LTIMindtree, a rising and shining star of the IT sector, entered the Nifty 50 in July, but it also bagged the dubious contention of being among stocks having most bearish calls along with its peers Wipro, Infosys and Tata Consultancy Services (TCS).
Usually, new entrants into the coveted Nifty 50 index get fresh inflow by way of passive funds that follow the index, which leads to a rise in share price. Moreover, more money flows into the stock amid expectation of rise in price, leading to a multiplier effect.
As per Bloomberg data as of July-end, the LTIMindtree stock has 17 buy calls, 12 sells and 11 holds. This puts only 43 percent of analysts covering the stock being optimistic on it. Ideally, in such situations, when a stock enters the Nifty, analysts are bullish on a stock as being bearish will be contrarian.
The analysts’ stance is not without merit, though. Since such incremental flow can sustain gains in a stock for a few weeks at most, and in the long-run valuations, fundamentals and growth outlook will play a big role.
The IT industry has been struggling for a while as western economies, where most of their clients are based, find it difficult to grow. This has led to a drop in demand for IT services and deals are happening at a slow pace, making it difficult for IT companies to maintain growth. Margins have also suffered in such a scenario.
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Analysts at IDBI Capital said the company’s recent financial performance has taken a hit led by “slow decision making, delay in ramp-ups, slowdown in discretionary spend and banking”. Though the company continues to win robust deals ($1.4 billion in June quarter, 1.3x book to bill) there is delay in conversion and ramp-up.
In Q1FY24, LTIMindtree Ltd generated a revenue of Rs 8,702 crore, up 0.1 percent on-quarter, due to subdued performance across all divisions and regions. EBITDA margin expanded 30bps QoQ to 18.8 percent, backed by a focus on managing costs and improving operational efficiency. Adjusted profit after tax grew 3.4 percent QoQ (up 4.2 percent YoY) to Rs 1,152 crore in Q1FY24.
Also read: Big 4 IT stocks yet to catch up with mid-sized peers
LTIMindtree has been aiming for a double-digit growth in FY24, which analysts at several brokerage houses found unlikely after subdued Q1 numbers. Sumit Jain of ICICI Securities said he expects 7.7 percent constant currency revenue growth for FY24, against a prior estimate of 9.8 percent. “On the back of this cut to our topline growth in FY24, we lower our FY24-26 EPS estimates by up to 5 percent,” he said.
The management is of the view that things will only improve from hereon and the next quarter’s performance will be better, though not robust. This view has found both backers and sceptics among analysts. But most agree that the longer term – beyond 1-2 years – growth trajectory remains intact.
“We believe that LTIM will continue to grow at a considerable growth premium to tier-1 IT and the company will take market share from tier-1 IT,” said analysts at HDFC Securities that has a ‘buy’ rating.
Another slightly positive thing is that analysts seem more bearish on its bigger peers such as Wipro and Infosys than LTIMindtree. This puts the company in a favourable spot compared to others in the industry.
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