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Consistency continues!

Reported Q4FY21 revenue growth (+4.4% QoQ, CC) was in line with our estimates. Barring a few verticals (Insurance, E&U), growth was reasonably broad based. North America across geographies and Top-5 clients remained an overhang on overall growth. Notably, growth in Top-20 accounts remained tepid throughout FY21. EBIT margin came in 80bps ahead of our expectations, led largely by provision reversal. Company reiterated its earlier outlook of remaining in leadership quadrant on growth in FY22. Strong large-deal TCV in FY21 in conjunction with healthy pipeline drives this confidence. Management sounded upbeat on the top account prospects notwithstanding the business restructuring the client is going through.

Factoring-in the need for investments, net margin outlook was toned down to a narrow band around 14% (from usual 14-15%). As we rebase our exchange rate assumptions, our FY22E-FY23E EPS estimates witness -5 to 4% revision. Despite the rich multiples, we maintain our BUY rating given the company’s consistency in execution, industry-leading revenue growth prospects (FY20-FY22E CAGR = 14%) and high return ratios (FY22E RoE = 30%)

* In-line revenues and margins.

Reported revenue growth (+4.4% QoQ, CC) was in line with our / consensus estimates. Revenue growth was aided by partial ramp-up of Middle East deal and pass through. With the exception of insurance (+0.6% QoQ, CC) and E&U (-5.3% QoQ, CC), other verticals reported strong growth. Across geographies, Americas (+1.9% QoQ, CC) lagged. Growth in Top-5 / Top11-20 accounts (-0.8% / 1.1%, QoQ, USD) remained a drag on overall performance. EBIT margin came in 80bps ahead of our estimates led largely by a provision reversal. Salary hikes for 97% of employees (-170bps impact) and drop in utilisations (-130bps impact) were the key margin headwinds during the quarter. SG&A optimisation had partially offset this impact resulting in ~130bps QoQ margin dip.

* Strong outlook on growth. Margin guidance toned down.

LTI announced two large deals with net new TCV of US$66mn. Company reiterated its earlier outlook of remaining in leadership quadrant on growth in FY22. Strong large-deal TCV in FY21 in conjunction with healthy pipeline drives this confidence. Management sounded upbeat on the top account prospects notwithstanding the business restructuring the client is going through. Factoring-in the need for investments, net margin outlook was toned down to a narrow band around 14% (from usual 14-15%).

* Multiples should remain elevated.

LTI’s FY20-FY22E revenue CAGR will be the highest in industry and that too by a wide margin (14% vs 7% for TCS and 11% for Infosys). Overall, LTI is one of the very few companies witnessing a higher business momentum vs pre-covid levels. Optimal scale, focus and leadership in a few segments and lower legacy exposure should translate into continued growth differential vs industry. Despite the rich multiples, we maintain our BUY rating given the company’s consistency in execution, industry-leading revenue growth prospects (FY20-FY22E CAGR = 14%) and high return ratios (FY22E RoE = 30%).

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