Motilal Oswal Securities has reiterated its Buy on LTMindtree, with a target price of Rs 7400 per share, as the brokerage bets a recovery in America's BFSI sector will be a key factor driving future growth.
The target price implies a 16% potential upside for the stock. MOSL said LTIM may clock a CAGR of 10%/13.7% in USD revenue/INR PAT over FY24-27E.
The US BFS sector accounts for 35 percent of LTIMindtree's revenue. After the Fed rate cut, there is anticipation that more ERP modernization projects could take off the ground, which in turn will help LTIMindtree. The MOSL note said it sees US clients resuming ‘high-priority’ projects in this vertical.
LTIMindtree needs to be watchful of concerns over margin expansion and churn at the top level, MOSL note said. The midcap IT company's strength lies in data engineering, and ERP modernization, and it is well-placed to benefit from the emerging opportunity arising out generative AI investments.
"Initial investments (by US clients) will be centered on data, cloud, and digital infrastructure, and LTIMindtree is well-placed to leverage this emerging opportunity," said the MOSL note.
During the June quarter earnings call, CEO and MD Debashis Chatterjee said, "It's too early to call out for the rest of the year. But at least in some verticals, BFS especially, we can see the momentum continuing till end of the year as well for the full year. But it's difficult to call out every industry at this point of time. But at a broad level, the momentum is continuing into Q2 as well."
In Q1FY25, LTIMindtree's BFSI business returned to 2.8% QoQ growth after four consecutive quarters of decline. MOSL said the June quarter saw 'greenshoots' in some client spends, in terms of allocation to high transformation in BFSI, which is LTIM's largest vertical.
The company is also seeing good momentum in manufacturing, and MOSL believes this is likely to sustain, as the rate cut cycle will 'further spur investments in technology'.
However, there is a note of caution. MOSL said further re-rating of the stock will depend on margin as well as volume recovery, since there are not too many levers apart from the revenue growth. Staffing is another factor that could impact LTIMindtree's execution. "Headcount addition has been meek in the past four quarters and ramping up hiring could lead to margin pressures."
The merger resulted in top-level exits, leading to a high attrition rate among the senior management, but MOSL added that the worst is behind and the top-level churn is likely to
be 'benign'.
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