Maintain ADD on L&T Infotech – Steady progress – HDFC Securities

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

We are maintaining ADD on L&T Infotech (LTI), after a strong 4Q (online revenue, better margins) and continued growth in the upcoming first quadrant (only TELX is higher). LTI’s growth profile has been the most consistent and is expected to continue, based on (1) the net trajectory of new large contracts (26% TCV growth in FY21) and constant USD 20 million + new gains net, (2) strong pulls in BFS (increase in transaction volumes, new logo / ramp-up of the T24 transaction) and positive outlook on the Q1 account, (3) anticipation of recovery in vertical E&U sectors (rise in power of transactions) and insurance (change of direction and supplier consolidation agreement), (4) investments to increase capacities with hyperscalers – AWS / Azure, and (5) the continuation of the addition of a new logo strong (5 F500s added in FY21, bringing the number from F500 to 71) complemented by LTI’s strong customer exploration program. Our target price of INR 4,210 values ​​the LTI at 26x the March 23 EPS, taking into account a CAGR of 17/22% of revenue / EPS over fiscal years 21-23E.

Highlights of 4TFY21: (1) LTI revenue was USD 447 million, + 4.4 / + 7.1% QoQ / YoY (CC terms). (2) LTI won two large TCV contracts of 66 million USD in 4Q, one with the existing customer / insurance provider consolidation for TCV 21 million USD net new and another with a new logo / implementation Temenos (Islamic Bank) of TCV 45 million USD net new. (3) The EBIT margin stood at 19.4%, -126 basis points Q / Q, impacted by the increase in salaries in the 4th quarter and partially offset by operational efficiency gains. (4) Better growth in the BFSI (+ 5% QoQ CC) and Manufacturing (+ 5% QoQ CC) verticals offset the sluggish growth in Insurance and the decline in the E&U vertical. (5) T5 account was down 0.8% Q / Q, while T6-10 outperformed with Q5 growth of + 8.7% in USD. (6) EF22 salary increase rolled out in 1QFY22 (senior executives in the 2nd quarter), which will reduce margins in the short term. (7) LTI maintained PAT’s margin outlook at 14-15% with consistent use.

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

Larsen & Toubro Infotech Ltd shares were last traded in BSE at Rs 3,814.8 from the previous close of Rs. 3,912.75. The total number of shares traded during the day was 18,147 in more than 3,023 transactions.

The stock hit an intraday high of Rs. 3,925 and an intraday low of 3,791.25. The net turnover during the day was Rs. 69,262,227.

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