L&T Infotech
BSE SENSEX
40,413
S&P CNX
11,910
11 December 2019
Update | Sector: Technology
CMP: INR1,634
TP: INR2,030 (+24%)
Buy
Encouraging strength in deal pipeline
We attended L&T Infotech’s (LTI) analyst day. Key takeaways:
While continuing with the current strategy, LTI outlined a few dimensions of
further focus: (i) industry centric plays, (ii) productisation of services, (iii) people
and (iv) capabilities.
Large/overall deal pipeline is stronger than a year ago by 20%/42%. The strong
focus on new logo addition translated into higher share of new logos in the
pipeline (35% v/s 19% a year ago). However, the share of new-age deals has
moderated marginally (37% v/s 43% a year ago).
Reskilling of 50% of workforce was completed over the last one year, leading to
33% higher fulfillment. Capability agenda is premised on addition of capabilities
both organically and via partnerships.
Regarding the recent Department of Homeland Security (DHS) visit at its New
Jersey office, management reiterated that LTI is committed to the highest level of
integrity and thus it should not be a cause for concern. The strength in the deal
pipeline brings further conviction to our Buy stance.
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
LTI IN
172
284.4 / 4
1897 / 1437
0/-10/-8
286
25.4
Financials & Valuations (INR b)
Y/E Mar
2019
2020E
Net Sales
94.5
105
EBITDA
18.8
19.8
PAT
15.2
15
EPS (INR)
86.6
85.7
Gr. (%)
30.6
-1.1
BV/Sh (INR)
280
345
RoE (%)
34.6
27.4
RoCE (%)
41.5
32
P/E (x)
19.3
19.5
P/BV (x)
6
4.8
LTI hinted at ~30% improvement in the customer experience index and a strong
increase in employee morale. While continuing with the current strategy, it
outlined a few dimensions of further focus: (i) industry centric plays, (ii)
productisation of services, (iii) people and (iv) capabilities. While productisation
of services has been a strategy emphasized by a few larger competitors, we
understand that the results so far have been mixed. We will have to wait and
Shareholding pattern (%)
As On
Sep-19 Jun-19 Sep-18
watch how differently LTI executes here compared to others.
Promoter
DII
FII
Others
74.6
8.2
7.7
9.5
74.8
6.9
8.0
10.3
75.0
5.9
9.5
9.6
2021E
118
23.3
17.1
97.4
13.8
419
25.5
30.8
17.1
4
Continuity in strategy with a few areas of further focus
Deal pipeline strong and encouraging
Large/overall deal pipeline is stronger than a year ago by 20%/42%. New logos
now comprise 60%/35% of the large/overall deal pipeline (v/s 32%/19% a year
ago). The strong focus on new logo addition has translated into a higher share of
new logos in the pipeline. However, the share of new-age deals in the pipeline
has moderated to 37% (v/s 43% a year ago). We note that 67%/49% of the
large/overall deal pipeline is in the proposal stage.
FII Includes depository receipts
Stock Performance (1-year)
L & T Infotech
Sensex - Rebased
2,000
1,850
1,700
1,550
1,400
Preparing for the new-age talent paradigm
LTI indicated that reskilling of ~50% of workforce was completed over the last
one year, leading to 33% higher fulfillment. Its key capability agenda includes: (i)
strengthening through platforms (e.g. Temenos PFS, Private Eye), (ii) building
new (e.g. AI, ML), (iii) modernizing traditional (e.g. Oracle, SAP), (iv) acquiring
unique capabilities (e.g. PEGA skills) and (v) strengthening key partnerships (e.g.
Servicenow).
Sudheer Guntupalli – Research analyst
(Sudheer.Guntupalli@MotilalOswal.com); +91 22 5036 2749
Research analyst: Anmol Garg
(Anmol.Garg@MotilalOswal.com); +912271934271 /
Mohit Sharma
(Mohit.Sharma@MotilalOswal.com); +91226129 1531
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
 Motilal Oswal Financial Services
L&T Infotech
Reiterates commitment to highest level of integrity
LTI’s office in New Jersey was visited by the DHS recently. In majority of the cases,
these visits are randomly selected and are in the normal course of business. A few
such earlier visits at larger Indian companies were cleared subsequently.
