Shares of LTM came under pressure on Monday after JPMorgan downgraded the stock to ‘Neutral’ from ‘Overweight’ and cut its target price to ₹4,500 from ₹5,100 following the company’s proposed acquisition of Randstad’s technology and consulting services business in Europe and Australia.
At 11:34 AM, LTM shares were trading at ₹3,988.8 on the NSE, down 0.47% intraday. The stock had slipped to an intraday low of ₹3,901 earlier in the session.
JPMorgan said the acquisition raises concerns around margin dilution, execution risks and slowing organic growth opportunities. According to the brokerage, the acquired entities generated revenues of nearly €469 million, but sales have declined sharply over the past two years.
The brokerage estimates the acquired business operates at EBITDA margins of just 4–5% because of its onshore-heavy structure, making it materially margin dilutive for LTM.
LTM has also announced agreements to build a GCC for Randstad in India and a reverse subcontracting arrangement to support its staffing requirements. While management believes the combined structure across contracts will not dilute EPS, JPMorgan estimates the acquisition alone could lead to nearly 2% EPS dilution due to amortisation costs and lower interest income.
The brokerage further noted that synergies appear limited because the acquired business focuses on digital engineering and cybersecurity, whereas LTM’s core strength remains IT services. It added that cross-selling opportunities could also remain constrained due to different client buying centres.
Although the acquisition price of €160 million appears inexpensive on an EV-to-sales basis at 0.34x, JPMorgan said valuation looks less attractive on implied profit multiples of 8x EBITDA and 13–15x EBIT.
The brokerage also warned that the deal may indicate weakening organic growth opportunities, with management potentially looking at acquisitions to drive scale rather than capability expansion. JPMorgan has cut its organic revenue and EPS estimates by 1–2% and reduced the target valuation multiple from 21x to 19x.
Disclaimer:
The article is for informational purposes only and should not be considered as investment advice.