BackL&T Infotech's shares fall as Q4 results disappoint
In LTI, like Infosys Ltd and Tata Consultancy Service, there's softening of banking and financial services growth, just 2.8% sequentially versus average of 10%, in last 3 quarters, said analysts
PremiumLarsen & Toubro Infotech Ltd’s (LTI) shares fell about 5% on Wednesday’s morning trade. This is on a day when the benchmark Nifty50 index was nearly 1% up.
The March quarter (Q4FY22) results of the information services (IT) company have fallen short of analysts’ expectations. Q4 revenue of $570.4 million represents 3.6% sequential growth in constant currency (cc) terms. This has missed ICICI Securities' estimate of 5.3% sequential cc growth. The growth was led by CPG (consumer packaged goods), retail & pharma, which reported 7.7% sequential revenue growth in cc terms. In Indian rupee terms, revenue grew by 4% sequentially to Rs4301.6 crore.
“We would like to highlight that in LTI also (like Infosys Ltd and Tata Consultancy Services Ltd), we have seen softening of BFS (banking and financial services) growth – just 2.8% sequentially versus average of 10% in last 3 quarters," said analysts at ICICI Securities in a report on 20 April.
Owing to lower working days in Q4 and impact of revenue mix, the Ebit (earnings before interest and tax) margins stood at 17.3% which is 60 basis points (bps) drop sequentially. One basis point is one-hundredth of a point.
In Q4, the company booked four large deals with net new TCV (total contract value) of over $80 million. The deal pipeline is strong as customers will continue to spend on digital initiatives. In FY23, the management maintained the profit after tax margin guidance of 14-15%.
“LTI has impressed with strong growth and rebound in large deal wins in FY22. Our view on the business is unchanged and the company is well positioned to gain market share with its strong business model," added the ICICI Securities report.
Geographically, North America and Europe clocked 2.5% and 5.8% sequential growth respectively. According to the management, the demand outlook in Europe has not been affected currently. Even so, there could be impact of higher costs and wage inflation.
The headcount addition of 2,448 employees in Q4FY22 indicates that the outlook is strong. But attrition (last twelve months) increased to 24% in Q4FY22 from 22.5% in Q3FY22. Margin pressures are likely to remain elevated with high attrition, wage inflation and rising costs.
“We cut FY2023-24E earnings per share by 2-3% to account for margin headwinds" said analysts at Kotak Institutional Equities in a report on 19 April. Note that the broking firm has also reduced the fair value of the stock to Rs5,500 (from Rs6,130 earlier), valuing the stock at 29X FY2024E earnings per share (32X earlier). “We like scalability attributes of LTI’s business but find current valuations expensive," it said. The stock is currently trading at Rs5207 apiece on the NSE.
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