinds, said Morgan Stanley.
With LTIMindtree Ltd.'s consistent slowdown in growth and decline in margins, brokerages continue to see downside risk to earnings. The forward-looking indicators on revenue look weak, with no margin recovery in sight.
While the valuations are now more moderate than in the past, unless growth picks up in earnest, HSBC Global Research does not expect strong positive momentum for the stock price.
The management indicated a return to the growth path from April, and its commentary is in line with its large-cap peers, but LTIMindtree still has to demonstrate growth benefits from the expansion of teams across its strong verticals, according to Motilal Oswal Financial Services.
The stock has underperformed year-to-date, but a material uptick in growth in the current financial year compared with the previous fiscal requires superior execution, and margins may have more headwinds than tailwinds, Morgan Stanley said in a note.
Growth at LTIMindree faltered, and operational profitability dwindled in the fourth quarter of fiscal 2024 as slowdown woes persisted in India's $250 billion IT services industry.
The L&T Group firm's revenue fell 1.37% over the previous three months to Rs 8,893 crore in the quarter ended March 31, 2024, according to an exchange filing on Wednesday. That compares with the Rs 8,975-crore consensus estimate of analysts tracked by Bloomberg.
LTIMindtree Q4 Results Highlights (Consolidated, QoQ)
Revenue down 1.37% at Rs 8,893 crore (Bloomber estimate: Rs 8,975 crore).
EBIT declines 5.57% to Rs 1,308.7 crore (Bloomber estimate: Rs 1,383 crore).
Margin down 66 basis points to 14.71% (Bloomber estimate: 15.4%).
Net profit down 5.86% at Rs 1,100 crore (Bloomber estimate: Rs 1,154 crore).
Note: One basis point is one-hundredth of a percentage point.
In dollar terms, revenue fell 1.3% quarter-on-quarter to $1.069 million in the January-March quarter. In constant currency terms, it was down 1.3% sequentially.
What Brokerages Have To Say About Q4 Results
Jefferies
Jefferies downgrades LTIMindtree to 'underperform' from 'buy' and cuts the target to Rs 3,960 apiece from Rs 5,890 apiece.
Revenue decline led by the manufacturing vertical due to the cancellation of two BFSI projects.
Growth weaknesses were broad-based, except for the top five clients.
Management is cautious on discretionary IT spends to remain at FY25 levels.
Sees limited scope for margin expansion; cuts estimates by 50-100 basis points.
Cuts FY25/26 EPS estimates by 7-9% on lower growth and margins
The company is likely to underperform compared to its larger peers in FY25.
Citi Research
Citi maintains 'sell on LTIMindtree at Rs 4,165 target price.
The company has lowered its FY25E-26 EPS estimates by 4-5%, which remain well below consensus.
Headcount is down 3.4% YoY despite high utilisation, which could provide limited visibility.
Forward looking revenue indicators look weak; no margin recovery is in sight.
HSBC Global Research
Maintains 'hold' with a target price of Rs 5,380 apiece.
Persistent decline in margins.
Management was slightly more positive on FY25 growth but stayed negative on margins.
Capex is guided to remain elevated through FY25–26 at Rs 8–10 billion.
Earnings estimate further cut by 3-5%.
Valuations are now more moderate than in the past.
Morgan Stanley
Morgan Stanley maintains an 'equal-weight' rating on the stock with a target price of Rs 4,600 apiece.
The stock has underperformed on a YTD basis, resulting in its premium multiples to larger peers such as TCS; however, in the absence of any near-term catalyst with respect to discretionary spend returning, the risk-reward appears balanced.
Management now expects revenue growth momentum to return from the first quarter, driven by the ramp-up of deals won, supported by the broad-base nature of growth across verticals, but they did not commit to a FY25 revenue growth outlook.
"We bake in F25e margins at 15.4% (vs 15.7% in FY24). Management maintained its margin aspiration of 17%+, but it appears to be a longer-term phenomenon to us," the note added.
Motilal Oswal Financial Services
Motilal Oswal reiterate 'neutral' rating with a target price of Rs 5,020
Though 1QFY25 should see some margin uptick on account of reversal of one-time impact from project cancellations and operating leverage partly offset by higher visa costs, there is no meaningful upside to margin for FY25 unless growth picks up meaningfully.
Motilal Oswal now expect the company to deliver a 15.9% EBIT margin in FY25 before moving to 16.8% in FY26. This should result in a 13.9% profit after tax CAGR over FY24-26E, aided by a margin trough in FY24.
The research firm have reduced FY25/26 earnings estimates by 6/9% after cuts in revenue and profitability.
BFSI – The segment was hit by two project cancellations on account of reprioritization of spending by clients. The focus remains on regulatory and compliance spending. The impact of project cancellations should not be there in 1QFY25. Though the stance remains cautious, given the strong deals wins during the year, management is confident of returning to growth path from 1QFY25.
Shares of the company fell 2.44% to Rs 4,611.70, the lowest level since April 19. It was trading 1.45% lower at Rs 4,666.20 as of 9:55 a.m., compared to 0.02% advance in the NSE Nifty 50 index.
The scrip declined 26.09% on year-to-basis, and risen 5.23% in 12 months. Total traded volume so far in the day stood at 0.74 times its 30-day average. The relative strength index was at 29.31.
Out of 43 analysts tracking the company, 16 maintain a 'buy' rating, 11 recommend a 'hold,' and 16 suggest 'sell', according to Bloomberg data. The average 12-month consensus price target implies an upside of 11.5%.