Published on 11/04/2019 3:24:13 PM | Source: Anand Rathi Financial Services Ltd

Anand Rathi Research report on LTI (L&T Infotech)

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* Ability to win and ramp up large deals

* Strong leadership team and growth in top clients’ accounts

* Focus/growth on digital wins (37% of revenue) as company is less dependent on legacy services

* Improving performance of BFS should result in more than industry growth for the company

* Higher offshore revenue (52% of revenue) to protect margins structurally



* EBITDA margin expansion may be restricted beyond 20% as the company intends to re-invest the surplus in growth, lower utilization.

* Long-term hedging may limit upside due to a depreciating rupee


Financial Excellence and Estimates

* In FY19 LTI will complete two years of significant market-share gains, reflecting its competitiveness in the marketplace. Its revenue CAGR over FY17-19 is 18% and EBITDA CAGR, 24%. We expect it to register a 13% CAGR over FY19-21, driven by BFSI (47% of FY19 revenue),).

* Its reliance on the top-20 accounts (64% currently) is likely to come down to 63% by FY21 (based on new wins and growth prospects) as we build in a scale-up in new accounts. In the past three years, dependence on the top-20 has been a high 68%/ 67%/66% in FY16/17/18

* FCF to PAT conversion has deteriorated in FY18 and FY19, but the three-year average is still 79%. We expect this to reprise 90% (from 62% in the last two years). The stock now quotes at 16x FY21e PE (11x EV/EBITDA), which we consider attractive given the growth profile. Our fair price is based on 20x FY21e PE (15x EV / EBITDA)


Operational Excellence

* North America (67% of revenue) is growing fast along with Europe (17% of revenue) at respectively 17% and 10%

* Revenue per client is increasing gradually, partly reflecting higher-value deals and partly penetration into larger accounts

* Highest ever utilization at 82% and attrition marginally high at 16.5% in Q3 FY19; gains from here likely to be limited but go a long way in maintaining its performance


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