LTIM targets $1 billion in incremental revenue post-merger, what do brokerages say?

LTIMindtree (LTIM) opened 2 percent higher on March 15 after the company conducted its first analyst meet post LTI (L&T Infotech) and Mindtree’s merger completion in November last year.

The company discussed integration, synergies as well as its future growth outlook and mentioned that the operational integration is complete. The management is focused on building a unified culture with a one go-to-market (GTM) model, ‘LTIM one’ which will lead to an integrated sales and deals team and have sales aligned to vertical and geographical segments with no change in client interfaces.

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At 10:47 am, the scrip was trading Rs 0.64 percent higher at 4,596.05 a piece on the NSE.

Synergies and growth outlook

The company has a target of achieving $1 billion in incremental revenue through cross-sell synergies over the next 2-4 years and 19-20 percent EBIT margins by FY27. It aims to derive revenue synergies through cross-sell/up-sell opportunities across its existing 374 client accounts with each more than $1 million in revenue size.

Its total large deal pipeline (i.e. deal size above $20 million) stood at $3.18 billion with 68 deals in the pipeline, which comprised of $968 million deals with the new logo. The company also highlighted that 55 percent of its current revenue capability area (experience, data, cloud and cybersecurity) is unaffected by the current macro uncertainties.

“However, there is rising boardroom caution leading to slower decision-making and slower deal execution, which could impact near-term growth,” as per brokerage firm Jefferies.

The company’s growth levers include Minecraft 2.0, Aspire, Everest, Neo.

SVB Impact

On the Silicon Valley Bank (SVB) collapse impact, the company mentioned that while it has exposure to SVB both as a banker and a client, it is quite small. The company also added that its exposure to some regional US banks also remains small with no red flags currently in any of the banks. The company works with 12 out of 20 GSIBs (Global Systemically Important Banks).

Brokerage view

Brokerage firm ICICI Securities has a 'Buy' recommendation on the stock at a target price (TP) of Rs 4,567 per share.

“We continue to assume 14.5 percent US$ revenue CAGR over FY23-26E given strong cross-sell/up-sell opportunities, ability to participate in larger deals post-merger and strength in hyperscalar and SaaS partnership-led sales. We see strong management execution track records in the past at both Mindtree and LTI to become a bedrock for LTIM to ensure industry-leading profitable growth in coming years,” it said.

Phillip Capital believes that the bigger base and complimentary vertical profile of LTI and Mindtree will help the combined entity outperform Tier I peers over the medium to long term and has a 'Buy' rating at a TP of 5,640 per share.

Analysts at Kotak Institutional Equities, however, do not see any upside potential on the stock highlighting that it is trading at full valuations and has given it a 'Reduce' rating with a TP of Rs 4,600 per share.

“LTIM is well-positioned to address all aspects of demand - discretionary, cost take-outs and legacy modernisation. The churn among titleholders appears to be a manageable risk, given the completion of integration. Synergy benefits are already visible in deal wins and will soon contribute to revenues significantly. The stock trades at full valuations and offers limited upside,” it said.

“We believe LTIM's valuation of 26x 1-year fwd PE (15 percent premium to avg) does not bake in rising caution among clients and execution risks post integration,” says Brokerage firm Jefferies with an 'Underperform' rating on the stock at a TP of Rs 3,710 per share.

Motilal Oswal has a 'Neutral' rating on the stock with a TP of Rs 4,590, “LTIM as a combined entity has deep domain capabilities, strong partnerships with hyperscalers, and a robust sales engine, which will result in industry-leading growth. We expect a USD revenue CAGR of ~13% over FY23-25, which is at the top end of our Tier I IT coverage universe."