Anandrathi
L&T Infotech (Buy)
CMP: ₹1,640.05
Target: ₹1,900
a) Larsen & Toubro Infotech’s (LTI) current deal pipeline is up 42 per cent y-o-y, from $1 billion+ last year. Of the deal pipeline, 37 per cent is for digital solutions, 49 per cent at the proposal stage and 35 per cent from new clients. Further, its large-deal pipeline continues strong, with 32 large deals,67 per cent at the proposal stage and 60 per cent from new clients. Based on the healthy deal pipeline, management expects to regain its historical CQGR of ~3 per cent (ARe 2.3 per cent).
b) Despite turbulent industry in the last few years and continuous pressure on productivity, LTI has largely maintained margins, primarily on superior client mining (rev/client is up about 2-3 per cent over the last 12 months), sustained high offshore (on-site down to 22 per cent), and long-term active hedges. CF hedges are $1.2 billion (FY20e EBIT is $232 million), with the usual cover of <3 yrs.
We maintain a ‘Buy’, and raise target price to ₹1,900. Overall, positive on LTI’s ability to scale up and its relative better positioning in the mid-cap IT space.
Risk: Great dependence on US BFSI.