Release Date: July 17, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- LTIMindtree Ltd (BOM:540005, Financial) reported Q1 revenues of USD 1.1 billion, reflecting a 3.7% growth in constant currency and 3.5% in dollar terms year-on-year.
- The company's EBIT margin improved by 30 basis points sequentially to 15%, and the net margin stood at 12.4%.
- Order inflow for the quarter was strong at USD 1.4 billion, indicating robust demand and client confidence.
- The BFSI vertical showed significant growth, with a 2.9% quarter-on-quarter increase and a 2.7% year-on-year rise.
- LTIMindtree Ltd (BOM:540005) has expanded its global footprint, inaugurating regional headquarters in Saudi Arabia and opening offices in Calgary and Shanghai.
Negative Points
- The consumer business saw a decline of 0.7% year-on-year, indicating challenges in this vertical.
- Healthcare, life sciences, and public services verticals showed minimal growth, with only a 0.1% year-on-year increase.
- The company faces higher visa costs and SG&A expenses, which partially offset the margin improvements.
- Utilization rates are at an all-time high of 88.3%, indicating potential strain on resources and the need for increased hiring.
- Despite the positive momentum, the broader macro environment remains unchanged, with clients still focused on cost takeout and efficiency.
Q & A Highlights
Q: Could you please help define these high priority transformation areas in BFSI and how these have changed from the past quarter? Also, which verticals do you think will adopt enterprise-wide GenAI the fastest?
A: In BFSI, clients are focusing on high priority transformation projects that were paused last year. These include reducing technical debt and building better systems. We are also seeing vendor consolidation. For GenAI, BFSI and tech are leading due to their existing data investments and anticipated ROI. Manufacturing and healthcare are also showing good momentum.
Q: How has pass-through revenue behaved during the current quarter, and are compensation increases planned for the next quarter?
A: Pass-through revenue in Q1 is similar to Q4, so it didn't significantly impact growth. Compensation increases are planned for Q3, and we are currently in the planning stage.
Q: Are the high priority budgets being pushed due to upcoming elections, or is this a sustainable trend?
A: The core modernization efforts are long-term and focused on building resilience in IT systems. Clients are investing based on the assumption of a stable environment for the next 18-24 months. We will stay close to our clients to adapt if there are significant changes.
Q: Why has the top 5 to 10 client bucket shown lower growth compared to the top 5 clients?
A: On a year-on-year basis, the top 40 clients have shown broad-based growth. The rationalization of the tail is an ongoing process, which affects the non-top 40 clients.
Q: What are the margin levers you are looking at to improve margins back to pre-merger levels?
A: The primary levers are growth, pyramid correction, and reducing discretionary spends. Growth will drive margins, and we are working on improving the pyramid structure.
Q: How should we think about hiring given the current utilization rate?
A: Given the momentum in Q2, we will step up hiring in proportion to demand. We expect a significant net headcount addition in Q2.
Q: Can you distinguish between the change in the underlying demand environment and your own execution?
A: The demand environment remains focused on cost takeout and efficiency. However, deals closed in previous quarters are now ramping up, and high-priority projects in BFSI are kicking off. We have also signed multiple new MSAs, which will help in future quarters.
Q: How broad-based is the short-cycle demand across industries?
A: The short-cycle demand is primarily in our top three verticals, which contribute about 80% of our revenue.
Q: How material are AI initiatives for you in terms of revenue or margin guidance?
A: AI is pervasive across our top 100 clients, with 85% engaged in AI-related activities. It's challenging to quantify AI-specific revenues, but we are focusing on making AI pervasive within our business and service lines.
Q: Are you comfortable with achieving flattish EBIT margin performance for the year and steady improvement in subsequent periods?
A: Yes, we expect margins to improve from here on. Our margin improvement plan is in place, and we aim to reach our target margin levels, although the timeline may be deferred by a few quarters.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
