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Strong demand – driving growth back on track for mid-tier Indian IT companies
Strong demand – driving growth back on track for mid-tier Indian IT companies

July 23, 2021

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Q1FY22 Performance analysis of recently released mid-tier technology companies’ results (LTI, LTTS, and Mindtree)

 

The three companies have reported first-quarter with total revenues of ~$1 billion increasing 5.7% q-o-q and 21.1% y-o-y, with expectations of a double-digit growth being reaffirmed for FY22; in line with the expectations of top companies (see details in my previous blog “Robust Demand - Washing the Traditional 1Q Blues”.

 

Strong deal pipeline continued to drive the revenue growth

  1. All three companies reported a healthy deal pipeline of over US$600 million, primarily driven by increased demand for digital across client buckets.
  2. Revenues increased 5.7% q-o-q/ 21.1% y-o-y as the demand continued to increase across clients, with digital leading the pack.
  3. The quarter remained an exceptional quarter in terms of q-o-q growth, which is usually a weak quarter.
  • Geographic Markets - All the major markets witnessed growth in revenues sequentially as well as y-o-y. North America (6.7% q-o-q and 17.2% y-o-y) continued to witness recovery with Europe maintaining a healthy growth trend (7.1% q-o-q and 39.6% y-o-y).
  • Verticals – All segments continued to witness growth sequentially as well as y-o-y led by  Travel (44.7% q-o-q and 101.3% y-o-y – A major segment for Mindtree which witnessed significant growth this quarter), followed by Banking and Finance which grew 8.4% q-o-q (25.0% y-o-y), Energy and Utilities (5.1% q-o-q, 1.5% y-o-y), Retail (4.9% q-o-q, 21.3% y-o-y), Manufacturing and High-Tech (3.0% q-o-q, 23.5% y-o-y), Telecom (0.1% q-o-q, 11.2% y-o-y) and Healthcare (0% q-o-q, 10.0% y-o-y).

 

 

Like the top companies, net profit margins were sustained this quarter…

  1. Net margins declined sequentially to 14.5% from 15.5% in 4QFY21, primarily driven by salary hikes and new hiring during the quarter. Y-o-Y margins remained high across all three companies in 1QFY21 as some cost optimization levers such as the absence of travel remained in force.  

 

….Though they also continued hiring and salary increments.

  1. Together for the three companies’ employee count increased 8.1% q-o-q and was up 17.7% y-o-y as hiring continued to maintain an uptrend.
    • LTI and LTTS added ~3k employees during the quarter.
    • Mindtree witnessed the strongest ever headcount addition of 3.4k+ during the quarter implying good visibility.
  2. This quarter LTI, LTTS, and Mindtree reported record levels of utilization (including trainees) at 83.7%, 79.2%, and 83.2% - highest since 1QFY17.
  3. Like the top companies rising attrition remained a challenge for the mid-tier companies as well with attrition continuing to increase across all three companies.
  • LTI and LTTS reported attrition of 15.2% and 14.5%, higher compared to last quarter by 190 bps and 320 bps, respectively.
  • Mindtree’s attrition was stable at 13.7%.

 

 

Like their large counterparts, they are also expecting double-digit growth for FY22

 

  1. Mindtree - Management reaffirmed its strong double-digit revenue growth with 20% + EBITDA margins for FY22.
  2. LTI – Indicated a healthy deal pipeline across sizes and industry growth with expectations of PAT margins to be in a range of 14-15%.
  3. LTTS – Raised US$ revenue growth guidance to 15-17% (13-15% earlier).

 

 

Source: Company Reports and NASSCOM Analysis

Note - Aggregated margins are weighted average margins based on revenues


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Neha Jain
Senior Analyst

Neha Jain

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