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.