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 EBIT margins expanded 71bps QoQ to 17.4%, led by cost control in SG&A expenses, lower travel cost and higher proportion of offshore revenue. 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 (BFS) vertical contributed 27.6%, insurance (INS) at 17.8%, Manufacturing (MFG) at 16.8%, Energy and Utilities (E&U) at 11.4%, Consumer packaged foods, Retail & Pharma (CRP) 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.
Price: LTI has gained 1.72% over last one month after seen the big move in month of July 20. The stock after finding bottom at Rs.1210 made on March 2020, which also ended short term to medium term down trend in the stock. The stock has been significantly outperforming NIFTYIT over last month. We expect the stock to continue its outperformance in the coming weeks. The stock has bounced from the support level with increased in volume which indicates the strength in the counter.
Indicator: The stock is trading above important moving average 21SMA, 50SMA & 200SMA on daily charts as well as weekly chart. Bollinger Band (20, 2, S) set up on daily chart has started to slightly expand and currently the stock is trading above the median line of Bollinger Band indicating the volatility expansion on the higher side. RSI(14) on daily chart is pegged at sub 58.81 levels, indicating the stock has not yet been over bought. The Parabolic SAR is trading below its price action on daily charts reflect up trend in the stock will remain intact in near term. The ADX (32.44) on the daily timeframe is also currently trading near the 25 mark suggesting that the stock is likely to witness more momentum in coming days.
Volume: Price and volume analysis plays an important part in determining overall strength or weakness in the stock. Price and volume pattern are moving in the same direction which reflects the true movements in the stock. LTI stock has seen the profit booking with thin volume, which still shows the movement of this stock, is still on bull side.
Conclusion: Considering all the above data facts, we recommend buying for medium term. Trader may go long around current level Rs.2470 with keeping the stop loss Rs.2150 for target Rs.3070.