Mr. Amit Chandra, Institutional Research Analyst, HDFC Securities and Mr. Vinesh Vala, Institutional Research Analyst, HDFC Securities
We maintain ADD on L&T Infotech (LTI), following a robust Q2 (beat on revenue and margin) and strong growth visibility for H2, based on deal wins. LTI has consistently delivered an industry-leading growth rate and the momentum will continue, based on (1) healthy growth in BFS vertical, supported by Temenos partnership, (2) large deal wins in Europe (TCV of USD 30mn) and a strong large deal pipeline, (3) expected pick-up in insurance and retail & CPG verticals, (4) decade best demand environment, supported by rising discretionary spends by enterprises, which will last for at least three years, (5) scale-up in products (Mosaic and Leni) and partnerships (Snowflake), and (6) aggressive hiring/re-skilling plans, which would help overcome the supply side constraints (hired ~6.4K in H1, planned net hiring ~2x of FY21 adds). We increase our target multiple to 35x (33x earlier), led by improving growth outlook and margin resilience. Our target price of INR 6,400 values LTI at 35x Dec-23E EPS.
Q2FY22 highlights: (1) LTI's revenue came in at USD 509mn, +8.9/+25.5% QoQ/YoY (CC terms), which was above our estimate of USD 491mn; (2) EBIT margin improved by 79bps QoQ to 17.2% (estimate of 16.5%), supported by SG&A leverage (+70bps) and offshoring (59.2%, +190bps QoQ), offset by lower utilisation (-70bps); (3) broad-based across verticals, led by manufacturing (+12.9% QoQ CC) and BFSI (+10.6% QoQ CC); (4) T5 account improved +8.3% QoQ and T6-10 grew by +3.3% QoQ in USD terms; (5) LTI had the highest ever headcount addition of 4,084 employees in Q2 and it plans to add more freshers in H2FY22; (6) as per management, LTI will deliver top quartile topline growth and PAT margin will be in the range of 14-15% for FY22E.
Outlook: We have factored in USD revenue growth of +26/20.1/14.7% and EBIT margin of 17.4/17.7/18.2% for FY22/23/24E respectively. APAT margin is estimated at 14.4/14.6/15.1% for FY22/23/24E. At the CMP, LTI is trading at 37.2x FY23E with an FY21-24E EPS CAGR at 20%.
Shares of Larsen & Toubro Infotech Limited was last trading in BSE at Rs. 6847.80 as compared to the previous close of Rs. 5907.00. The total number of shares traded during the day was 216108 in over 34638 trades.
The stock hit an intraday high of Rs. 7010.00 and intraday low of 6381.00. The net turnover during the day was Rs. 1451261644.00.