Shares of IT services major LTIMindtree settled nearly 3 percent lower in trade Tuesday, after the company delivered modest June quarter (Q1FY24) results — slightly below analysts' expectations. A cautious growth outlook from the management also dented investor sentiment. LTIM shares have fallen 1 percent in the last one month against a 5.30 percent rise in benchmark Nifty 50 index.

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LTIM's strengths in core modernisation, cost take-outs, digital transformation and experience position it well against peers, analysts say. Valuations are expensive though.

Analysts mostly have a 'Neutral' or 'Hold' rating on the counter given the company's strong growth potential backed by robust deal wins and superior execution capabilities.

Nuvama Institutional Equities has cut its target price to Rs 6,300 from Rs 6,440 earlier. Kotak Institutional Equities has a target price of Rs 4,900 on the counter. Motilal Oswal has a target of Rs 4,700, while Axis Securities has a target of Rs 5,230 per share.

Top line ($1,058.7 million) grew by +0.1 percent in constant currency (CC) quarter-on-quarter (QoQ) — below an estimate of 0.7 percent. Margins (16.7 percent) expanded 30 basis point QoQ, in line with estimates. The net profit came in at Rs 1150 crore (up 3.4 percent QoQ/4.1 percent year-on-year), in line with analysts' estimate of Rs 1,200 crore. Deal flow is solid at Rs 141 crore.

Despite modest growth this quarter, the IT services company is well on track to report double-digit growth and strong margin expansion in FY24—while reiterating the long-term thesis of merger synergies, Nuvama said.

EBIT margin at 16.7 percent (+30 basis point QoQ/-70 basis point YoY) is driven by operational efficiencies (+70 basis point); visa costs (-20 basis point); and higher marketing spend (-20 basis point). The reclassification of 1,000 delivery employees to sales and marketing lifted gross margin by 120 basis point —but is EBIT-neutral.

According to analysts, the management is confident of gaining medium-term to long-term demand momentum on the backdrop of the deals it has won in the previous quarters. It also expects improvement on the margin front moving ahead.

The management has maintained a 17–18 percent EBIT margin guidance by FY24, Nuvama said.

"The strong deal flow momentum (by TCS, LTIM, Wipro) despite uncertainty in decision-making process, reinforces our positive stance on the sector. We expect growth to bounce back in FY25 for the entire sector led by a sustainable strong demand," the brokerage said in its report.

Nuvama has retained LTIMindtree as its top pick, arguing the size and complementary business profiles of LTI and Mindtree shall aid the merged entity outperform peers over the next three–four years. "We take away the strong deal flow, margin expansion and growth revival in Hi-tech as positives from the results," it said.