Buy Larsen and Toubro Infotech; target of Rs 3465: Prabhudas Lilladher

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Prabhudas Lilladher's research report on Larsen and Toubro Infotech

LTI’s large deal pipeline is strong at 1.9Bn up 62% YoY. (vs 7 large deals of TCV 450$Mn won last year). If we consider same conversion ratio as last year, the deal win TCV may be as high as 760 Mn$ in next 4 quarters. LTI’s deal pipeline is broad-based across all verticals and service lines with good mix of existing clients and new logos which gives us confidence of strong deal conversion. LTI has formed consulting labs to collaborate with clients to address their issues across various functions (finance, marketing, operations etc) which will help in generating large deals. They have strengthened their presence in Middle East and Nordic region by partnership with Injazat and Temenos respectively. LTI has identified Cloud and Products as the growth engines for the future. LTI has a strong portfolio of 5 products with total addressable market of $15 Bn. LTI’s bet is that cloud business will be US$1 bn in the next three years from the current run rate of US$180 mn serving 150+ clients. Management reiterated that they will maintain PAT margin at 14-15% levels and at the same time invest in sales and marketing teams in the short term and not shy away from investing in growth areas for the long term. We have always liked LTI, as we believe it has strong ingredients of being a sustainable growth engine considering the basis :1) Strong in high growth digital solutions, 2) Growth Momentum in high large client deals & deal pipeline, 3) Strong capabilities in Cloud & Products, 4) Higher M&A & partnerships 5) Strong focused team in place & 6) Higher offshore revenues to protect margins structurally. LTI remains fastest growing company in our coverage universe led by its focus on increasing F500 accounts, large deal wins & strong leadership team.

Outlook

We value LTI at 25X to arrive at unchanged target price of Rs.3465. LTI is currently trading at 28.4x/23.5x earnings multiple. We believe valuation premium will continue on account of strong & stable growth, Maintain BUY!

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