Informist, Thursday, Apr 25, 2024

--Nomura cuts LTIMindtree target price by 360 rupees to 4,170 rupees

--Nomura retains 'reduce' rating on LTIMindtree shares

--Nomura: LTIMindtree growth acceleration unlikely in FY25

--Nomura: Cut LTIMindtree FY25-FY26 EBIT margin estimate by 80 bps

--Nomura: Cut LTIMindtree FY25-FY26 EPS estimate by 4-8%

--Nirmal Bang: Cut LTIMindtree FY25-FY27 EPS estimate by 8%

--Nirmal Bang retains 'sell' rating on LTIMindtree shares

--Nirmal Bang: LTIMindtree Jan-Mar contract value seemed lower vs peers

--Nirmal Bang: Most IT shrs valuations expensive, see no material rise

--Nirmal Bang: Higher-for-longer rates scenario hints at tepid growth

--Nuvama retains 'buy' rating for LTIMindtree shares

--Nuvama: LTIMindtree may post gradual margin expansion in next 2 qtrs

By Anjana Therese Antony

MUMBAI – After India's sixth-largest information technology player, LTIMindtree Ltd, failed to meet the Street's expectation and reported negative sequential figures for the March quarter, analysts were divided on the company's future performance and its stock. While some broking firms were confident about the Mumbai-based company's fundamentals, a few others said the uncertain macroeconomic environment, higher-than-expected margin contraction, and expensive valuation could limit the upside of the stock.

Unlike larger industry players such as Tata Consultancy Services Ltd and Infosys Ltd, LTIMindtree usually does not give guidance for revenue growth. When asked during a call with analysts about the revenue growth outlook for 2024-25 (Apr-Mar), the management said it had no guidance to offer.

However, with the weak macroeconomic conditions expected to remain largely unchanged in the current financial year, analysts believe that growth could be limited, although the management said it will see positive figures from the next quarter.

Nomura Global Markets Research, which retained its "reduce" rating and trimmed the target price by 8% to 4,170 rupees, said growth acceleration is unlikely in the ongoing fiscal year. Nomura's target price is around 427 rupees lower than the stock's price of 4,597.30 rupees at 1137 IST. The stock is trading in the red today, snapping a three-session gaining streak.

For the March quarter, the IT company's consolidated revenue declined over 1% sequentially to 88.93 bln rupees, slightly lower than the Street's view of 89.89 bln rupees. Its consolidated net profit declined nearly 6% on quarter to 11.00 bln rupees, also marginally missing the estimate of 11.49 bln rupees.

Along with Nomura, other brokerages that have a cautious stance on the company and its share price include Nirmal Bang Institutional Equities, Motilal Oswal Financial Services, and Emkay Global Financial Services. On the other hand, Prabhudas Lilladher and Nuvama Institutional Equities appear to be confident about the company's strong fundamentals and execution strategy.

The brokerages that have a cautious stance on the stock and other industry peers said valuations are expensive despite the corrections in the previous few months. "...valuations remain rich, and we prefer to wait for better visibility on the discretionary spending improvement before turning constructive on the stock," Emkay Global said in its earnings review report. Stocks of information technology companies have been moving southwards on a blurry outlook, weak discretionary spending and demand environment, and fear of higher-for-longer interest rates in the US.

LTIMindtree's operating margin of 14.7% during the March quarter, which declined more than the Street's estimate and also came much lower than the company's target of 17-18%, was one of the major worries, analysts said. Nomura reduced earnings before interest and taxes margin by 80 basis points for 2024-25 and 2025-26. To factor in lower growth and margins, Nomura reduced its earnings per share estimate for 2024-25 and 2025-26 by 4-8%. It also said the earnings per share estimates are now 9-12% lower than consensus estimates.

Echoing similar concerns, Nirmal Bang, which retained its "sell" rating on the stock, also trimmed EPS estimates by 8% for the current and next two financial years. Emkay Global, too, brought down its EPS estimate by 2% for the current and next financial years to factor in weak earnings, slower revenue growth, and delay in margin recovery.

Talking about the total contract value of $1.4 bln the company reported during the quarter, Nirmal Bang said the "number seemed a bit low," owing to seasonality. However, Motilal Oswal said the figure was "strong" and the management commentary on deal pipeline was robust. LTIMindtree closed the financial year with an order inflow of $5.6 bln, up 15.7% from 2022-23.

Among the six brokerages mentioned above, Nuvama has the highest target price of 6,650 rupees for LTIMindtree, with a "buy" rating. The brokerage house is optimistic on the company's strong fundamentals "although it might take some time to get back onto a strong growth path," it said in a research report. It also expects the margin metric of the Larsen & Toubro subsidiary to gradually expand over the next two quarters. "...we see pieces falling into place for LTIM (growth in Hi-tech, revival in BFSI, employee pyramid rationalisation) over next two quarters, and expect solid growth with gradual margin expansion," it said in the report. BFSI is short for banking, financial services and insurance.

Prabhudas Lilladher also has a similar picture of the IT company. "With strong execution strategy and robust sales engine, LTIM is well positioned to play in the challenging environment with a mix of cost and transformation programs," it said in a post-earnings report. "With robust front-end capabilities, it augurs well to capture the discretionary spend, if it were to revere its course in FY25," it added. The broking firm has an "accumulate" rating on the stock and a target price of 5,015 rupees.

Over 737,000 shares of the company have changed hands so far today, higher than the one-month daily average volume of more than 514,000 shares. The stock has fallen 2% in the past seven days and 8% in 30 days. End

US$1 = 83.39 rupees

Edited by Deepshikha Bhardwaj

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (22) 6985-4000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2024. All rights reserved.