The merged entity of Larsen & Toubro Infotech and Mindtree (LTIMindtree) could see an upside of 24 per cent from the current levels in a year, suggested domestic brokerage and research firm ICICI Securities.
“We continue to value LTIM at 25 times FY26 EPS of ₹253 (discounted back 1-year with WACC of 12 per cent) to arrive at their 12-month target price of ₹5,651, implying a 24 per cent potential upside,” the brokerage said, adding LTIMindtree remains out top pick in the sector.
The brokerage continues to assume 14.5 per cent US dollar revenue CAGR over FY23-26E given strong crosssell/up-sell opportunities, ability to participate in larger deals post-merger and strength in hyperscalar and SaaS partnership led sales.
ICICI Securities expects EBIT margin to improve by 260 basis points over FY23-FY26 to 18.6 per cent, in line with management guidance to improve margins to 19-20 per cent by FY27, led by operating leverage with higher scale of operations and integration-related synergies around both employee costs and SG&A leading to 20 per cent EPS CAGR over FY23-26, the highest in their coverage universe.
Analyst maintains ‘buy’ rating
“We see strong management execution track-records in the past at both Mindtree and LTI to become bedrock for LTIM to ensure industry leading profitable growth in coming years,” said the brokerage, maintaining a ‘buy’ rating.
LTIMindtree’s management reiterated its aspiration to achieve $1 billion incremental revenue through cross-sell synergies over the next two to four years and reach 19-20 per cent EBIT margins by FY27 i.e. improvement of 200 bps on pro-forma margins of the combined entity as on FY22.
“Mindtree is stronger in front-end digital solutions and LTI is stronger in back-end ERP related core transformation solutions,” the note said.
Given the complimentary service line expertise of LTI and Mindtree, LTIM aims to derive revenue synergies through cross-sell/up-sell opportunities across the existing 374 client accounts of more than $ 1million in revenue size. For the same, it is investing in strengthening service line sales leadership and capabilities.
Key takeaways from LTIM Investor Day 2023:
– No material impact on BFSI vertical due to SVB crisis
– Management expects EBIT margins to improve to 19-20% by FY27
– LTIM has resilient bluechip account portfolio
– Huge cross sell/upsell potential
– Robust partnership led sales engine
– Combined entity LTIM has higher large deal opportunities
– Capital allocation framework and RoCE target
LTI Mindtree Ltd is quoting at ₹4,614.35, up 1.04 per cent on the day as on 12:41 pm on the NSE.
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