Continuing its strong execution, Larsen & Toubro Infotech (LTI) impressed with robust (~9.2% q-o-q, CC) and broad-based growth in Q3FY22 across verticals and service lines. Robust performance in manufacturing (+19% q-o-q, CC) included 2% growth on account of pass-through revenues in India engagements. Ebit margin stood at 17.9% aided by growth and operational efficiencies. Share of offshore effort increased 40bps q-o-q to 84% and management expects these levels to stay elevated on the back of the ‘Great Resignation’ theme. Confident commentary and stable margin outlook despite impending cost pressures is encouraging.
What differentiates LTI is its strong growth despite a tall base of FY21. We believe despite industry leading growth in FY22e, revenue growth in FY23E, too, will remain robust (28% y-o-y, $) even if demand moderates. We upgrade our FY22e-FY24e EPS by up to 12% on the back of strong performance and solid outlook. Despite rich multiples, LTI remains our top midcap Buy and we value it at ~40x FY24e EPS.
Strong performance: Though growth was broad-based, manufacturing (+19% q-o-q, CC) and BFSI (+10% q-o-q, CC) led the pack. In terms of geographies, North America / Europe grew ~6%/9% q-o-q (CC), while RoW lagged (-4.3% q-o-q, CC).
Strong demand outlook: LTI announced a multi-year deal in the IMS segment with net new TCV of $32 mn in pharma space. It reiterated its earlier outlook of remaining in leadership quadrant on growth in FY22. PAT margin guidance of 14-15% for FY22 remains intact.
Maintain Buy: Like Infosys across large caps, LTI reporting an actual improvement in the underlying demand instead of a mere recovery from a low base was the key rationale behind our Buy rating. Strong growth outlook and company’s consistency in execution should lead to industry-leading revenue growth prospects. We believe LTI’s FY22-24e revenue CAGR of 25% will be the highest in the industry.