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Margin expansion stands out!

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%)

Q3FY22 Results: Strong revenue coupled with EBIT margin expansion QoQ

* Constant currency revenues increased 9.2% QoQ

* EBIT margin expanded 70 bps QoQ due to strong revenues

* LTI added 27 logos in Q3, highest quarterly addition in many quarters

What should investors do? LTI’s share price has grown by ~10.7x over the past five years (from ~| 630 in January 2017 to ~| 6,714 levels in January 2022).

* We maintain BUY rating on the stock

Target Price and Valuation: We value LTI at | 8050 i.e. 42x FY23E EPS

Key triggers for future price performance:

* LTI’s ability to deliver end-to-end solutions is expected 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 20.0% CAGR revenue growth in FY21-24E

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 | 2300

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