About the Company

Larsen & Toubro Infotech Limited, a technology consulting and digital solutions company, provides information technology services and solutions in India, North America, Europe, the Asia Pacific, and internationally. The company operates through Banking, Financial Services & Insurance; Manufacturing; Energy & Utilities; High–Tech, Media & Entertainment; and CPG, Retail, Pharma & Others segments. It offers application development, maintenance and outsourcing, enterprise solution, infrastructure management, testing, digital solution, and platform-based solutions services. It is a subsidiary of Larsen & Toubro Limited.

Q4FY21 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
  Q4FY21 Q4FY20 YoY % Q3FY21 QoQ % FY21 FY20 YoY%
Sales 3079 2898 6.25% 3039 1.32% 11787 10606 11.14%
PBT 623 530 17.55% 662 -5.89% 2391 2007 19.1%
PAT 466 416 12.02% 494 -5.67% 1787 1552 15.14%
Consolidated Financials (In Crs)
  Q4FY21 Q4FY20 YoY % Q3FY21 QoQ % FY21 FY20 YoY%
Sales 3372 3082 9.41% 3222 4.66% 12644 11208 12.81%
PBT 717 551 30% 699 2.58% 2588 2003 29%
PAT 546 428 28% 519 5.20% 1938 1520 27.50%

Detailed Results

  1. The company had a decent quarter with 9% YoY growth in consolidated revenues and 28% YoY growth in consolidated profits.
  2. The constant Currency Revenue increase was at 4.4% QoQ and 7.1% YoY in Q4.
  3. USD revenues were at $447.4 million which is a growth of 9.1% YoY. FY21 revenues were at $1.67 billion which was up 9.5% YoY.
  4. ROE for FY21 was at 30.5% and the company announced a final dividend of Rs 25 per share for FY21.
  5. Digital revenues were at 45.6% of revenues in Q4.
  6. EBITDA margin expanded 270 bps YoY to 21.9% in Q4.
  7. Revenue breakup in Q4 by vertical is:
    1. BFS: 30.7% (Up 21.8% YoY)
    2. Insurance: 14.5% (Down 5.9% YoY)
    3. Manufacturing: 16.9% (Up 2.2% YoY)
    4. Energy & Utilities: 9.1% (Down 12.6% YoY)
    5. CPG, Retail & Pharma: 10.8% (Up 5.4% YoY)
    6. Hi-tech, Media & Entertainment: 11.8% (Up 16.3% YoY)
    7. Others: 6.2% (Up 69.7% YoY)
  8. Revenue breakup by Service Offerings is:
    1. ADM and Testing: 33.3% (Up 4.9% YoY)
    2. Enterprise Solutions: 32.3% (Up 8.5% YoY)
    3. Cloud Infrastructure & Security: 15.1% (Up 31% YoY)
    4. Analytics, AI & Cognitive: 11.1% (Up 4.9% YoY)
    5. Enterprise Integration & Mobility: 8.2% (Up 2.6% YoY)
  9. Geographical breakup is North America @ 66.2%, EU @ 16.5%, RoW @ 8.4% & India @ 8.9%.
  10. Top 5 clients account for 27.8% revenue, Top 10 account for 41% revenue & Top 20 account for 55.6% revenue.
  11. The company has added 14 new clients in Q4.
  12. Effort Offshoring is at 82.1% while offshore revenues are at 55.9%.
  13. Utilization including trainees is at 80.8% and excluding is at 82.2%.
  14. Cash and Cash equivalents as of end of Q4 was at Rs 759.4 Cr.
  15. The company won two large deals with cumulative net new TCV of $278 million.
  16. Recent deal wins of L&T Infotech are:
    1. LTI has been chosen as a long-term strategic partner in a vendor consolidation deal for management of core insurance platforms for a large Fortune 500 Insurance company.
    2. A leading regional bank, a new logo, selected LTI for a core banking transformation program involving implementation of Temenos.
    3. LTI has been selected by a US based heavy equipment manufacturing conglomerate for an application managed services deal for its parts business.
    4. A North American property and casualty mutual insurance company has partnered with LTI to replace its existing on-premises legacy core systems with a SaaS based Duck Creek solution.
    5. A Global Fortune 500 multinational pharma corporation has chosen LTI as its advisory partner to transform its finance function.
    6. A Germany based multinational engineering conglomerate has selected LTI for an SAP HANA Data Lake migration project to Snowflake for its energy business company.
    7. A Global Fortune 500 energy distribution company has selected LTI to support its SAP Customer Information System implementation for one of its acquired entities.
    8. A leading property and casualty insurance software and data analytics provider based in North America has selected LTI to migrate from their legacy enterprise data warehouse platform to Snowflake’s data cloud.
    9. LTI has been selected to provide infrastructure support and network operations services to a leading distributor of specialty concrete and construction products in North America.
    10. A Global Fortune 500 entertainment and media enterprise has selected LTI to build a global reporting platform for its digital media supply chain applications using Snowflake.
    11. The international branch of a leading financial services providers in the UK has appointed LTI as the lead systems integrator for their core banking modernization and transformation program.
  17. LTI and AWS have entered into a Strategic Partnership to Accelerate Enterprise Cloud Adoption to expand joint offerings for Migration, Modernization, SAP, IoT, and Data-on-Cloud.
  18. LTI is recognized as a Microsoft Azure Expert Managed Services Provider.

