IT stock to be in focus this week as scrip to trade ex-dividend worth 2000%

The company has fixed Tuesday, January 31, 2023 as the ‘Record Date’ for the purpose and since the Indian stock market adopted T+1 settlement cycle on 27th January, the ex-date for LTIMindtree is also falling on the same day.

IT services firm LTIMindtree reported a decline of 4.7 per cent in net profit to ₹1000.7 crore for the December 2022 quarter which is against a net profit of ₹1050.1 in the year ago period. The company posted revenue from operations of ₹8620 crore in Q3FY23 against ₹6880.7 crore in Q3FY22, registering a growth of 25.3% YoY. The company posted an EBITDA of ₹1374.8 crore in Q3FY23 as compared to ₹1426.3 crore posted in Q3FY22, registering a fall of 3.6% YoY.

Post the mix Q3 performance of LTIMindtree, the research analysts of the broking firm Anand Rathi said “With revenue up 2.4% q/q (~1% from pass-throughs) to ~$1,047m, LTIMindtree grew on par with the industry and in line with our expectations. TCV was $1.25bn, a book-to-bill of 1.2x (Mindtree operated in the past at 1.2x). The EBIT margin was lower due to more Hi-tech furloughs, employee costs and integration costs which may not recur in Q4, leading to management guidance of a 200bp expansion in Q4. Attrition moved down further and industry tailwinds are likely to continue. Estimates are largely unchanged with a revised TP of Rs5,520 (from Rs5,630) at 26x (unchanged) FY25e. We expect LTIM to deliver a 13% revenue CAGR over FY23-25 and increase EBIT margins to ~18% by FY25, from 16.3% in FY23, leading to a 20% EBIT CAGR. This would result in an EPS of Rs.213 for FY25. The stock trades at FY25e PE of 20x which we find attractive; our target is based on 26x FY25e EPS (Rs5,520).”

The research analysts of Sharekhan said “We expect the outlook for FY24 to be uncertain on account of global headwinds and any recovery is most likely to be gradual. Post-merger, LTIMindtree is well-placed to provide cross-selling and up-selling opportunities and reap significant revenue and cost synergies over the longer term .Hence, we maintain Buy rating on LTIMindtree with a revised PT of Rs. 4965 despite the muted results in a seasonally weak quarter.”

The research analysts of ICICI Direct Research said “LTIM’s share price has grown by ~5.5x over the past five years (from ~ ₹770 in January 2018 to ~ ₹4,270 levels in January 2023). We maintain our BUY rating on the stock. We value LTIM at ₹4,940 i.e. 24x FY25E EPS.”

The research analysts of HDFC Securities said “LTIMindtree (LTIM) delivered its first quarterly performance as a combined entity clocking quarterly revenue of USD 1.05bn and recording deal bookings of USD 1.2bn. We believe that LTIM can take market share from tier-1 IT (LTIM 5% of India tier-1 IT but 8-10% share of incremental growth). LTIM expects ~USD 1bn in revenue synergies over 4-5 years and ~200bps cost synergies. Our TP of INR 4,920 and rating of BUY is based on a 15% revenue CAGR and 17% earnings CAGR over FY22-25E and is supported by (1) an increase in deal pipeline and a greater proportion of large deals supported by strong client mining credentials (T10 accounts have grown at >4% CQGR and USD 10mn+ up >20% in last six quarters); (2) strong cross-sell and up-sell opportunity supported by vertical and service-line synergies with limited client overlap; and (3) operational synergies supported by access to wider talent pool (86k+ employees), SG&A optimisation and consolidation of delivery centres (India and Europe overlap). We also believe that risk mitigation will be work in progress as the attrition risk at the senior leadership level persists (recent exit being joint President Sales). While vertical-specific (hi-tech) challenges have increased, the supply side factors have become favourable since the announcement of the deal in May’22. The opportunities of transition from midtier IT to tier-1 are greater than the risks of this transition. We value LTIM at 25x Sep-24E EPS implying a PEG of <1.5x.”

The research analysts of Axis Securities said “From a long-term perspective, we believe LTIMindtree is well-placed for encouraging growth, given its multiple long-term contracts with the world’s leading brands. Richer revenue visibility gives us confidence in its business growth moving forward. However, rising concerns over the prospects of large economies along with prevailing supply-side constraints pose uncertainties over the company’s short-term growth rates. We recommend a BUY rating on the stock and assign a 22x P/E multiple to its FY25E earnings of ₹188/share to arrive at a TP of ₹4,950/share, implying an upside of 16% from the CMP.”

The research analysts of IDBI Capital said “LTIM reported 1.9% QoQ growth in revenues despite furloughs and merger related challenges. We believe that as the merger related issues iron out, the company will report improving revenues and profits. In terms of synergies, the company is expected to benefit from cross sell & up sell opportunities, diversification of portfolio, inorganic growth, end to end services, client mining and larger deals. Further, the company aims to add US$1 bn over next 5 years led by synergy benefits. It also aims to add another 200 bps improvement (i.e 19.5%) in margins from 17.5% odd levels in coming years. In near term, we expect the company to grow at a CAGR of 15% over FY22-25E and improve margins by 190 bps to 18% in FY25E. Hence, we upgrade the stock from HOLD to BUY with a revised target price of ₹5,000 (25x FY25E EPS).”

The shares of LTIMindtree Ltd closed on Friday at ₹4397.00 apiece level, down by 0.88% from the previous close of ₹4436.05.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.