LTM (LTM IN) – Q2FY27 Result Update – Steady performance, but integration overhang – Downgrade to ‘HOLD’

LTM reported Q2FY27 growth of 1.1% QoQ CC, ahead of our est. of 0.8%, while EBIT margin improved 10bps QoQ to 15.6%, broadly in line of our est. of 15.5%. Growth was largely broad-based, with FS and Production reporting strong sequential growth while Tech & Services declined sharply due to seasonality in top client and the impact of the ME business. However, management expects the vertical to normalize in Q3, supported by healthy demand and revenue conversion from recent wins. The CBDT deal is also expected to ramp up gradually as hardware availability improves. The Middle East conflict, particularly the sharp revenue decline in Saudi Arabia, adversely impacted Q2 growth by an estimated 60–70bps; excluding this impact, management indicated sequential CC growth in band of 1.7–1.8%. Management remains confident of delivering better growth in H2FY27 versus H1 and reiterated its endeavour to bring organic FY27 growth closer to FY26 levels. Order inflow stood at USD 1.26bn was weak but management indicated that lower deal TCV was due to strategic shift towards shorter-tenure AI-led engagements that offer faster revenue conversion, rather than weakening demand as AI revenue grew 40% YoY to contribute 13.4% of total revenue. With largely inline performance, we maintain our organic revenue growth est. for FY27E/FY28E, while incorporating the Randstad acquisition numbers from Q4FY27, taking our consolidated rev. growth est. to 7.0%/12.2%, translates organic growth of 4.3% and 5.3% for FY27E/FY28E. Also, factoring in margin dilution from the acquisition, we revise our EBIT margin estimates downward to 15.2%/15.0% from 15.5%/15.6%, respectively for FY27E/FY28E. We assign 18x PE to Sep. 28E EPS for a TP of 4,240. Valuations at peak, we downgrade our rating to HOLD (ACCUMULATE earlier).