According to domestic brokerage and research firm ICICI Securities, the newly combined Larsen & Toubro Infotech and Mindtree (LTIMindtree) might witness a gain of 24% from the current levels in a year.
The brokerage said that LTIM continues to be valued at 25 times FY26 EPS of 253 (discounted back one year with WACC of 12%) to get at their 12-month target price of 5,651, representing a potential upside of 24%. LTIMindtree also remains the firm’s top selection in the sector.
Given the significant cross-sell and up-sell potential, the capacity to engage in bigger agreements after the merger, and the strength in hyperscalar and SaaS partnership led sales, the brokerage continues to project a 14.5% US dollar revenue CAGR for the years FY23 to FY26E.
In line with management guidance to increase margins to 19–20% by FY27, ICICI Securities anticipates an increase in EBIT margin of 260 basis points over FY23–FY26 to 18.6%, driven by operating leverage from higher operational scale and integration-related synergies around both employee costs and SG&A, which will result in the highest EPS CAGR of 20% over FY23–26 in their coverage universe.
Analyst keeps a buy recommendation.
The brokerage maintained a “buy” recommendation and stated that it saw “excellent management execution track-records in the past at both Mindtree and LTI to become foundations for LTIM to achieve industry leading profitable growth in coming years.
LTIMindtree’s management maintained its goal to target 19-20% EBIT margins by FY27, which would represent an increase of 200 bps on pro-forma margins of the combined entity as of FY22, and to generate $1 billion in additional revenue through cross-sell synergies over the following two to four years.
The letter stated that LTI was stronger in back-end ERP related core transformation solutions while Mindtree was stronger in front-end digital solutions.
Given the complementary service line expertise of LTI and Mindtree, LTIM seeks to generate revenue synergies by taking advantage of cross-sell and up-sell opportunities among its 374 existing client accounts with annual revenue sizes above $1 million. It is making investments in enhancing service line sales leadership and capabilities for the same reason.
Important lessons learned at LTIM Investment Day 2023:
- The SVB crisis has had no meaningful impact on the BFSI vertical.
- The management anticipates an increase in EBIT margins to 19–20% by FY27.
- LTIM has a strong portfolio of blue-chip accounts.
- Significant upsell/cross-sell potential
- Powerful sales engine driven by partnerships
- The combined entity LTIM has more prospects for significant deals.
- Framework for capital allocation and RoCE target
As of 12:41 pm on the NSE, LTI Mindtree Ltd. is trading at 4,614.35, up 1.04 percent from the previous day.
