Maintain ADD on L&T Infotech - Q1FY22 Result Update - 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 robust Q1 (better revenue, in-line margin), and given its strong growth prospects ahead. LTI's growth has been consistent and is expected to continue, based on (1) healthy growth in the BFSI vertical, supported by improved credentials in Temenos, (2) aggressive hiring/wage revisions, which would overcome supply-side constraints (planned addition of 4,500 freshers in FY22 or 1.5x FY21 adds), (3) recovery expectation in E&U vertical, led by healthy deal wins (three deals in Q1FY22 vs. one in Q4FY21), (4) augmenting digital engineering services with the acquisition of Cuelogic (consolidation from Q2FY22), and (5) scale-up in products (Mosaic, Leni) and partnerships (Snowflake). Our target price of INR 4,470 values LTI at 28x Jun-23E EPS, factoring in an 18% CAGR in revenue/EPS over FY21-24E.

Q1FY22 highlights: (1) LTI's revenue came in at USD 470mn, +4.8/+17.8% QoQ/YoY (CC terms), which was above our estimate. (2) EBIT margin declined by 295bps QoQ at 16.4%, impacted by a wage hike (-340bps QoQ), investment in S&M (-60bps QoQ), partially offset by operational efficiencies (+140bps QoQ), and FX tailwind and absence of pass-through revenue (+80bps QoQ). (3) Better growth registered in BFSI (+8.8% QoQ CC) and insurance verticals (+5% QoQ CC) offset the decline in manufacturing vertical (-6.7% QoQ CC). (4) T5 account improved 6.6% QoQ and T6-10 grew by +4.3% QoQ in USD terms. (5) LTI had the highest ever headcount addition of 2,307 employees in Q1 and it plans to add 4,500 freshers in FY22. (7) It maintained its PAT margin outlook at 14-15% for FY22, while the management expects utilisation to taper down in the medium term.

Outlook: We have factored in USD revenue growth of 20.6/17.9/15.8% and EBIT margin of 17.6/18.0/18.1% for FY22/23/24E respectively. APAT margin is estimated at 14.6/14.9/15.0% for FY22/23/24E. At the CMP, LTI trades at 28x FY23E with an FY21-24E EPS CAGR at 18%.

Shares of Larsen & Toubro Infotech Ltd was last trading in BSE at Rs.4288 as compared to the previous close of Rs. 4417.3. The total number of shares traded during the day was 43364 in over 6967 trades.

The stock hit an intraday high of Rs. 4396.1 and intraday low of 4253.35. The net turnover during the day was Rs. 186614295.

Source : Equity Bulls

Keywords