IT stocks in focus: Why Citi has a sell call on TCS, Tech Mahindra and LTI Mindtree – CNBC TV18
| Company | Value | Change | %Change |
|---|
The shares of Tata Consultancy Services (TCS), Tech Mahindra and LTIMindtree are ones on which Citi has maintained its sell call and expects a downside of 12%, 17% and 14%, respectively, from the closing price of December 13.
| IT stock | Rating | Target price |
| Citi | Sell | 3935 |
| Tech Mahindra | Sell | 1475 |
| LTIMindtree | Sell | 5710 |
For TCS, the brokerage says smaller discretionary deals are emerging but they face return on investment (RoI) scrutiny and that mega deals are being divided into smaller contracts. The UK and Europe have softer demand compared to North America. Meanwhile, reduced subcontracting costs are a result of strategic decisions rather than market conditions, the brokerage noted.
On the outlook, it noted that the company aims to achieve an aspirational margin band of 26-28%.
Commenting on specific projects, it said, the BSNL project for TCS is expected to be stable to slight decline in Q3 and start tapering off post that.
Also Read: Why Citi sees 12% downside in the stock of India’s largest IT services firm
Tech Mahindra, Citi says, is doubling down on key verticals including telecom, manufacturing (particularly automotive and industrial), BFSI, healthcare and life sciences. The brokerage also noted that the focus is more on building capabilities in Cloud, AI and Automation, and Enterprise Applications.
According to Citi, the key margin levers for Tech Mahindra are pyramid improvement, pricing optimisation, reducing subcontracting costs, and improving utilisation rates.
Also Read: This IT stock made investors 80% wealthier in a year — Can it rally more?
For LTI Mindtree, the brokerage believes the BFSI vertical has seen an uptick in demand and continues to hold that. The retail, consumer goods, healthcare, and manufacturing are seeing a pick up in deals whereas the tech vertical is a mixed bag, with some accounts performing well while others tighten budgets.
The company is deferring margin improvement targets to prioritise other strategic initiatives. Among key margin levers are SGA optimisation, pyramid correction, and operational cost, it said, adding that the company has done enough work to be comfortable that it will meet targets.
Also Read: HSBC downgrades TCS and Tech Mahindra, check its top two IT stock picks
At 11:45 am, LTI Mindtree shares traded 0.4% higher at ₹6,744.05, Tech Mahindra was more than a percent lower at ₹1,774.85 and TCS was also down a percent at ₹4,432.15 on NSE.
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