LTIMindtree margin drops below FY24 guidance in Q2

LTIMindtree, India’s sixth largest information technology (IT) services firm by revenue, saw its operating margin drop below its guidance of 17-18% for FY24. In its September quarter earnings, filed after the market hours on Wednesday, LTIMindtree reported operating margin of 16%, down 70 basis points (bps) sequentially. However, the company management said in its post-earnings press conference that it remains confident of achieving the guided margin, and has not revised its target for FY24.

LTIMindtree posted 1.6% sequential growth in its dollar revenue to $1.08 billion in the September quarter. Profit after tax (PAT) fell 2.2% from a year ago but rose marginally by 0.8% sequentially to ₹1,162.3 crore.

 The revenue from its banking, financial services and insurance (BFSI) vertical, which is the largest contributor to LTIMindtree’s revenues, declined by 1.1% sequentially.

The company largely met analysts’ expectations for quarterly revenue, delivering better-than-expected operating margin and profit after tax, according to an investor note of 16 October by the brokerage house India Infoline.

The net headcount increased by 794 to 83,532 employees for the company, which was formed after a merger between Larsen & Toubro (L&T) Infotech (LTI) and Mindtree, announced in November 2022. The attrition levels also fell by 2.6 percentage points during the September quarter to 15.2%.

In its post-earnings conference call, LTIMindtree‘s management said that the company is undertaking initiatives to expand margins.

Debashis Chatterjee, managing director and chief executive officer, LTIMindtree, said, “There is no reason in the market that suggests to us any potential for a sudden upturn of overall technology spending trends. However, we have implemented multiple margin expansion initiatives across the company, and this is helping us maintain the guided operating margin of 17-18% for this fiscal."

Chatterjee, however, said the company expects a stronger second half for this financial year. “We are seeing some delays in the overall decision making, and deals are moving from discretionary to cost optimization in nature. But, deals are not being cancelled, and the pipeline for large deals suggests that we should see a stronger second half of the year, in comparison to the first half."

Nachiket Deshpande, the chief operating officer, said the company is seeing nearly 100 active pilot projects in generative artificial intelligence (AI). “We are seeing some clients run substantial projects for generative AI, such as in sales operations. However, we are yet to see a significant impact to our overall revenue from generative AI implementations," Deshpande added.

LTIMindtree’s quarterly earnings aligned with other large and midcap information technology services firms. Many of these firms either reduced their revenue guidance for FY24 or fell short of analyst expectations in the last quarter.

Wipro, India’s fourth-largest IT services firm, also reported its earnings on Wednesday. The company witnessed a third consecutive quarter of sequential revenue decline, with a 2% constant currency drop in quarterly revenue, amounting to $2.7 billion. Thierry Delaporte, the chief executive of Wipro, signalled further caution during the upcoming quarter, projecting a revenue decline guidance of -1.5% to -3.5% for the December quarter.

Managements of all IT companies reported delays in client decision-making, leading to the deferring of billing of large long-term deals. Large-cap firms such as Infosys and HCL Technologies, as well as mid-cap company L&T Technology Services, slashed their revenue growth guidance for the financial year, while Zensar and Happiest Minds also conveyed a sense of caution for the rest of this fiscal year.