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Larsen & Toubro Infotech12Dec19 · Larsen & Toubro Infotech December 12, 2019 2 Strong sales...

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December 12, 2019 1 Rating: ACCUMULATE | CMP: Rs1,633 | TP: Rs1,825 Focused Customer Centric approach yielding strong results Quick Pointers: Management reiterated its core strategy (Digitizing the core, Data-driven organization, Experience transformation, and Operate to transform) with customer centricity as the key aspect. LTI’s sales strategy (hunting pack) is yielding good results evident f rom stronger YoY growth in large deal pipeline. Management sounded optimistic & confident regarding 2HFY20 growth. Ongoing investigation by US Immigration & Custom Enforcement (ICE) will remain an overhang. We attended LTI Analyst meet where the company shared its growth strategy & how they are well positioned to capture digital opportunities in transforming the core. The CEO mentioned that Enterprises need to master four essential plays to excel ahead 1) Digitizing the core 2) Data Driven Organization, 3) Experience transformation & 4) Operate to transform. Customer centricity remains a key aspect of LTI strategy. LTI sales & marketing initiatives are driving strong growth for the company. LTI has laid out sales strategy framework three years ago & it focusses mainly on large deal wins, growing top accounts & focusing on strategic alliances. It is aggressively focusing on large deals and new logo additions won 19 large deals with 9 new logos in past 14 quarters, with combined TCV of large deals at ~USD 900 mn. Management is confident of strong H2FY20 on ramp-up of deals won earlier. Besides, over the last one year, LTI’s client addition across buckets was the strongest and broad-based & along with the company’s account mining capabilities, we expect LTI revenue growth to accelerate in FY21. We value LTI on Sep-21 earnings (Rs.107.3) & arrive at an unchanged target price of Rs. 1825 (valued at 17x Sep-21 earnings). Maintain Accumulate. Ongoing investigation by US Immigration & Custom Enforcement (ICE) will remain an overhang. Client Centricity- remains integral part of core strategy: LTI CEO mentioned that Enterprises need to master four essential plays to excel ahead 1) Digitizing the core 2) Data Driven Organization, 3) Experience transformation & 4) Operate to transform. Customer centricity remains a key aspect of LTI strategy. LTI always focuses on identifying the client shift in technology spending patterns as they adapt to proliferation of new technologies. Digital revenues have grown at an accelerated pace and now contribute 40% to revenues. Client centricity has helped win 10 Fortune 500 logos over the four quarters. LTI’s customer centric approach & focused execution is clearly visible in excellent customer metrics, large deal wins & consistent revenue performance. Larsen & Toubro Infotech (LTI IN) December 12, 2019 Analyst Meet Update Change in Estimates | Target | Reco Change in Estimates Current Previous FY21E FY22E FY21E FY22E Rating ACCUMULATE ACCUMULATE Target Price 1,825 1,825 Sales (Rs. m) 117,067 130,484 117,067 130,484 % Chng. - - EBITDA (Rs. m) 21,673 24,156 21,673 24,156 % Chng. - - EPS (Rs.) 99.5 116.0 99.5 116.0 % Chng. - - Key Financials - Standalone Y/e Mar FY19 FY20E FY21E FY22E Sales (Rs. bn) 94 104 117 130 EBITDA (Rs. bn) 19 19 22 24 Margin (%) 19.9 18.4 18.5 18.5 PAT (Rs. bn) 15 15 17 20 EPS (Rs.) 86.8 83.5 99.5 116.0 Gr. (%) 26.9 (3.8) 19.2 16.7 DPS (Rs.) 27.8 26.7 31.8 37.1 Yield (%) 1.7 1.6 1.9 2.3 RoE (%) 34.5 27.2 27.4 27.0 RoCE (%) 39.6 31.9 31.5 29.7 EV/Sales (x) 2.8 2.5 2.2 1.9 EV/EBITDA (x) 14.0 13.5 11.6 10.1 PE (x) 18.8 19.6 16.4 14.1 P/BV (x) 5.8 4.9 4.1 3.5 Key Data LRTI.BO | LTI IN 52-W High / Low Rs.1,897 / Rs.1,436 Sensex / Nifty 40,413 / 11,910 Market Cap Rs.284bn/ $ 4,010m Shares Outstanding 174m 3M Avg. Daily Value Rs.473.15m Shareholding Pattern (%) Promoter’s 74.62 Foreign 7.70 Domestic Institution 8.16 Public & Others 9.52 Promoter Pledge (Rs bn) - Stock Performance (%) 1M 6M 12M Absolute 0.2 (9.4) 6.9 Relative - (10.4) (7.0) Aniket Pande [email protected] | 91-22-66322300
Transcript
Page 1: Larsen & Toubro Infotech12Dec19 · Larsen & Toubro Infotech December 12, 2019 2 Strong sales strategy helped in consistent large deal wins: LTI has won 19 large deals with a combined

December 12, 2019 1

Rating: ACCUMULATE | CMP: Rs1,633 | TP: Rs1,825

Focused Customer Centric approach yielding strong results

Quick Pointers:

Management reiterated its core strategy (Digitizing the core, Data-driven

organization, Experience transformation, and Operate to transform) with

customer centricity as the key aspect.

