Neutral Larsen and Toubro Infotech; target of Rs 4720: Motilal Oswal

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26 Aug, 2025 12:21

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Motilal Oswal's research report on Larsen and Toubro Infotech

L&T Infotech (LTI) reported 4.6% QoQ growth in CC terms in 2QFY23 (est. 3.5%). ENU (14%), BFS (5%) and Insurance (4.5%) drove the growth while Hi-Tech saw a muted quarter (-4.7%) in CC terms. EBIT margin expanded 10bp QoQ to 16.1% and was in-line with our estimate of 16.2%. The company announced net new large deal TCV of USD80m and guided at a strong 3QFY23. Excluding Hi-Tech, which was hurt by a large account moving to global delivery structure, LTI’s 2QFY23 revenue momentum was broad based and did not indicate any impact from the macro slowdown, despite a higher exposure to the BFSI industry. While there is some caution among clients in manufacturing and macro environment remains challenging, it has not started impacting the deal pipeline or the decision cycle adversely as tech budgets remain intact. The management reiterated LTI’s industry-leading growth guidance for FY23. We expect LTI to deliver a strong 3Q and 2HFY23, given the good deal win traction and strong pipeline of >USD2b, leading to a full-year USD revenue growth of 16.6% and FY22-24E USD revenue CAGR of 14%. LTI’s robust employee addition in 1HFY23 and its target to hire over 6,500 freshers in FY23E adds to the demand visibility. LTI’s solid margin delivery, growing fresher additions, and favorable pricing should help it deliver an EBIT margin of 16.6% in FY23E, a dip of only 70bp YoY, despite elevated attrition and higher supply cost. This should allow the company to keep its PAT margin in the middle of its 14-15% guidance band. Though LTM attrition inched up by 50bp QoQ to 24.3% in 2QFY23, the management suggested that it should start moderating in coming quarters.

Outlook

We raised our FY23/FY24 EPS estimates by ~3% each on higher growth. Our margin estimate remains in line with the management’s guidance. Our TP of INR4,720 implies 25x FY24E EPS and pose limited upside potential. Hence, we maintain our Neutral rating on the stock.

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L&T Infotech - 171022 - moti