Whalesbook
ICICI Securities has adjusted its earnings forecasts for LTM. This comes as the company balances strong contract wins and recovery in tech accounts with new pressure on its profit margins from AI technology.
AI's Impact on Pricing and Revenue
ICICI Securities is concerned about how AI might reduce pricing power in the IT services sector, which could limit LTM's revenue growth in FY27. Although LTM secured six deals over $100 million in FY26 and performed well in renewals, AI could lower prices. This is a new challenge. A major CBDT contract is also delayed, and top BFSI accounts are recovering slowly. These factors suggest slower growth than previously expected. ICICI Securities has cut its FY27 and FY28 EPS estimates by 1% and 2.5% respectively, forecasting flat year-on-year margins and factoring in higher AI-related pricing impacts.
Industry Context and Competitors
LTM is valued with a target price-to-earnings (P/E) multiple of 19 times its projected FY28 earnings of ₹230 per share. This valuation places it among IT service firms facing similar market changes. Competitors like TCS and Infosys are also adapting to evolving digital transformation demands and AI's influence on service delivery. LTM's large deal wins show its competitive strength, but rivals are also using AI for efficiency, creating a competitive pricing landscape. Global technology spending and economic stability affect the Indian IT sector, with many firms seeing margin pressure as they invest in AI while clients manage costs. LTM's stock has historically been sensitive to major industry technology shifts.
Key Risks: Margin Pressure and Project Delays
A key risk for LTM is maintaining its profit margins against AI-driven price reductions and cautious spending in the BFSI segment. Unlike some rivals with more diverse revenue or stronger finances, LTM's reliance on big contracts could lead to instability if prices drop further. The delayed CBDT deal is not just a revenue loss but also signals potential hesitancy in the project pipeline. How management handles these complex, tech-driven market shifts will be crucial. If LTM is slow to adapt its services or pricing to the AI era, it could lag behind competitors that adapt faster. Also, increased regulatory checks on data handling and AI use present ongoing compliance challenges for all IT companies.
Outlook and Valuation
ICICI Securities' decision to keep its 'HOLD' rating and target price of ₹4,380 suggests a cautious outlook. The unchanged target multiple of 19 times suggests the firm believes significant stock price gains are unlikely until LTM proves it can maintain margins despite AI's pricing pressures. The lowered EPS estimates reflect these real impacts on profitability. Investors will watch upcoming results to see if LTM can counter AI's pricing effects and boost growth from its large deals and tech account wins. While the current stock price reflects expected success, AI's growing influence presents a significant threat.