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Buy Larsen and Toubro Infotech; target of Rs 2090: HDFC Securities

January 22
16:25 2020

HDFC Securities research report on Larsen and Toubro Infotech

Strong revenue performance at USD 394mn, +8.3/14.2% QoQ/YoY CC was supported by large project ramp in T1 account (data platform), ramp-up of large deals (Nordic BFS and Mfg), higher pass through revenue in India business (1.5% QoQ impact) and Powerupcloud consolidation (0.4% QoQ impact). Despite BFS/Mfg-heavy growth on large deal ramps, vertical performance was fairly broad-based. Volume-led growth stood at 5.8% QoQ and realisation increase was 2.5% QoQ in 3Q. Digital stood at 41% of rev and grew +10.3/26.0% QoQ/YoY. Large NN deal TCV stood at USD 75mn (USD 219mn in 9MFY20). Within client buckets, growth was broad-based with T5 growth at an impressive 12.2% QoQ and T6-10 at 10% QoQ. Client additions (gross) in 3Q were also at a multi-period high with 29 additions (organic). Within service-lines, growth was led by Analytics, AI & Cognitive (includes T1 account impact), IMS and ADM & Testing services. Attrition eased in 3Q to 17.7% following peak levels in 2Q. EBIT% came in-line at 16.2%, +70bps QoQ supported by INR, higher utilisation. Margin increase was largely supported by strong uptick in Hi-tech, Media & Ent. segmental performance. APAT at Rs 3.77bn was impacted by lower forex gain at Rs 0.35bn (vs. Rs 0.69bn in 2Q). DSO including unbilled increased to 110days (vs. 105 in 2Q), but expected to normalise in 4Q.

Outlook

We maintain BUY on L&T Infotech (LTI) following rev beat/in-line margin performance and ~7% EPS increase. Broad-based growth drivers and strong uptick in large account provide growth visibility. Our TP of Rs 2,090 is based on 18x Dec-21E EPS.

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