L&T Infotech (LTI) reported a robust set of Q2FY22 numbers-revenue grew 8.3% q-o-q to $509 mn, beating our and Street’s estimates of $499 mn and $485.8 mn, respectively. Ebit margin improved by 80bp q-o-q to 17.2%, slightly lower than our estimate of 17.3%, while beating Street’s estimate of 17%. Net profit increased by 11.1% q-o-q to Rs 5.5 bn.
LTI reported stronger-than-expected results driven by robust demand across verticals and geographies. Mgmt believes current demand trend is once-in-a-century opportunity. We are raising the TP to Rs 7,505 (from Rs 6,459) based on LTI’s strong earnings growth and rollover to Q4FY23e. Maintain ‘Buy’.
Demand across the board
The unprecedented demand trend is driven by three levers: (i) Higher discretionary spending as companies across industries and geographies go through technology-led transformation of business. (ii) Emergence of new areas of spending such as ESG and cloud security, among others. (iii) A fundamental shift in supply side as demand for talent is higher than supply. To manage these supply challenges, clients are increasingly using automation and other technologies for better efficiencies. LTI is also facing supply-side challenges like its peers and clients, which resulted in higher attrition of 19.6% compared with 15.2% in last quarter. LTI hired ~4k employees in Q2FY22 to manage attrition and drive growth.
Best-ever demand outlook
LTI maintained that demand trend continues to be robust and best-ever seen by the company. It is confident of comfortably crossing the revenue milestone of $2 bn in FY22. Mgmt continues to expect FY22 PAT margin to be in the 14-15% range. The company continues to effectively mine clients with one client addition in $50 mn, three in $20 mn, and five each in $10 mn and $5 mn buckets. Moreover, it won a five-year deal of new logo in Europe with a TCV of $30 mn.
Outlook: Accelerated growth
We believe LTI will continue to deliver industry-leading growth. The stock is trading at 31.8x FY23e. We maintain ‘BUY/SO’ with a revised TP of Rs 7,505 (40x Q4FY23e) based on strong growth and rollover to Q4FY23e.Internet Explorer Channel Network