Though analysts have given a thumbs up to Larsen & Toubro Infotech’s impressive Q3 results, they see only a little upside for its shares from the current level .

The mid-tier IT services firm posted double-digit growth in revenues, thanks to ramping up large deals. However, net profit rose marginally to ₹376.7 crore, as against ₹375.5 crore, reported during the same quarter last year. Revenues surged 13.7 per cent year-on-year to ₹2,811 crore. In dollar terms, revenue stood at $394.4 million, which was 14.2 per cent higher y-o-y, and 8.3 per cent sequentially on constant currency basis.

These numbers are much higher than what Dalal Street analysts had estimated. However, the stock on Thursday slipped 1.56 per cent at ₹1,903.05 on the BSE. However, almost 90 per cent traded shares (4.18 lakh), were up for delivery, indicating value buying.

Though the performance is good overall, analysts see a little headroom for the stock, as the stock is fully priced in all positives. However, brokerages have tweaked earnings estimates of LTI higher for FY20/FY21 on account of strong beat in revenue and operating profitability.

We take note of its superior growth performance, which sets a base for pick-up in growth going forward and thereby, ascribe a higher P/E multiple of 17x versus 15x earlier. We raise FY21/22E EPS and revise target price to ₹1,820, said Emkay Global Financial, which retained its ‘hold’/ ‘underweight’ stance on the stock.

Healthy order book

JM Financial said client-specific challenges that affected H1-FY20 appear to be now behind and large deal wins have stayed healthy. This sets LTI well for a relatively stronger FY21. “But an improved FY21 outlook appears to be largely priced in the stock’s 20 per cent move over the last one month and we find valuations rich,” it said while maintaining ‘Hold’ with a revised price target of ₹1,840 (₹1,820 earlier).

“Robust growth in the top account alleviates concerns around client-specific issues,” said Motilal Oswal Securities (MOSL). Besides, strong/broad-based client addition across buckets and encouraging deal wins will likely translate into industry leading growth, it said.

MOSL upgraded its EPS estimate by nearly 6 per cent for FY20-22, given the large deal win momentum and the decent outlook in the top client.

HDFC Securities said, growth momentum (y-o-y) to be intact, supported by strong (sustainable) performance by large account (beneficiary in vendor consolidation) and expects dollar revenue/EPS CAGR of 14/12 per cent over FY19-22E. “LTI’s pedigree coupled with growth momentum will continue to support its premium valuations,” HDFC Securities said while maintaining ‘buy’ with a target price of ₹2,090.

Growth acceleration

Centrum Broking expects revenue growth acceleration back in FY21 and upgraded its EPS estimates by 3.5/5.3 per cent for FY21/FY22 led by USD revenue upgrade.

“We believe that LTI’s revenues can grow at 2x the pace of TCS in FY21E which can help sustain premium P/E multiples,” the brokerage house said. We ‘assume coverage with ‘Add’ rating and TP of ₹2,090 (18.5x Dec21E EPS). Our target multiple for LTI is at 14 per cent discount to our target multiple for TCS (21.5x Dec21E EPS),” Centrum added.

Accroding to Sharekhan, consistency in large deal wins, prospects on BFSI growth, strong digital competencies, addition of new logos and continued investments in sales and marketing (S&M) provide a good platform for strong revenue growth in FY2021E.

 

*Sharekhan expect rise from CMP

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