Home > Markets > Mark To Market > L&T Infotech’s impressive growth in Q4 adds heft to its valuations

In the March quarter, L&T Infotech Ltd (LTI) was in a league of its own. While revenues of the top eight IT firms fell 1.7% sequentially in the quarter, according to data compiled by Kotak Institutional Equities, LTI posted a 3.9% growth in revenues in dollar terms, far higher than the Street’s estimates. The growth was broad-based. Barring insurance, all verticals posted sequential revenue growth in constant currency terms.

Not surprisingly, investors were enthused. The LTI stock rose over 5% in Wednesday’s trade. While the Nifty IT index has fallen 19% from its highs in February, LTI shares are now about 14% lower.

Graphic: Santosh Sharma/ Mint
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Graphic: Santosh Sharma/ Mint

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On a year-on-year (y-o-y) basis, revenue grew as much as 17.4% in constant currency terms. Note that growth at industry leader Tata Consultancy Services Ltd was only 3% last quarter on a y-o-y basis.

“In a quarter where core geographies were impacted for almost a month, LTI delivered robust results," Motilal Oswal Financial Services Ltd said in a note. “Most of the operational metrics (utilization, onsite-offshore effort mix, attrition, headcount) remained stable despite the impact of covid-19 during the quarter." Operating margin expanded 50 basis points sequentially to 16.7%. The firm does not have exposure to travel and hospitality, the sectors most hit by covid-19.

But clients in manufacturing, energy and utilities may temper spending amid the demand slump. Last fiscal, these two verticals generated about a quarter of LTI’s revenues. But a healthy order book, which drove growth in FY20, is expected to help in the coming quarters. “With strong order wins, healthy revenue momentum and client-centric growth strategy, we shall confront near-term demand challenges and emerge stronger," said Sanjay Jalona, chief executive and managing director, LTI.

An analyst at a domestic broking firm estimates 4% dollar revenue growth for the company in the current fiscal. That will be a significant slowdown from FY20. But outlook for other IT firms looks even more bleak.The strong performance and relatively lower covid-19 impact is aiding LTI’s valuations. At about 16 times FY22 price-to-earnings multiple, the stock is valued on a par with Infosys Ltd and higher than HCL Technologies Ltd.

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