With major deal wins, L&T Infotech expected to beat peers in the near term

Led by ramp-up of major deal wins, large digital portfolio and strong execution, Larsen & Toubro (L&T) Infotech beat peers on the growth front in the December quarter. The company posted a growth of 6 per cent on a sequential basis. This was much higher than analysts' expectations, which pegged the same between 3.5-4.1 per cent.

While all the verticals contributed to the growth, it was led by consumer, retail, and pharma segments, which recorded growth of over 10 per cent. After a dip in the September quarter, the financial services, which is the largest vertical accounting for about 30 per cent of revenues, posted sequential revenue growth of 3 per cent.
The company indicated its strategy of large contracts, client mining, and customer additions has helped add to the revenue growth.  

The company won one large deal in each of the previous three quarters and the number of Fortune 500 clients have gone up to 63 now, as compared to 61 at the end of the September quarter.

While this gives near-to medium-term revenue visibility, on the issue of Mindtree acquisition, the company indicated it is open to acquiring clients, synergies, and niche capabilities and not just to buy revenues. 

It is expected to post a 19 per cent dollar revenue growth in 2018-19, while margins should improve by 400 basis points to over 20 per cent.

Analysts at Emkay Research expect the company to post sustained financial outperformance over peers, on the back of continuous large-deal wins, new client additions, comprehensive digital offerings, with its own product IPs and investment in traditional and digital products.

With analysts upgrading the revenue and margin outlook for the current and the next fiscal year, the company is expected to maintain its premium valuations. The stock, which has gained 52 per cent over the last year, trades at 18-19 times its 2019-20 earnings estimates.

While growth prospects are strong, given the macro concerns in the US market, which is the single-largest geography accounting for over two-thirds of revenues, investors need to be cautious. 

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