Larsen & Toubro Infotech Limited (LTI) is a global technology consulting and digital solutions company helping more than 420 clients succeed in a converging world. With operations in 32 countries, LTI goes the extra mile for its clients and accelerates their digital transformation with LTI’s Mosaic platform enabling their mobile, social, analytics, IoT and cloud initiatives. Founded in 1997 as a subsidiary of Larsen & Toubro Limited, the company has real-world expertise to solve the most complex challenges of enterprises across all industries.
Strong deal wins
LTI’s deal pipeline has risen 19% YoY at the end of Q1FY21; while deal pipeline continues to be strong, win rate has improved. LTI continues to receive new deals, except in the area of manufacturing, oil & gas and automotive which are expected to revive in H2FY21. LTI has added 16 more clients across a number of sectors during the quarter and won a large deal with a financials company in UK in Q1FY20.
Strategy in place in respond to Covid
LTI’s 3X3 strategy 1) Customer first, 2) Resiliency in operations, 3) Protect P&L - is working well.
Revenue impact has been minimal because of low exposure to travel and hospitality, which have been negatively impacted due to Covid. LTI has provided some of its customers with specific time bound commercial concessions that will enable them to continue their IT programs with LTI. LTI’s strong focus remains on driving operational efficiency. LTI’s “GRIT Alliance” framework has a strong focus on growth, increasing resilience, innovation and teamwork.
Strong operating performance
LTI has delivered stable operating margins. For Q1FY21 margins expanded 71bps QoQ to 17.4%. LTI expects to close some large deals during the Sep’20 quarter. Management indicated that they believe the worst is behind and expect Sep’20 quarter revenues to be flat with a positive bias. LTI remains confident on delivering a strong performance in H2FY21.
Well diversified portfolio
LTI has de-risked its portfolio with strong diversification across verticals. Banking & Financials services vertical contributed 27.6%, insurance at 17.8%, Manufacturing at 16.8%, Energy and Utilities at 11.4%, Consumer packaged foods, Retail & Pharma at 11.3%, while Hi-tech & Media contributed 11.2% of total consolidated revenue of FY20. Geography wise North America contributes 69% of total consolidated revenue, while Europe and Rest of the World contributes 15.8% and 15.3% respectively.
Foreign Exchange Risk: LTI carries foreign exchange risks on transactions as well as translation. The company have put in place an active foreign exchange hedging policy to mitigate the risks arising out of foreign exchange fluctuations.
Attrition to key talent: Attrition of experienced and talented employee impacts organizational knowledge and relationship.
Client concentration: Exposure to limited number of clients create risk of a major revenue loss in the event a major client exit.
|Particulars||FY18||FY19||FY20||FY21 E||FY22 E|
|Depreciation & Amortization||156.30||147.20||273.00||286.70||301.00|
|Interest & Finance Charges||15.70||10.60||82.60||86.70||91.10|
|Profit Before Tax||1408.80||2027.80||2002.90||2285.40||2727.30|
LTI has delivered consistent financial performance over the years, with a strong management team. LTI is the best placed structural bet on a midsized IT service company. LTI has the potential to deliver mid-single USD revenue growth for FY21. While deal wins were tepid in Q1FY21, the management is confident of new deal wins in Q2FY21. We are bullish on LTI, given high growth in digital solutions, strong deal pipeline and limited exposure to travel, hospitality and retail.