Dolat Capital recommended accumulate rating on Larsen and Toubro Infotech with a target price of Rs 2120 in its research report dated January 15, 2020.
Dolat Capital's research report on Larsen and Toubro Infotech
LTI reported strong results, with 8.3% QoQ growth in CC terms (our estimate 3%) due to revival in top client performance and ramp-up of recent deal wins. OPM improved by 70bps to 16.2% (our estimate 15.8%) driven by operating leverage and realisation gains. With recovery in top client (new deal win), consistent large deal wins (added $75mn in TCV in Q3) recovery in BFS growth (11.1% QoQ) and sustained momentum across verticals; we believe LTI will continue to grow ahead of peers. Despite, large margin improvement in Q3, OPM on YTD basis (15.9%) continues to be below FY19 OPM of 18.4%. Going forward, OPM improvement will be gradual as it needs to invest in go-to-market, talent and localisation. Strategy is to stay in growth leader quadrant with PAT margins of 14%-15%. We expect LTI to grow its revenue ahead of its larger/similar size peers in the near future; as it would breakaway into the big league.
We have factored in a 13%/14% revenue/earnings CAGR over FY20-22E with an Accumulate rating on the stock, with a TP of Rs. 2,120, valuing it at 19x FY22E EPS (in line with its 3 year mean; implies ~1.5x on a PEG basis).
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