Maintain ADD on L&T Infotech - Steady progression - HDFC Securities

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

We maintain ADD on L&T Infotech (LTI), following a strong 4Q (in-line revenue, better margins) and continuity in top quadrant growth ahead (only TELX is higher). LTI's growth profile has been the most consistent and it's expected to continue, based on (1) net new large deal wins trajectory (26% growth in TCV in FY21) and consistent USD20mn+ net new wins, (2) strong tractions in BFS (uptick in deal volumes, new logo/T24 deal ramp-up) and positive outlook on T1 account, (3) recovery expectation in E&U vertical (deal ramp-up) and Insurance vertical (leadership changes and vendor consolidation deal), (4) investments to augment capabilities with hyperscalers - AWS/Azure, and (5) continuity of strong new logo addition (5 F500 added in FY21 taking the F500 count to 71) supplemented by LTI's robust client mining program. Our Target Price of INR 4,210 values LTI at 26x Mar-23E EPS, factoring in 17/22% CAGR in revenue/EPS over FY21-23E.

4QFY21 highlights: (1) LTI's revenue came in line at USD 447mn, +4.4/+7.1% QoQ/YoY (CC terms). (2) LTI won two large deals TCV of USD 66mn in 4Q, of which one deal was with existing insurance client/vendor consolidation for TCV USD 21mn net new and another was a new logo/Temenos implementation (Islamic Bank) of TCV USD 45mn net new. (3) EBIT margin came at 19.4%, -126bps QoQ, impacted by wage hike in 4Q and partially offset by operational efficiencies. (4) Better growth in BFSI (+5% QoQ CC) and Manufacturing verticals (+5% QoQ CC) offset the flattish growth in Insurance and decline in E&U vertical. (5) T5 account declined 0.8% QoQ, while T6-10 outperformed with +8.7% QoQ growth in USD terms. (6) FY22 wage hike rolled out in 1QFY22 (senior staff in 2Q), which will dent the margins in near term. (7) LTI maintained the PAT margin outlook at 14-15% with steady utilisation.

Outlook: We have factored in USD revenue growth of 17.4/17.6% and EBIT margin of 18.6/19.4% for FY22/23E respectively. APAT margin is estimated at 15.6/16.3% for FY22/23E. At CMP, LTI trades at 30/24x FY22/23E.

Shares of Larsen & Toubro Infotech Ltd was last trading in BSE at Rs.3814.8 as compared to the previous close of Rs. 3912.75. The total number of shares traded during the day was 18147 in over 3023 trades.

The stock hit an intraday high of Rs. 3925 and intraday low of 3791.25. The net turnover during the day was Rs. 69262227.

Source : Equity Bulls

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