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Impressive EBIT margin expansion QoQ…

About the stock: Larsen & Toubro Infotech (LTI) offers application development, IMS, digital solution services to BFSI, retail, health, media & hi-tech verticals.

* LTI has 71 Fortune-500 clients with a presence in North America & Europe

* LTI has grown at 14% CAGR over FY18-21 with robust margins (~19%)

Q2FY22 Results: Strong revenue coupled with EBIT margin expansion QoQ

* Constant currency revenues increased 8.9% QoQ. It was best among peers (TCS 4%, Infosys 6.3%, Wipro 8.1%, HCL Tech 5.2%)

* EBIT margin expanded QoQ 79 bps due to rationalisation of SG&A expenses, higher offshore mix and higher working days in the quarter

* The company declared an interim dividend of | 15 per share

What should investors do? LTI’s share price has grown by ~10x over the past five years (from ~| 570 in October 2016 to ~| 5905 levels in October 2021).

* We maintain BUY rating on the stock

Target Price and Valuation: We value LTI at | 7650 i.e. 45x FY23E EPS

Key triggers for future price performance:

* LTI’s ability to deliver end-to-end solutions to help in registering industry leading growth

* Ability to win large deals, presence in niche verticals, effectively mine clients, adding Fortune 500 clients and digital prowess other key drivers

* Vendor consolidation opportunity and digital acceleration. We expect LTI to register 24.7% CAGR revenue growth in FY21-23E

Alternate Stock Idea: Apart from LTI, in our coverage we like Infosys.

* Upward revenue guidance prompts us to be positive on the stock

* We have a BUY rating with a target price of | 2060

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