Credit Suisse: ‘Outperform’ on L&T Infotech; TP at Rs 1,900

By: |
Published: September 4, 2019 2:38:31 AM

Over FY16-19, LTI has exhibited best-in-class revenue growth and margin performance, something we expect it to sustain over the medium to long term.

L&T rating, L&T management, FY20e guidance, private sector, PSU, Electrical & AutomationFY20 will see some challenges but fundamentals remain solid.

We initiate coverage on L&T Infotech (LTI) with an ‘Outperform’ rating and a TP of `1,900 (16% upside). LTI has the ‘makings of a quality large cap’ given sector leading client hunting skills, a growth focused mindset, a new and hungry team at the helm and its ability to scale up new accounts and smaller verticals.

Over FY16-19, LTI has exhibited best-in-class revenue growth and margin performance, something we expect it to sustain over the medium to long term. Numbers tell the story; LTI has numerous sector leading metrics. We compared LTI versus its large cap and mid cap peers on various key metrics: client hunting and mining, profitability and return ratios, growth, M&A strategy, and employee productivity trends.

LTI prevails over peers on nearly all of these. After a muted 1Q across the sector (including LTI), it seems FY20 growth will moderate for companies. However, from a medium-term perspective, LTI’s execution remains strong – accelerating client addition and steady growth in non-top accounts (slowing for peers) is heartening.

FY20 will see some challenges but fundamentals remain solid. After a strong 22% earnings CAGR over FY16-19, we expect FY20 to see flattish earnings given temporary headwinds from the top client and some pull back in margins from all-time highs. However, starting FY21, we expect LTI to once again start delivering sector leading revenue/EPS growth at a respectable ROCE. Key risk remains the higher client concentration vs large caps.

Valuations have cooled off; offers good entry point. LTI’s valuations have had a massive reset over the last 12 months with its P/E multiple having corrected 30%. In line with most peers, LTI will see a slowdown in growth rates in FY20. However, the weakness is largely limited to its top account and outside of that, fundamentals remain solid. Current valuations at 17x FY21 (~30% discount to TCS) look reasonable for a potential compounder. Key risks: client concentration; high exposure to BFS; slowdown in global macro; sharp rupee appreciation vs the US dollar.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Next Stories
1MobiKwik eyes Rs 500 cr revenue in FY20, IPO in 4 years
2As stock markets crash, investor wealth dips this much in today’s trade
3Key reasons why Sensex plunged 770 points, biggest fall in nearly 2 months; Nifty dives below 10,800