LTIMindtree correction can make the stock interesting, says Kotak after 17% fall in 2024

LTIM’s 1-year forward P/E band chart

The domestic brokerage has slashed its FY2025-26 earnings per share (EPS) estimates by 3-4%, led by a 3-4% cut in dollar revenue estimates.

It has also slashed its revenue growth estimates for FY2025 and FY2026 to 7.2% and 11.9% from 9.8% and 13.2%, respectively. Kotak has also cut the FY2026 EBIT margin by 30 basis points to 16.9%.

Kotak said that LTIMindtree continues to be impacted by frequent senior management exits, which it believes is driven by an accommodative stance during the merger process and accentuated by weak demand.

The exit of key leaders following the merger was not a surprise, given role redundancies in multiple positions, it said, adding, "We would have liked quick changes, restricting the pain to 1-2 quarters."

However, the brokerage said that the management’s accommodative stance to reduce risks has paradoxically turned into a riskier policy, leading to frequent senior management exits and associated instability. These likely impacted the focus on driving revenue growth and realization of merger synergies.

Integration, demand and client-specific risks cloud the near-term growth outlook.

Apart from lower stability in the senior management team, Kotak highlighted that the near-term outlook is clouded by a few factors — weak discretionary spending in CY2024E; a few key clients undergoing restructuring programs, with a focus on cost savings, which can disrupt the normal flow of projects; and slower realization of benefits from cost take-outs due to longer sales cycles, slower ramp-ups and other factors.

It further stated that the strong quality of clients, large exposure to scalable verticals and a well-experienced and reputed leadership team have the potential to drive a healthy growth recovery, provided integration woes are taken care of and the demand environment improves.