LTIMindtree readies recipe for $10 bn revenue, but near-term woes a spoilsport

LTIMindtree Ltd is bracing for the next leg of growth, but the Street is hardly excited. The company eyes $10 billion revenue by FY31-32, up from $4.2 billion now. 

At its Investors Day 2024 held on Monday, the management outlined three strategic pillars to meet this aspiration: scaling verticals and mining Fortune 500 accounts, leveraging artificial intelligence (AI) and doubling or tripling revenues in key verticals. Most of the growth is likely to be organic, but it may opt for acquisitions selectively.

Further, a robust deal pipeline bodes well for long-term revenue visibility. Post merger, LTIMindtree has prioritized winning large deals. In the past 18 months, it has secured 45 plus large deals with a combined total contract value exceeding $2 billion. Its large deal pipeline, valued at $5 billion, comprises 14 deals worth $100 million plus and 21 deals in the $50-100 million range.

As such, clocking double-digit revenue growth is a crucial margin driver. A margin expansion programme is underway already. It continues to execute margin levers such as reducing average resource costs, improving productivity through AI and lowering overheads. With the help of these measures, LTIMindtree aims for 17-18% Ebit (earnings before interest and tax) margin in the immediate future versus 15.7% in FY24.

But LTIMindtree’s muted stock returns suggest investors are more worried about near-term concerns than cheering long-term targets. The stock is down 1% in 2024 so far, versus Nifty IT index’s 24% gain. According to Incred Research Services, although the expected ramp-up of the $200 million total contract value of deal and potential ramp-up of BFSI deals in final stages could aid Q3FY25 revenue, furloughs are a worry as three verticals witnessing furloughs account for around 80% of the revenue. So, the brokerage has trimmed its Q3 and Q4 sequential growth estimates to 1.5% and 2%, respectively, versus 2.1% and 2.5% earlier.

Plus, it does not help investor sentiment that the merger synergies are not yet fully realized as expected earlier. A spate of top-level exits leading to elevated attrition among senior management is a dampener too. 

Also Read: When will LTIMindtree start delivering on its merger promise?

A challenging demand environment has made margin revival tougher for the merged entity. LTIMindtree’s management expects discretionary IT demand to improve gradually, now that US elections are over and it may accelerate client decision-making. But clarity is expected only by the March quarter which is typically the budgeting phase of IT clients. 

The stock trades at FY26 price-to-earnings multiple of 32x, showed Bloomberg data. This is pricey, given execution and margin challenges.

Also Read: From Wipro to LTIMindtree, IT employees irked by another delay in salary hikes