Kotak Equities Reduces Target Price for LTI Mindtree Shares

Kotak Institutional Equities, in a recent analysis has highlighted concerns over LTI Mindtree's management stability amidst a series of senior management departures. These exits occurring over the past year are seen to be influenced by the merger process leading to potential risks for the company's growth trajectory.

The brokerage firm has noted a significant number of senior management personnel leaving LTI Mindtree in the past 12-15 months. It attributes this trend to a lenient approach during the merger causing unintended instability within the organization. Kotak Equities expresses a preference for swift changes to mitigate such instability which could have limited the impact to just a couple of quarters.

Near-term Growth Outlook

However, despite acknowledging the robustness of LTI Mindtree's management team Kotak Equities highlights several near term challenges. These include a weak spending environment and the disruption caused by key clients undergoing restructuring programs aimed at cost savings. Additionally, slower realization of benefits from cost saving measures further clouds the outlook.

As a result of these factors, Kotak Equities has revised down its revenue growth estimates for FY25 and FY26 to 7.2% and 11.9% respectively from earlier projections of 9.8% and 13.2%. Furthermore it has reduced the FY26 EBIT margin forecast by 30 bps to 16.9%.

Despite the downward adjustments in growth estimates the brokerage believes that LTI Mindtree's current share valuations do not fully account for integration and demand risks. With the stock trading at around 28 times one year forward P/E which is 20% above the mean Kotak Equities suggests exercising caution. It retains a Reduce rating on the stock and has lowered the target price to ₹5,375 per share from ₹5,500.

In 2024, LTI Mindtree's share price has declined by over 18%, while it has delivered positive returns of over 12% in the past year. As of the latest update the stock was trading 1.03% higher at ₹5,248.85 per share on the BSE. Over the past month LTI Mindtree has faced a decrease of 4.95% in its stock value and over the past six months the company's stock has declined by 5.13%.

Final Words

While LTI Mindtree boasts strong client relationships and a seasoned leadership team, concerns regarding management stability and near term growth challenges persist. Kotak Equities emphasizes the need for addressing integration woes and improving the demand environment to realize the company's growth potential effectively.