Emkay Global Financial is bearish on Larsen and Toubro Infotech has recommended sell rating on the stock with a target price of Rs 1430 in its research report dated May 20, 2020.
Emkay Global Financial's report on Larsen and Toubro Infotech
After relatively weak H1FY20, LTI reported 4.7% QoQ c/c revenue growth in the Mar’20 quarter, continuing the trend of improvement seen in the Dec’19 quarter. EBIT margins improved by 110 bps sequentially to 17.3%, adjusted for the contribution to the PM Cares fund. Net profit beat the estimates, aided by lower taxes and higher forex gains. Revenues from five of the top 10 clients were subdued as growth was led by non-top 20 clients. Revenue growth also aided by onshore revenue productivity, up 9% qoq (after a 3.4% qoq increase in the Dec’19 quarter), which might have aided margins as volume growth was a mere 1.1%. LTI remains a stronger Tier II player backed by strong and stable leadership and execution track record, which reflects in the steady rise across client revenue buckets and a steadier margin profile (unlike volatility seen in most Tier II techs as well as a few in Tier I).
While we raise our FY21/22E EPS slightly, valuations at ~20x/17x FY21/22E EPS are punchy, given a possible hit to demand due to weak global macro. We downgrade LTI to Sell from Hold, with a revised TP of Rs1,430, despite raising the target P/E multiple to 14x (vs. 13x earlier) on FY22E EPS.
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