Motilal Oswal has given Neutral recommendation for Larsen and Toubro Infotech with a target price of Rs. 5710 in its research report issued on Apr 20, 2022

Motilal Oswal’s research report on Larsen and Toubro Infotech

LTI reported a growth of 3.6% QoQ CC on a high base, below our estimate of 4.2%. Growth was broad-based across verticals and service lines. EBIT margin moderated by 60bp QoQ to 17.3% in 4QFY22 (inline) due to lower working days and revenue mix. LTI continues to benefit from one of the strongest ever demand environments and sees it continuing over the next three-to-five years. The management reassured of industry-leading growth in FY23 as demand remains strong. It doesn’t see any postponement in demand, despite a volatile macro environment and geopolitical issues. LTI is one of the best placed companies in our coverage universe, with a strong client mining ability. Moreover, robust employee addition and its target to hire over 6,500 freshers in FY23 provides further demand visibility. We expect it to deliver FY22-24 USD revenue CAGR of 21% – one of the highest in our Tier II IT Services coverage. While LTI continues to excel on revenue growth, we expect it to maintain its profitability around current levels, given the management’s focus on driving growth with stable margin. It should continue to report net margin in its guided range of 14-15%. LTM attrition rose 150bp QoQ to 24% (a six-year high) in 4QFY22, which remains a concern, especially with rising on-site attrition. The management said attrition is moderating on a quarterly annualized basis and that it will take a few quarters for attrition in the LTM to fall.

Outlook

We have cut our EPS estimates for FY22 and FY23 by ~2% due to slower growth. Our margin estimates remain in line with the management’s guidance. As Digital turns mainstream, we expect LTI to benefit from continued investments in its Digital capabilities, strong client additions, and mining abilities. This should result in industry-leading growth. Our TP of INR5,710/share implies 30x FY24E EPS. We maintain our Neutral rating.

More Info

At 14:20 hrs Larsen & Toubro Infotech was quoting at Rs 5,123.75, down Rs 362.40, or 6.61 percent.

It has touched an intraday high of Rs 5,465.00 and an intraday low of Rs 5,106.30.

It was trading with volumes of 90,117 shares, compared to its thirty day average of 16,417 shares, an increase of 448.92 percent.

In the previous trading session, the share closed down 6.49 percent or Rs 380.50 at Rs 5,486.15.

The share touched its 52-week high Rs 7,595.25 and 52-week low Rs 3,525.95 on 04 January, 2022 and 17 May, 2021, respectively.

Currently, it is trading 32.54 percent below its 52-week high and 45.32 percent above its 52-week low.

Market capitalisation stands at Rs 89,820.44 crore.

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