MOSL: L&T INFOTECH (Neutral)-Strong deal wins drive confidence on double-digit growth
&T INFOTECH: Strong deal wins drive confidence on double-digit growth
(LTI IN, Mkt Cap USD3.9b, CMP INR1612, TP INR1690, 5% Upside, Neutral)
** Revenue outperformance amidst weaker expectations: Revenue grew 11.9% YoY CC, INR EBIT was down 9.7% YoY, while PAT declined 10% YoY (inline) in 2QFY20. In 1HFY20, revenue increased 11% YoY, while EBIT and PAT were down by 3% and 6%, respectively. The performance was primarily driven by Energy & Utilities (+15.1% QoQ CC) and Manufacturing (+10.6% QoQ CC). EBIT margin shrank 50bp QoQ to 15.5% owing to (a) wage hike (170bp) and (b) lower utilization. The contraction was partially offset by favorable FX, the absence of visa costs and cost optimization.
** Large wins to translate into growth acceleration: During the quarter, LTI reported three large deal wins (TCV of USD100m with duration of 4-5 years). While one of these was from a European BFSI client, the other two were in the Energy and Utilities segments.
** Client issues largely behind: LTI has been witnessing a stagnant revenue run-rate at its top account over the last few quarters. In addition, the completion of a large project at an African client led to stagnant revenue in the BFS segment. Further, ramp down at a sizeable account within High-Tech and Media drove a steep fall in revenues in the vertical (-11.9% QoQ). LTI indicated that from 3Q it should see a recovery in its top account. However, spending by the African client is expected to be soft for some more time. In conjunction with the large deal win in BFS, management remains confident of double-digit revenue growth for FY20. This implies a modest CQGR of 2.2% over 2HFY20.
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