Investor Conference Call Highlights

  1. The 2 large deal wins in Q4 were the vendor consolidation win with an existing logo and in the BFS vertical with a new logo.
  2. The deal tenure of the 1st big deal is 5 years with a net-new TCV of $21 million.
  3. The deal tenure of the 2nd big deal is 2 years with a net-new TCV of $45 million.
  4. LTI has also added 2 Fortune 500 logos to its client list in Q4.
  5. The total Fortune 500 customer count goes to 71, an addition of 5 during the year.
  6. The management expects margins to remain in the range of 14-15% in FY22.
  7. FY21 operating margin was at 19.3% vs 16.1% last year.
  8. Diluted EPS for FY21 was at Rs 110.3 vs Rs 86.6 last year.
  9. The major impact in the top 10 accounts has come for oil & gas clients while insurance clients have done very well for LTI.
  10. In terms of deal pipeline, the revenue mix in terms of geography should remain close to current levels according to the management.
  11. The management has stated that it needs to keep investing in sales and marketing to be able to compete with the biggest global players and bag mega deals like the Injazat deal.
  12. LTI is now the second-largest player in the Temenos ecosystem.
  13. The company has also increased dividend pay-out to Rs 40 in FY21 from Rs 28 in FY20. It is also on the lookout for possible acquisition opportunities.
  14. The offshore ratios going up has been seen across the industry and thus productivity has also gone up for LTI. The company has also made significant hiring in Q4 and is expected to do the same in Q1FY22.
  15. The pricing environment is expected to become stable with the price points becoming better than the outsourcing price point.
  16. The management states that the mega-deals with >$50 million have been paused as major oil & gas clients have faced a difficult year due to COVID but these deals are expected to come in as normalcy comes back.
  17. Q1 & Q2 should see a ramp-up of the Injazat deal.
  18. The $5 million bucket is up by 10, the $10 million bucket is up by 8, and the $20 million bucket is up by 2 in FY21.
  19. The hiring plans in Q4 & Q1 are in line with the rise in demand from the new deal wins.
  20. LTI will also be doing its fresh graduate intake earlier in Q2 & Q3 keeping the anticipated demand in mind.
  21. In the last 3 quarters, SG&A has been at 12% of revenues and it is expected to remain at current or below levels going forward.

