Motilal Oswal has reaffirmed its BUY rating for LTIMindtree (LTIM), setting a target price of Rs 7,400, implying a 19% upside potential from the current market price of Rs 6,218. The company’s long-term vision of achieving USD 10 billion in revenue is supported by its strong focus on AI-driven services, a well-diversified portfolio, and significant large-deal wins. While margin pressures remain a key challenge, LTIMindtree is expected to benefit from increasing IT spending in BFSI and other verticals.

Q2FY25 Financial Highlights

1. Revenue Performance:

LTIMindtree reported 2.3% QoQ constant currency (CC) growth in revenue for Q2FY25.
BFSI verticals contributed significantly to growth, with 3.9% QoQ expansion, reflecting robust spending in transformation projects.
2. Margins and Profitability:

EBIT margins improved 50 basis points QoQ, reaching 15.5%, although still below historical averages.
PAT stood at Rs 48.7 billion for FY25E, marking a 6% YoY growth.
3. Large-Deal Momentum:

LTIMindtree closed over 45 large deals in the past 18 months, generating a total contract value (TCV) of USD 2 billion.

Strategic Initiatives and Growth Drivers

1. AI-Driven Services:

LTIMindtree is investing heavily in integrating Artificial Intelligence (AI) into its services, such as:
Knowledge Fabric: Leveraging enterprise knowledge graphs for advanced data engineering.
AI Agents: Automating repetitive tasks to drive operational efficiency.
Domain-Specific Co-Pilots: Enhancing delivery for modernization and engineering projects.
2. Diversified Large-Deal Pipeline:

The company’s USD 5 billion deal pipeline includes 14 deals valued over USD 100 million each.
48% of the pipeline focuses on cost optimization, reflecting the increasing emphasis on efficiency.
3. Focused Investments in Vertical Growth:

BFSI, technology, and manufacturing remain core contributors, alongside emerging verticals such as healthcare and life sciences.

Key Challenges and Risks

1. Margin Pressures:

LTIMindtree’s margins remain under strain due to unrealized post-merger synergies and high utilization levels (~87%).
Any rapid growth in volumes may require significant hiring, adding to cost pressures.
2. Senior Management Attrition:

The merger caused several top-level exits, which could impact long-term strategic consistency.
3. Execution Risks:

Delays in realizing synergies or achieving target revenue growth could lead to downside risks.

Valuation and Target Price

1. Competitive Valuation:

Motilal Oswal values LTIMindtree at 35x Sep’26E EPS, reflecting its superior offerings in data engineering and ERP modernization.
2. Financial Projections:

EPS is projected to grow from Rs 164.6 in FY25E to Rs 233.7 in FY27E, supported by 12.8% revenue CAGR over FY25–27.
3. Target Price Justification:

The target price of Rs 7,400 represents a 19% upside, aligning with LTIMindtree’s potential to outperform large-cap peers in the IT services sector.

Investment Strategy and Recommendations

1. Short-Term Trading Strategy:

Entry Range: Rs 6,150–Rs 6,250.
Target: Rs 6,800–Rs 7,000.
Stop Loss: Rs 6,050.
2. Long-Term Investment Case:

Investors seeking exposure to AI-driven IT services should consider accumulating LTIMindtree at current levels.
Target Price: Rs 7,400.
3. Diversified Portfolio Approach:

Combine LTIMindtree with peers such as TCS and Infosys for balanced exposure to India’s IT services sector.

Bottomline

LTIMindtree stands out for its strategic focus on AI and its robust deal pipeline, which positions the company well for long-term growth. Despite near-term challenges in margins and execution, the company’s strengths in transformation projects and modernization services underline its competitive edge. With Motilal Oswal’s BUY rating and a target price of Rs 7,400, LTIMindtree is a compelling investment opportunity for both short-term traders and long-term investors.