LTI’s sales strategy (hunting pack) is yielding good results evident from

stronger YoY growth in large deal pipeline. Management sounded optimistic &

confident regarding 2HFY20 growth.

Ongoing investigation by US Immigration & Custom Enforcement (ICE) will

remain an overhang.

We attended LTI Analyst meet where the company shared its growth strategy

& how they are well positioned to capture digital opportunities in

transforming the core. The CEO mentioned that Enterprises need to master

four essential plays to excel ahead 1) Digitizing the core 2) Data Driven

Organization, 3) Experience transformation & 4) Operate to transform.

Customer centricity remains a key aspect of LTI strategy.

LTI sales & marketing initiatives are driving strong growth for the company.

LTI has laid out sales strategy framework three years ago & it focusses mainly

on large deal wins, growing top accounts & focusing on strategic alliances. It

is aggressively focusing on large deals and new logo additions – won 19 large

deals with 9 new logos in past 14 quarters, with combined TCV of large deals

at ~USD 900 mn. Management is confident of strong H2FY20 on ramp-up of

deals won earlier. Besides, over the last one year, LTI’s client addition across

buckets was the strongest and broad-based & along with the company’s

account mining capabilities, we expect LTI revenue growth to accelerate in

FY21. We value LTI on Sep-21 earnings (Rs.107.3) & arrive at an unchanged

target price of Rs. 1825 (valued at 17x Sep-21 earnings). Maintain Accumulate.

Ongoing investigation by US Immigration & Custom Enforcement (ICE) will

remain an overhang.

Client Centricity- remains integral part of core strategy: LTI CEO

mentioned that Enterprises need to master four essential plays to excel ahead

1) Digitizing the core 2) Data Driven Organization, 3) Experience

transformation & 4) Operate to transform. Customer centricity remains a key

aspect of LTI strategy. LTI always focuses on identifying the client shift in

technology spending patterns as they adapt to proliferation of new

technologies. Digital revenues have grown at an accelerated pace and now

contribute 40% to revenues. Client centricity has helped win 10 Fortune 500

logos over the four quarters. LTI’s customer centric approach & focused

execution is clearly visible in excellent customer metrics, large deal wins &

consistent revenue performance.

Larsen & Toubro Infotech (LTI IN)

December 12, 2019

Analyst Meet Update

Change in Estimates | Target | Reco

Change in Estimates

Current Previous

FY21E FY22E FY21E FY22E

Rating ACCUMULATE ACCUMULATE

Target Price 1,825 1,825

Sales (Rs. m) 117,067 130,484 117,067 130,484

% Chng. - -

EBITDA (Rs. m) 21,673 24,156 21,673 24,156

% Chng. - -

EPS (Rs.) 99.5 116.0 99.5 116.0

% Chng. - -

Key Financials - Standalone

Y/e Mar FY19 FY20E FY21E FY22E

Sales (Rs. bn) 94 104 117 130

EBITDA (Rs. bn) 19 19 22 24

Margin (%) 19.9 18.4 18.5 18.5

PAT (Rs. bn) 15 15 17 20

EPS (Rs.) 86.8 83.5 99.5 116.0

Gr. (%) 26.9 (3.8) 19.2 16.7

DPS (Rs.) 27.8 26.7 31.8 37.1

Yield (%) 1.7 1.6 1.9 2.3

RoE (%) 34.5 27.2 27.4 27.0

RoCE (%) 39.6 31.9 31.5 29.7

EV/Sales (x) 2.8 2.5 2.2 1.9

EV/EBITDA (x) 14.0 13.5 11.6 10.1

PE (x) 18.8 19.6 16.4 14.1

P/BV (x) 5.8 4.9 4.1 3.5

Key Data LRTI.BO | LTI IN

52-W High / Low Rs.1,897 / Rs.1,436

Sensex / Nifty 40,413 / 11,910

Market Cap Rs.284bn/ $ 4,010m

Shares Outstanding 174m

3M Avg. Daily Value Rs.473.15m

Shareholding Pattern (%)

Promoter’s 74.62

Foreign 7.70

Domestic Institution 8.16

Public & Others 9.52

Promoter Pledge (Rs bn) -

Stock Performance (%)

1M 6M 12M

Absolute 0.2 (9.4) 6.9

Relative - (10.4) (7.0)

