MOSL: L&T INFOTECH (Neutral)-Top client's budget restructuring drives expectation of back-ended FY20 revenue growth
L&T Infotech: Top client's budget restructuring drives expectation of back-ended FY20 revenue growth
(LTI IN, Mkt Cap USD4.2b, CMP INR1678, TP INR1910, 14% Upside, Neutral)
- 4Q revenue dragged by largest account: LTI’s FY19 CC revenue grew 20.9% with INR EBITDA/PAT growth at 56%/31%. LTI announced full-year dividend of INR28/share, pegging the total payout at ~32%. For 4QFY19, CC revenue grew 17.5% YoY (v/s est. of 18%), EBITDA grew 35% YoY (v/s est. of 34%), and PAT grew 12% (v/s est. of 8%). Revenue growth was robust, but was the lowest in four quarters (1% QoQ CC organic) despite ~1pp contribution from acquisitions; this relative weakness was dictated by restructuring of budgets in LTI’s largest customer. As a result, it dragged performance in BFS (-3% QoQ), ADM (-1.7% QoQ) and Analytics (-4.2% QoQ). EBITDA margin declined 140bp QoQ to 19.2% (v/s est. of 19%) due to three factors: (1) 190bp QoQ decline in utilization, (2) investments in S&M capacity, and (3) INR appreciation. PAT at INR2.8b was ~4% ahead of our estimate on higher other income.
- Expect back-ended, but top-quartile growth in FY20: The softness in LTI’S top account is expected to drag into 1QFY20, but will stabilize 2QFY20 onwards. Also, LTI won two large deals with net new cumulative TCV of USD100m+, which should fully ramp-up in 2HFY20. As a result, while overall growth should continue in the industry’s top-quartile, it is likely to be more back-ended this fiscal. LTI has retained its net margin outlook of 15%, which implies lower operating margins as the company is investing in sales capacity.
- Momentum intact outside the top clients: LTI cited sustained strength in business momentum outside its largest account. Double-digit YoY CC growth in 4QFY19 across verticals is a case in point. Even within BFS, it expects strong growth, but outside the top account. Its pipeline of large deals has also expanded further since Dec’18; it was up 25% YoY in Dec’18.
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