Wage Hikes Impacted Margin By 220 bps: LTIMindtree | CNBC TV18

Summary

The transcript features a conversation with the CEO of LTI MRY, where they discuss the company's current performance and future outlook. Despite modest growth in revenues and margins, the company is navigating a challenging period with slowing growth. The CEO outlines efforts to improve margins, fueled by AI-driven productivity gains, and expresses confidence that fiscal year 2026 will be better than fiscal year 2025. The focus is on the recovery of the BFSI sector and a strong order pipeline, though the company avoids making specific predictions about achieving double-digit growth.

Takeaways

• 😀 The company reported modestly higher revenues and margins, but growth has slowed over the past 1-2 years, creating uncertainty around its recovery.
• 😀 Despite the growth slowdown, the company is optimistic about its future, particularly in the BFSI sector, which is showing signs of recovery.
• 😀 The company’s actual margin of 13.8% fell short of its target range of 17-18%, highlighting a significant gap in performance.
• 😀 The CEO emphasized a strong focus on improving margins, with operational efficiency being key to future improvements.
• 😀 If growth returns to double-digit levels, margins are expected to improve accordingly, though the timing of recovery remains uncertain.
• 😀 The company expects FY26 to outperform FY25, with confidence growing as demand momentum continues into Q4.
• 😀 A strong order intake of 29% quarter-on-quarter signals robust demand and a healthy pipeline for the company.
• 😀 The company has been leveraging its AI strategy to win significant deals, including a $200 million deal last quarter and a $50 million deal this quarter.
• 😀 Productivity gains passed on to clients, particularly the top client, were a factor in the revenue impact in Q3, though the company remains confident in growth for Q4.
• 😀 The company’s strategy includes passing on productivity gains to clients in a way that could lead to more business opportunities, especially with larger clients.
• 😀 Despite challenges, the company is optimistic about returning to the 'leaders' quadrant in FY26, driven by a robust pipeline and positive performance in sectors like BFSI.

Q & A

What is the current performance of the company according to the transcript?

The company has reported numbers in line with street expectations, showing modestly higher revenues and margins. However, it is facing challenges due to previous high growth rates slowing down in the last couple of years. There is no clear indication yet of a return to its previous high-growth trajectory.

What is the issue with the company's margins as discussed in the transcript?

The company is facing a significant dip in margins, with the aspiration being 17-18% for the quarter, but they only achieved 13.8%. This is a large mismatch compared to their targets and in comparison to their peers.

How does the company's reliance on the BFSI sector affect its performance?

The company is heavily dependent on the BFSI (Banking, Financial Services, and Insurance) sector, and it was significantly impacted when discretionary spending in this sector was reduced. However, with BFSI showing signs of recovery, the company sees potential for improvement.

What was the response from the management regarding margin improvement?

The management has emphasized that they have a robust plan to improve margins. They have implemented measures to enhance operational efficiency, and the margin improvement is expected to be gradual, particularly with growth returning to double digits.

What is the company's outlook for growth in the upcoming quarters?

The company is confident that growth momentum will continue into Q4, with robust order intake and a promising pipeline. They anticipate that growth will continue into FY26, which is expected to be better than FY25.

What are the factors affecting the growth projections for FY26?

The growth projections for FY26 are influenced by the order intake and the recovery in the BFSI sector, along with a solid pipeline of deals and client budgets that are still being formalized.

How has the company handled productivity gains with respect to its clients?

The company has passed on productivity gains to its top client, particularly related to AI and efficiency improvements. They expect this to continue, though it will not negatively impact revenues as the overall AI strategy creates more opportunities for growth with clients.

What impact did the currency exchange rates (Forex) have on the company's performance?

The company experienced a significant impact from currency exchange fluctuations, which contributed to the mismatch between actual margins and their targets.

What is the company's strategy regarding AI and its impact on deals and productivity?

The company is deeply focused on AI and its potential for creating long-term productivity gains. AI strategies have played a significant role in winning large deals, and these productivity gains will be passed on to clients to foster further business growth.

Do the company's verticals show consistent growth across different sectors?

Yes, the company's verticals have grown on a year-on-year basis, showing broad-based growth despite some cyclical variations between quarters. The BFSI sector, in particular, has experienced strong growth recently and is expected to continue improving.