LTIMindtree hosted a conference call on Jan 20,2023. 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

This is the first ever earnings as LTIMindtree and the company has entered the elite league of top tier IT services companies by merging LTI and Mindtree in a record time.

Revenue:

The combined entity has started with the quarterly revenue run rate of more than USD 1 billion. For the quarter revenues for the company stood at USD 1.05 billion a growth of 16.3% YoY in CC terms. The growth was despite Q3 being a seasonally weak quarter due to furloughs and fewer working days.

The company’s BFSI segment grew 22% YoY. BFSI alone posted an annual run rate of USD 1 billion. The continued revenue momentum was backed by significant deal wins including new logos, rate increases and a growing pipeline of large deals. The insurance business has hit USD 100 million run rate annually.

Hitech, Media and communication grew by 9% YoY. The strong growth momentum which was witnessed earlier in the year decelerated on account of furloughs. The company continue to see demand across operation transformation, managed services and cloud engineering.

Within Media and entertainment the company secured renewals of some of the managed services deals. In particular the company witnessing strong demand for platform services and application modernization.

Manufacturing and resources business grew 8.8% YoY. The growth in manufacturing was a result of improved outsourcing pipeline and deal wins mainly in automotive sector. The company is witnessing continuity in spending and cross sell opportunities in ERP, customer experience, IoT, AI, cloud, infrastructure and security.

Resources portfolio continues to see traction with clients with focus on digital transformation of core operations.

Retail CPG, Travel, transportation and Hospitalization grew 10.7% yoy. Within retail and CPG clients are being cautious because of high inflation however they continue to invest in digital and data platforms to drive their digital transformation journeys.

Travel, transportation and Hospitalization business witnessed robust growth. The company expects the growth to continue except the real-estate portfolio as it could face headwind due to increase in interest rate.

Health, Life Sciences & Public Services business grew by 11.9% YoY. Health and life sciences grew 22.3% was partially offset by the project specific softness in public services portfolio. In health segment, the company is witnessing traction in consumer healthcare while clients are focusing on remote patient monitoring and home healthcare. Life sciences clients are focused on clinical; transformation, digital engineering and cloud capabilities. The company sees significant opportunity in life sciences and health and continue to make investments to drive further growth.

In terms of geographies North America contributed 72.3%, continental Europe, UK and Ireland contributed 14.9% and Rest of the World contributed 12.8% of the total revenues in Q3FY2023.

The company is witnessing merger rational playing out as expected. This includes complementary of clients and solution leading to increased participation in multi tower deals providing end to end solutions.

Margins: EBIT margins came in at 13.9% in Q3FY2023 as against 17.5% in Q2FY2023. Margins were impacted to the tune of 130 bps due to furloughs and fewer working days, 100 bps impact due to one-time merger related integration cost and an impact of 130 bps due to increase in employee and other operating expenses.

Net forex gain for the quarter was USD 5.9 million compared to USD 2.9 million in previous quarter.

With bulk of the merger related cost incurred and tailwinds towards growth, the company endeavors to get back to normal profitability in Q4.

Effective tax rate stood at 23.6% in Q3FY2023 against 23.9% in Q2FY2023. The company expects the effective tax rate to be in the range of 23.6-24% for Q4FY2023 and between 25-25.5% in FY2024.

The company expects to return back to normal profitability by next couple of quarters. The levers for margin improvement includes utilization, pricing, head count-no excess hiring and leverage of bench.

Over the next 4-5 years the company plans to achieve incremental USD 1 billion revenue through synergies of merged entity and 200 bps margin improvement due to synergy benefits of LTI and Mindtree.

Human Resource: Attrition is showing clear signs of stabilizing. The company''s trailing 12 months attrition reduced to 22.3% in Q3 as compared to 24.1% in the previous quarter of the on-going fiscal. The quarterly annualized attrition declined by more than 6% to around 18%. The company believes that there is room for attrition to trend down further.

Utilization excluding trainees was at 82.9% compared to 83.5% of the previous quarter.

Order Book: The Company has an order inflow of USD 1.25 billion in Q3FY2023.

Cash distribution Policy: The company expects the pay-out to be in the range of 35-40% range annually.

Outlook:

The company expects the revenue growth to accelerate in Q4 as the impact of furloughs eases.

The merged entity is well placed to provide digital transformation to its clients. The company is witnessing high caution with respect to clients spending, however there are no cancellation as such till date. Some clients have deferred some projects and are taking relatively longer to make decisions. The overall focus on longer term transformation remains intact across all sectors. The companies are initiating on conversation of cash and speedier ROI. In many cases the companies are focusing on cost take out to fund transformation projects.

Dividend: The board of directors have declared an interim dividend of Rs 20 per equity share of Rs 1 each.

Management commentary:

Commenting on the performance Mr Debashis Chatterjee CEO and MD said: “We are pleased to report a strong Q3 FY23, our first as LTIMindtree,”. “The combined entity has started out with a USD 1 billion quarterly revenue run rate, a top-quartile constant currency year-over year revenue growth of 16.3%, and a robust order inflow of USD 1.25 billion. Our performance speaks to our steadfast client focus through the merger and our resilient client and solutions portfolio. Clients across sectors are evincing keen interest in our unique value proposition spanning core to experience to edge. The client imperative to dial up technology-led innovation for future-readiness holds significant long-term upside for our full-stack offerings and cross industry exposure, boosting our endeavor to deliver industry-leading revenue growth in the future as well.”