CRISIL reaffirms ratings of LTIMindtree Limited

CRISIL Ratings has reaffirmed its 'CRISIL AAA/Stable/CRISIL A1+' ratings on the bank facilities of LTIMindtree Ltd (LTIM).

The ratings factor in substantial improvement in the scale of business, post amalgamation of the two erstwhile Larsen & Toubro (L&T; CRISIL AAA/Stable/CRISIL A1+) entities - L&T Infotech Ltd (LTI) and Mindtree Ltd (Mindtree) that was completed on November 14, 2022. While revenue in fiscal 2023 has doubled to Rs 33,183 crore because of the merger, the company continues to demonstrate healthy growth in operations, estimated at ~Rs 36,000 crore in fiscal 2024. In the first quarter of fiscal 2024, the company reported Rs 8,702 crore revenue with sustained operating margin at 19%, in line with past fiscals. The company's operations have demonstrated healthy sustenance despite the IT industry facing multiple headwinds in the recent past. The financial risk profile of LTIM has also remained strong with robust liquidity position, healthy profitability and steady return on capital employed at ~ 40%.

LTIM continues to exhibit strong financial risk profile, as indicated by near debt-free balance sheet (Rs 125 crore of financial bank debt and Rs 1,415 crore of lease liabilities as of March 2023), healthy cash generating ability and robust liquidity. Furthermore, the company benefits from the strength of the L&T brand. These rating strengths are partially offset by customer and geographical concentration in revenue and exposure to risks related to intense competition in the IT services industry in India.

Revenue is expected to grow in double-digits over the medium term, with continued healthy deal wins despite macro-economic headwinds; driven by improved cross-sell, up-sell, mining of existing large clients across end-user industries and improved ability to bid for large deals. In fiscal 2023, revenue grew 27% year-on-year to Rs 33,183 crore compared to Rs 26,109 crore in fiscal 2022 (post factoring in merger-driven numbers in fiscal 2022) because of growth across sectors. Operating margin remained healthy although it moderated to 18.4% in fiscal 2023 from 20.1% last year, owing to increased employee and one-time integration costs. Operating profitability should benefit from efficiency on account of improvement in employee utilisation and balanced offshore component.

The ratings also reflect the strategic focus of the parent, L&T, on the services business. Over the years, the contribution of the services business, both in terms of revenue and profitability, has been improving. Additionally, L&T has also been leveraging the capabilities of the services segment to augment its core business. The acquisition of Mindtree by L&T in 2019, as well as the amalgamation of Mindtree with LTI bodes well for the information technology business in general and the services business in particular.

Shares of Larsen & Toubro Infotech Limited was last trading in BSE at Rs. 5172.30 as compared to the previous close of Rs. 5138.95. The total number of shares traded during the day was 25361 in over 3248 trades.

The stock hit an intraday high of Rs. 5211.00 and intraday low of 5136.00. The net turnover during the day was Rs. 131300932.00.

Source : Equity Bulls

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LTIMindtree INE214T01019 RatingUpdate