MOSL: L&T INFOTECH (Upgrade to Buy)-Bounce back on the horizon
L&T Infotech: Bounce back on the horizon; Upgrade to Buy
(LTI IN, Mkt Cap USD4.1b, CMP INR1671, TP INR2030, 22% Upside, Upgrade to Buy)
- Over the past four years, LTI has continuously strengthened the moats around its business through a slew of measures. Client specific issues, which led to muted performance over 9MCY19, now seem to be largely behind.
- Despite the cautious IT spending trend, the recent large deal wins and client additions give us the confidence to expect strong revenue CAGR of 11% (USD) over FY19-21E. Lower exposure to disrupted horizontals (e.g. legacy IMS, BPO, etc.) and scale benefits should help negate some of the macro/vertical headwinds.
- As growth returns, we expect utilization to increase by ~200bp, which should be a key near-term margin lever. Multiples have corrected ~27% from its peak on concerns related to key clients and immediate integration with Mindtree.
- As these concerns are largely behind, we upgrade the stock to Buy. Our TP of INR2,030 implies 7% re-rating to 19x 1-year forward P/E, at 15% discount to TCS. The rich multiples should be supported by high ROCEs (42% in FY19) and industry- leading earnings growth. Key risk: Leadership attrition.
Larsen & Toubro Infotech Limited is an India-based company, which is engaged in computer programming, consultancy and related activities. The Company's business segments include Industrials Cluster and Services Cluster. The Industrials Cluster segment consists of the business verticals of energy and process, consumer packaged goods, retail and pharmaceuticals, hi-tech and consumer electronics, automotive and aerospace, plant equipment, and utilities, engineering and construction. The Services Cluster segment consists of the business verticals of banking and financial services, insurance, media and entertainment, travel and logistics, and other miscellaneous business verticals. The Company offers a range of services, such as Analytics & Information Management (AIM), Consulting, Internet of Things, Applications Management, Enterprise Integration, Industrial Internet of Things, System Integration, Assurance Services, Geographical Information System (GIS) and Infrastructure Management.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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