Aniket Pande

[email protected] | 91-22-66322300

Page 2: Larsen & Toubro Infotech12Dec19 · Larsen & Toubro Infotech December 12, 2019 2 Strong sales strategy helped in consistent large deal wins: LTI has won 19 large deals with a combined

Larsen & Toubro Infotech

December 12, 2019 2

Strong sales strategy helped in consistent large deal wins: LTI has won

19 large deals with a combined TCV of US$900 mn in the past 14 quarters

(1QFY17-2QFY20). LTI sales strategy “Aspire” to win large deal has helped

them to win 9 new logos in past 14 quarters. LTI’s large deal pipeline is healthy

with 32 deals, 60% of which is from new logos and 67% is in proposal stage

(vs. 36% in proposal space last year); generally, proposal takes 3 to 6 months

to convert. The current pipeline of large deals would drive mid-teen revenue

growth in FY21E.

Acquisitions helping in filling the gaps: LTI mentioned its strategy of

enhancing its capabilities through acquisitions. It made four acquisitions in past

one year to acquire domain expertize. The acquisitions include Lymbyc &

Mosaic (Analytics), Ruletronics (Pega), N+P (Temenos) and Powerup (AWS,

Azure, Google Cloud). Nielsen+Partners and Synchordis acquisitions have

helped LTI build Temenos practice almost from scratch. LTI is now Temenos’

second largest partner. Acquisition of Ruletronics has helped strengthen LTI’s

nascent Pega practice. LTI has also taken steps to strengthen partnerships

with key ecosystem vendors. LTI has 40+ strategic partnerships. The company

has in fact achieved highest level of partnership with SAP, Oracle and Microsoft

despite being smaller in scale compared to other players in the same

partnership tier. We believe acquisitions & strong strategic alliances will help

LTI to drive sustainable growth ahead.

Ongoing investigation by ICE remains an overhang: LTI was recently

investigated by Federal Immigration and Customs Enforcement (ICE). ICE

agents raided LTI’s office in US & seized certain documents & records. No

details or specific are available on the nature of enquiry. LTI management

mentioned its strong compliance process & highest level of integrity in running

their company. Management is cooperating with ICE in the investigation.

Strong growth in digital revenues

29%

32%

33%

33%

34%

37%

37%

38%

39%

40%

47.1%

64.2%

41.1% 43.3% 44.7%40.4%

32.5% 32.2%27.8%

19.7%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

1Q

FY

18

2Q

FY

18

3Q

FY

18

4Q

FY

18

1Q

FY

19

2Q

FY

19

3Q

FY

19

4Q

FY

19

1Q

FY

20

2Q

FY

20

Digital Revenue as a % of Total Revenues Digital Revenue YoY

Source: Company, PL

Page 3: Larsen & Toubro Infotech12Dec19 · Larsen & Toubro Infotech December 12, 2019 2 Strong sales strategy helped in consistent large deal wins: LTI has won 19 large deals with a combined

Larsen & Toubro Infotech

December 12, 2019 3

DSO are stable now

70

74

64

6667

76

6970

73

75

73

7170

67

58

60

62

64

66

68

70

72

74

76

78

1Q

FY

17

2Q

FY

17

3Q

FY

17

4Q

FY

17

1Q

FY

18

2Q

FY

18

3Q

FY

18

4Q

FY

18

1Q

FY

19

2Q

FY

19

3Q

FY

19

4Q

FY

19

1Q

FY

20

2Q

FY

20

Source: Company, PL

Aspire Delivery (Q1FY17 to Q2FY20)

Large Deals New Logos

Region

North America 10 5

Europe 4 1

RoW 3 1

India 2 2

Total 19 9

Verticals

BFS 5 1

Energy & Utilities 5 3

CRP 4 1

Insurance 2 2

Manufacturing 1 0

Others 2 2

Total 19 9

Source: Company, PL

No of Accounts

96

109

123

137

0

20

40

60

80

100

120

140

160

FY17 FY18 FY19 Q2 FY20

Source: Company, PL

Page 4: Larsen & Toubro Infotech12Dec19 · Larsen & Toubro Infotech December 12, 2019 2 Strong sales strategy helped in consistent large deal wins: LTI has won 19 large deals with a combined

Larsen & Toubro Infotech

December 12, 2019 4

Strong additions in new logo

57 57

73 71

0

10

20

30

40

50

60

70

80

FY17 FY18 FY19 Q2 FY20

Source: Company, PL

ADEA - No of Accounts

141

169

195206

0

50

100

150

200

250

FY17 FY18 FY19 Q2 FY20

Source: Company, PL

Industry leading growth driven by Digital - Quarterly

-

100

200

300

400

500

600

1Q

FY

17

2Q

FY

17

3Q

FY

17

4Q

FY

17

1Q

FY

18

2Q

FY

18

3Q

FY

18

4Q

FY

18

1Q

FY

19

2Q

FY

19

3Q

FY

19

4Q

FY

19

1Q

FY

20

2Q

FY

20

Digital Revenue (USD) Revenues (USD)

