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Home >Markets >Mark To Market >L&T Infotech’s growth metrics help it trump TCS on valuations

The L&T Infotech Ltd (LTI) stock has been one of the top performers among tech companies. From its pre-pandemic high of 2,032 in February 2020, the stock has risen over 90% to 3,915 now. It has significantly outperformed larger peers Tata Consultancy Services Ltd (TCS) and Infosys Ltd. Shares of these tier-1 tech companies rose by 37% and 66%, respectively, during the same period.

What’s more, its one-year forward price-to-earnings ratio of around 30 times is well ahead of market leader TCS’s valuation of around 28.5 times.

Analysts attribute the sharp rise in the LTI stock to its consistent earnings performance. “LTI reported strong revenue CAGR of 13.5% (>1.5times of industry average) over FY16-FY21 driven by consistent new client additions and wallet share gains. We expect LTI to gain market share over the medium term, driven by aggressive new client wins. We expect LTI to remain the growth leader over FY22-FY24 among Indian IT names," said Suyog Kulkarni, senior research analyst at Reliance Securities Ltd. CAGR is short for compounded annual growth rate.

In the March quarter, its sequential revenue growth in dollar terms was at 4.4%.

While this was largely in-line with expectations, it is better than many competitors. Also note that while TCS ended the fiscal year with more or less flat revenues, LTI’s revenue grew 9.5% in FY21, aided by strong traction in its Hi-Tech and banking, financial services and insurance (BFSI) verticals, which analysts said, have contributed 37% and 32% of incremental revenue during the March quarter, respectively.

L&T Infotech’s growth metrics help it trump TCS on valuations
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L&T Infotech’s growth metrics help it trump TCS on valuations

In a post-earnings conference call, the company’s management said its deal pipeline is healthy and it is seeing business momentum pick-up across geographies.

Though operating margin at 19.4%, is down 190 basis points on a quarter-on-quarter basis, it exceeded the consensus estimate of 18.9%. One basis point is one hundredth of a percentage point. Margins were impacted by wage hikes and lower utilization levels.

However, contraction in margins was set off by a steep decline in selling, general and administrative (SG&A) costs, which was at an eight-quarter low.

Increased contribution of offshore business to its project mix also supported Ebit margins. Ebit is short for earnings before interest and tax.

LTI’s deal win momentum remained strong as it closed two large deals with a net new contract value of $66 million. For FY21, its TCV at $404 million grew by nearly 22% compared to the last fiscal year. But as mentioned earlier, most of these positives are adequately factored in the stock’s pricey valuations.

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