Maintain ADD on L&T Infotech - Growth progression continues - HDFC Securities

Mr. Apurva Prasad & Mr. Amit Chandra, Institutional Research Analyst, HDFC Securities

We maintain ADD on L&T Infotech (LTI), following a strong operational 2Q and continuity in its growth leadership ahead. A positive outlook on LTI is premised on (1) stronger NN large deal wins (USD 40mn in 2Q vs. USD 20mn in 1Q), broad-based wins, and strong large deal pipeline; (2) growth leadership in BFS vertical (~90% of incremental revenue in 2Q); (3) acceleration of cloud migration (9% QoQ in IMS and 5.9% QoQ in digital); (4) new logo addition reverting to pre-COVID level and recovery in Hi-tech vertical ahead; and (5) SaaS partnerships (Snowflake, ServiceNow). LTI's valuation premium to peers reflects its growth/margin/return metrics outperformance vs. peers. Our target price of Rs 3,065 is based on 22x Sep-22E EPS (DCF-implied at 22x), supported by industry-leading 20% EPS CAGR over FY20-23E, >45% RoIC.

2QFY21 highlights: (1) Revenue came marginally ahead at USD 405mn (USD 400mn estimated), +2.3/+10.5% QoQ/YoY (CC terms), while EBIT margin surprised positively at 19.9% on higher offshoring and utilisation; we expect operational levers such as offshore-mix to continue. (2) Digital constituted 42.9% of revenue and grew 5.9/18.4% QoQ/YoY. (3) Better growth in BFSI (+9.5% QoQ CC) and Manufacturing vertical recovery (+5.4% QoQ CC) offset the sequential decline in Insurance/CPG/Hi-tech verticals. (4) Client metrics were strong with additions in >USD 10mn bucket and growth across large clients.

Outlook: We have factored in USD revenue growth of 8.3/17.1/15.9% and EBIT margin at 18.9/18.1/18.6% for FY21/22/23E respectively. APAT margin estimated at 15.1/15.0/15.4% for FY21/22/23E. At CMP, LTI trades at 23.5/19.3x FY22/23E.

Shares of Larsen & Toubro Infotech Ltd was last trading in BSE at Rs.2964.65 as compared to the previous close of Rs. 3015.8. The total number of shares traded during the day was 157170 in over 3974 trades.

The stock hit an intraday high of Rs. 3090 and intraday low of 2881.2. The net turnover during the day was Rs. 481341689.

Source : Equity Bulls

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