Home / Markets / Mark To Market /  L&T Infotech: top clients propel revenues, valuations stretched

Larsen & Toubro Infotech Ltd (LTI) picked up pace in the third quarter clocking a revenue growth of about 8.3% quarter-on-quarter in constant currency terms. With the numbers being much higher than what analysts had estimated, the LTI stock gained about 2.2% on Wednesday.

LTI completed the acquisition of PowerupCloud in Q3, which helped its growth. But even after adjusting for it, revenue growth was impressive at about 6.4% q-o-q, which is still higher than what analysts expected.

GRaphic by Satish Kumar/Mint
View Full Image
GRaphic by Satish Kumar/Mint

Revenue growth was led by the company’s top 5 clients, which grew by 12.1% q-o-q. LTI clocked a decent growth in some of its verticals, which had de-grown over the past few quarters. Growth in L&T Infotech’s key banking and finance vertical stood at 11.3% on a q-o-q basis. Note that this vertical de-grew by about 0.3% q-o-q in the second quarter, and contributes about 27% of its overall revenues.

In the first half, L&T Infotech had seen a ramp down in this vertical due to shrinking IT spends by some top clients.

Among its other important verticals, insurance has seen marginal growth of about 2.6% q-o-q in Q3, though manufacturing has grown picked up pace with a growth rate of about 15.7%. The management expects strong growth to continue in the second half.

Nevertheless, the street is not quite gung-ho about the operating margin performance. Despite the strong revenue beat, Ebit margin increased by only 70 basis points q-o-q. On a year-on-year basis, Ebit margins contracted by about 290 basis points, which is a tad disappointing. The management clarified that some of this due to an increase in sub-contracting costs. Ebit is earnings before interest and tax.

Meanwhile, the LTI stock continues to trade at rich valuations. The run-up in the stock of about 17.9% in the past one month compared to the Nifty IT index’s gains of 7.5% makes the stock a tad expensive. Analysts have pegged earnings for FY21 at about 99. That would mean the stock is quoting at a price-earnings multiple of about 19.4 times, which remains quite stiff for a mid-tier IT company.

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.

Recommended For You

Edit Profile
Get alerts on WhatsApp
Set Preferences My ReadsWatchlistFeedbackRedeem a Gift CardLogout