CQGR3.51%

CQGR8.38%

Source: Company, PL

Page 5: Larsen & Toubro Infotech12Dec19 · Larsen & Toubro Infotech December 12, 2019 2 Strong sales strategy helped in consistent large deal wins: LTI has won 19 large deals with a combined

Larsen & Toubro Infotech

December 12, 2019 5

Industry leading growth driven by Digital – Annually

887 970

1,132

1,349 1421

-

200

400

600

800

1,000

1,200

1,400

1,600

FY16 FY17 FY18 FY19 LTM

(US

D m

n)

Source: Company, PL

Exhibit 9: Client mining yielding results – Client Metrics

Client Metrics Q1FY16 (USD mn) Q2FY20

$100+ 1 1

$50+ 3 6

$20+ 9 18

$10+ 20 27

$5+ 33 48

$1+ 84 137

Source: Company, PL

Client mining yielding results – YoY Revenue Growth

10.8

%

6.9

%

9.5

%

8.9

%

10.2

%

9.3

%

13.4

%

23.7

%

16.7

%

17.9

%

21.6

%

19.1

%

8.8

%

22.8

%

13.6

%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Top 20 Beyond Top 20 Company

FY16 FY17 FY18 FY19 LTM

Source: Company, PL

Page 6: Larsen & Toubro Infotech12Dec19 · Larsen & Toubro Infotech December 12, 2019 2 Strong sales strategy helped in consistent large deal wins: LTI has won 19 large deals with a combined

Larsen & Toubro Infotech

December 12, 2019 6

LTI is investing in below mentioned components to yield strong results

Source: Company, PL

Acquisitions are helping to drive sustainable growth

Source: Company, PL

Page 7: Larsen & Toubro Infotech12Dec19 · Larsen & Toubro Infotech December 12, 2019 2 Strong sales strategy helped in consistent large deal wins: LTI has won 19 large deals with a combined

Larsen & Toubro Infotech

December 12, 2019 7

Strong Strategic Alliances

Source: Company, PL

Higher Client Concentration remains a risk

37.7%

52.3%

68.0%

31.7%

45.5%

61.4%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

Top 5 Clients Top 10 Clients Top 20 Clients

Q1FY16 Q2FY20

Source: Company, PL

Vertical Mix change from Q1FY16 to Q2FY20

52%

24%

8% 8%4% 4%

36%

30%

11% 11%9%

3%

0%

10%

20%

30%

40%

50%

60%

ADM and

Testing

Enterprise

Solutions

Infrastructure

Services &

Security

Analytics, AI &

Cognitive

Enterprise

Integration and

Mobility

Products and

Platforms

Q1FY16 Q2FY20

Source: Company, PL

Page 8: Larsen & Toubro Infotech12Dec19 · Larsen & Toubro Infotech December 12, 2019 2 Strong sales strategy helped in consistent large deal wins: LTI has won 19 large deals with a combined

Larsen & Toubro Infotech

December 12, 2019 8

Disciplined hedging strategy

61

6

74

5

79

6

84

8

83

2

77

9

80

1

73

0

92

4

1020

1042

1192

1245

1219

72

103 78 108 117

120 102119

140114 126

154 147 152

60.00

62.00

64.00

66.00

68.00

70.00

72.00

74.00

0

200

400

600

800

1000

1200

1400

1600

1Q

FY

17

2Q

FY

17

3Q

FY

17

4Q

FY

17

1Q

FY

18

2Q

FY

18

3Q

FY

18

4Q

FY

18

1Q

FY

19

2Q

FY

19

3Q

FY

19

4Q

FY

19

1Q

FY

20

2Q

FY

20

Cash flow hedges Balance sheet FX (USD/INR)

Source: Company, PL

Cash Usage: September End - 2018

Facilities7%

Dividend29%

Aqcuisition8%

Working Capital31%

Cash Retained25%

LTM Sep End - 18

Source: Company, PL

Cash Usage: September End - 2019

Facilities10%

Dividend32%

Aqcuisition12%

Working Capital20%

Cash Retained26%

LTM Sep End - 19

Source: Company, PL

Page 9: Larsen & Toubro Infotech12Dec19 · Larsen & Toubro Infotech December 12, 2019 2 Strong sales strategy helped in consistent large deal wins: LTI has won 19 large deals with a combined

Larsen & Toubro Infotech

December 12, 2019 9

Creating Shareholder Wealth – DPS (INR)

