MOSL: L&T INFOTECH (Neutral)-Strong growth to sustain, but valuations remain punchy
(LTI IN, Mkt Cap USD13.7b, CMP INR5907, TP INR6430, 9% Upside, Neutral)
Talent supply a near-term limitation on growth
- LTI’s revenue growth, in USD terms, stood at 8.9% QoQ CC in 2QFY22, above our estimate of 5.4%. Growth was broad based across verticals, service lines, geographies, and client buckets. Broad based industry growth was led by BFS and Manufacturing. EBIT margin expanded by 80bp QoQ to 17.2% in 2QFY22 (est. 16.7%), led by SG&A leverage, offshoring, and higher working days, partially offset by utilization and higher costs.
- The management highlighted that the demand environment is one of the strongest. It expects demand to remain strong over the next three years. Despite the absence of large new deal wins in recent quarters, LTI’s growth momentum is one of the strongest in its history, indicating the broad based nature of the demand environment. We continue to view LTI as one the best placed companies in our coverage universe, with a strong client mining ability. We expect it to deliver 23% revenue CAGR in USD terms over FY21-23E, one of the highest in our Tier II coverage.
- We expect a better margin in 2H (v/s 1HFY22), driven by continued strong growth, which will offset the supply-side impact. The management continues to be focused on driving growth with a stable margin. We expect net margin to remain in the guided range of 14-15%.
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