MOSL: L&T INFOTECH (Buy)-Momentum on solid ground

​L&T Infotech: Momentum on solid ground

(LTI IN, Mkt Cap USD2.0b, CMP INR818, TP INR950, 17% Upside, Buy)

• FY18 on track for industry leading revenue growth: 1HFY18 revenue grew 11.7% YoY CC, all organic. LTI has been expecting a better 2H on deal ramp-ups. This momentum will help it navigate FY18 without feeling the pinch of 2H seasonality. 2QFY18 revenue grew 4.4% QoQ to USD271m. In CC terms, revenue growth was 3.5% QoQ, above our estimate of 2.1% (11.7% YoY). EBITDA margin of 16.8% was flat QoQ (in-line), as 180bp wage hike impact was offset by 250bp expansion in utilization (excl. trainees) and some tailwind from cross currencies. PAT grew 2.1% QoQ to INR2,729m (in-line).
• Deal wins keep visibility intact: LTI announced two large deal wins in 2Q, one of which was a new CPG logo in Europe. While ramp-ups in previously won deals drive a strong outlook for the rest of the year, further wins are keeping expectations sanguine beyond FY18. Completion of a sizeable India program was a slight drag, excluding which, CC growth in 2Q was ~5.3% QoQ. All industries, except Manufacturing, continue witnessing traction.
• Valuation view: Revenue/earnings for FY18E/19E are upgraded by 1-3% after a strong revenue performance, likewise outlook for the remainder of the year, and strong deal wins during the quarter. LTI trades at 13.3/12.4x FY18/19E earnings – still below almost all peers demonstrating a similar growth and margins performance. 2Q lent further confidence to our thesis of valuation re-rating through gradual execution. Our revised TP of INR950 discounts forward earnings by 14x v/s 13x earlier amid increased confidence following what is still limited history since its listing. LTI’s peers (MTCL, HEXW, ECLX, MPHL, etc.) continue trading at/above 14x. This implies an upside of 17%; LTI remains among our key tier-II IT picks. Maintain Buy.