LTIMindtree shares: Kotak Equities cuts target price, says correction required to price in integration, demand risks

LTIMindtree continues to be impacted by frequent senior management exits, while integration pain, weak demand and client-specific risks cloud the near-term growth outlook for the company, Kotak Institutional Equities said.

The brokerage firm noted a slew of senior management personnel who exited LTI Mindtree in the past 12-15 months, which it believes is driven by an accommodative stance during the merger process.

“We would have liked quick changes, restricting the pain to 1-2 quarters. However, management’s accommodative stance to reduce risks has paradoxically turned into a riskier policy, leading to frequent senior management exits and associated instability. These likely impacted focus on driving revenue growth and realization of merger synergies,” Kotak Equities said.

Also Read: Vinit Teredesai resigns as LTIMindtree CFO, Vipul Chandra to take over

However, it believes LITMindtree’s management team is still robust, with plenty of reputed senior persons, with large experience in scaling business units in Tier 1 organizations.

The brokerage noted that the weak spending environment adds to near-term risks and thus, cut its growth estimates for the IT major.

It cut revenue growth estimates for FY25 and FY26 to 7.2% and 11.9% from 9.8% and 13.2%, respectively. It also cut the FY26 EBIT margin by 30 bps to 16.9%. 

“Apart from lower stability in the senior management team, the near-term outlook is clouded by a few factors — weak discretionary spending in CY2024E; a few key clients undergoing restructuring programs, with a focus on cost savings, which can disrupt the normal flow of projects and slower realization of benefits from cost take-outs due to longer sales cycles, slower ramp ups and other factors,” said the brokerage.

Also Read: Client caution is slowing IT: LTIMindtree’s Debashis Chatterjee

It believes LTIMindtree share valuations at 23x FY2026E do not still price in integration and demand risks and the stock trades at 28x one-year forward P/E, which is around 20% above the mean. 

A further 10% correction in LTIMindtree share price can make the stock interesting, it said.

The brokerage retained a ‘Reduce’ rating on the stock and cut the target price to ₹5,375 per share from ₹5,500 earlier.

“Strong quality of clients, large exposure to scalable verticals and a well experienced and reputed leadership team has the potential to drive a healthy growth recovery, provided integration woes are taken care of and demand environment improves,” Kotak Equities said.

LTIMindtree share price has fallen more than 18% in 2024 so far, while the stock has given positive returns of over 12% in one year.

At 9:30 am, LTIMindtree shares were trading 0.85% lower at ₹5,153.85 apiece on the BSE.

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