17

22

28 28

0

5

10

15

20

25

30

FY17 FY18 FY19 LTM

Source: Company, PL

Creating Shareholder Wealth - RoE

36.8%

33.1%

34.6%

32.0%

29.0%

30.0%

31.0%

32.0%

33.0%

34.0%

35.0%

36.0%

37.0%

38.0%

FY17 FY18 FY19 LTM

Source: Company, PL

BFSI growth weakening, may expect this top rebound in FY21E

Source: Company, PL

0.7%3.7%

8.5%

3.5%2.7%

5.6%

2.0%

0.8%

2.0%

3.1%

5.4%

5.3%

6.4%

8.2%

0.0%

3.6%

-1.1%

1.4%2.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

Q1F

Y17

Q2F

Y17

Q3F

Y17

Q4F

Y17

Q1F

Y18

Q2F

Y18

Q3F

Y18

Q4F

Y18

Q1F

Y19

Q2F

Y19

Q3F

Y19

Q4F

Y19

1Q

FY

20

2Q

FY

20

USD Revenue Growth QoQ (%) BFSI Revenues Growth QoQ (%)

Page 10: Larsen & Toubro Infotech12Dec19 · Larsen & Toubro Infotech December 12, 2019 2 Strong sales strategy helped in consistent large deal wins: LTI has won 19 large deals with a combined

Larsen & Toubro Infotech

December 12, 2019 10

Lower SG&A costs helped to maintain margin momentum

Source: Company, PL

Investments in digital making SG&A expenses go higher

Source: Company, PL

Utilizations came at sustainable level

Source: Company, PL

19.6%19.0%

18.1%

19.0%

16.8%16.8%17.1%

17.7%

19.4%

20.5%20.6%

19.2%

18.4%18.1%

15.0%

16.0%

17.0%

18.0%

19.0%

20.0%

21.0%

Q1F

Y17

Q2F

Y17

Q3F

Y17

Q4F

Y17

Q1F

Y18

Q2F

Y18

Q3F

Y18

Q4F

Y18

Q1F

Y19

Q2F

Y19

Q3F

Y19

Q4F

Y19

1Q

FY

20

2Q

FY

20

EBITDA Margin % (RHS)

15%

16%

16%

17%

17%

17%

16%

16%

16%

15%

14%

15%

15%

14%

19.6

%

19.0

%

18.1

%

19.0

%

16.8

%

16.8

%

17.1

%

17.7

%

19.4

%

20.5

%

20.6

%

19.2

%

18.4

%

18.1

%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

13%

14%

15%

16%

17%

18%

Q1F

Y17

Q2F

Y17

Q3F

Y17

Q4F

Y17

Q1F

Y18

Q2F

Y18

Q3F

Y18

Q4F

Y18

Q1F

Y19

Q2F

Y19

Q3F

Y19

Q4F

Y19

1Q

FY

20

2Q

FY

20

SG&A Exp (LHS) EBITDA Margin % (RHS)

77.4%

78.7%78.1%78.3%

77.7%

79.6%80.3%

79.9%79.7%80.4%

82.1%

80.1%80.5%

78.9%

78.0%

80.6%80.5%

79.3%

78.2%

80.7%81.5%

81.1%81.2%

82.3%83.0%

81.1%81.3%80.6%

74.0%

76.0%

78.0%

80.0%

82.0%

84.0%

Q1F

Y17

Q2F

Y17

Q3F

Y17

Q4F

Y17

Q1F

Y18

Q2F

Y18

Q3F

Y18

Q4F

Y18

Q1F

Y19

Q2F

Y19

Q3F

Y19

Q4F

Y19

1Q

FY

20

2Q

FY

20

Utilization Including Trainess Utilization excluding Trainess

Page 11: Larsen & Toubro Infotech12Dec19 · Larsen & Toubro Infotech December 12, 2019 2 Strong sales strategy helped in consistent large deal wins: LTI has won 19 large deals with a combined

Larsen & Toubro Infotech

December 12, 2019 11

Rising Attrition causing concern

Source: Company, PL

BFSI vertical posted flat growth in the quarter

Source: Company, PL

Client Concentration (%)

Client Details 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20

Top 5 clients 37.1% 38.3% 38.5% 38.1% 38.0% 36.4% 35.2% 36.6% 36.2% 34.5% 32.2% 31.3% 32.0%

Top 10 clients 51.8% 52.1% 53.1% 50.9% 50.9% 50.8% 49.6% 50.3% 49.9% 48.4% 47.0% 45.0% 46.0%

Top 20 clients 67.6% 68.3% 68.0% 66.3% 66.0% 66.1% 65.1% 66.0% 65.5% 64.3% 63.4% 62.5% 61.0%

