Shares of LTIMindtree rose over 6 percent after Kotak Institutional Equities upgraded the stock. This increase also follows the Karnataka High Court’s stay on a Rs 378-crore tax order against the company for alleged non-payment of integrated goods and services tax.
Kotak has raised its rating to 'Add' from 'Reduce' and increased the target price to Rs 6,200. LTIMindtree is on the path to a healthy recovery in revenue growth in the next couple of years from the trough of FY24, aided by a recovery in spending sentiments in the BFS vertical, according to the brokerage.
"We increase FY25-27E dollar revenue by 0.5-1 percent, leading to a similar increase in earnings per share (EPS) estimates. We value the stock at 28x September 2026E earnings (26x earlier), resulting in a fair value (FV) of Rs 6,200 (Rs 5,500 earlier)," Kotak said in a note, adding that it expects the IT firm to be a good compounding play with a strong and consistent EPS growth trajectory.”
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Recovery expected in key sectors
Kotak analysts forecast LTIMindtree’s dollar revenue growth will rise to 6.5 percent in FY25 and 11 percent in FY26, up from 4.4 percent in FY24, driven by a rebound in key sectors like BFSI and hi-tech. They noted that the company is poised to gain significantly from this recovery, especially in the US, where tech spending is expected to increase.
According to the brokerage noted, LTIMindtree is well-positioned in growing areas such as capital markets, risk and compliance, and core modernization, and stands to benefit from consolidation deals in the banking sector, including partnerships with ABSA. Despite challenges in retail and manufacturing, analysts expect these to be manageable.
High-quality client base and strategic position
The company’s high-quality, scalable client base spans various sectors, with expertise in cloud computing, ERP modernization, data analytics, AI, SaaS, and IT operations, allowing it to tap into diverse IT budgets.
Kotak noted that LTIMindtree's lack of a BPO segment, which is vulnerable to disruptions from generative AI, could be advantageous, and its role as a challenger vendor aligns with the increasing acceptance of niche providers.
Management stability and Margin outlook
Recent senior management attrition has slowed, although high demand for talent means departures could continue. Maintaining a stable leadership team is crucial for achieving revenue synergies from the merger, though the current team remains strong, highlighted Kotak.
The brokerage forecast limited EBIT margin expansion in FY25 due to upfront costs from large deals and investments, with EBIT margins expected at 15.4 percent in FY25 and 16 percent in FY26. Despite anticipated revenue growth mitigating margin pressures, the scope for margin improvement is considered limited, with the company’s deferred wage hikes also impacting margins.
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At 11:21 am, LTIMindtree shares were trading over 5.6 percent higher at Rs 6,075.65 on the National Stock Exchange (NSE). The stock has gained 5 percent in the last one month but on a year-to-date basis, it is trading 3 percent lower. In the past 12 months, the stock has gained over 18 percent, underperforming benchmark Nifty which rallied 30 percent during this period.
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