LTIMindtree shares were trading 3 percent higher on February 16, as pessimism around the information technology sector appears to be ebbing.
The sentiment towards IT stocks remains mixed. Some analysts predict weak demand in FY24, while others expect it to bottom out in FY25 and pick up in FY26.
Those less pessimistic expect a faster revival in the sector and LTIMindtree to benefit more than peers.
ICICI Securities expects a mid to high single-digit growth for the top five Indian IT companies in FY24.
The analysts base this on leading demand indicators such as real GDP growth, company headcount growth, the latest commentary from managements and S&P 500 revenue growth in CY23.
Demand for IT services could remain weak in the first half of 2023 but is likely to pick up in the second half of the calendar year, they wrote in their report.
According to the brokerage, LTIMindtree is expected to be the fastest-growing IT services company under their coverage, driven by strong cross-sell and upsell opportunities within the combined entity.
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The report said the merger of the two companies would help them cross-sell and upsell their solutions to various clients.
With Mindtree stronger in front-end digital solutions and LTI strong in back-end ERP-related core transformation solutions, the limited client overlap would ensure minimal disruption to operations after the merger
ICICI Securities sees revenue growing at 12.3 percent, 14.5 percent, and 16.2 percent in FY24, FY25, and FY26 respectively, in constant currency terms.
The brokerage expects EBIT margin to expand 260 basis points over FY23-26 and the stock to experience a 20 percent upside based on a P/E of 25x FY26E.
One basis point is one-hundredth of a percentage point.
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Jefferies is less optimistic about the sector as well as LTIMindtree. The firm's Q3FY23 review said that the growth outlook is uncertain.
"A sharp slowdown in net hiring, muted growth outlook in 4Q and slower growth of mid-sized IT firms vs. larger IT firms points to a moderating growth outlook for Indian IT. However, easing wage pressures should support ongoing margin recovery," its analysts said in a review.
Also read: How Infosys bucked the pessimistic outlook on IT cos
They remain selective in their IT picks and have a “buy” call only on Infosys, with uncertain growth outlook and rich valuations being the key concerns.
Weakening margins as a percentage of revenue and rising employee costs as a percentage of sales were the concerns highlighted about LTIMindtree.
At 12.19 pm, the stock was trading 3.5 percent higher at Rs 4,907 on the National Stock Exchange.
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