Source: Company, PL

Client Metrics

Client details 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20

Number of Active Clients

259 264 261 256 256 289 300 301 312 314 343 354 366

New Clients Added 16 14 15 12 13 17 15 19 22 17 14 20 20

100 Million dollar + 1 1 1 1 1 1 1 1 114 121 123 124 137

50 Million dollar + 4 4 4 4 4 4 4 4 44 47 49 49 48

20 Million dollar + 10 10 11 12 12 13 13 13 25 25 26 26 27

10 Million dollar + 20 22 23 24 23 22 23 25 14 15 17 19 18

5 Million dollar + 34 35 35 35 39 43 44 42 4 5 5 5 6

1 Million dollar + 91 95 96 97 99 102 109 114 1 1 1 1 1

Source: Company, PL

77.4%

78.7%78.1%78.3%

77.7%

79.6%80.3%

79.9%79.7%80.4%

82.1%

80.1%80.5%

78.9%

78.0%

80.6%80.5%

79.3%

78.2%

80.7%81.5%

81.1%81.2%

82.3%83.0%

81.1%81.3%80.6%

74.0%

76.0%

78.0%

80.0%

82.0%

84.0%

Q1F

Y17

Q2F

Y17

Q3F

Y17

Q4F

Y17

Q1F

Y18

Q2F

Y18

Q3F

Y18

Q4F

Y18

Q1F

Y19

Q2F

Y19

Q3F

Y19

Q4F

Y19

1Q

FY

20

2Q

FY

20

Utilization Including Trainess Utilization excluding Trainess

0.7%3.7%

8.5%

3.5%2.7%

5.6%

2.0%

0.8%

2.0%

3.1%

5.4%

5.3%

6.4%

8.2%

0.0%

3.6%

-1.1%

1.4%2.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

Q1F

Y17

Q2F

Y17

Q3F

Y17

Q4F

Y17

Q1F

Y18

Q2F

Y18

Q3F

Y18

Q4F

Y18

Q1F

Y19

Q2F

Y19

Q3F

Y19

Q4F

Y19

1Q

FY

20

2Q

FY

20

USD Revenue Growth QoQ (%) BFSI Revenues Growth QoQ (%)

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Larsen & Toubro Infotech

December 12, 2019 12

Headcount Metrics

2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20

Total Headcount 19,751 20,605 21203 22,321 22,554 23,394 24,139 25,150 26,414 27,513 28,169 29,347 30,979

Development 18,428 19,234 19627 20,899 21,147 21,979 22,655 23,656 24,923 25,985 26,572 27,665 29,966

Sales & Support 1,323 1,371 1396 1,422 1,407 1,415 1,484 1,494 1,491 1,528 1,597 1,682 1,173

Attrition % (LTM) 18.50% 18.10% 16.90% 14.70% 15.0% 14.6% 14.8% 15.1% 15.3% 16.5% 17.5% 18.3% 18.4%

Net addition 459 854 598 1,118 233 840 745 1,011 1,264 1,099 656 1,178 1,632

Source: Company, PL

Effort Mix & Revenue Mix (%)

Effort Mix 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20

Onsite 24.2% 24.3% 24.0% 23.8% 23.3% 23.5% 23.1% 23.0% 22.6% 22.0% 21.9% 22.0% 22.0%

Offshore 75.8% 75.7% 76.0% 76.2% 76.7% 76.5% 76.9% 77.0% 77.4% 78.0% 78.1% 78.0% 78.0%

Revenue Mix

Onsite 48.8% 47.7% 48.7% 46.8% 46.6% 46.2% 45.7% 46.8% 47.6% 47.8% 47.8% 49.5% 48.6%

Offshore 51.2% 52.3% 51.3% 53.2% 53.4% 53.8% 54.3% 53.2% 52.4% 52.2% 52.2% 50.5% 51.4%

Source: Company, PL

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Larsen & Toubro Infotech

December 12, 2019 13

Financials

Income Statement (Rs m)

