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Asymmetric risk-reward potential

LTIMindtree (LTIM) stands out as our top pick for CY25, backed by its significant exposure to BFSI and Hi-tech verticals—both projected to rebound strongly over the next 12-18 months. The company’s capabilities in data, ERP, and application modernization further underpin its ability to seize incremental demand in these segments. Additionally, LTIM’s AI-first pivot aligns with rising client reinvestments in next-generation transformation initiatives. Despite current uncertainties around management succession and near-term margin headwinds—as reflected in its relatively benign valuation of 27x FY27E EPS—we anticipate meaningful margin recovery by FY27 and leadership clarity by 1HCY25. These factors collectively present an asymmetric risk-reward scenario, reinforcing LTIM’s strong case as our top pick for CY25.

BFSI and Hi-tech verticals to lead CY25 growth, favoring LTIM

* LTIM derives a substantial portion of its revenue from BFSI (~35%) and Hitech (~25%), positioning it favorably for growth.

* We anticipate these two verticals to be the fastest-growing over CY25, providing a significant opportunity for LTIM to capitalize on their expansion.

* While LTIM remains cautiously optimistic about a recovery in discretionary spending, we believe that a recovering demand environment for discretionary and modernization initiatives, combined with its expertise in governance and regulatory compliance deals, will be key drivers of growth.

* The Hi-tech vertical is recovering ahead of schedule: Earlier, we anticipated a more protracted recovery curve for the vertical as we believed that capex on GenAI by big-tech companies could delay service spending. However, we now expect Hi-tech to emerge as the fastestgrowing vertical in CY25, alongside US BFSI. LTIM should leverage its strength in this vertical in the short to medium term.

Valuations offer asymmetric return potential

* LTIM currently trades at 27x FY27E EPS; on a blended 12M forward basis, the company is still trading close to its five-year average P/E multiple. This is undemanding, in our view.

* While valuations reflect uncertainty around the current management and margin headwinds, we see multiple levers for a potential re-rating. ? With a strengthening demand outlook, focused strategic pivots, and potential catalysts such as improved margins and management clarity, we believe LTIM offers an asymmetric return potential. ? We expect 11-13% constant currency growth rate for FY26-FY27, with FY27 margins recovering by 160bp over FY25 EBIT of 14.9%. This could lead to an earnings CAGR of 17.4% over FY25-FY27E. At 27x FY27E earnings, this presents a compelling entry opportunity, in our view.

Clarity on succession to unlock value

* LTIM’s post-merger top-level attrition and uncertainty around succession plans have been major factors in the stock’s underperformance.

* However, new hires and reduced leadership churn, as shown in Exhibit 10, are expected to bring greater management stability over the next few quarters.

* Uncertainty around succession plans has remained a near-term overhang on the stock; we expect this to be addressed by Q4FY25.

* We see this as a potential catalyst for multiple expansions.

IMPACT framework – LTIM leads the scorecard

* The IMPACT evaluation framework assesses and identifies stocks that can benefit from the linear nature of GenAI scale-up in the short term, while also evaluating their future readiness when the technology reaches its inflection point.

* LTIM has emerged as one of the top performers in the IMPACT evaluation framework with a total score of 24. Its top-tier ecosystem partnerships and excellent technology readiness position it well for next-gen and pre-GenAI expenditures. The company balances top client relationships with effective new client acquisitions.

Margins serve as a key risk but growth and SG&A leverage may drive recovery

* Margins remain a key monitorable and the biggest risk to our thesis. It is apparent that post-merger synergies have not been realized to the extent previously anticipated, and a challenging demand environment has made it tougher to expand margins.

* We believe that the utilization levels (excl. trainees) are too high (~87%), and in the event of an outsized growth recovery, LTIM will need to hire additional talent to execute effectively.

* However, we believe that SG&A leverage, coupled with a recovery in growth and a strong dollar, could provide a margin cushion in FY26/FY27.

Valuation and view

* We reiterate our BUY rating on LTIM due to its superior offerings in data engineering and ERP modernization, positioning it well to capture pre-GenAI expenditures. We anticipate LTIM to outperform its large-cap peers and expect low double-digit CC growth for FY26. LTIM could have managed its top-level churn rate more effectively post-acquisition. Nonetheless, we believe the toplevel attrition rate might remain benign going forward. Additionally, margins remain a concern and the biggest risk to our thesis.

Scenario analysis: Estimating the downside

* In our view, if discretionary spending fails to drive demand in the near future and tech-spend revival is delayed, LTIM is projected to grow by a much lower 6.8%/8.9% YoY CC growth in FY26E/FY27, leading to a ~1.5%/2.5% CQGR during these years, with EBIT margins of 15.1% and 15.5%. This could lead to EPS of INR161.3/176.4/196.7 for FY25E/FY26E/FY27E, translating into an earnings CAGR of 10.5%. We anticipate a potential earnings downgrade of 5-12% for FY26/FY27 from our base case. In this case, the stock could be valued at 27x FY27 EPS, yielding a TP of INR 5,300, which could serve as a floor for the stock.

* However, on the upside, several catalysts could drive LTIM's performance, such as a possible management change, new directions on margin management, and a tech upcycle favoring its vertical exposure and service lines. This could enable LTIM to achieve 10.9%/13.1% YoY CC growth and expand EBIT margins by 160bp over FY25E, reaching 16.5% by FY27. In this case, LTIM will be valued at 35x, a 20% premium to TCS, suggesting an upside of around 33% with a TP of INR8,000.

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