LTIMindtree vs Coforge: Which mid-cap IT stock should you pick for long term?

The Nifty IT index has faced a persistent downtrend, declining by over 7 percent year-to-date in 2024 and by 6 percent in the last month alone. This downward trajectory has been mirrored by most of its constituents, which have consistently delivered negative returns. The sector's performance has been hampered by economic slowdown concerns, leading to expectations of sustained volatility and sluggish demand going forward.

Furthermore, in the fourth quarter of FY24, Indian IT firms have adjusted their forecasts due to weak demand and macroeconomic uncertainties, prompting a reassessment of growth and margin expectations for FY25. This reset has resulted in subdued growth projections across the board and a dimmer margin outlook for certain companies. Expectations for recovery have been deferred to FY2026.

Conversely, recent corrections in stock prices have rendered valuations more attractive, potentially presenting opportunities for investors. Despite the cautious outlook, the adjustment in valuations could signify a more favorable entry point for those considering investments in the sector.

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In this environment, let's find out between LTIMindtree (LTIM) and Coforge, which mid-cap IT stock offers better long-term investment opportunities.

Stock Price Trend

Coforge and LTIM have been the worst performers in the Nifty IT index this year. While Coforge has crashed over 28 percent in 2024 YTD, LTIM has tanked 27 percent. In comparison, the Nifty IT index has lost over 7 percent in this period.

This year so far, Coforge has given negative returns in 4 of the 5 months while LTIM has been negative in all 5. Coforge shed 11.5 percent in May, extending losses for the third straight month. It fell 7.25 percent in April and 16 percent in March. Meanwhile, it rose 4.86 percent in February but was down 0.4 percent in January this year.

LTIM, on the other hand, lost 2.5 percent in May, extending gains for the 5th straight month. It declined 4.7 percent in April, 6.8 percent in March, 2.7 percent in February, and 13.45 percent in January.

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Meanwhile, in the last 1 year, Coforge has been the better stock, rising over 10 percent whereas LTIM has given negative returns, down 2 percent. In comparison, Nifty IT has gained over 17 percent in this time.

Despite the decline, both LTIM and Coforge have also hit their 52-week highs earlier this year.. Coforge hit its 52-week as well as a record high of ₹6,847.45 on February 19, 2024. Currently trading at ₹4,465.3, the scrip is almost 35 percent away from its peak. However, it is up just 10 percent from its 52-week low of ₹4,060, hit on May 15, 2023.

Meanwhile, LTIM touched its 52-week high of ₹6,442.65 on January 15, 2024, and is currently 28 percent away from that peak. The stock had hit its record high of ₹7,595.25 on January 4, 2022.

However, it hit its 52-week low of ₹4,565.00, in intra-day deals today, May 13, 2024.

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Moreover, in the long term, 3 years, again, Coforge has emerged as the winner. It has jumped almost 35 percent while LTIM has advanced 28 percent.

Earnings

In the March quarter (Q4FY24), LTIMindtree posted a 5.9 percent quarter-on-quarter(QoQ) decline in its consolidated net profit at ₹1,099.9 crore, while on a year-on-year (YoY) basis, it fell 1.2 percent. Meanwhile, its revenue in Q4FY24 declined 1.4 percent sequentially to ₹8,892.9 crore.

On the other hand, Coforge reported a consolidated net profit of ₹223.7 crore for the quarter ending on March 31, 2024, rising 94.86 percent YoY compared to a profit of ₹114.8 crore in the year-ago period. On a QoQ basis, its profit fell 5.6 percent

Meanwhile, the IT firm reported a consolidated revenue from operations of ₹2,358.5 crore, up 8.7 percent YoY from ₹2,170 crore. Sequentially, its revenue rose 1.5 percent.

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Which mid-cap IT stock has better long-term investment opportunities?

Vaibhav Jain, Share.Market Research, likes LTIM marginally better than Coforge.

Between LTI Mindtree and Coforge, choosing the ideal mid-cap IT stock for long-term investment hinges on thoroughly examining various factors. Our quantitative models suggest that both options present a comparable proposition to investors.

In terms of price-based factors like momentum, low volatility, and sentiment, it’s a mixed bag. While on momentum and sentiment, both stocks fall below average, on low volatility, both rank in the top quintile. However, it’s the quality factor that holds out in the long run and is slow-moving. On quality, both stocks rank in the top quintile within our investment universe. Interestingly, LTI Mindtree exhibits a marginally better value proposition than Coforge.

This nuanced distinction may stem from Coforge's relatively higher momentum, which could have influenced its value score, given the historical negative correlation between value and momentum factors.

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Sumit Pokharna, VP-Research Analyst, Kotak Securities, also prefers LTIM.

LTIM has come off from highs but still trades at expensive valuations. Further corrections can make this stock interesting. We are also positive on Coforge from a long-term perspective.

Abhishek ShindadKr - Equity Analyst - InCred Capital, has also chosen LTIMindtree as its service offerings and its vertical and geographical presence are broad-based and provide stability.

On the contrary, brokerage house Nirmal Bang prefers Coforge over LTIM. It has an ‘accumulate’ rating on Coforge with a target price of ₹5,602 (25.5 percent upside) while it has a ‘sell’ call on LTIM with a target of ₹3,987 (13.5 percent downside).

"LTIMindtree posted Q4FY24 below our as well as consensus estimates. Although it sees Q4FY24 as a one-off and is confident of growth from Q1FY25, there was no clarity on whether FY25 revenue growth will be better than that in FY24 (which was up 4.2 percent YoY in CC terms)," Nirmal Bang said. The brokerage also trimmed its earnings per share (EPS) estimates for FY25-FY27 by nearly 9 percent due to both revenue and margin cuts. While medium-term prospects of faster than tier-1 earnings growth and very high ROICs remain, the current valuations are excessive," it added.

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For Coforge, it noted, "Coforge is among the top quartile performers in the industry in FY24 on organic growth and can repeat this in FY25, we believe it should be valued at 26.1 times March 2026 EPS. We reiterate ‘Accumulate’ with a target price of ₹5,602. This is among the highest target PE multiples for Tier-2 companies as we expect faster-than-peer growth and ROICs.”

Ultimately, investors must weigh these differing perspectives and conduct thorough research to make an informed decision based on their own investment goals and risk tolerance.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.