Buy LTIMindtree; target of Rs 7000: Prabhudas Lilladher

Buy

Prabhudas Lilladher's research report on LTIMindtree

The quarterly performance was dominated by selective pockets BFS and Manufacturing, the Manufacturing growth was partly aided by passthrough component along with a ramp up of large deal. While CMT had a volume impact in 3Q owing to passing productivity benefits to a top account. Similarly, the full-quarter impact of productivity benefits would also be carried out in Q4, hence Q4 revenue would have a negative impact through CMT (productivity benefits) and missing passthrough component. The order inflows remained strong in 3Q with a slight improvement in discretionary spending, especially in the BFS segment. The management indicated that the clients are aggressively pursuing GenAI investments, the company is infusing AI into every large deal to optimize cost and drive efficiency to clients’ operations. We believe the management is quite aggressive in passing GenAI efficiency to clients in order to win higher wallet share and claim volume benefits in the near term. We are factoring in the Q4 impact of missing passthrough and lower volume on productivity commitment, which will get offset by missing furloughs and higher working day, which translates to a revenue growth of 5.5% CC YoY in FY25E. We are baking in revenue growth of 10.2% and 12.3% YoY CC in FY26E/FY27E. The execution on margins was strong in Q3, however the majority of the margin levers are fully utilized and the incremental growth would only be driven by similar uptick in volume. With compensation revision behind, the margins should see a recovery in 4Q. Despite the beat on margins, we are keeping our margin estimates unchanged for FY25E/FY26E/FY27E.

Outlook

With strong execution strategy and robust sales engine, LTIM is well positioned to play in the challenging environment with a mix of cost and transformation programs. We are baking in USD revenue/earnings CAGR of 8.8% and 11.9%, respectively. We are assigning P/E of 32x to FY27E with a target price of INR 7,000. Maintain BUY.

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LTIMindtree - 17012025 - prabhu