LTIMindtree Targets $1 Billion in Incremental Revenue Post-Merger; Should You Buy?

IT Shares: LTIMindtree (LTIM) opened 2 per cent 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.

IT services provider LTIMindree Ltd (LTIM) at its first investor day meet after the merger outlined its growth strategies under the LTIM One plan. Among the key highlights was the management’s endeavour to consistently deliver industry leading profitable growth. LTIM eyes $1 billion in revenue synergies over the next four–five years.

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.

Other Key Takeaways from LTIM Investor Day 2023:

– No material impact on BFSI vertical due to SVB crisis

– Management expects EBIT margins to improve to 19-20% by FY27

– LTIM has resilient bluechip account portfolio

– Huge cross sell/upsell potential

– Robust partnership led sales engine

– Combined entity LTIM has higher large deal opportunities

– Capital allocation framework and RoCE target

What Should Investors Do?

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 per cent over FY23-25, which is at the top end of our Tier I IT coverage universe.”

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