Analyst tracker: LTIMindtree emerges as top IT pick with robust deal flow, high growth traction

LTIMindtree has rallied 13 percent in the last six months. In comparison, the benchmark Nifty 50 has risen around 11 percent during this period.

LTIMindtree emerged as brokerages’ favourite IT stock in the October-December 2023 quarter despite the cautious outlook on the sector amid muted growth, macroeconomic headwinds, and slow deal momentum. According to Moneycontrol's analysis, LTIMindtree stock has a 'buy' rating from 22 analysts in the third quarter, compared to 19 in the previous quarter. Meanwhile, the 'hold' and 'sell' calls have reduced by one to 10 each.

The bullish stance of analysts is driven by LTIMindtree's better-than-expected performance in Q2 FY24, strong deal pipeline, improving growth in SAP digital, data, and vendor consolidation. After LTIMindtree, Infosys was analysts' favourite large-cap IT stock in the quarter, with 21 'buy' calls.

LTIMindtree outlook positive

HDFC Securities expects LTIMindtree's growth to continue in the coming quarters. According to the brokerage, the IT company is set for sustainable growth outperformance, driven by a robust and growing deal pipeline, along with strong traction in high-growth services compared to larger IT peers.

Moreover, the merger—which brought L&T Infotech’s engineering prowess and Mindtree’s customer-centric approach together—has presented LTIMindtree with a large cross-selling opportunity, analysts noted.

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For the quarter ended September 2023, LTIMindtree’s PAT beat estimates. The company reported a 2.25 percent on-year decline in net profit at Rs 1,162 crore due to demand uncertainty, muted revenue growth and wage hikes. Its consolidated revenue came in at Rs 9,048.6 crore, growing 7.86 percent YoY, in line with expectations.

In dollar terms, the IT firm's revenue came in at $1.08 billion, beating analysts’ estimates. It maintained 17-18 percent operating margin guidance for Q4 FY24. The IT services firm reported the total contract value (TCV) of deal wins at $1.25 billion in the September quarter, suggesting that the pipeline is healthy. Management expects healthy TCV in the second half of FY24 as well.

Given its strong pipeline, deal momentum, and recent closures the LTIMindtree management is confident of better H2 FY24 and achieving a 17-18 percent EBIT range as it exits FY24.

"The robust order inflow, healthy deal pipeline and ramp-up of deals closed in Q1 and Q2 FY24 is expected to drive growth in the second half of FY24 and also set the tone for promising FY25," said Sharekhan in its report. It maintained a 'buy' rating on the stock with an unchanged target price of Rs 5,880.

ICICI Securities forecast revenue, EBITDA and PAT CAGR of 13 percent, 17 percent and 16 percent respectively over FY24–26E, assuming 180 basis points margin expansion over these two years. “We maintain HOLD with a revised 12-month target price of Rs 5,266,” the brokerage said.

Headwinds and tailwinds

Nuvama Institutional Equities has picked LTIMindtree as one of its top IT services sector stocks for its exceptional quality.

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IDBI Capital has a 'hold' rating on the stock. It believes that improving growth in SAP digital, data, vendor consolidation and ramp-up of deal wins will boost revenue growth for LTIMindtree in the long term. "This coupled with cross-sell and participation in bigger deals bodes well for long-term growth," it said.

Axis Securities said that from a long-term perspective LTIMindtree is well-placed to encourage growth, given its multiple long-term contracts with the world’s leading brands. "Richer revenue visibility gives us confidence in its business growth moving forward," it said. However, rising concerns over the prospects of large economies along with prevailing supply-side constraints pose uncertainties over the company’s short-term growth rates.

Yes Securities, which also has a 'buy' call on LTIMindtree with a revised target price of Rs 6,360, expects revenue growth to pick up from the second half of FY24 led by robust deal booking and a strong deal pipeline. Employee attrition is expected to come down going ahead and should support operating margin.

HDFC Securities analysts believe that LTIMindtree will continue to grow at a premium to tier-1 IT and its margin will converge with tier-1 IT median driving superior earnings growth, the brokerage said. On the flip side, however, sub-par deal bookings, higher-than-usual impact of furlough in Q3 FY24, and a high mix of BFSI can restrict growth.

Valuations

According to HDFC Securities, LTIMindtree’s valuation in October 2023 was the most attractive within the large-cap IT on a price/earnings-to-growth (PEG) basis. The brokerage put a 'buy' call on the stock with a target price of Rs 5,890.

"The LTIMindtree stock has underperformed peers and trades at more realistic, albeit full valuations," Kotak Institutional Equities said back in October 2023 when the stock was trading in the Rs 5,100-5,200 range. However, since then the stock has rallied around 13 percent and is currently trading above Rs 5,900 mark.

The stock has already surpassed the highest target price of Rs 5,890, and currently, its one-year forward PE is at 36.46x. LTIMindtree has rallied 13 percent in the last six months. In comparison, the benchmark Nifty 50 has risen around 11 percent during this period.

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In the last one year LTIMindtree stock has rallied nearly 40 percent outperforming peers like HCL Tech, TCS and Infosys which have risen 36 percent, 12 percent and 4 percent, respectively, during this period.

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