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Consistently consistent!

In a seasonally not so strong quarter, Larsen & Toubro Infotech (LTI) impressed with robust (~8.9% QoQ, CC) and broad-based growth – across verticals, geographies and service lines. What differentiates LTI from most other IT companies is the strong growth despite a tall base in FY21 [Sep-19 to Sep-21 revenue (USD) CAGR (YoY) = 18% vs 14% of Mindtree, 12% of Infosys, 7% of TCS and 6% of HCLT].

Share of offshore effort increased 90bps QoQ to 83.6% driving margin resilience in a post wage hike quarter. Management expects the offshore effort share to stay elevated on the back of the ‘Great Resignation’ theme playing out globally – across economies and industries. This is also guided to be a key driver of demand over the medium term.

Good client additions across key buckets is commendable. Typical seasonality of H2 being better than H1 is expected to continue in FY22. If LTI is able to achieve such exit-rate in H2, revenue growth in FY23E too will remain robust (24% YoY, USD) even if demand moderates during FY23. Confident commentary and stable margin outlook despite the impending cost pressures are encouraging. We upgrade our FY22E-FY24E EPS by up to 11% on back of the strong beat and solid outlook. LTI remains our top midcap BUY and we value it at ~40x Sep’23E EPS.

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