L&T Infotech Rating ‘Buy’: Sector-leading growth likely to be sustained

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Published: December 18, 2018 12:07:02 AM

Fundamentals and growth prospects will continue to warrant a premium multiple; ‘Buy’ retained

L&T Infotech Rating ‘Buy’: Sector-leading growth likely to be sustained

We recently attended L&T Infotech’s (LTI’s) analyst meet. Key takeaways: (i) structural shift underway in the industry from legacy to digital transformation spends, wherein LTI enjoys early-mover advantage; (ii) the company is strengthening efforts to drive growth in under-penetrated verticals like life sciences, consumer packaged goods, etc; and (iii) its core businesses—BFSI and energy & utilities—continue to gain robust momentum. We expect the company to post industry-leading growth leveraging its capabilities in next-generation technologies. Execution remains strong with it winning large deals, adding marquee logos and effectively mining clients. We expect LTI’s premium multiple to sustain owing to significant revenue growth outperformance.
Retain Buy with target price of Rs 2,150 (22x FY20e EPS).

Focusing on digital transformation and data

We believe prescient investments in digital capabilities give LTI an early-mover advantage. This is exemplified by digital comprising 43% of deals. Management restated its value proposition of being a digital transformation partner and enumerated the capabilities it has built for this. It reiterated LTI’s “operate to transform” model and highlighted occasions where it has helped clients digitally transform their businesses by leveraging technologies such as Machine Learning (ML), Artificial Intelligence (AI) and Blockchain.

Effective client mining and large deal wins driving sales

LTI’s strategy of effective client mining and large deal wins, along with consistent brand building, has helped the company post industry-leading growth. It has won marquee logos and has already on-boarded 61 Fortune 500 companies (12 of which have been added in the past 10 quarters). We expect this momentum to be sustained.

Outlook and valuations: Industry-leading growth; maintain ‘BUY’

We expect LTI to continue to deliver industry-leading growth due to superior digital transformation capabilities. We believe the company’s strong fundamentals and high-growth prospects will continue to warrant a premium multiple. The stock is trading at 16.6x FY20e EPS. We maintain ‘BUY/SO’ with target price of `2,150.

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