Motilal Oswal recommended Neutral rating on Larsen and Toubro Infotech with a target price of Rs 3780 in its research report dated January 21, 2021.
Broker Research
February 02, 2021 / 09:14 PM IST
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Motilal Oswal’s research report on L&T Infotech
L&T Infotech (LTI)’s 3QFY21 USD revenue growth of 5.3% QoQ CC (est. 4.0% QoQ CC) was broad-based, barring Insurance (-0.6% QoQ) and E&U (0.1% QoQ). The 3Q EBIT margin expansion of only 70bp QoQ (to 20.6%) – despite high improvement in utilization (+220bp QoQ) and the offshore mix (+100bp QoQ) – was due to pass-through business and employee additions (1,500+). n During the quarter, LTI reported the highest ever TCV of large deal wins of USD278m – inclusive of the earlier announced USD204m win with Injazat. n We continue to expect LTI to deliver revenue growth on the higher end of our Coverage Universe – aided by large deal traction, a strong client mining ability, and a supportive demand environment. We expect FY21–23 USD revenue CAGR of 17%, supported by strong double-digit growth in FY22. n While we expect 4QFY21 to see the impact of wage hikes (+160bp), PAT margins for FY22 should remain on the higher end of the company guidance of 14–15%. This is given the management’s plan to increase investments in sales and normalization in operating metrics, such as employee utilization. n We marginally upgrade our estimates for FY21/FY22/FY23 by 3%/1%/2%, factoring in an operational beat. As digital turns mainstream, we expect LTI to benefit from continued investments in digital capabilities, strong client additions, and mining abilities. This should result in industry-leading growth. However, saturated metrics and required investments should keep margins in the narrow range. Our TP of INR3,780 implies 25.0x FY23E EPS. Maintain Neutral.
Outlook
We value the stock at 25.0x FY23 EPS (in-line with our TCS valuation given LTI’s industry leading growth). Our new TP is INR3,780, implying a 8% downside. Maintain Neutral.
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