Y/e Mar FY19 FY20E FY21E FY22E

Net Revenues 94,404 103,914 117,067 130,484

YoY gr. (%) 28.9 10.1 12.7 11.5

Employee Cost 61,643 69,372 77,264 86,120

Gross Profit 32,761 34,541 39,803 44,365

Margin (%) 34.7 33.2 34.0 34.0

SG&A Expenses - - - -

Other Expenses - - - -

EBITDA 18,781 19,104 21,673 24,156

YoY gr. (%) 48.5 1.7 13.4 11.5

Margin (%) 19.9 18.4 18.5 18.5

Depreciation and Amortization 1,471 2,076 1,756 1,957

EBIT 17,310 17,029 19,917 22,199

Margin (%) 18.3 16.4 17.0 17.0

Net Interest - - - -

Other Income 2,915 2,101 3,000 3,500

Profit Before Tax 20,225 19,130 22,917 25,699

Margin (%) 21.4 18.4 19.6 19.7

Total Tax 5,122 4,608 5,609 5,507

Effective tax rate (%) 25.3 24.1 24.5 21.4

Profit after tax 15,103 14,522 17,307 20,192

Minority interest - - - -

Share Profit from Associate - - - -

Adjusted PAT 15,103 14,522 17,307 20,192

YoY gr. (%) 28.4 (3.8) 19.2 16.7

Margin (%) 16.0 14.0 14.8 15.5

Extra Ord. Income / (Exp) - - - -

Reported PAT 15,103 14,522 17,307 20,192

YoY gr. (%) 28.4 (3.8) 19.2 16.7

Margin (%) 16.0 14.0 14.8 15.5

Other Comprehensive Income - - - -

Total Comprehensive Income 15,103 14,522 17,307 20,192

Equity Shares O/s (m) 174 174 174 174

EPS (Rs) 86.8 83.5 99.5 116.0

Source: Company Data, PL Research

Balance Sheet Abstract (Rs m)

Y/e Mar FY19 FY20E FY21E FY22E

Non-Current Assets

Gross Block 13,366 17,377 21,388 25,399

Tangibles 5,692 8,500 11,307 14,115

Intangibles 7,674 8,877 10,081 11,284

Acc: Dep / Amortization 9,014 11,090 12,846 14,803

Tangibles 2,640 3,577 4,369 5,253

Intangibles 6,374 7,513 8,476 9,550

Net fixed assets 4,352 6,287 8,542 10,596

Tangibles 3,052 4,923 6,938 8,862

Intangibles 1,300 1,365 1,604 1,734

Capital Work In Progress 115 115 115 115

Goodwill 4,947 4,947 4,947 4,947

Non-Current Investments 2,080 2,130 2,180 2,230

Net Deferred tax assets 1,489 1,489 1,489 1,489

Other Non-Current Assets 1,952 1,952 1,952 1,952

Current Assets

Investments 17,402 18,402 19,402 20,402

Inventories - - - -

Trade receivables 18,263 20,103 22,647 25,243

Cash & Bank Balance 4,150 8,110 12,722 19,256

Other Current Assets 4,493 4,493 4,493 4,493

Total Assets 66,692 76,090 87,379 100,455

Equity

Equity Share Capital 174 174 174 174

Other Equity 48,764 57,691 68,330 80,743

Total Networth 48,938 57,865 68,504 80,917

Non-Current Liabilities

Long Term borrowings - - - -

Provisions 291 291 291 291

Other non current liabilities - - - -

Current Liabilities

ST Debt / Current of LT Debt - - - -

Trade payables 4,669 5,139 5,790 6,453

Other current liabilities 11,794 11,794 11,794 11,794

Total Equity & Liabilities 66,692 76,090 87,379 100,455

Source: Company Data, PL Research

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Larsen & Toubro Infotech

December 12, 2019 14

Cash Flow (Rs m)

Y/e Mar FY19 FY20E FY21E FY22E Year

PBT 20,278 19,130 22,917 25,699

Add. Depreciation 1,472 2,076 1,756 1,957

Add. Interest 106 - - -

Less Financial Other Income 2,915 2,101 3,000 3,500

Add. Other (94) (2,101) (3,000) (3,500)

Op. profit before WC changes 21,762 19,104 21,673 24,156

Net Changes-WC (3,061) (1,982) (2,722) (2,775)

Direct tax (4,751) (4,608) (5,609) (5,507)

Net cash from Op. activities 13,950 12,515 13,341 15,874

Capital expenditures (3,623) (4,011) (4,011) (4,011)

Interest / Dividend Income 762 2,101 3,000 3,500

Others (4,577) (1,050) (1,050) (1,050)

Net Cash from Invt. activities (7,438) (2,960) (2,061) (1,561)

Issue of share cap. / premium 3 - - -

Debt changes - - - -

Dividend paid (5,341) (5,595) (6,668) (7,780)

Interest paid (16) - - -

Others (589) - - -

Net cash from Fin. activities (5,943) (5,595) (6,668) (7,780)

Net change in cash 569 3,960 4,612 6,533

Free Cash Flow 12,384 8,504 9,330 11,863

Source: Company Data, PL Research

Quarterly Financials (Rs m)

Y/e Mar Q3FY19 Q4FY19 Q1FY20 Q2FY20

Net Revenue 24,729 24,860 24,849 25,707

YoY gr. (%) 31.3 24.2 15.3 10.3

Raw Material Expenses 16,125 16,417 16,625 17,525

Gross Profit 8,604 8,443 8,224 8,182

Margin (%) 34.8 34.0 33.1 31.8

EBITDA 5,090 4,765 4,579 4,658

YoY gr. (%) 58.3 34.8 9.3 (2.8)

