Home / Markets / Mark To Market /  L&T Infotech sails through stormy Q1, but coronavirus threats linger

Covid-19 has forced all companies to hit the brakes on growth. But such was the momentum at Larsen and Toubro Infotech Ltd, that it still ended up with revenue growth of 10.6% in constant currency terms year-on-year. On a sequential basis, revenues fell 4.7%.

Shares of the company rose 4.9% on Thursday after the better-than-expected results for the June quarter. The stock is now about 13% higher compared to its pre-covid highs, making it among the best-performing IT stocks in India.

Graphic: Satish Kumar/Mint
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Graphic: Satish Kumar/Mint

Operating profit margins was largely stable, notwithstanding the sequential fall in revenue. Reported profit margin expanded 70 basis points to 17.4%, compared to the March quarter. The March quarter had a one-time exceptional cost pertaining to contribution to PM CARES Fund for covid-19 relief. Adjusted for this, margins were stable, said Motilal Oswal Financial Services Ltd.

On a year-on-year basis, operating earnings in dollar terms rose as much as 19%. In rupee terms operating earnings grew 2.1%, sequentially, and 29.5% from the year-ago quarter.

This is commendable considering the noticeable impact of covid-19 on its revenue. The company’s direct costs dropped 1.7% sequentially. SG&A or the sales and general administration expenses declined 10.6%.

“SG&A cost control was impressive (declined to 12.3% of revenue from 13.5% of revenue in the March quarter)," Motilal Oswal analysts said in a note.

All major business segments saw sequential decline in constant currency revenue. Manufacturing, energy and utilities saw double-digit revenue declines, perhaps reflecting the pull-back of spending by clients. But the revenue fall at the banking, financial services and insurance, which together generate around 45% of L&T Infotech’s revenue, was confined to mid-to-low single digits (constant currency revenue down 2-4% sequentially). The management said it saw the worst of the business slowdown in the June quarter, and the current quarter will be flat with a positive bias. It expects margins to be in narrow band in FY21, implying an overall stable profitability.

The company said its deal pipeline is better than the year-ago period and it expects to close large deal wins in the current quarter as well.

According to analysts, L&T Infotech is one of the rare companies, with the possible exception of Infosys Ltd, which will likely report revenue growth in the current fiscal year.

But covid-19, lockdowns and restrictions on travel pose challenges. Deal closures are being delayed. For L&T Infotech, whose growth momentum is contingent on consistently winning large deal wins, this can be a hindrance, especially in winning new customers. Valuations at about 20 times estimated FY22 earnings are not cheap, and investors should keep a tab on risks as well.

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