Larsen & Toubro Infotech - Q4FY22 Result Update - Strong near term deal pipeline

Ms. Aditi Patil, Research Associate at Prabhudas Lilladher

Quick Pointers:

- Strong deal pipeline of ~$2bn with 50% deals in late stage including 4 in contracting stage.

- Retained PAT margin guidance of 14-15%, however we believe that margin will remain under pressure near lower end of guidance in FY23.

LTI reported a miss in revenue growth (3.1% QoQ USD in Q4), partly due to lower onsite volume (-0.4% QoQ USD) impacted by high onsite attrition. However, we expect revenue momentum to continue (~19% YoY in FY23E) in the near term given - 1) 4 large deals with TCV $80mn+ won in Q4, 2) deal pipeline at ~$2bn with 50% deals in late stage including 4 deals in contracting stage and 3) significant client mining opportunities from 100 new logo additions in FY22. Management cautiously monitors impact of ongoing macro uncertainties and high inflation. It retained 14-15% PAT margin guidance, however margin headwinds from 1) wage hike in Q1FY23 (~290bps impact), 2) increased investments in sales and 3) return of travel and facility costs may further weigh it down.

We cut EPS estimates by 8%/5.5% for FY23/24E led by cut in margins by ~111bps/50bps in FY23/24 and cut in revenue by ~3%. We arrive at DCF based TP of Rs. 6369 (earlier Rs. 7166) with implied target multiple of 36x P/E on FY24 EPS (earlier: 39x) led by increase in risk free rate and moderation in long term growth rates and margins. LTI is currently trading at 37x/31x earnings multiple on EPS of 147.3/175.5 for FY23/24E with Revenue/EPS CAGR of 17%/16% over FY22-24E.

Source : Equity Bulls

Keywords

LTI LarsenandToubroInfotech PrabhudasLilladher Q4FY22 ResultUpdate