Buy LTIMindtree; target of Rs 5890 HDFC Securities

HDFC Securities' research report on LTIMindtree

LTI Mindtree (LTIM) delivered in-line revenue performance in Q2FY24. Key positives were (1) broad-based growth within client cohort and verticals exBFSI; (2) growth in net employee adds (vs. declining trend in large cap IT) following three quarters of decline, indicative of stronger H2 seasonality (despite furlough impact in Q3); (3) strong operating performance despite the impact of wage hike on efficiencies and business mix coupled with an improving trajectory (the outlook of 17-18% EBITM exit to FY24E and 200bps expansion in the medium term). On the flip side, sub-par deal bookings, higher-than-usual impact of furlough in Q3FY24E, and a high mix of BFSI (volatile based on macro) can restrict growth. We believe that LTIM 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.

Outlook

LTIM’s valuations remain most attractive within large-cap IT on a PEG basis (18% EPS CAGR over FY23- 26E vs. large cap peers at 10% CAGR). Maintain BUY on LTIM with TP of INR 5,890 based on 26x Sep-25E EPS.

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