CRISIL Ratings has reaffirmed its 'CRISIL AAA/Stable/CRISIL A1+' ratings on the bank facilities of Larsen and Toubro Infotech Limited (LTI).
LTI and Mindtree Ltd (Mindtree), on May 06, 2022, announced the proposal to merge Mindtree into LTI through a scheme of amalgamation as approved by the respective boards of the companies. The shareholders of Mindtree will receive 73 shares of LTI (face value of Rs 1 each) in exchange for 100 shares of Mindtree (face value of Rs 10 each); with all the subsidiaries and associates of Mindtree becoming subsidiaries and associates of LTI. Post the receipt of various regulatory approvals expected in the next 9-12 months, the amalgamated entity will be named 'LTI Mindtree Ltd (LTIM)' with their promoter Larsen & Toubro Ltd (L&T; rated 'CRISIL AAA/FAAA/Stable/CRISIL A1+') retaining 68.73% stake in the new entity. The amalgamation will augment the scale of LTI, complement its product offerings and diversify the geographies, verticals and customers served, thus enhancing the overall business risk profile. Also, the financial risk profile is expected to benefit from larger balance sheet strength in the absence of debt and stronger liquidity.
The ratings continue to reflect expected sustenance of healthy business performance, supported by the company's healthy deal pipeline, diversified service offerings across multiple verticals and increasing share of digital revenue. In fiscal 2022, revenue grew by 26% year-on-year, driven by growth across sectors, mainly banking, financial services and insurance (BFSI), which grew 29% on-year, followed by manufacturing (24%) and the consumer-packaged goods (CPG) retail and pharmaceutical segment (24%). Operating margin remained healthy albeit moderating to 19.5% in fiscal 2022, owing to increased employee base despite improved utilization rates.
Revenue is expected to grow steadily at 12-15% annually over the medium term. Operating profitability should benefit from efficiency on account of improvement in employee utilization and balanced offshore component. Furthermore, the company's financial profile continue to be strong, supported by healthy cash generating ability and a debt free balance sheet.
The ratings also reflect the strategic focus of the parent, Larsen & Toubro Ltd on the service business. Over the years, the contribution of service business, both in terms of revenue and profitability has been improving. Additionally, L&T has also been leveraging the capabilities of the services segment to augment its core business. The acquisition of Mindtree by L&T in 2019, the initiation of the strategic initiative called L&T Nxt in the same year (taken over by Mindtree in July-2021), as well as recent amalgamation announcement of Mindtree with LTI bodes well for the information technology business in general and services business in particular.
The ratings continue to reflect LTI's established market position in the banking, financial services, insurance, manufacturing and other segments like Energy and Process, Consumer Packaged Goods, Retail and Pharmaceuticals, and strong financial risk profile marked by a debt free balance sheet, healthy cash generating ability and robust liquidity. Furthermore, the company benefits from the expected support from its parent, and the strength of the L&T brand. These rating strengths are partially offset by customer and geographic concentration in revenue, and exposure to risks related to intense competition in the IT industry in India.
Shares of Larsen & Toubro Infotech Limited was last trading in BSE at Rs. 4091.50 as compared to the previous close of Rs. 4108.05. The total number of shares traded during the day was 10875 in over 1978 trades.
The stock hit an intraday high of Rs. 4171.25 and intraday low of 4052.70. The net turnover during the day was Rs. 44639525.00.