LTIM - LTIMindtree Limited Share Price

Management Outlook and Key Points:

Outlook:

• Growth Momentum: Management expects continued growth in Q4 FY'25, supported by deal ramp-ups, reduced furloughs, and strength in the BFSI vertical. FY'26 is anticipated to outperform FY'25, contingent on improved discretionary spending and macroeconomic stability.
• Margins: Q4 margins are projected to improve due to higher utilization and cost optimizations, though full absorption of wage hikes (impacting margins by ~220 basis points in Q3) may extend into FY'26. Margins are expected to gradually recover, targeting 17-18% over the medium term.
• AI Strategy: AI adoption is shifting from proofs-of-concept to scaled implementations. While AI-driven productivity gains may temporarily pressure revenues, management views AI as a growth enabler for market share expansion and client trust.
• External Risks: Political and economic uncertainties (e.g., U.S. policy changes under the new government) pose near-term challenges to spending predictability.

Major Points:

1. Record Deal Wins: Signed $1.68 billion TCV (up 29% QoQ), including a $50M+ manufacturing deal and BFSI contracts leveraging AI platforms.
2. Vertical Performance:
   • BFSI led growth (+8% YoY), driven by cost optimization and regulatory projects.
   • Manufacturing grew 9.1% QoQ (with pass-through revenue contributions).
   • Hi-Tech faced a 5.5% QoQ decline due to productivity pass-throughs but remains a key AI adopter.
3. AI Progress:
   • Engaged with 60+ clients on AI initiatives; partnerships with Microsoft, AWS, and GitHub to accelerate AI solutions.
   • Launched "Smart Underwriter" (AI for insurance) and invested in Voicing.AI for customer engagement.
4. Workforce & Utilization: Headcount increased to 86,800 (6.3% YoY). Utilization (85.4%) may rise in Q4, aiding margins. Attrition stable at 14.3%.
5. Financials: Strong cash flow conversion (126.3% operating cash flow/PAT) and liquidity ($1.45 billion cash). DSO improved to 80 days.
6. Challenges: Hi-Tech vertical's productivity pass-through impact (5% QoQ decline) to persist in Q4. Discretionary spending recovery remains uneven.

Question: Firstly, on the composition of deals, have you started seeing short cycle deals coming in more aggressively in this quarter? A lot of your peers have indicated that discretionary spends are coming back or at least are partly coming back more strongly than earlier expected... are we seeing more of that as well? And the second thing was... how should we model margins going forward, will you be comfortable at this utilization level or should we expect this to dip further, and for FY'26... how do you expect margins to play out?
Answer: Short-cycle discretionary deals are emerging in BFSI (regulatory work) but remain uneven across verticals. Utilization (~85%) may rise in Q4 as bench deploys, aiding margins. FY'26 margins hinge on growth revival; profitable growth remains a priority, with levers like pyramid rationalization and cost optimization.

Question: On the Hi-Tech top line, should we expect 4Q to be the bottom there or do we expect that to spill over to FY'26?
Answer: Productivity pass-through impact from the top Hi-Tech client will persist for one more quarter before stabilizing. Growth in other accounts offsets this headwind.

Question: Going back to the Hi-Tech client where you passed on the productivity gain... why this sharp cut right now and was there any volume compensation promised for this productivity gain for future?
Answer: The client's AI infrastructure investments necessitated cost rebalancing. Productivity gains from AI tools (e.g., GitHub Copilot) were demonstrated, aligning with joint efficiency goals. No volume compensation; growth in adjacent areas offsets impact.

Question: On the Hi-Tech account... can we expect growth in FY26 over FY25, especially in this account or in Hi-Tech vertical, given the continuation of productivity pass back?
Answer: FY'26 growth in Hi-Tech depends on budget finalization, but momentum from AI-driven projects and vendor consolidation is expected to sustain.

Question: When did [the productivity pass-back] happen and what is the duration of residual impact in the fourth quarter from it? How will you recoup profitability losses?
Answer: Impact began in November 2024, with full-quarter effects in Q4. Margin recovery relies on utilization improvements, growth revival, and cost levers. Profitability is not directly tied to pass-throughs, as productivity gains offset pricing adjustments.

Question: If discretionary does not recover in FY'26 and cost takeouts dominate, where will margins settle?
Answer: Margin improvement is achievable via utilization, pyramid rationalization, and operational levers. Discretionary recovery (likely in 2025) would accelerate margin expansion.

Question: What is the rate for $3.8B hedges? Where will depreciation stabilize?
Answer: Hedge rates are systematic and not disclosed. Depreciation may rise slightly as office construction continues but will stabilize post-completion, offset by reduced lease costs.

Question: In Manufacturing and Retail verticals, how is growth trending given auto sector challenges?
Answer: Manufacturing growth (9.1% QoQ) was driven by industrial clients, not auto. Retail/CPG remains stable; new deals (e.g., $50M manufacturing win) support pipeline.

Question: With headcount additions, how will hiring/utilization balance affect margins?
Answer: Fresher hiring (1,400 in Q3) and stable attrition (14.3%) align with pyramid optimization. Utilization (~85%) is optimal; future adjustments depend on demand.

Question: Could other clients demand similar productivity pass-throughs? How will FY'26 margins reach 17-18%?
Answer: AI-driven productivity is a broader theme, but large pass-throughs are client-specific. Margin recovery relies on growth revival, utilization, and cost levers, with G&A synergies already realized.

Question: Is top 10 client volatility a concern beyond the Hi-Tech account?
Answer: No. Top 10 clients are stable, with growth in other accounts offsetting Hi-Tech's impact.

Question: Why is the Hi-Tech revenue decline modest (5% QoQ) despite AI productivity claims?
Answer: Productivity gains vary by service line; partial pass-through in Q3, with full impact in Q4. Growth in adjacent areas mitigates revenue decline.

Question: How is Europe performing?
Answer: Europe grew 0.7% QoQ in CC, driven by vendor consolidation and stable demand.

Question: How are productivity gains measured for pass-through agreements?
Answer: Metrics vary by service (e.g., Copilot adoption in coding). Gains are demonstrated collaboratively with clients, enabling market share expansion despite short-term revenue impacts.