LTIMindtree Q3 Results: Profit dips 4.7% YoY on merger costs, holidays

LT I Mindtree posted a 4.7% fall in net profit for the fiscal third quarter, missing estimates due to a seasonally weak quarter and integration costs related to the merger.

This is the first time the L&T Group-backed firm is reporting its quarterly results post the L&T Infotech and Mindtree merger in November. The combined entity is now India’s sixth largest in terms of revenue.

Net profit for the three months ended December stood at Rs 1,001 crore compared with Rs 1,050 crore a year back. Revenue came in at Rs 8,620 crore, up 25.3% year on year. ET’s poll of analysts estimates had pegged net profit to be flat compared to last year, on revenue of Rs 8,644 crore, up 25.5% on year.

The company said the reported numbers are comparable as the merger was effective from April 2022 and it has eliminated any intercompany revenues.

The profit was down 15.8% while revenue grew 4.8% on a sequential basis.

The company declared an interim dividend of Rs 20.

“For the fourth quarter, there are sectors where clients are cautious in formalising their budgets in specific segments like retail, consumer packaged goods or hi-tech but we have not seen programs being cancelled,” said Debashis Chatterjee, MD and CEO of LTIMindtree.

Chatterjee, in post-earnings media call, said slowdown is more of taperment in terms of starting or slowing down transformation programmes but the company remains “upbeat” about its long-term demand.

He added that clients’ behaviour for fiscal 2023-24 will be to award more cost-takeout and efficiency based deals where the costs saved will be used to fund other transformation deals.

Analysts opined that the IT sector may be impacted by delayed decision making or cut in technology spending on account of macroeconomic challenges such as high inflation and geopolitical tensions in Europe.

The company’s shares ended 0.6% higher at Rs 4,272.2 on the BSE on Friday. The results were declared after market hours.

The Mumbai-based firm’s operating margins dipped 360 basis points sequentially to 13.9%, dragged by one-time integration-related costs and higher holidays in the quarter. It also fell 460 basis points on a year-on-year basis due to higher wage impact.

“We have covered most of the integration and furlough costs in the third quarter. There will be some impact carried forward in the fourth quarter. Definitely, from the fourth quarter onwards, you should see an uptick in margin,” said Vineet Teredesai, CFO of the company.

The company reported total contract value of deal wins at $1.25 billion. The company did not disclose a comparable number for the base quarters.

As part of the merger, all shareholders of Mindtree were issued shares of LTI in the ratio of 73 shares of LTI for every 100 shares of Mindtree. The parent company, L&T now holds 68.73% of the merged entity. One of the main reasons for the merger was to make the combined entity more eligible to win larger deals and unlock revenue synergies.

In terms of geographies, North America grew 19.6% year on year while Europe just reported 0.2% growth. The company said Europe’s underperformance was largely due to currency impact seen previously and, going forward, the market is expected to be on a “good growth trajectory” due the strong deal wins this quarter.

All the verticals witnessed at least high single-digit growth on a year-on-year basis, with banking, financial services and insurance leading with 22% growth.

Talent Outlook
Voluntary attrition for the quarter stood at 22.3% compared to 24.1% last quarter . Net hiring stood at 86,462 down by 474 over the quarter amidst a tightening hiring ecosystem.

Chief operating officer Nachiket Deshpande stated that the company does not have a specific hiring plan until the business has fully integrated. “We decide the hiring plan in response to the businesses we see. So we don't have any specific hiring plans for Q4 or for FY24,” said Deshpande.

He added that the company is still completing the process of skill profiling of the entire workforce.

Last week, India’s top software exporter Tata Consultancy Services reported 11% on-year growth in fiscal third quarter net profit at Rs 10,846 crore, missing estimates. Revenue came in at Rs 58,229 crore, up 19.1% on year. The company also saw a reduction in its total workforce for the first time in 10 quarters as it slowed down fresh hiring, indicating challenges in the global demand environment.

Infosys, on the other hand, posted a 13.4% growth in net profit for the fiscal third quarter, beating estimates and upgraded its annual revenue guidance to 16-16.5% annual revenue growth for the ongoing fiscal compared with 15-16% forecast earlier due to strong deal wins. Net profit for the three months ended December stood at Rs 6,586 crore compared with Rs 5,809 crore a year back. Revenue came in at Rs 38,318 crore, up 20.2% year on year.