LTIMindtree Ltd Q1 FY25 Earnings Conference Call Insights

Key highlights from LTIMindtree Ltd (LTIM) Q1 FY25 Earnings Concall

• Market Environment
  • Market shows early signs of recovery despite unchanged overall conditions.
  • Clients focus on efficiency through cost reduction and vendor consolidation.
  • Savings are being reinvested in high-priority transformation programs.
  • Foundational investments for AI are becoming more prevalent.
  • BFSI and technology, media, and communications sectors are leading this trend.
• Revenue and Margin Performance
  • Q1 revenues reached $1.1 billion, growing 3.7% in constant currency year-over-year.
  • Sequential revenue growth was 2.5% in dollar terms.
  • EBIT margin for the quarter was 15%, improving by 30 basis points sequentially.
  • Net margin stood at 12.4%.
  • Order inflow for the quarter was $1.4 billion.
• Industry Vertical Performance
  • BFSI grew 2.9% quarter-on-quarter but declined 2.7% year-on-year.
  • Technology, media, and communications grew 7.9% quarter-on-quarter and 11.9% year-on-year.
  • Manufacturing and resources increased 1.8% quarter-on-quarter and 10.5% year-on-year.
  • Consumer business saw a slight decline of 0.7% year-on-year.
  • Healthcare, life sciences, and public services grew marginally by 0.1% year-on-year.
• AI Investments and Strategy
  • Over 85% of enterprises are looking to accelerate AI-related investments.
  • Customers are moving from proof-of-concept to enterprise-wide AI deployment.
  • LTI Mindtree is assisting a majority of its top 100 clients in AI and related areas.
  • The company is investing in its Canvas.AI platform to enable customer scaling.
  • The company organized its first AI-centric event, Ignite, across six cities.
• Financial Highlights
  • Constant currency growth was 2.6% quarter-on-quarter and 3.7% year-on-year.
  • Revenue in INR stood at 13.7 billion.
  • Effective tax rate for the quarter was 25.6%, compared to 24% in Q4 FY24.
  • EPS improved to 38.3% from 37.2% in Q4 FY24.
• Margin Performance
  • Operating margin improved to 15% from 14.7% in the previous quarter.
  • Margin improvement of over 100 basis points due to absence of project cancellation impact.
  • Operational efficiency contributed to margin improvement.
  • Headwinds from higher visa costs (50 basis points) and increased FDNA partially offset gains.
  • Net margin remained flat sequentially at 12.4%.
• Employee Metrics
  • Utilization, excluding training, increased to 88.3% from 86.9% last quarter.
  • TTM attrition remained stable at 14.4%.
  • Approximately 1,400 freshers were onboarded during the quarter.
• BFSI Transformation Projects
  • Banks are restarting high-priority transformation projects that were paused last year.
  • These projects aim to reduce technical debt and build better systems to support businesses.
  • Vendor consolidation is occurring as clients refresh their vendor landscape.
  • The company has signed several new MSAs with top-tier BFS institutions.
• Revenue Growth and Expenses
  • Pass-through revenue in Q1 is similar to Q4, not significantly impacting growth.
  • Other expenses have not tapered despite changes in pass-through revenue.
  • The company’s top three verticals have all shown growth.
  • Growth is attributed to ramping up of previously won deals and favorable positioning in vendor consolidations.
• Client Spending Trends
  • Clients are investing in core modernization efforts to build higher resilience in IT systems.
  • CIOs are focusing on resilience as a key priority in their IT strategies.
  • Clients have assumed a similar economic environment for the next 18-24 months and are investing accordingly.
  • There’s a shift from cost takeout to funding in-flight transformation projects more aggressively.
  • High-priority programs are being restarted and continued.
• Client Revenue Buckets
  • Top five client bucket has shown strong growth, potentially led by the top client.
  • Top 5-10 client bracket has declined both quarter-on-quarter and year-on-year.
  • Top 40 clients have demonstrated broad-based growth on both yearly and quarterly basis.
  • The company prefers to track client performance over longer durations rather than quarter-to-quarter.
• Order Intake Trends
  • The company is comfortable with order intake on a Last Twelve Months (LTM) basis.
  • Several deals are on the cusp of being signed, moving into the next quarter (Q2).
  • Short-cycle demand is prevalent, which impacts order intake differently than long-term contracts.
  • Resource requests convert to billing, which then translates into order intake.
• Deal Tenures
  • High-priority transformation projects are typically long-term projects.
  • Deal tenures remain similar to previous periods.
  • Clients contracting has changed, with more focus on short-cycle, resource-based demand.
  • A significant large deal in the high-tech segment impacted the previous year’s Q1 order intake.
  • The company observes a mix of long-term projects and short-cycle demand in current client engagements.
• AI Initiatives
  • Around 85% of top 100 clients are engaged in AI-related activities.
  • Clients are investing in GPU infrastructure and data strategy for AI readiness.
  • Focus is on infusing AI capabilities across all service lines.
  • Demand is seen in areas like data governance, trust, and explainability.
• Hiring Plans
  • The company plans to increase hiring in Q2 due to growing demand.
  • Current utilization rates are at an all-time high.
  • A healthy net headcount addition is expected in Q2.
  • Hiring will be proportional to the increased demand pipeline.
• Demand Pipeline
  • The demand pipeline has significantly increased.
  • Short-cycle demand is returning, particularly in the top three verticals.
  • Demand is strong in data and AI, ERP, and digital engineering service lines.
• EBIT Margin Outlook
  • The company expects margins to improve throughout the year.
  • A margin improvement plan is already in place.
  • Target margin levels may be deferred by a few quarters.
• BFSI Growth
  • Growth in the BFSI (Banking, Financial Services, and Insurance) sector is broad-based.
  • The company is favorably positioned in some vendor consolidation efforts within BFSI.
  • Current visibility and momentum suggest sustainable growth in this sector.
  • Short-cycle projects are contributing to the growth in BFSI.
  • The company anticipates continued opportunities in BFSI beyond Q2.