Analyst’s View

L&T Infotech is a major in the digital solutions space in India. The company has done well to maintain its presence in many end industries like BFS, Insurance, Manufacturing, etc, and focus on cloud and data products to drive growth soon. It has had a good Q4 with major deal wins including from including 2 deal wins with Net TCV of $21 and $ 45 million each. The management expects more deal wins and is also expecting a demand comeback from oil & gas clients in the future. It is now looking to focus on Fortune 200 companies as they will be the next frontier for LTI to expand into. It remains to be seen how the company will be able to sustain its growth momentum and the increased competition in the tech space. Nonetheless, given the company’s ever-increasing roster of marquee clients and its focus on driving growth from cloud & data products, L&T Infotech is a pivotal technology stock to watch out for.

 


 

Q3FY21 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q3FY21 Q3FY20 YoY % Q2FY21 QoQ % 9MFY21 9MFY20 YoY%
Sales 3039 2700 12.56% 2840 7.01% 8709 7708 12.99%
PBT 662 485 36.49% 575 15.13% 1768 1477 19.70%
PAT 494 367 34.60% 430 14.88% 1321 1137 16.18%

Consolidated Financials (In Crs)
Q3FY21 Q3FY20 YoY % Q2FY21 QoQ % 9MFY21 9MFY20 YoY%
Sales 3222 2875 12.07% 3035 6.16% 9272 8126 14.10%
PBT 699 500 40% 613 14.03% 1871 1451 28.95%
PAT 519 377 38% 457 13.57% 1393 1093 27.45%

Detailed Results

  1. The company had an excellent quarter with 12% YoY growth in consolidated revenues and 38% YoY growth in consolidated profits.
  2. The constant Currency Revenue increase was at 5.3% QoQ and 7.4% YoY.
  3. USD revenues were at $427.8 million which is a growth of 8.5% YoY.
  4. Digital revenues were at 44.4% of revenues in Q3.
  5. EBITDA margin expanded 440 bps YoY to 23.2% in Q3.
  6. Revenue breakup in Q3 by vertical is:
    1. BFS: 30.6% (Up 19.4% YoY)
    2. Insurance: 15% (Down 7.9% YoY)
    3. Manufacturing: 16.8% (Up 4.4% YoY)
    4. Energy & Utilities: 10% (Down 3.6% YoY)
    5. CPG, Retail & Pharma: 10.9% (Up 5.2% YoY)
    6. Hi-tech, Media & Entertainment: 10.6% (Up 6.5% YoY)
    7. Others: 6% (Up 76.4% YoY)
  7. Revenue breakup by Service Offerings is:
    1. ADM and Testing: 33.6% (Up 1.8% YoY)
    2. Enterprise Solutions: 31.4% (Up 8.6% YoY)
    3. Infrastructure Management Services: 14.3% (Up 34.7% YoY)
    4. Analytics, AI & Cognitive: 11.9% (Up 0.3% YoY)
    5. Enterprise Integration & Mobility: 8.8% (Up 12.3% YoY)
  8. Geographical breakup is North America @ 67.9%, EU @ 16.1%, RoW @ 7.4% & India @ 8.6%.
  9. Top 5 clients account for 29.3% revenue, Top 10 account for 42% revenue & Top 20 account for 57.1% revenue.
  10. The company has added 22 new clients in Q3.
  11. Effort Offshoring is at 81.6% while offshore revenues are at 55.7%.
  12. Utilization including trainees is at 81.1% and excluding is at 84.1%.
  13. Cash and Cash equivalents as of end of Q3 was at Rs 524.8 Cr.
  14. The company won two large deals with cumulative net new TCV of $278 million.
  15. Recent deal wins of L&T Infotech are:
    1. A UAE-based leader in digital transformation has selected LTI as its partner of choice to provide infrastructure and application operations support and maintenance for its existing and new customers.
    2. A Global Fortune 500 energy company has chosen LTI as its primary partner for an application managed services agreement to create and consolidate a business-aligned IT services delivery platform across the organization and reduce total cost of ownership.
    3. A company located in the U.S providing leading data-driven marketing, loyalty & payment solutions has selected LTI for customer-centric digital transformation initiatives.
    4. An engineering, construction and mining company located in South East Asia has partnered with LTI to transform its procurement, sales, bidding, contracting and analytics functions using SAP.
    5. LTI executed a license sale agreement for AI, Decisions and Catalog products on its Mosaic platform with a multinational banking and financial services company to bring about efficiency in their reporting with the regulators.
    6. A leading European financial services firm has chosen LTI to manage its infrastructure operations through a leaner operating model and by leveraging the Mosaic platform to drive automation.
    7. A leading commercial property and casualty insurance group based in Canada has selected LTI to consolidate and transform its policy administration systems and processes onto the Duck Creek platform to ensure streamlining of its operations.
    8. A U.S. based real estate investment company has chosen LTI for providing application support, maintenance and development services.
  16. LTI is now an ‘Elite’ level partner of Snowflake, a ‘Premier’ level partner of Google Cloud, & a ‘Platinum’ tier partner of IBM.
  17. LTI has partnered with Temenos to launch a Digital Banking Platform in the Nordic region.

