| LTIMindtree Limited | ||||||
| Ratings reaffirmed at 'CRISIL AAA/Stable/CRISIL A1+'; Rated amount enhanced for Bank Debt | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AAA/Stable/CRISIL A1+’ ratings on the bank facilities of LTIMindtree Limited (LTIM).
The ratings continue to reflect the enhanced market position of the company in the Indian information technology (IT) services industry after merger of the two erstwhile Larsen & Toubro Ltd (L&T; CRISIL AAA/Stable/CRISIL A1+) entities: L&T Infotech Ltd (LTI) and Mindtree Ltd (Mindtree) effective November 14, 2022. The combined entity has enhanced scale, diversified technical capabilities, and product offerings with presence across end-user industries, geographies, and customers. LTIM continues to exhibit a strong financial risk profile stemming from nominal reliance on debt (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 expected support of its parent and the strength of the L&T brand. These strengths are partially offset by customer and geographical concentration in revenue, and exposure to intense competition in the IT services industry in India.
The ratings also continue to reflect the expected sustenance of strong business performance, supported by a healthy deal pipeline, and diversified service offerings across multiple verticals. In fiscal 2023, revenue grew 27% year-on-year to Rs 33,183 crore, driven by growth across sectors. Operating margin in fiscal 2023 remained healthy, though it moderated to 18.4% in fiscal 2023 from 20.1% previous fiscal owing to increased employee and one-time integration costs.
Revenue is expected to grow in double-digits over the medium term with continued healthy deal wins despite macro-economic headwinds, due to improved cross-sell, up-sell, mining of existing large clients across end-user industries and better ability to bid for large deals. Operating profitability should benefit from efficient employee utilisation and balanced offshore component. Furthermore, financial risk profile continues to be strong, supported by robust cash-generating ability.
The ratings also reflect the strategic focus of the parent, L&T, on the service business, contribution of which has been improving over the years both in terms of revenue and profitability. The parent 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 IT business in general and the services business. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of LTIM and its subsidiaries, held directly or indirectly, as all the companies have a common management and are in the same business. The ratings also factor in the support expected from the parent. LTIM will, in case of exigencies, receive the required support from its parent considering its strategic focus towards service-based businesses.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: Healthy business risk profile supported by established market position The company has a strong market position in key end-user industries, and sound operating efficiency. During fiscal 2023, it received 37% of revenue from the BFSI (banking, financial services and insurance) vertical; 24% from high-tech, media and entertainment; 17% from manufacturing and resources; 15% from retail, CPG, travel, transport and hospitality; and the remaining 6% from health, life sciences and public services diversified.
Healthy deal pipeline and increasing number of active clients provide strong growth visibility for the medium term. The number of active clients increased to 728 as on March 31, 2023. With faster growth in digital areas and addition of customers, dependence on the top 5-10 clients has been reducing gradually over the past 4-5 years, thereby further benefiting business risk profile.
Operating profitability has remained above 18% over the fiscals, leading to high return on capital employed (RoCE) of 40%.
Strong financial risk profile Financial risk profile is backed by a large networth (more than Rs 15,000 crore as on March 31, 2023), healthy cash accrual, near debt-free balance sheet and robust liquidity (Rs. 8,355.2 crore on March 31, 2023). No large, debt-funded capital expenditure or acquisition is planned for the medium term, and capacity expansions shall be funded through internal accruals. With ample cash surplus and minimum reliance on debt, capital structure is expected to remain stable over the medium term.
Strategic importance to the parent, L&T The IT services business has become increasingly critical to the L&T group in recent years. Against the earlier stance of focusing on the infrastructure and capital-intensive segments, the group is now concentrating on the services business, which includes financial and IT services. The revision in strategy is also a fallout of the lower-than-envisaged performance of the infrastructure business and sustained growth in the service business, which is asset-light, has healthy growth potential and offers high RoCE.
L&T has also been leveraging the capabilities of the services segment to augment its core business. The acquisition of Mindtree in 2019, the strategic initiative called L&T Nxt in the same year (taken over by Mindtree in July 2021), as well as the merger of Mindtree with LTI bodes well for the IT business in general and services business.
LTIM also benefits from the strong brand and domain expertise of the L&T group, resulting in better market penetration and acceptability. Treasury operations are supported by L&T Treasury, and critical treasury decisions are taken by the treasury committee, which consists of members from the parent and LTIM, which have five common board members.
Weaknesses: Customer and geographic concentration in revenue North America contributed over 70% to the revenue profile of LTIM in the two fiscals through 2023. Any regulatory change in the region could have a significant impact on operations. Protectionist measures adopted by the US may also pose a challenge. However, this is an inherent feature of most major companies in the IT services industry as a significant portion of revenue originates from the US.
Exposure to intense competition IT players in India will need to consistently scale up their operations on account of intense competition from peers and multinational corporations that are expanding their offshore operations in India. The other challenges include maintaining an efficient cost structure, ensuring effective labour retention and utilisation, and remaining responsive to the dynamic nature of the industry. With digital services gaining traction, more companies are intensifying their focus on the digital technology space, thereby intensifying competition. Hence, ability to provide differentiated services will remain critical. |
Liquidity: Superior Liquidity is driven by expected annual cash accrual of more than Rs. 4,000 crore over the medium term, leading to further accretion to cash surplus that stood in excess of Rs. 8,300 crore as on March 31, 2023. The company has remained nominally debt reliant and is expected to remain so in the absence of any major debt-funded expansion plans over the medium term. Cash accrual will be more than sufficiently cover incremental working capital requirement and small-ticket acquisitions. |
Outlook: Stable LTIM will maintain its healthy business risk profile over the medium term, supported by steady revenue growth, sound operating efficiency and the strength of the L&T brand. Financial risk profile is expected to remain strong because of healthy cash accrual, debt-free balance sheet, and moderate capital spending. |
Rating Sensitivity factors Downward factors
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About the Company Based in Mumbai, LTIM was incorporated in December 1996 and is a subsidiary of L&T. It provides IT services, including application, development, maintenance, enterprise solutions, infrastructure management services, testing, analytics, AI, and cognitive and other services. In January 2014, the company transferred its product engineering services division to a group company, Larsen & Toubro Technology Services (‘CRISIL AAA/Stable/CRISIL A1+’).
LTIM has offshore delivery centres in Mumbai, Pune, Bengaluru, and Chennai; global development centres in the US, Canada, Europe, South Africa, the Middle East, and Singapore; as well as various sales offices. |
Key Financial Indicators (consolidated)
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
* - Partially fungible with fund-based facility (overdraft/packing credit) to the extent of Rs 70 crore # - Partially fungible with non-funded lines to the extent of Rs 26 crore |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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