LTIMindtree COO Sees Geopolitical, Macro Factors Affecting Margin Recovery

Leading IT services provider LTIMindtree Ltd. expects the prevailing macroeconomic conditions and geopolitical tensions in the Middle East to affect margin recovery.

The company had projected that its margins could improve by 17–18% in the next two to three years. However, Chief Operating Officer Nachiket Deshpande expects that it could be delayed.

“Margin improvements from our long-term target are also going to be a function of growth. That 17–18%, we had called out, is dependent on getting to double-digit growth trajectory which seems to be away based on the macroeconomic environment we are in. Given the macro uncertainty, which is largely around US elections, and the Middle East tensions, which are also escalating, it is difficult to see a broad-based recovery,” Deshpande told NDTV Profit.

LTI Mindtree had on Thursday announced its financial results for the quarter ended Sept. 30, 2024. The company’s consolidated revenue from operations for second quarter of the current financial year grew 5.92% to Rs 9,432.9 crore compared to Rs 8,905.4 in the corresponding quarter of the preceding fiscal.

In the quarter ended Sept. 30, 2024, the company’s net profit grew 7.68% to Rs 1,251.6 crore against Rs 1,162.3 crore in the quarter ended Sept. 2023.

In Q2 of the current fiscal, the company’s earnings before interest and taxes margin declined to 15.5% from 16% in the year-ago period.

Pointing to multiple factors affecting the company's growth prospects, Deshpande said that customers are not committing to discretionary spend due to the uncertainties.

“There are 2–3 impacts, which happen because of macro-economic issues. Number one is that customers are still not fully committing to the discretionary spends, which they would if they had more certainty on the business environment that they are in. This results in them focusing largely on a prioritised list of initiatives than all the discretionary spend they otherwise would have done,” Deshpande said.

He added that the macroeconomic factors also lead to disruptions in the supply chain which impact the company’s manufacturing and consumer goods business. The COO noted that these disruptions also lead to clients limiting their spending to deal with the disruptions.

“Similarly, geopolitical issues have a significant impact on supply chains. We have a significant manufacturing and consumer goods segment which gets affected because of these supply-chain related disruptions, which results in client spends being in check as well because they end up having to reduce their cost in operations to deal with these supply-chain related dynamics,” Deshpande said.

He projected that the momentum in the business is likely to continue in the third quarter of the ongoing fiscal. Deshpande added that cyclical headwinds such as the lower number of billing days on account of the holiday season could impact revenue realisations in the December quarter.

“We expect our business momentum to continue. Q3, cyclically, has some headwinds every year. There are some areas where you will see furlough and there are some areas where you will see less number of billing days, on account of holiday seasons across the globe. That has an impact on the overall revenue realisation in Q3 based on our business mix. In Q4, those factors won’t be there and we will get visibility on Q4 post elections. Customers will also be more comfortable finalising their budgets going into CY25,” Deshpande said.

Shares of LTIMindtree closed at Rs 6,007 apiece on the NSE, down by 6.06% on Friday, while the broader benchmark index Nifty 50 settled 0.42% higher at 24,854.05.