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Revenue beats estimates; margins a tad lower

* LTI’s revenues grew 8.3% QoQ to USD509.0mn (CC: 8.9%), above our estimate. EBITM expanded by 80bps QoQ to 17.2% on the back of strong revenue growth, SG&A leverage and offshore shift, partly negated by supply-side inflation and lower utilization.

* Revenue growth was broad-based and driven by Manufacturing (12.9% QoQ CC), BFS (10.6%), Insurance (6.1%), High-tech, Media & Entertainment (7.0% QoQ CC), and ENU (6.9%). All geographies reported over 5% QoQ CC growth, led by North America and RoW.

* Management is confident of top-quartile revenue performance and expects at least USD2bn revenue in FY22 on strong demand and good progress on client mining. LTI signed a USD30mn TCV deal in Europe in Q2. It expects better large deal closures in H2.

* We raise our FY22E/FY23E/FY24E EPS by 2.7%/4.9%/4.7%, factoring in Q2 performance. We expect LTI to deliver top-quartile revenue/earnings performance over FY21-24E. We retain Hold with a revised TP of Rs6,400 at 37x Sep’23E EPS (earlier 30x), considering the rich valuation

What we liked?

Strong broad-based revenue growth, continued strength in BFS (10.6% CC QoQ), and good progress across client buckets.

What we did not like?

Uptick in attrition (LTM attrition rose to 19.6% vs 15.2% QoQ).

Strong revenue performance; confident of delivering top-quartile growth in FY22E:

LTI’s Q2FY22 revenues grew 8.3% QoQ to USD509.0mn, above our estimates. Volume growth stood at 8.1% QoQ in Q2 (onsite 2.2% and offshore 9.4%). Among geographies, growth was led by RoW (11.5% QoQ CC), North America (9.1%), Europe (7.5%) and India (6.6%).

Management is fairly confident of sustaining the growth momentum and delivering top-quartile revenue performance in FY22E on the back of 1) strong broad-based demand environment, 2) anticipated normal seasonality in H2 (H2 better than H1), 3) traction in newer areas of spending like Cloud, Security, Data, 4) healthy deal pipeline, 5) healthy new logo additions (added 25 new logos in Q2), and 6) client mining. The company’s Top-5, Top-10 and Top-20 clients registered impressive QoQ growth rates of 8.3%, 6.7% and 7.9%, respectively, in Q2. The company added 4,084 employees in Q2 to meet strong demand.

EBITM up by 80bps QoQ to 17.2%:

LTI’s Q2FY22 EBITM expanded by 80bps QoQ on the back of strong revenue growth-led operating leverage (SG&A expenses down 80bps QoQ), offshore shift and improvement in productivity partly, negated by lower utilization and supplyside inflation. LTI remains confident of sustaining 14-15% NPM in FY22, considering continued revenue growth momentum, higher attrition and planned investments in sales and capability augmentation.

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