LTIMindtree: Well-positioned to drive merger synergies

15 Mar 2023 , 10:32 AM

Recommendation: Buy

Target Price: Rs 5,150

LTIM believes that it is in a unique space, given the nimbleness of a mid-cap IT company combined with the scale and depth of offerings typically offered by large cap IT companies. LTIM has aligned sales teams to capture the growth opportunities through cross-selling to its existing client base and partnership-led growth. The company continues to enjoy a healthy large deal pipeline of USD 3.2 billion, but seeing slower decision-making due to the macro environment. Analysts at IIFL Capital Services have forecasted 14%/22% USD rev/EPS CAGR over FY23-25. The stock is currently trading at 20x FY25 estimated P/E, broadly in line with average mid-cap peers. 

Significant growth opportunities from cross-sell and partnership-led growth

LTIM believes its growth in the medium-term will be driven by:

1. Mining of its Focus 100 accounts – LTIM works with 95 Fortune500 companies 
2. Cross-selling of different services to its 370+ USD 1 million accounts 
3. Large deals potential given the end-to-end offerings 
4. Alliances and partnership-led growth 
5. New logo track record. Its large deal pipeline (TCV>USD 20 million) currently stands at a healthy USD 3.2 billion, out of which deal TCV from new logos in USD 960 million.

GTM model aligned to drive USD1 billion revenue synergies

LTIM has integrated the GTM model to focus on larger deals and cross-selling opportunities to its existing clients by aligning service lines sales with vertical and geography units. LTIM has also created dedicated sales organizations for each of the hyperscalers to chase growth. It aspires to add USD 1 billion in revenue synergies over the medium term.

Cost synergies to improve margins by 200 basis points by FY27

LTIM believes levers like improving utilization, rationalizing sub-contractor costs, SG&A leverage and employee pyramid rationalization will lead to its EBIT margins improving to 19-20% (versus 17-18% of the standalone entities) by FY27. The company will continue to focus on value enhancing investments, given the larger size of its balance sheet.