Prabhudas Lilladher is bullish on Larsen and Toubro Infotech has recommended buy rating on the stock with a target price of Rs 1981 in its research report dated May 05, 2019.
Prabhudas Lilladher's research report on Larsen and Toubro Infotech
LTI disappointed with soft organic growth of 0.8% CC with sharp decline in margins also. LTI reported CC revenue growth of 1.9% QoQ of which 1.1% was contributed by Nielsen+Partner and Ruletronics acquisitions. Weak growth was on account of sharp revenue decline from the top client, which belongs to the BFS vertical. EBIT margin declined by 140 bps QoQ to 17.7% and was impacted by three factors i) 200 bps decline in utilization rate impacting margin by 60 bps, ii) 60 bps impact due to investments in sales & digital & (iii) 40 bps impact from appreciation of INR against USD. Revenues from top five clients declined by 4.8% QoQ. LTI has announced 2 large new deals with net TCV in excess of US$100mn. We believe weakness of top client will weigh on the growth of FY20E. We cut our revenue estimates by ~2% in FY20E & ~1% in FY21E. We cut our margins by 80bps & 30bps for FY20E & FY21E to factor higher S&M spends & spike in attrition (+100bps QoQ to 17.5%) may lead to salary hike. Despite headwinds ahead in top client & margins, we expect LTI to deliver revenue growth of 14% & 15% in FY20E & FY21E respectively.
Outlook
We value LTI at 18X FY21E multiple at an EPS of Rs.93 & Rs. 110 to arrive at a changed target price of Rs. 1981(earlier: Rs.2032).
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