A Neutral View On A Large Cap And A Mid Cap Stock

Motilal Oswal, a leading brokerage has given a neutral view on stock of two companies that do have a potential to grow marginally. The brokerage has also set target price for the companies, LTIMindtree and PVR Ltd. The brokerage has reiterated its valuation for one of the companies.

Neutral view on LTIMindtree Ltd, with a target price of Rs 4,590 per share
LTI Mindtree Limited, is a large cap IT company, which is a subsidiary of Larsen & Toubro and was incorporated in 1996. The current market capitalisation Rs 1,35,560.09 crore.

According to Motilal Oswal, the company is leveraging multiple margin levers to deliver consistent profitable growth. "As a combined entity, the company is in a better position to rationalize employee pyramid, attrition has started to cool off sharply, which is reducing backfilling and retention costs, and normalizing wage hikes for selective group of people who have been hired at a high base. The management expects a 200 basis points margin improvement (over normalized margins of LTI and Mindtree) through cost synergies. EBIT margin is expected to be in the range of 19-20% by 2027."

"The 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. We value the stock at 25x FY24E EPS. We have a Neutral rating with a price target of Rs 4,590."

The last closing price of the stock is Rs 4,582.55 per share and it was up by 0.35% on intraday basis. The 52-week high was Rs 6,429.40 per share and 52-week low is at Rs 3,733.25 per share. In last one year the price has fallen by 24.12%.

Neutral view PVR Ltd, with a target price of Rs 1,570 per share
PVR Ltd, is a mid cap company that has a chain of multiplex cinemas, that was founded in June 1997. The current market capitalisation Rs 15,154.77 crore.

The brokerage mentioned that the merger of PVR and Inox has made the company a dominant player with the biggest screen presence of over 1,600. Even the revenue and EBITDA generation capacity was approximately to Rs 56.6 billion and Rs 8 billion (FY23E) for the merged entity, it can further aid the footprint expansion plans without denting the leverage position of the company.

As per Motilal Oswal, "the continued uncertainty around acceptability of content, slower recovery in occupancies and advertising revenues, increased risk of rising scale, and the traction of movie releases over OTT platforms, as highlighted in our report, continue to be our key monitorables. The rich valuation the company commanded historically has contracted, given the slower recovery and risk posed by OTT players. We value the merged entity at 9x FY24E EV/EBITDA and maintain our price target of Rs 1,570. We reiterate our Neutral rating on the stock."

The last closing price of the stock is Rs 1547.15 per share and it was up by 1.28% on intraday basis. The 52-week high was Rs 2,211.55 per share and 52-week low is at Rs 1,483.55 per share. In last one year the price has fallen by 10.25%.

Disclaimer:
The stocks have been picked from the brokerage report of Motilal Oswal, Greynium Information Technologies and the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.