Published on 11/01/2018 3:13:58 PM | Source: Motilal Oswal Securities Ltd

Buy Larsen And Toubro Infotech Ltd For Target Rs.1,200.00 - Motilal Oswal

Posted in Broking Firm Views - Long Term Report| #IT Sector #Broking Firm Views Report #Motilal Oswal #Larsen & Toubro Infotech Ltd

Strong visibility on continued outperformance

Analyst Day Takeaways

We attended L&T Infotech’s (LTI) Analyst Day in Mumbai, where the company highlighted (i) its readiness on Digital offerings, (ii) efforts undertaken to align its delivery and (iii) the growth engines needed to continue exhibiting industry leading growth rates. Appended below are our key takeaways from the event:

* Continued leadership on growth rates: LTI has led industry growth over the past on account of a high composition of Digital revenue (32% of total), superior client mining abilities (75% of incremental growth over the last three years, led by top 20 accounts) and timely investments in the business. Positioning because of progress on all these vectors has been favorable, leading to continued expectations of revenue growth pick-up in FY18 and positive momentum in FY19.

* Supported by strong visibility: Visibility for continued outperformance for LTI comes from [1] the uptick it has seen in large deal wins, TCV of which over the last six quarters has totaled USD300m, [2] strong deal pipeline, 59% of which is in proposal stage, 36% is Digital and 20% is with new logos, [3] the addition of 65 new logos in the last 12 months, many of them being in the USD1m+ bracket and [4] significantly higher growth than industry average in four verticals (59.5% of revenue) and four service lines (53% of revenue).

* Steady outlook on margins led by investments…: LTI maintained its target net profit margin band of 14-15%, despite the strong revenue outlook. Performance on margins is being capped because of a calibrated investment approach taken by the company. Prioritizing growth, LTI has been investing heavily in augmenting its offerings and fueling its sales/marketing engines. Levers for maintaining stability at the operating level are in the form of higher digital revenue, operational excellence, cost optimization and prudent risk management.

* …to up Digital offerings…: While Digital constitutes 32% of total revenue, because of its ADEA (Analytics and Digital in Every Account) initiative, 88% of LTI’s clients have been penetrated with at least one of these services. Its strategy of digitizing the core, adopting a subscription model, pivoting on platforms and productizing its services, combined with leveraging of its MOSAIC platform, has resulted in a set of cutting-edge capabilities executed using next-gen delivery models.

* …and to augment the sales function: The sales team at LTI has seen a major overhaul, with 65% of the team hired over the last two years. A few of the progress metrics are as follows: [1] account mining is being driven by the Minecraft program, which focuses on the top 50 clients, [2] new logos are being targeted in a very selective fashion, [3] efforts are undertaken for a proactive pipeline generation using 100+ industry experts, [4] tail accounts are being elevated by moving them to the USD1m+ category and [5] a high-quality pre-sales team is set up, with 40% of it being onsite.

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