Motilal Oswal has given Neutral recommendation for Larsen and Toubro Infotech with a target price of Rs. 6640 in its research report issued on Dec 09, 2021
Motilal Oswal’s research report on Larsen and Toubro Infotech
We attended LTI’s Analyst Day, where the management a) reiterated its guidance for strong broad-based growth for the coming 3–5 years and b) highlighted ‘The Great Restructuring’ as a key driver of the demand tailwind. The management remains confident about this growth trajectory and mentioned six factors that would drive growth – demand, capability, talent, sales and marketing, team, and operational resilience. The company continues to expect faster growth than the industry average growth of 9%+ as digital transformation led demand fuels client spending. It sees talent as the only limiting factor in its aspiration to double revenues to USD4b over the next few years. LTI’s large-deal pipeline (new only) of USD2.07b v/s USD1.9b in FY21 (USD1.2b excluding mega deals) was relatively modest, but primarily consisted of smaller deals – unlike the three mega deals (one converted) that inflated FY21 figures. 44% of this large deal pipeline is contributed by new logos. It also mentioned the pipeline including renewals is meaningfully larger. The company reiterated its stance to maintain net margins at 14–15% as it continues to focus on reinvesting to capture incremental market share rather than the margin uptick. We see this as an indication of the company’s willingness to absorb pricing pressure, unlike peer commentary on price hikes. Although LTI has hired a record number of employees recently, it continues to see the supply side as a concern over the near term. LTI expects the situation to ease over the next 4–6 quarters.
We are introducing our FY24 estimates in this report. We are also rolling forward our target multiple to FY24E, leading to new Target Price of INR6,640, as we value the stock at 35x FY24E EPS. Maintain Neutral.