The company is in positive side of vendor consolidation and does not see any change in downward spend due to election as of now from client.
Larsen & Toubro Infotech on January 15 registered a 4.5 percent sequential growth in profit at Rs 376.6 crore. Revenue grew 9.35 percent QoQ to Rs 2,811.1 crore that in October-December period.
Dollar revenue grew by 8.4 percent quarter-on-quarter to $394.4 million and constant currency growth stood at 8.3 percent QoQ for the quarter ended December 2019, driven by the ramp-up of large engagements announced earlier. The company reported net new total contract value of more than $75 million for Q3.
The growth of banking and finance services and insurance (BFSI), the key vertical, rebounded sharply to 9.3 percent for the quarter against 1.9 percent in the previous quarter.
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Here are L&T Infotech's Q3FY20 conference call highlights by Narnolia Financial Advisors:
Strong Q3FY20: Q3FY20 saw highest organic sequential growth since listing. The 8.3 percent sequential growth despite seasonality was attributed to acquisition which aided $1.4 million in revenues, higher pass-through revenues contribute to about 1.5 percent growth and ramp of large account & broad-based growth of verticals supported growth (6.4 percent). Also, it was further aided by the large deal going into a steady phase during the quarter.
Robust deal wins: The company saw 2 large wins during the quarter reflecting the focus of enterprise strategy (digitising the core, data-driven organization, experience transformation and operate to transform) to break to be the leader is resonating well. The company won a $60 million TCV deal with a global smart energy storage solution provider and second large wins in the quarter was along with data-driven organization go to market thing for Apex government body where the company is creating a conceptualisation framework on data management, integrating and harmonising data in various key sectors through single window system for better governance. The deal pipeline remains robust for the coming quarters.
Margin performance: Operating margin for the quarter came to 16.2 percent. 70 bps expansion in margin was mainly attributed by operating leverage in the business with higher growth. There was marginal benefit from higher utilisation which was offset by a higher share of product pass-through revenues. Utilisation without trainee was 81 percent versus 80.6 percent last quarter. Attrition rate this quarter was 17.6 percent versus 18.4 percent last quarter.
BFS: In BFS, the company delivered double-digit growth in Q3 (11.3 percent QoQ). The performance is mainly driven by growth revival at the top customer (spend coming back) and on track ramp-up of a large deal announced in the previous quarter earlier. The investment Redteck solutions and accelerators have helped the company to position as strong partner and continue to be key differentiators in the market place. The management remains optimistic about the future and expects this vertical to grow in the coming quarters.
Insurance: Steady growth of 2.6 percent QoQ posted in Q3. A leading American Insurance company selected LTI as strategic partner.
Manufacturing: The company saw strong growth during the quarter. The second half of FY20 is stronger for this vertical generally due to business from higher pass through in one of India engagements. The content of pass-through revenue has remained similar to prior year. Double digit sequential growth in similar to performance in BFS is driven by ramp-ups of large deal announcement earlier. One of two large wins in Q3 also falls under this vertical. While manufacturing companies have mature sourcing arrangements but new spend in digital transformation represents significant opportunities for the company.
E&U vertical: This segment grew 1.5 percent QoQ growth on top of very strong sequential growth in last quarter. The company has announced two large deals in this vertical in last quarter. Ramp ups of those deal remain on track, thus giving the management the confidence of continued growth in Q4.
Demand environment: The company is on the positive side of vendor consolidation and does not see any change in downward spend due to election as of now from client. Most of the headwinds were company specific, the management feels the client will continue to spend if given differentiated work.
Increase in DSO: While the company improved its unbilled revenue by 6 days, the company billed DSOs went up to 78 days partly due to unbilled getting billed. As a result, billed DSO for the quarter Q3 including unbilled increase to 110 days versus 105 days. The company expects to reduce this in Q4.FY20 outlook: The company is poised to do double-digit growth in FY20. Large deal ramp ups on track, deal pipelines continue to solid and aggregate of top accounts are steady, the company reiterate its statement to be in leader quadrant in revenue growth and will continue to make all necessary investments to secure the growth trajectory. The company will continue to grow sequentially in Q4.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.