Buy L&T Infotech Ltd For Target Rs. 6,451 - Yes Securities
Modest performance on flattish onsite volume
Our view and valuation
Overall, the performance in the quarter was slightly below expectation due to flattish onsite volume sequentially resulting in modest performance for the quarter. Demand environment continues to remain robust for the company as reflected in its deal pipeline. Offshore employee attrition has started to moderate, and it will take around another 2 quarters for onsite attrition to come in control. We expect it to be among the growth leaders in the Tier 2 IT companies led by its capabilities across verticals and service lines and should be able to maintain net margin of 14‐15% for FY23. Employee addition continues to be robust and that offers strong revenue growth visibility. It continues to remain one of our top picks in Tier‐2 IT space, well positioned to capitalize on demand environment. We expect revenue CAGR of 19.5% over FY22‐FY24E, with average EBIT margin of 17.6%.
We maintain BUY on the stock with revised target price of Rs 6,451/share at revised multiple of 34x on FY24E EPS. The stock trades at PER of 27.2x on FY24E EPS
Reported revenue of Rs 43,016 mn( up 3.1% in USD terms, up 4% in INR terms). The sequential growth was led by strong performance in CPG, Retail and Pharma( up 7% QoQ); while the growth in Manufacturing( up 1.9% QoQ) , Hitech, Media and Entertainment( up 2% QoQ) was muted. For FY22, the revenue growth was strong at 26.7% YoY in INR terms.
EBIT margin was down 64 bps QoQ to 17.3% for the quarter, on higher direct cost( up 100 bps QoQ as % of revenue).
Deal pipeline continues to be strong as it won 4 large deals with net new TCV of over $80 mn.
Added 25 new clients in the quarter compared to 27 new client addition in Q3FY22. Offshore revenue mix grew 30 bps QoQ to 60.2%.
Utilization (excluding trainees) increased by 10 bps QoQ to 81.5%. Added 2,448 employees in the quarter to reach 46,648 employees( Addition is 5.5% of Q3 employee base). LTM attrition increased by 150 bps QoQ to 24% in line with industry trend. Billed DSO improved by 1 day QoQ to 65 days.
Recommended final dividend of Rs 30 per share (Total FY22 Dividend is Rs 55 per share).
KEY CON‐CALL HIGHLIGHTS
Higher onsite attrition resulted in flattish onsite volume, otherwise sequential revenue growth could have been higher.
Offshore annualised quarterly attrition came down by 200 bps QoQ. It will take few quarters before it comes in control.
Fresher hiring remains key focus area. In FY22, it hired 5,200 freshers. In FY23, it plans to hire atleast 6,500 freshers.
Demand environment remains strong and that is reflected in $2bn of deal pipeline which are broadbased across verticals and geographies. 4 large deals are in contracting phase.
For FY23, It expects to be among the growth leaders with net margin of 14‐15%.
Sales cost will increase from Q1FY23 as it is in the process of augmenting sales in view of demand scenario ; it will continue to maintain strong control on General and Administrative expenses
Has taken salary hike with effect from April 1st. It will have around 290 bps impact on operating margin.
It will continue to invest in its facilities and that would help to reduce lease cost.
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