Axis Securities: L&T Infotech Q1 Reports Healthy Business; Steady Pipeline

Axis Securities Report

Larsen & Toubro Infotech reported a healthy set of results in Q1 FY21. Revenue in Q1 FY21 declined by 4.8% QoQ in constant currency terms, much in line with the expectations at Rs. 2,949 crore. Operating profit showed a strong growth of 2.4% QoQ at Rs.592 crore. Operating margins also witnessed healthy growth of 90 basis points QoQ and stood at 20.1% aided mainly by strong execution, lower utilization, depreciation of currency etc. Management is confident in the sustainable operating margins from here on due to strong cost optimisation effort and strong execution efforts. Deal pipeline remained softer as compared to previous quarters. LTI signed only one large deal with a bank in the UK and added 16 new clients in Q1 FY21.

We believe LTI has a strong business structure and multiple long term contracts spread across verticals will help LTI to generate sustainable growth momentum. With depreciation in Indian Rupee, lower travel cost and strong execution - Ebitda margins likely to expand in near term. We recommend Hold and assign 21 times price to earnings multiple to its FY22E earnings of Rs. 117.6 per share which gives a target price of Rs. 2,460 per share, an upside of 7%.

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