Midcap IT Stock Declares Rs 40 Dividend, “Buy” The Stock For 20% Gains

Broking firm Anand Rathi has a "buy" call on midcap IT stock LTIMindtree and sees a decent upside in the stock. The brokerage has set a price target of Rs 5270 on the stock of LTIMindtree. According to Anand Rathi, the company Q4 was mixed: 1% q/q growth, lagging its high-growth peers but sailing through high US Banking/Hi-Tech exposures. It did well in BFSI, but Hi-Tech clearly was weak.

"Revenue weakness may persist in Q1 before growth accelerates in Q2. TCV was $1.35bn, 1.3x book-to-bill (6-mth; FY23 1.2x). Q4 EBIT margin recouped to 16.4% (14.9% in Q3) and would gradually move to 17-18% in FY24. Estimates slightly up on
margin execution; target revised to Rs 5,270 (from Rs 5,230) at 25x FY25e," the brokerage has said in its report.

EBIT margins showing upside

According to Anand Rathi, in Q4, the EBIT margin was 143bps higher q/q (adj.) but 170bps lower y/y. Some merger costs continue, and efficiency has yet to return. "Management guided to 17-18% margins in FY24. Headcount moved down 1,916 in Q4 to 84,546 (up only 6% y/y); fresher intake to resume from Q1 and FY24 wage hikes are likely to be lower than in FY23, given the supply-side context. Overall, tailwinds would persist in FY24," the brokerage has said.

The Management has guided to industry-leading 10%+ growth in FY24. EBIT margins would be 17-18%. Q1 growth would be slow with BFSI weakness while Hi-Tech resumes growth in large deal (won in Q4) ramp-ups.

Buy the stock of LTIMindtree with a price target of Rs 5270

"We expect LTIMindtree to deliver a 12% revenue CAGR over FY23-25 and higher EBIT margins (18% by FY25 from 16.5% in FY23), leading to a 19% EBIT CAGR. This would result in an FY25e EPS of Rs211. The stock trades at FY25e PE of 21x, which we find attractive; our target is based on 25x FY25e EPS," the brokerage has said. Anand Rathi sees a major slowdown in the US one of the key risks for the stock.

The stock of LTIMindtree Ltd was last trading at Rs 4549 on the National Stock Exchange.

Disclaimer

The stock has been picked from the brokerage report of Anand Rathi. Greynium Information Technologies and the author are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision. The above article should not be construed as a buy recommendation from our end, as we have just provided information based on the brokerage report.