LTIMindtree Stock Falls By 842 Or 13% In 1 Day After Q3; 40% Potential Upside, Buy For Rs 7,585 TP

Disappointed Q3 earnings toppled tech giant, LTIMindtree into a frenzy fall on Thursday. In a single day, LTIM has nosedived by at least Rs 841.65 or 13.41% on BSE to hit an intraday low of Rs 5,436 apiece. LTIM has emerged as the top loser on both BSE and NSE, dragging the overall market as well. The near-term outlook for LTIMindtree looks week, but brokerages are either neutral or recommending buy on this IT stock.

Brokerage Yes Securities has recommended buying for a high target price of Rs 7,585 apiece. This implies a potential of nearly 40% upside going forward, compared to Thursday's low. Other brokerages like Motilal Oswal and Kotak Institutional Equities have maintained Neutral on LTIM.

On BSE, at the time of writing, LTIMindtree shares traded at Rs 5,644 apiece, down by Rs 633.65 or 10.03%. The m-cap stood at Rs 1,67,387.09 crore.

In Q3FY24, this L&T Group-backed tech player posted a net profit of Rs 1,169.3 crore, up by 0.6% QoQ and 16.8% YoY. Meanwhile, revenue from operations recorded growth of 1.2% QoQ and 4.6% YoY to Rs 9,016.6 crore. In dollar terms, the revenue growth was at 0.8% sequentially and 3.5% year-on-year. PAT and EBIT margins jumped by 140 bps and 150 bps year-on-year to 13% and 15.4% respectively.

The company has 739 active clients as of December 31, 2023. While it has 82,471 professionals under its ambit, its trailing 12 months attrition was at 14.2% by the end of Q3FY24.

Debashis Chatterjee, Chief Executive Officer and Managing Director on Wednesday revealed that the company booked its highest-ever order inflow at USD 1.5 billion, representing a 21% increase YoY, and its strong cash flow metrics helped the company cross Rs 10,000 crore in cash and investment balance.

"These strong indicators make us confident to deliver on our path to success as we enter the new year," he said.

LTIMindtree Share Brokerages Recommendation And Target Prices:

Talking about the financial performance, Motilal Oswal in its note said, "LTIM reported weak revenue growth of 0.7% QoQ/3.1% YoY CC in 3QFY24 vs. our estimate of 1.2% QoQ CC, despite having a meaningful pass-through component in the Manufacturing vertical. The growth was affected by higher-than-expected furloughs and a continued slowdown in discretionary spending. However, deal wins were strong at USD1.5b (up 15% QoQ/20% YoY) and management commentary on the deal pipeline was robust."

The management has indicated that 4Q growth will mirror 3Q due to persistent pressure on clients' spending, it said.

On the other hand, Yes Securities in its note said that LTIMindtree (LTIM) reported inline financial performance for the quarter. Both, the revenue growth and EBIT margin were as per expectation. It reported constant currency growth of 0.7% QoQ, led by Manufacturing vertical (up 20.1% YoY); and BFSI vertical (down 1.4% YoY). On a reported basis, revenue grew by 1.2% QoQ in INR terms (up 0.8% QoQ in USD terms).

Going ahead, Yes Securities note said, "The near term demand environment remains challenging as the clients remain cautious regarding the evolving macroeconomic situation and are taking more time for decision making, thus resulting in a slowdown in discretionary IT investments. This continues to impact near-term revenue performance. We expect revenue growth to pick up from Q4FY24 led by robust deal booking and strong deal pipeline. Employee attrition is expected to come down going ahead and should support operating margin."

Yes, Sec's note lastly added, "We estimate revenue CAGR of 16.4% over FY23‐26E with average EBIT margin of 17.4%. We maintain our BUY rating on the stock with revised target price of Rs 7,585/share at 31.0x on FY26E EPS. The stock trades at PER of 29.6x/25.7x on FY25E/FY256 EPS."

Meanwhile, Motilal Oswal said that the near-term slowdown in discretionary spending and its meaningful exposure to BFS would have an adverse impact on its growth performance. The brokerage expects a 9.7% CAGR in USD revenue over FY23-26.

Also, due to the company's strategic decision to defer the aspirational margin band, Motilal cuts its earnings estimate. The brokerage estimates a PAT CAGR of 13%
over FY23-26. It said, "We value the stock at 30x FY26E EPS. The current valuation of 29x FY26E EPS limits any meaningful upside from the CMP. We reiterate our Neutral rating with a TP of Rs 6,600."

Further, giving 'Reduce' on LTIMindtree, Kotak Institutional Equities in its note said, "Stock trades at expensive valuations of 32X FY2026E earnings. A weak show together with a muted near-term outlook does not do favours. We cut our FY2024-26E US$ revenue estimates by 1-3% and EBIT margin by 20-60 bps, resulting in EPS cuts of 4-5%."

Kotak's note added, "Presence across scale verticals, high-quality clients, good breadth of capabilities and experienced senior leadership team are elements that can drive healthy growth. Execution appears to be lacking and needs corrective action. We value the stock at 25X (earlier 26X) FY2026E earnings, resulting in Fair Value of Rs5,500 (earlier Rs5,910). Retain REDUCE."

LTIMindtree is a global technology consulting and digital solutions company that enables enterprises across industries to reimagine business models, accelerate innovation, and maximize growth by harnessing digital technologies.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.