Investor Conference Call Highlights

  1. The client from UAE is Injazat which is part of the Mubadala Group and is currently partnered with G42. LTI will start with infrastructure, applications, and ERP services for 50-plus clients with Injazat. The deal tenure is 6 years, and the deal value is estimated at $204 million.
  2. The second large deal was with a Global Fortune 500 energy company. It’s a 5-year deal with net new TCV of $74 million.
  3. The company now has 69 Fortune 500 clients.
  4. According to the management, the 3 main growth drivers in BFS vertical are:
    1. investment in core infrastructure like accounting, reporting, and governance, which is predominantly data-driven;
    2. investment in building for utilities like Google Pay and other payment service apps;
    3. investments in platforms to support retail wealth because of the global stimulus and liquidity.
  5. The manufacturing vertical is expected to grow in the coming quarters due to the presence of higher pass-through in one of LTI’s domestic engagements.
  6. The management states that the reasons for margin appreciation are enhancing productivity, improvement in the offshore mix, and efficiencies in SG&A.
  7. The management is confident of LTI maintaining its position in the leading quadrant in the industry at the least.
  8. The company has a separate unit focusing on cloud and this unit has 4 other sub units which focus on AWS, Microsoft, Google Cloud, and IBM.
  9. The management maintains that LTI is a growth company with stable PAT margins of 14-15% and the rest shall be invested back into the businesses.
  10. The management has stated that business modernization at all levels will be the primary growth driver for the IT industry in the next 4-5 years.
  11. The management has implied that it is not worried due to falling revenue share of top clients because it is not because of falling revenues from these clients rather it is driven by rising share from smaller clients.
  12. The deal with the European financial services firm does have a license component where the company is growing a platform to consolidate all of their risk models and reporting — regulatory reporting on this platform. The deal also includes services to integrate this platform into the bank’s ecosystem. This should provide future opportunities for applying this platform to other sections of the bank.
  13. The margin profile is indeed expected to come down to the prescribed range as the company will be doing a wage hike in January and it will be making investments into sales and marketing, cloud and data units & in buying the license to set up the framework for Nordic financial companies in the SaaS platform.
  14. The management states that LTI has always been a proponent of high offshore mix and it will maintain the offshore mix at current levels.
  15. The management has stated that every year LTI can expect to bring in $100 million of sales from new customers.
  16. The revenue streams from Injazat will be seen from Q1FY22 onwards.
  17. The utilization rate is indeed higher than what the management wants and so LTI is expected to raise its fresh grad uptake and increase cross skilling of existing employees.
  18. The management has stated that the things clients are looking for now are whether the total cost of ownership can be brought down or whether product launch can be done faster than in the past.
  19. The management has stated that the improvement in utilization is due to a higher than expected rise in demand and billing of resources in Q3. Thus to bring back utilization to desirable levels, it will be doing aggressive hiring.
  20. The wage hike offshore will be 6-8% while on site it will be 2%. The impact on P&L should be 160-170 bps.

