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Motilal Oswal
L&T Infotech (Buy)
Target: ₹3,550
CMP: ₹3,351.40
We attended L&T Infotech’s analyst day, where the management announced a large deal win and new business units (BUs) in digital and data products.We see LTI’s announcement of independent business units for its cloud and data products as a very interesting development. Given a similar strategy being adopted by large-cap peers like TCS and Infosys, we view this as a positional play by the company in addition to the growth opportunity.
As part of the increased cloud and products focus, LTI is planning to increase investment in its sales and marketing team. Increased investment is necessary for it to establish its presence in front of customers and should benefit in the long term. However, we are sceptical of its ability to generate outsized revenue growth from these businesses in the medium term due to elevated competition, and expect these investments to continue over the next few years.
LTI has deep domain capabilities. Low exposure to segments that faced headwinds (legacy IMS, BPO) should be favourable in the current context.
The reinstatement of PAT margin guidance, the ability to sustain operational efficiencies (offshore), and strong deal pipeline indicate an optimistic outlook. Industry-leading growth, RoCE, and prudent capital allocation should defend its rich multiples.
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