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Sharekhan’s research report on LTIMindtree
The management indicated that unified offerings under LTIMindtree are aiding deal wins owing to expanded capabilities of the merged entity which would not be possible as a standalone entity. Large deal pipeline remains robust; the company has 68 large deals with TCV of $3.18 billion. The company expects 17%-18% margin levels over the next few quarters, post which it aspires to expand margins by 200 bps by FY27. The management indicated that there are enough margin levers in place for improvement through higher Utilization, lower subcontracting costs and by ensuring that existing resources are billed at the right price. LTI-Mindtree with its diverse set of clients across categories is well placed to leverage to cross sell/ up sell services. The company highlighted that its current cross sell ratio is three with nine service lines and are targeting to reach five; this will provide strong growth even with no new deal wins. The outlook for FY24 continues to be uncertain on account of global headwinds and any recovery is most likely to be gradual. However, we believe that LTIMindtree can take market share from tier-1 IT companies (LTIMindtree ~5% of India tier-1 IT but 8-10% share of incremental growth).
Outlook
Hence, we maintain Buy rating on LTIMindtree with a revised PT of Rs. 5170 (valued at 25x FY25E EPS) based on ~16% revenue/PAT CAGR over FY22-25E. The opportunities of transition from mid-tier IT to tier-1 are greater than the risks of this transition. At CMP, the stock trades at 25.8/22.2x its FY24E/ FY25E EPS respectively.
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LTIMindtree - 16 -03 - 2023 - khan