Analyst’s View

L&T Infotech is a major in the digital solutions space in India. The company has done well to maintain its presence in many end industries like BFS, Insurance, Manufacturing, etc, and focus on cloud and data products to drive growth in the near future. It has had a good Q3 with major deal wins including from Injazat which has a TCV of > $200 million. The management has also been perceptive in identifying offshoring and creating new operating and sales models as a good source for improving performance and bring in cost savings. It is also focused on the digital transformation theme and is confident that this will be the primary growth driver for the Indian IT industry in the next 4-5 years. LTI is also doing well to maintain its partnerships with industry leading platforms like AWS, Snowflake, and Google Cloud. It remains to be seen how the company will be able to sustain its growth momentum and the increased competition in the tech space. Nonetheless, given the company’s ever-increasing roster of marquee clients and its focus on driving growth from cloud & data products, L&T Infotech is a pivotal technology stock to watch out for.


 

Q2FY21 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q2FY21 Q2FY20 YoY % Q1FY21 QoQ % H1FY21 H1FY20 YoY
Sales 2840 2546 11.55% 2830 0.35% 5670 5008 13.22%
PBT 575 495 16.16% 530 8.49% 1106 992 11.49%
PAT 430 388 10.82% 397 8.31% 827 770 7.40%

 

Consolidated Financials (In Crs)
Q2FY21 Q2FY20 YoY % Q1FY21 QoQ % H1FY21 H1FY20 YoY
Sales 3035 2664 13.93% 3015 0.66% 6050 5250 15.24%
PBT 613 473 29.60% 559 9.66% 1172 952 23.11%
PAT 457 360 26.94% 416 9.86% 873 716 21.93%

Detailed Results

  1. The company had a decent quarter with 14% YoY growth in consolidated revenues and 27% YoY growth in consolidated profits.
  2. The constant Currency Revenue increase was at 2.3% QoQ and 10.5% YoY.
  3. USD revenues were at $404.5 million which is a growth of 11.2% YoY.
  4. Digital revenues were at 43% of revenues at $ 173 million in Q2.
  5. EBITDA margin expanded 480 bps YoY to 22.9% in Q2.
  6. Revenue breakup by vertical is:
    1. BFS: 9% (Up 21.2% YoY)
    2. Insurance: 16% (Down 5.1% YoY)
    3. Manufacturing: 2% (Up 9.2% YoY)
    4. Energy & Utilities: 6% (Down 3.6% YoY)
    5. CPG, Retail & Pharma: 11% (Up 4.7% YoY)
    6. Hi-tech, Media & Entertainment: 6% (Up 9.6% YoY)
    7. Others: 7% (Up 87.9% YoY)
  7. Revenue breakup by Service Offerings is:
    1. ADM and Testing: 36% (Up 10% YoY)
    2. Enterprise Solutions: 8% (Up 4.2% YoY)
    3. Infrastructure Management Services: 4% (Up 43.3% YoY)
    4. Analytics, AI & Cognitive: 8% (Up 3.6% YoY)
    5. Enterprise Integration & Mobility: 3% (Up 3% YoY)
  8. Geographical breakup is North America @ 68.7%, EU @ 16.1%, RoW @ 8.2% & India @ 6.9%.
  9. Top 5 clients account for 30% revenue, Top 10 account for 42.9% revenue & Top 20 account for 57.8% revenue.
  10. The company has added 26 new clients in Q2.
  11. Effort Offshoring is at 80.6% while offshore revenues are at 53.5%.
  12. Utilization including trainees is at 80.5% and excluding is at 82%.
  13. The Board declared an interim dividend of INR 15 per share on 20th Oct 2020.
  14. LTI launched Canvas PolarSled, automated cloud migration, and modernization framework to help enterprises accelerate their data journey to Snowflake, the cloud data platform.
  15. LTI ranked #1 in the Institutional Investor’s 2020 All-Asia Executive Team survey, across all sell-side categories in the Technology/IT Services & Software space. It was the only IT Services Company to be included in the ‘Most-Honored’ List 2020.
  16. LTI is now an ‘Elite’ (highest) level partner with ServiceNow in the Sales, Services, and Managed Services category.

