LTIMindtree shares fell by 6.5% to an intraday low of ₹5,980 on the BSE on Friday. This decline followed the company's cautious growth outlook for the October-December quarter (Q3) of the financial year 2024-25 (FY25). At 1:35 PM, the shares were trading near the day's low, contrasting with a slight increase of 0.38% in the benchmark BSE Sensex index. This sharp drop in share prices raises questions for investors about whether to buy, sell, or hold.
LTIMindtree reported a net profit of ₹1,251.6 crore for the July-September quarter of FY25, marking a 7.7% year-on-year increase and a sequential rise of 10.3%. Revenue rose by 6% year-on-year and 3.2% quarter-on-quarter to ₹9,432.9 crore for Q2 FY25. Analysts noted that these figures were generally in line with market expectations.
Segment performance varied, with Technology, Media, and Communication showing a 12% year-on-year and a 1.9% quarter-on-quarter increase. The Banking, Financial Services, and Insurance (BFSI) sector reported a growth of 2.3% year-on-year and 4% sequentially, while Manufacturing and Resources grew by 5.8% year-on-year and 0.7% quarter-on-quarter. Additionally, the company secured multiple long-term contracts in Q2, achieving an order intake of $1.3 billion, with a strong pipeline exceeding $5 billion in large deals.
The recent downturn in LTIMindtree shares can be attributed to several factors highlighted during the Q2 FY25 earnings call. Management expressed cautious optimism regarding the outlook, noting that seasonal weakness in Q3 could lead to a slowdown in growth momentum. Wage increases were identified as a potential strain on margins, while the discretionary spending environment has not shown significant improvement.
Consequently, analysts have adjusted their FY25-26 EBIT margin forecasts downward by 50-80 basis points, now projecting margins of 14.9% and 15.9% for FY25 and FY26, respectively. Earnings per share (EPS) estimates for FY25-27 have also been revised downward by approximately 3-5%, reflecting lowered revenue growth and margin expectations. The revised share price target stands at ₹5,140, based on a 24x FY27 EPS multiple.
Despite the current challenges, LTIMindtree remains cautiously optimistic about maintaining growth momentum through the second half of FY25, particularly due to the ramp-up of newly secured contracts. As demand recovers, the company aims to leverage its robust pipeline to achieve superior earnings growth.
However, ongoing concerns over economic prospects and supply-side constraints may hinder short-term growth. The journey toward achieving targeted EBIT margins of 17-18% has been prolonged, primarily due to external factors, making rapid advancements challenging without a return to double-digit growth rates. Management has indicated that the current focus is on sustaining margins while awaiting growth recovery.
For those considering whether to invest in stocks like LTIMindtree, it is crucial to assess the company's long-term positioning in the market. The firm has solid contracts with leading global brands, which could support sustained growth. Nonetheless, the immediate future may present challenges, particularly concerning margins and overall economic conditions.
Investors should weigh these factors carefully when deciding to buy, sell, or hold LTIMindtree shares. With a strong emphasis on data engineering and enterprise resource planning (ERP) modernisation, LTIMindtree is poised to capture emerging opportunities, especially in pre-GenAI expenditures. While revenue growth remains essential for margin recovery, the current market dynamics suggest a cautious approach in the near term.
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