Larsen & Toubro Infotech - Q1FY21 First Cut - ICICI Securities

(CMP - Rs. 2195, MCap - Rs. 38,241 crore)

Larsen & Toubro Infotech (LTI) revenue were in line with our estimates however, margins were marginally above our estimates. Although the company reported a revenue decline of 4.8% QoQ it was comparatively better than some of the larger peers which reported average 7.0% QoQ decline in revenues in Q1FY21. In addition, the company's EBIT margins improved 70 bps to 17.4% (above our estimate of 16.8%) mainly due to absence of one-off expenses in the quarter, rupee depreciation and cost rationalization. Further, despite challenging quarter, the company closed a large deal. The company added 3 clients in US$10 million bucket and 6 clients in US$5 million bucket.

The company's dollar revenues declined 4.8% QoQ (vs our expectation of 4.9% QoQ decline). The company's digital revenues declined by 1.9% QoQ (up 18.1% YoY) and now accounts for 42.0% of company's revenues. In terms of verticals (in constant currency), decline was across broad based with higher fall in Manufacturing (down 16.4% QoQ) and Energy & Utilities vertical (down 10.5% QoQ) followed by 4.1% & 2.7% QoQ decline in Banking & Insurance respectively. In terms of geographies revenues fell sharply in Europe (down 9.8% QoQ) followed by North America (down 2.2% QoQ). Top 5 clients and Top 10 clients declined by 6.9% QoQ and 9.9% QOQ in the quarter. The company's DSO days including unbilled is also declined by 7 days to 99 days.

Q1FY21 Earnings Summary

- Constant currency (CC) revenues declined 4.7% QoQ (up 10.6% YoY). Dollar revenues declined 4.8% QoQ to US$390.3 million, vs our expectations of 4.9% decline and US$389.8 million

- Rupee revenues declined 2.1% QoQ to Rs. 2,949.2 crore (vs. our estimate of Rs. 2,954.8 crore)

- EBITDA margin expanded 88 bps QoQ to 20.1% (vs. our estimate of 19.4%) mainly led by rationalisation of SG&A cost, absence of one-off expenses in the quarter and rupee depreciation

- Reported PAT came was above our estimate at Rs. 416.4 crore (vs. our estimate Rs. 399.9 crore) mainly led by better performance at operating level

The company has reported a healthy margin expansion. The company's revenue decline is also lower than large cap companies. Going forward, we expect the company to register improvement in revenue growth mainly led by digital acceleration, strong niche in sub segments and ramp up in its large deal pipeline. Hence, we remain positive on the stock from a long-term perspective. We would be revisiting our estimates and target price post the conference call.

Shares of Larsen & Toubro Infotech Ltd was last trading in BSE at Rs.2195.5 as compared to the previous close of Rs. 2237.7. The total number of shares traded during the day was 18266 in over 2639 trades.

The stock hit an intraday high of Rs. 2308 and intraday low of 2157.75. The net turnover during the day was Rs. 41115065.

Source : Equity Bulls

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