Investor Conference Call Highlights

  1. The company has identified 2 huge opportunity areas which are cloud business with hyperscalers like AWS, Azure, and GCP & data products business with its market-leading platforms and products, namely Mosaic and Leni.
  2. The deal pipeline is up 22% YoY.
  3. The company has added a new Global Fortune 500 logo to its list of clients, taking the total Fortune 500 logos to 68.
  4. The Global Fortune 500 client that LTI has added belongs to CPG, Retail & Pharma vertical.
  5. The company will roll out salary hikes from January 1.
  6. LTI’s cash flow hedge book stood at USD 1,030 million as of 30 September 2020 versus USD 1,098 million as at 30 June 2020.
  7. Net cash flow from operations was at INR 4,465 million, which was at 97.7% conversion of the net income.
  8. Cash and liquid investments stood at INR 35,472 million as of 30th Sep 2020.
  9. The company has increased offshoring to increase efficiency, speed, & utilization.
  10. Most of the deals pitched to customers have 90%, 95% offshore ratios.
  11. The company is looking to add more investments in the areas of cloud and data products.
  12. The growth in legacy verticals like ADM & enterprise solutions has a lot of new-age services embedded in them.
  13. The management feels that there are more opportunities for growth for them at the top account despite the impending management change at the top account as the new management is even more tech-savvy.
  14. The company is seeing growth across the board in digital onboarding space from both existing and new customers. Loan management and the credit risk that comes with loan management is expected to lead to new growth opportunities.
  15. The management expects revenue momentum to continue mainly due to the rise in the deal pipeline.
  16. The management is confident of the growth to be in the leaders’ quadrant for the year. for LTI.
  17. The trend for increased offshoring is expected to thrive as more and more companies are looking at it as a good way to make cost savings for both tech companies and their clients.
  18. The USA is slowly catching momentum and coming back to long term growth levels.
  19. US insurance sector has seen an impact by COVID-related insured losses and premium volumes have declined. There are also other threats like significant hurricane and wildfire losses. But despite these roadblocks, the industry is expected to sustain its growth and the company expects this vertical to grow well for it in the near future.
  20. The management has stated that there has not been any pricing pressure in its deals so far.
  21. The management is confident that the shift to more offshoring is EPS accretive as it leads to better margin and better profitability which was evident from Q2 performance.
  22. The management is seeing a comeback in the Energy space and expects a recovery in this vertical to start from Q4 onwards.
  23. Growth is resuming in the manufacturing sector in the USA & EU. The management expects growth in this vertical to be driven by the move to new operating models. The next growth opportunity in this sector is expected to come in FY22.
  24. The increasing focus on cybersecurity & creating new operating models to drive cost savings for all kinds of customers are expected to create opportunities for tech companies going forward according to the management.
  25. Similarly, digital transformation and automation are also expected to create opportunities as going digital is increasingly becoming necessary for all industries going forward.
  26. The company is also looking to create a separate unit to focus on cloud and data products.
  27. The company is looking to not only utilize traditional partners like SAP & Oracle but also emerging tech like Snowflake to create joint sales traction, including go-to-market, enablement, etc.

Analyst’s View

L&T Infotech is a major in the digital solutions space in India. The company has done well to maintain its presence in many end industries like BFS, Insurance, Manufacturing, etc, and focus on cloud and data products to drive growth in the near future. It has had a good Q2 with deal pipeline rising 22% YoY with much key deal wins. The management has also been perceptive in identifying offshoring and creating new operating and sales models as a good source for improving performance and bring in cost savings. It remains to be seen how the company will be able to sustain its growth momentum and the increased competition in the tech space. Nonetheless, given the company’s ever-increasing roster of marquee clients and its focus on driving growth from cloud & data products, L&T Infotech is a pivotal technology stock to watch out for.

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