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L&T Infotech stock falls as earnings and dividend fail to entice investors; time to buy, sell, or hold?

Larsen & Toubro Infotech also announced a dividend of Rs 30 per equity share of face value Re 1.

L&T Infotech reported that its consolidated revenue from operations rose 3.96% to Rs 4,301.6 crore from Rs 4,137.6 crore in the previous quarter.

Larsen & Toubro Infotech share price fell 4% on Wednesday morning, a day after the company reported a weak set of quarterly earnings that disappointed investors. L&T Infotech reported a net profit of Rs 637.5 crore, up 16.8% from the same period last year. The company also announced a dividend of Rs 30 per equity share of face value Re 1. Analysts have downgraded the share, trimmed target prices, and are advising investors to sell L&T Infotech shares after the company’s dismal quarterly earnings. The stock price was trading at Rs 5,230 per share on Wednesday. It is down 23% so far in 2022.

L&T Infotech reported that its consolidated revenue from operations rose 3.96% to Rs 4,301.6 crore from Rs 4,137.6 crore in the previous quarter. Revenue was up 31.57% from the year-ago period. EBIT margin came in at 17.3%, down 205 basis points from the previous year. The company announced four large deals with a net-new TCV of over $80 million.

Should you buy?

ICICI Securities: Downgrade to Reduce

Analysts at ICICI Securities believe that L&T Infotech disappointed with a weak set of January-March quarter earnings on various fronts. Revenues were way below estimates and similar to Infosys and TCS the company saw softening of BFS growth. The brokerage firm sees potential for growth in L&T Infotech but remains concerned about valuations. “Our view on the business is unchanged and the company is well-positioned to gain market share with its strong business model but valuations of 38x/31x on FY23/24 EPS look expensive to us in the current macro environment and given likely slowdown in revenue/earnings momentum ahead,” they said. The target price has been brought lower to Rs 4,986 per share from Rs 5,921 apiece earlier.

Kotak Securities: Reduce

L&T Infotech’s quarterly earnings were below estimates pinned by Kotak Securities. However, the company has a good deal pipeline and the management is aiming for industry-leading growth in the current fiscal year. “The deal pipeline is reasonably good with 50% of pipeline in late-stage and four large deals in the contracting phase. After delivering 25.8% revenue growth in FY2022, the management believes it can deliver industry-leading growth in FY2023E,” Kotak Securities said. L&T has maintained a net profit guidance band of 14-15%. Analysts, however, remain wary of expensive valuations. “We cut Fair Value to Rs 5,500, valuing the stock at 29X FY2024E EPS. We like LTI’s scalable business model attributes but find that current valuations of 29X FY2024E EPS do not offer any upside,” they added.

Reliance Securities: HOLD

With a Hold rating on the stock, analysts at Reliance Securities said that L&T Infotech underperformed against their revenue and margin expectations with a modest beat on net profit. “We are positive on medium-term revenue growth resiliency but expect accelerated pressure on near term EBIT margin due to supply-side concerns.  We believe the company to report industry-leading double-digit revenue growth rate over FY22-24E,” Mitul Shah, Head of Research at Reliance Securities said. With a Hold rating, the target price has been set at Rs 7,095, valuing the stock at 38x FY24E EPS.

Motilal Oswal: Neutral

The brokerage firm has cut 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,” they added. The brokerage firm remains cautious on valuations but believes industry-leading growth may defend it. The target price has been set at Rs 5,710 per share.

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