L&T Infotech Q2 net jumps to Rs 551.7 crore; should you buy, hold or sell?

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The IT arm of engineering major Larsen & Toubro, L&T Infotech, has registered consolidated sales of Rs 3767.0 crore, a growth of 8.8% QoQ and 25.6% YoY basis. On USD terms the revenue for the quarter was up by 8.3% QoQ basis and 25.8%YoY basis. Eventually, the net profit was Rs 551.7 crore, up 11.1% QoQ basis and growth of 20.8% YoY basis. Revenues have grown on the back of the growth momentum of Q1FY22 which has continued in this quarter, healthy deal signings, and broad-based growth across verticals and geographies.

On the margins front, the company reported the EBITDA (Earnings Before Interest Tax Depreciation & Amortization) margins witnessed a decline of 340 basis points to 19.5% compared to 22.9% last year. However, the EBITDA margin improved marginally by 80 basis points compared to the previous quarter’s margin of 18.7%. Net margin declined 60 basis points from 15.2% last year to 14.6% percent this quarter however they improved sequentially from 14.3%.

The company has declared an interim dividend of Rs 15/share of face value of Re.1. The company has fixed October 26, 2021, as the record date for the same.

With the numbers beating street estimates brokerages have upgraded their price targets on the counter. Here is what they have to say about the stock and its Q2 performance

Citi | Rating: Underweight | Price target: Rs 5,180

L&T Infotech reported strong Q2 numbers with revenue ahead of expectations led by small & mid-sized deals. EBIT (Earnings Before Interest Tax) margins improved QoQ despite higher attrition and supply side constraints. Citi has raised its FY22-24 estimates by 5%, 3% and 2% and a multiple of 35x thereby revising its price target to Rs 5,180 from an earlier target of Rs 4,770.

Morgan Stanley | Rating: Underweight | Price target: Rs 5,500

L&T Infotech posted a strong beat on revenue coupled with management commentary highlighting sustainability of the demand environment being robust. The global brokerage firm has raised its price target to Rs 5,500 from earlier Rs 5,150 but remains ‘underweight’ on the stock given the unfavourable risk-reward ratio.

Phillip Capital | Rating: Neutral | Price target: Rs 6,580

Phillip Capital continues to remain positive on the sector, seeing it at the cusp of an unprecedented demand environment, triggered by compressed digital transformation. Revise FY22/23 estimates (3%/4%) on revenue beat in this quarter and bright outlook. It has also upgraded the target multiple for LTI to 40x average of FY23 and FY24 PE (earlier 38x) – in line with target multiple for Mindtree.

Sharekhan | Rating: Buy | Price target: Rs 6,850

L&T Infotech is expected to deliver another strong year even after delivering nearly double-digit growth in FY2021, led by its strong capabilities in core modernisation, prudent client mining, strong sales and marketing practices and broad-based demand. Further, the management eyes a stable net profit margin going ahead despite investments in capability building and bolstering of sales team, aided by strong revenue growth, productivity enhancement, cost-optimisation measures, and hedging strategy.

(Disclaimer: The recommendations in this story are by the respective research and brokerage firm. Money9 & its management do not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)