L&T Infotech: Aims to achieve double-digit growth in FY20E

Update on the Indian Equity Market:

On Tuesday, NIFTY closed 0.6% lower at 11,590 points; reversing the trend of the last 6 sessions. The whistle-blower complaint against Infosys was the talk of the day which dragged the markets down. Amongst the NIFTY 50 Stocks, DRREDDY (+3.5%) and ICICIBANK (+3.2%) were the top gainers while INFY (-16.7%), TATAMOTORS (-4.0%) with other banks dragged the NIFTY down. In the sector-wise performances, Pharma (+2.0%) and Financial Services (+1.0%) were the biggest gainers while IT (-4.8%) was the biggest loser for the day.

L&T Infotech: Aims to achieve double-digit growth in FY20E

Key takeaways from the interview of Mr Sanjay Jalona, MD & CEO L&T Infotech; dated 18^th October 2019 on CNBC TV 18:

• The old announced large deals are ramping up well. L&T Infotech (LTI) announced 3 more large deals in 2QFY20. LTI is confident of achieving a double-digit growth rate for FY20 despite a struggle in 1Q and 2Q of FY20.
• There was a ~50 bps reduction in EBIT in 2QFY20. The wage hike for the LTI is effective in July. So, the entire hit comes in 2Q financials. The impact was ~160 bps in 2QFY20. The cost savings in visa expenses and other operational optimizations provided support of ~110 bps. The net margins were 13%, lower by ~30bps YoY.
• LTI maintains the PAT margin guidance of ~14-15% for FY20E.
• In the Banking & Financial Sector (BFS) sector, top clients saw budget cuts. LTI expects to see a recovery in 3QFY20.
• In the BFS segment, LTI executed a deal of separation of a bank from a larger bank in FY19. It was a one-off assignment which provided the ~US $ 30-40 mn incremental revenue to LTI. The separation was completed successfully. But as this was a non-recurring one-off contract. This deal leads to a high base effect. Apart from that, in BFS; LTI is focussing on client-specific problems.
• The International Monetary Fund (IMF) downgrade of the Global economic growth outlook from 3.8% to 3%; will lead to some nervousness in the industry. LTI continues to see the excitement and a pipeline in deals but the nervousness persists. LTI is not seeing any delays in projects.
• Management expects the digital technology to drive change for the customer. Management is looking forward to stronger 2HFY20 and is very positive on FY21 as well. 

Consensus Estimate (Source: market screener website)

• The closing price of LTI was ₹ 1,611/- as of 22-October-19. It traded at 19x/16x/14x the consensus EPS for FY20E/ FY21E/ FY22E of ₹ 86/ 100/ 112 respectively.
• Consensus target price of ₹ 1,808/- implies a PE multiple of 16x on FY22E EPS of ₹ 112 /-