LTIMindtree shares jump 8%; Kotak ups stock price target amid Nifty exclusion

Kotak expects LTIMindtree to report a revenue growth of 6.5 per cent in FY2025, which may further accelerate to 11 per cent in FY2026 from 4.4 per cent in FY2024 on the back of a recovery in the two largest verticals—BFSI and hi-tech. 

LTIMindtree, which are among to stocks to be excluded from Nifty 50 in the September rejig, saw its shares rallying 8 per cent in Wednesday’s trade after Kotak Institutional Equities upped its rating to ‘ADD’ against “Reduce’ earlier and upgraded its target price to Rs 6,200 from Rs 5,500 earlier, saying the IT major will be a key beneficiary of the recovery in the impacted segments of banking and financial services (BFS) and hi-tech sectors

Key drivers behind the LTIMindtree upgrade:

Anticipated recovery in key segments

Analysts project that dollar revenue growth for LTIM will increase to 6.5 per cent in FY25 and accelerate further to 11 per cent in FY26, up from 4.4 per cent in FY24. This growth is expected to stem from a recovery in major verticals like BFSI and hi-tech.

Kotak Institutional Equities suggests that LTIM stands to benefit considerably from this recovery, particularly in the US market, where increased tech spending is anticipated.

LTIM’s presence in rapidly improving areas such as capital markets, risk and compliance, and core modernisation positions it well. Additionally, LTIM is likely to gain from consolidation deals within the banking sector, including partnerships with clients like ABSA. While there are challenges in the retail and manufacturing sectors, these are expected to be manageable, analysts opined.

Expect consistent strong growth

LTIM is known for its high-quality, scalable client base across various verticals. The company’s expertise in cloud computing, modern ERP, data analytics, AI, industry-specific solutions, SaaS implementation, and IT operations, analysts said, allows it to capture a broad market within clients’ IT budgets.

The absence of a BPO segment, which is vulnerable to disruptions from generative AI, analysts believe, could be advantageous. LTIM’s position as a strong challenger vendor benefits from the increasing acceptance of niche and challenger vendors by enterprises.

Senior management attrition slows slightly

Leadership departures have eased slightly over the past 3-4 months following a spike in exits earlier this year. While analysts anticipate greater stability, departures remain a possibility due to high demand for senior talent.

Notably, the head of delivery for India, APJ, and the Middle East left the company in August.

Thus, analysts opined, maintaining a stable leadership team is essential for achieving the merger’s revenue synergy goals, though the current team still comprises many capable individuals who can drive growth.

Limited scope for Ebit margin expansion in FY25

However, analysts caution that earnings before interest, taxes (Ebit) margins may face pressure due to the upfront costs associated with large deals and investments. With the current utilisation rate at 88.3 per cent, above the management’s preferred range of 85-86 per cent, margin expansion could be constrained.

Kotak Institutional Equities forecasts Ebit margins of 15.4 per cent in FY25 and 16 per cent in FY26. Although revenue growth is expected to help offset margin pressures, analysts said, the potential for margin improvement is already included in the estimates. The company’s deferred annual wage hike to Q3FY25 is also a factor to consider, they added.

The stock has gained 5 percent in the last one month but on a year-to-date basis, it is trading 3 per cent lower. In the past 12 months, the stock has gained over 18 per cent, underperforming benchmark Nifty which rallied 30 per cent during this period

With Thanks Reference to:  LTIMindtree shares jump 8%; Kotak ups stock price target amid Nifty exclusion – BusinessToday and LTIMindtree Stock Rises 6% On Upgrade By Kotak, GST Relief; Details – News18