LTI is up ~130% since its inclusion in our mannequin portfolio (in 3QFY20) and is at present the costliest (28x FY23 EPS) IT firm inside our protection universe. Whereas we proceed to deem it among the many best-in-class IT companies firms on execution and administration high quality, we consider the inventory greater than components within the potential; therefore, we downgrade the inventory to impartial.
In our view, LTI is in an enviable place – it advantages from its place as an organization with sufficient scale to compete with bigger gamers, however remains to be sufficiently small to leverage the array of small offers to develop forward of its peer group.
LTI additionally has a well-diversified portfolio of service strains – ADM, ERP, and IMS contribute 36%, 31%, and 14%, respectively, to whole revenues. It has presence in all the key verticals, with BFS contributing 30% to whole revenues.
The mixture of a size- and industry-relevant portfolio has helped the corporate win offers (massive deal pipeline of $1.9b) throughout service strains and geographies. LTI has clocked a 16.3% income CAGR up to now three years, among the many highest within the IT companies pack.
Aligning itself with prospects’ digital transformation initiatives, LTI has structured its govt deal with cloud and information merchandise. This, together with a succesful gross sales group, has allowed it to each mine current accounts in addition to hunt for brand new accounts (past the highest 20 shoppers). We count on LTI to proceed to achieve from these capabilities and ship industry- main income progress within the medium time period (+14% USD CAGR over FY20–23E). This, coupled with robust margin enchancment from FY21, would lead to 20% INR PAT progress over the identical interval.
LTI is anticipated to ship robust sequential progress (4.5% q-o-q USD) in a seasonally weak quarter, led by a ramp-up in deal wins within the earlier quarter. After a powerful margin efficiency in 2Q (EBIT margin up 370bps y-o-y), we count on secure margin efficiency in 3Q.
LTI at present trades at 28.0x our FY23 EPS estimates v/s the sector common of 24x and at a peak relative to its historical past. Whereas we stay assured of the corporate’s execution capabilities, we downgrade the inventory to impartial, led by the latest rally in inventory worth (130% in a single yr). We worth the inventory at 26.5x FY23 EPS (+2 ST Dev median P/E). We revise our TP to Rs 3,910, implying a 6% draw back.