LTIMindtree hosted a conference call on July 17,2023. In the conference call the company was represented by Mr Debashis Chatterjee- CEO & MD, Mr Sudhir Chaturvedi-President sales, Mr Nachiketh Deshpande- COO and Mr Vinit Teredesai-CFO.

Key takeaways of the call

Adjusted for seasonal pass-through in Q4FY23, revenue grew by 0.9% QoQ CC in Q1FY2024.

Margin:

The 30 bps QoQ EBIT margin improvement was led by 170 bps improvement in gross margin (out of which 120 bps on account of reclassification), including 50bp on account of increased efficiency and 20bp hit on account of increased visa costs. Below gross margin level, reversal of 120 bps reclassification cost and 20 bps increase in marketing expenses in SG&A negatively impacted EBIT margin.

The changing nature of deals to longer-tenure deals provides good lead time to plan talent and better manage the ramp-up costs.

Human resource:

Wage hikes will be done in Jul 2023, as planned.

The company expects attrition to further come down in H2FY2024.

The management is confident of delivering 17-18% exit margin even after building for wage hikes.

Generative AI: The company launched canvas.ai as a new generative AI tool. It is seeing 40-60% productivity improvement in coding for cloud modernization applications and is working on multiple use cases.

Deal Wins: The deal wins remained strong at US $ 1.41 billion, up 16.9% YoY, with a higher share of efficiency-focused deals. The deal pipeline was up 13% when compared to Q4FY2023.

Merger Benefits: The company is able to successfully cross/up-sell solutions to its large client base post the merger. On account of large size with a broad bouquet of services, the company has won 5-year large deal around cost optimization led by vendor consolidation.

Guidance:

The management mentioned it would be difficult to grow revenue in double digits in FY24 given weak H1, but it would target to grow in leader''s quadrant among competitors. It expects Q2 to be better than Q1 in terms of sequential growth but not robust due to delay in decision making among BFSI clients.

The company expects to exit FY2024 with EBIT margin the range of 17-18% on back of merger related benefits and operational efficiencies.

Outlook:

Client budgets remained intact but revenue conversion was impacted by slower decision-making and cuts in discretionary spending. The company expects clients to utilize their budgets as the macro environment stabilizes.

BFSI remains resilient despite weak macro as the nature of engagements is core. There is a strong vendor consolidation trend, but decision-making remains slow, coupled with hiring freeze at certain banks. Insurance continues to do well.

Hi-Tech is expected to remain strong for the company going forward on the back of strong deal wins. The company expects increased spending in the later part of the year. There is a positive shift toward AI-based products; cost reduction and vendor consolidation remains in focus. Q2FY2024 is expected to remain strong for Hi-Tech.

Manufacturing is seeing continued investments in supply chain. There is strong traction for Internet of Things (IoT) and data.

In Energy sector, there is significant investments happening in core modernization.

Healthcare companies are divesting lower-margin businesses. Spending continues in areas such has regulatory requirements and value-based care. There is increasing traction for as-a-service model.

Management Commentary:

Commenting on the performance Mr Debashis Chatterjee, Chief Executive Officer and Managing Director said: “During the first quarter of FY24, LTIMindtree delivered 8.2% YoY revenue growth in Constant Currency. Our key verticals BFSI, Manufacturing & Resources and Hi-Tech, Media, and Entertainment which make up 75% of our revenues performed well. Our strategic program are bearing fruit and is evident in the upward movement across our client buckets. The order inflow continued to increase and reached USD 1.41 billion in this quarter. Our operational rigor helped us achieve an EBIT of 16.7% and PAT of 13.2%”.