LTIMindtree Ltd. share price target

LTI posted strong revenue growth of 8.3% on QoQ basis and 14.2% on YoY basis in constant currency (CC) terms for the period of Q3FY20 at Rs.2, 811crs. Operating margins in Q3FY20 stood at 18.8% improved by 70 bps on QoQ basis owing to tailwinds like better service mix, improved utilization.

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LTI reported a strong Q3FY20. Revenue grew by 8.3% QoQ in CC beating our street-high forecast of +5.7%. EBIT margin of 16.2%, improved 70bps QoQ vs. our forecast of 16.5% and EPS of Rs21.7, grew by 4.7%/0.1% QoQ/YoY. Digital solutions (41% of revenue) continued to lead the growth momentum and grew by 10.4%/26% QoQ/YoY in US$. LTI maintained the large deal momentum and has secured 2 large deals with net new TCV of US$75 mn+ in Q3FY20 (US$219 mn+ YTD). We finetune our FY20/21 forecast and introduce FY22 financials. We forecast revenue (US$)/EPS CAGR of 14.9%/17.1% over FY20-22. We rollover to FY22E and increase our...

The company's strategy of adding new logos, winning large deals and client mining is reflected in the current quarter results. Apart from a revival in spending at top client, growth in BFS segment (up 11.1% QoQ) was driven by large deal win in Nordics. Further, the company's manufacturing, retail and Hitech grew 15.7% QoQ, 5.8% QoQ and 8.8% QoQ representing LTI's strong execution and ability to gain market share across verticals. The company's US$50 million+ clients has increased by one and US$20 mn and US$50 mn has increased by three each representing strong client mining...

Maintain our conviction on LTI based on (1) Broad-based vertical presence (sub-vertical strategy) with marquee ac, (2) Strong client mining programs and expanding deal pipeline (ramp-up schedule on track), (3) Improving alliance network/talent augmentation, and (4) Leading operational metrics vs. peers. Growth momentum (YoY) to be intact, supported by strong (sustainable) performance by large account (beneficiary in vendor consolidation). Expect USD rev/EPS CAGR of 14/12% over FY19-22E. LTI's pedigree coupled with growth momentum will continue to support its premium valuations. We maintain BUY on L&T; Infotech (LTI) following rev beat/in-line margin performance and ~7% EPS increase. Broad-based growth drivers and strong uptick in large account provide growth visibility. Our TP of Rs 2,090 is based on 18x Dec-21E EPS.

As mix incrementally shifts toward annuity revenue, we see headroom for further (i) utilization improvement, (ii) pyramid correction and (iii) reduction in sales intensity. In that context, the shift in business mix toward more of manage services should translate into headroom for (1) utilization improvement, (2) pyramid correction and (3) reduction in sales intensity. Pyramid correction and utilization improvement should be the key margin levers on the cost side, while right pricing for right services would be the key lever on the revenue front. Employee + sub- con expenses accounted for 71% of revenue v/s 66% for LTI (last three year In that context, the shift of business mix toward more of annuity revenue should translate into headroom for (i) utilization improvement, (ii) pyramid correction and (iii) reduction in sales intensity. However, the impact of this should be offset by correction in high yields (MTCL has 9%-10% higher revenue per utilized tech emp v/s LTI).

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The company continues to focus on an outcome based approach by digitising the core, building a data driven organisation, transforming experience and operating to transform taking centre stage. LTI continues to make investments in this direction led by a strong sales team driving large deals and expertise in niche capabilities in the revenue segments. This is bearing fruit in terms of strong growth in non-top 20 accounts, improving large deal pipeline, strategic alliances with top companies and revenue CQGR of 3.3% (over Q1FY16-Q2FY20). This, along with maintaining PAT...

& 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...

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