L&T Infotech: Second half expected to be stronger on deals, client gains

Topics L&T Infotech

Larsen & Toubro Infotech (Website screenshot)
After muted numbers in the past few quarters, the Street expected little from L&T Infotech (LTI) in its second-quarter results. However, the company, which declared its results last week, managed to meet estimates.

More importantly, the second quarter of this financial year is expected be a better one for company, especially on account of a ramp-up in existing deals, large deals won in recent quarters, and lower client-specific issues.

Flattish revenue trends over the past few quarters at its top clients were seen as a major concern by the company and the Street. Its top-five clients, for instance, contributed 38 per cent to LTI’s revenues in Q2FY18; this fell to 31.3 per cent in Q1FY20, down 670 basis points.

But the trend now seems to have reversed: Its top-five clients accounted for 31.7 per cent of the company’s revenues in the September quarter. Analysts at HDFC Securities say that the two buckets of top-five as well as clients in the 6-10th positions in terms of contribution to revenues have recovered. The share of top-five clients grew 3.4 per cent sequentially after three quarters of muted performance, they add.

Another key trigger for the company is its large deal wins, with a total contract value of $100 million from financial services, energy and utility segments. The revenue momentum in the second half of the year is expected to be led by a ramp-up in large deals won and a traction in larger client accounts.

Analysts expect the company to deliver double-digit revenue growth in dollar terms over the next couple of years. Analysts at Motilal Oswal Research say that among Tier-II firms, the company remains well positioned in terms of a strong portfolio, good execution capabilities and a high-quality management team. Analysts expect the company, which is trading at 19 times its FY20 estimates, to continue commanding a premium over its peers. While the stock gained 7.5 per cent on Friday, triggers going ahead remain revenue momentum and margin trends. Margins shrank 50 basis points sequentially on lower utilisation and wage hike pressures.

Investors should await firm trends before taking an exposure to the stock. 

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