LTIMindtree Ltd. share price target

11 December 2019 LTI hinted at ~30% improvement in the customer experience index and a strong increase in employee morale. While continuing with the current strategy, it productisation of services, (iii) people and (iv) capabilities. While productisation of services has been a strategy emphasized by a few larger competitors, we understand that the results so far have been mixed. Large/overall deal pipeline is stronger than a year ago by 20%/42%. New logos now comprise 60%/35% of the large/overall deal pipeline (v/s 32%/19% a year ago). However, the share of new-age deals in the pipeline has moderated to 37% (v/s 43% a year ago). We note that 67%/49% of the large/overall deal pipeline is in the proposal stage. LTI indicated that reskilling of ~50% of workforce was completed over the last strengthening through platforms (e.g. Temenos PFS, Private Eye), (ii) building new (e.g. AI, ML), (iii) modernizing traditional (e.g.

In addition, (1) marquee client connects, (2) sales driven by multiple units (e.g. alliances, customer success, large deal teams), (3) strong focus/expertise in a few segments (e.g. CIB and WM in BFSI), (4) optimal scale and (5) a high quality management team remain the key competitive advantages of the company. Over 9MCY19, LTI has witnessed deceleration in growth (~9pp YoY) and drop in utilization (~300bp) due to issues faced at three of its key clients. While client specific issues seem to be largely behind, the key question is whether growth and margins will bounce back in a cautious spending environment. The recent large deal wins hint at growth accelerating over the next 12-18 months. L&T; Infotech It is interesting to note that during the previous cycle of cautious IT spending (Jun16 to Dec17), LTI consistently outperformed growth of Tier-I companies and that too by a wide margin (1-11pp YoY).

L&T; Infotech Ltd. (LTI) reported sturdy results in terms of top line in Q2FY20. LTI posted strong revenue growth of 2.4% on QoQ basis and 11.9% on YoY basis in constant currency (CC) terms for the period of Q2FY20 at Rs.2, 570 crs.

LTI's strong pedigree is reflected in its (1) Broad-based vertical presence (and sub-vertical strategy) with marquee accounts, (2) Strong client mining programs and large deal portfolio, and (3) Leading margin/return metrics vs. peers. Client specific challenges (in BFS and Hi-tech) have probably troughed and large deal trajectory is expected to improve growth momentum hereon. Our revenue/EPS CAGR over FY19-22E is ~10/8%. The stock is not inexpensive at 16.9x FY21E, but we believe LTI has the pedigree to command higher valuations as earnings growth becomes more visible. We maintain BUY on L&T; Infotech (LTI) following an in-line rev/margin performance and unchanged est. Large deal wins, deal ramps and reduction in client-specific challenges provide growth visibility (2H acceleration). Our TP of Rs 1,845 is based on 18x Sep-21E EPS.

LTI confirmed that the worst is over as regards the decline in the revenue from the topclient. However, it expect decline in revenue from another top-10 client in the BFS vertical in Q2FY20. Also, there have been ramp-down in couple of deals. This is likely to impact its growth in Q2FY20, however it is still confident of a QoQ growth. We factor slower growth for Q1/Q2FY20 and cut our FY20/21E revenue (in US$) by 2.5%/1.8% and EPS by 6.7%/5.7%. We now forecast FY19-21E revenue (US$)/EPS CAGR of 13.6%/9%. We remain confident of LTI gaining back the high growth momentum in...

Despite the client-specific hiccups, strong pipeline, large deal wins and investments in digital provide growth visibility. LTI's strong pedigree is reflected in its (1) Marquee account base (66 in F-500), (2) Strong client mining (supported by ADEA and Minecraft programs) reflecting in top 11-20 and focus on large deals, (3) Sub-vertical strategy (e.g. insurance), and (5) Leading margin/return metrics vs. peers. Revenue/EPS CAGR over FY19-22E estimated at 11/10%. Key risks include extended period of spend cuts by large accounts and INR appreciation. We maintain BUY on L&T; Infotech (LTI) post a soft (in-line) 1QFY20. Cut estimates by ~4% to factor near-term client-specific challenges, however deal wins provide growth visibility. Our TP of Rs 2,115 is based on 20x Jun-21E EPS.

L&T; Infotech (LTI) reported a sedate Q1FY20 with 1% QoQ CC revenue growth and 16% EBIT margins

Client specific issues to drag FY20E, growth to recover in FY21E The company in Q1FY20 was impacted by client specific challenges in top account. Vertical wise, the company's BFS growth was impacted by client specific issues while manufacturing and energy & utilities registered a dip in revenues due to absence of pass through revenues. This is also reflected in its top five and top 10 clients, which have declined 2.1% QoQ and 3.5% QoQ, respectively. Going forward, client specific issues are expected to continue in BFS vertical while loss of client in high-tech, media &...

Performance during the quarter was dragged by volatility in top accounts. Revenues from the top 6-10 clients declined 6.7% sequentially. EBIT margin during the quarter stood at 16%, declining 170bp sequentially. Decline in margins was led by (a) visa cost - 100bp, (b) sales and marketing investments - 100bp, and (c) currency movement - 20bp. The decline was partially offset by higher working days and adoption of IND-AS, which contributed +25bp to the margins. has suffered over the last couple of quarters due to spending cuts in its top account. While this bottomed out in 1QFY20, there are other top accounts with specific issues, which would weigh down near-term revenue growth. Completion of project from a large African client and ramp-down in certain sizeable accounts should offset the revenue visibility from net-new deals in 2QFY20. For now, LTI expects normal growth to resume from 3QFY20.