Margin (%) 20.6 19.2 18.4 18.1

Depreciation / Depletion 355 371 611 664

EBIT 4,735 4,394 3,968 3,994

Margin (%) 19.1 17.7 16.0 15.5

Net Interest - - - -

Other Income 288 648 812 739

Profit before Tax 5,023 5,042 4,780 4,733

Margin (%) 20.3 20.3 19.2 18.4

Total Tax 1,268 1,255 1,225 1,130

Effective tax rate (%) 25.2 24.9 25.6 23.9

Profit after Tax 3,755 3,787 3,555 3,603

Minority interest - - - -

Share Profit from Associates - - - -

Adjusted PAT 3,755 3,787 3,555 3,603

YoY gr. (%) 32.7 30.9 (1.6) (10.0)

Margin (%) 15.2 15.2 14.3 14.0

Extra Ord. Income / (Exp) - - - -

Reported PAT 3,755 3,787 3,555 3,603

YoY gr. (%) 32.7 30.9 (1.6) (10.0)

Margin (%) 15.2 15.2 14.3 14.0

Other Comprehensive Income - - - -

Total Comprehensive Income 3,755 3,787 3,555 3,603

Avg. Shares O/s (m) 174 174 174 174

EPS (Rs) 21.5 21.7 20.4 20.7

Source: Company Data, PL Research

Key Financial Metrics

Y/e Mar FY19 FY20E FY21E FY22E

Per Share(Rs)

EPS 86.8 83.5 99.5 116.0

CEPS 95.3 95.4 109.6 127.3

BVPS 281.3 332.6 393.7 465.0

FCF 71.2 48.9 53.6 68.2

DPS 27.8 26.7 31.8 37.1

Return Ratio(%)

RoCE 39.6 31.9 31.5 29.7

ROIC 58.2 48.1 48.4 49.8

RoE 34.5 27.2 27.4 27.0

Balance Sheet

Net Debt : Equity (x) (0.4) (0.5) (0.5) (0.5)

Debtor (Days) 71 71 71 71

Valuation(x)

PER 18.8 19.6 16.4 14.1

P/B 5.8 4.9 4.1 3.5

P/CEPS 17.1 17.1 14.9 12.8

EV/EBITDA 14.0 13.5 11.6 10.1

EV/Sales 2.8 2.5 2.2 1.9

Dividend Yield (%) 1.7 1.6 1.9 2.3

Source: Company Data, PL Research

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Larsen & Toubro Infotech

December 12, 2019 15

Price Chart Recommendation History

No. Date Rating TP (Rs.) Share Price (Rs.)

1 18-Oct-19 Accumulate 1,825 1,500

2 3-Oct-19 Accumulate 1,665 1,505

3 19-Jul-19 Accumulate 1,701 1,576

4 4-Jul-19 BUY 1,947 1,656

5 10-Jun-19 BUY 1,981 1,809

6 5-May-19 BUY 1,981 1,678

7 5-Apr-19 BUY 2,032 1,652

Analyst Coverage Universe

Sr. No. Company Name Rating TP (Rs) Share Price (Rs)

1 Cyient Hold 507 466

2 HCL Technologies BUY 1,258 1,148

3 Hexaware Technologies Hold 321 366

4 Infosys BUY 819 720

5 L&T Technology Services Hold 1,444 1,639

6 Larsen & Toubro Infotech Accumulate 1,825 1,500

7 Mindtree Reduce 716 744

8 Mphasis Accumulate 1,038 937

9 NIIT Technologies Accumulate 1,551 1,469

10 Persistent Systems Hold 534 560

11 Redington (India) BUY 114 108

12 Sonata Software Accumulate 382 313

13 Tata Consultancy Services Hold 1,985 2,004

14 TeamLease Services Hold 3,203 2,965

15 Tech Mahindra Reduce 656 773

16 Wipro Reduce 245 244

17 Zensar Technologies Accumulate 249 211

PL’s Recommendation Nomenclature (Absolute Performance)

Buy : > 15%

Accumulate : 5% to 15%

Hold : +5% to -5%

Reduce : -5% to -15%

Sell : < -15%

Not Rated (NR) : No specific call on the stock

Under Review (UR) : Rating likely to change shortly

651

982

1313

1644

1975

Dec -

16

Jun

- 1

7

Dec -

17

Jun

- 1

8

Dec -

18

Jun

- 1

9

Dec -

19

(Rs)

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Larsen & Toubro Infotech

December 12, 2019 16

ANALYST CERTIFICATION

(Indian Clients)

We/I, Mr. Aniket Pande- MBA Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

(US Clients)

The research analysts, with respect to each issuer and its securities covered by them in this research report, certify that: All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and No part of his or her or their compensation was, is or will be directly related to the specific recommendation or views expressed in this research report.

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