Management reiterated that LTI is committed to the highest level of integrity and
accordingly such a visit should not be a cause for concern.
Valuation and view
Weakness in key accounts in conjunction with concerns around an immediate
integration with Mindtree has led to ~29% correction of the multiple from its peak
over the last 12-15 months. As these concerns are now largely behind, we expect a
re-rating of ~9% to 19x one-year-forward P/E. Our target price of INR2,030 implies a
multiple at a 15% discount to the industry leader (TCS). Maintain
Buy.
11 December 2019
2
 Motilal Oswal Financial Services
L&T Infotech
Story in charts
Exhibit 1: Focus on new logo addition is also reflected in the higher share of new logos in the pipeline (v/s previous year)
Pipeline - Q2FY19
19%
New Clients
Existing Clients
65%
81%
35%
New Clients
Existing Clients
Pipeline - Q2FY20
Source: Company, MOFSL
Exhibit 2: Marginal moderation in the share of new-age deals in the pipeline
Pipeline - Q2FY19
Pipeline - Q2FY20
43%
57%
Digital / New Age
Traditional
63%
37%
Digital / New Age
Traditional
Source: Company, MOFSL
Exhibit 3: Roughly half of the deals in the pipeline are in proposal stage
Pipeline - Q2FY19
Pipeline - Q2FY20
55%
45%
Proposal Stage
Earlier Stages
Proposal Stage
51%
49%
Earlier Stages
Source: Company, MOFSL
11 December 2019
3
 Motilal Oswal Financial Services
L&T Infotech
Exhibit 4: Focus on new logo addition is also reflected in the higher share of new logos in large deal pipeline
Large Deal Pipeline - Q2FY19
Large Deal Pipeline - Q2FY20
32%
New Clients
Existing Clients
40%
60%
New Clients
Existing Clients
68%
Exhibit 5: Higher share of large deal pipeline is at proposal stage
Large Deal Pipeline - Q2FY19
Large Deal Pipeline - Q2FY20
36%
Proposal Stage
Eariler Stages
33%
Proposal Stage
Eariler Stages
67%
64%
Exhibit 6: Strong new logo addition and scaling up of client accounts
Million Dollar Club (No of accounts)
137
123
109
96
57
57
141
Must Have Logos (No of new logos
opened)
73
71
ADEA (No of accounts)
195
169
206
Exhibit 7: Strong emphasis on partner ecosystem
Entry Level
Highest
level
LTI's Partnership level
Strategic Alliances - Partnership tiers
Oracle
SAP
Microsoft
AWS
Cisco
Google Cloud
IBM
ServiceNow
Source: MOFSL, Company
11 December 2019
4
 Motilal Oswal Financial Services
L&T Infotech
Operating metrics
Exhibit 8: Operating metrics
1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20
Revenue by verticals (%)
Banking and financial services
Insurance
Energy and Process
CPG, Retail and Pharma
High-Tech, Media & Entertainment
Others
Revenue by service offerings (%)
ADM and Testing
ERP
IMS
Analytics
Enterprise Integration
Platform based solutions
Revenue by geography (%)
North America
Europe
India
ROW
Client metrics
Top 5 client
Top 10 client
Top 20 client
Non Top 20 clients
Number of active clients
New clients added in the period
Million $ clients
5 Million $ clients
10 Million $ clients
20 Million $ clients
50 Million $ clients
100 Million $ clients
Employee metrics
Development
Sales and support
Total employees
Efforts mix
Onsite
Offshore
Utilization measures
Including trainees
Excluding trainees
Attrition LTM (%)
26.8
20.6
11.7
8.5
10.5
5.3
45.2
22.9
12.3
9.7
6.4
3.6
68.7
17.8
7.1
6.3
38.1
50.9
66.3
33.7
256
12
97
35
24
12
4
20,899
1,422
22,321
24%
76%
77.7
78.2
14.7
27.3
20.6
12.0
9.0
11.1
4.0
43.5
24.1
10.9
10.9
6.8
3.8
70.4
17.5
5.5
6.7
38.0
50.9
66.0
34.0
256
13
99
39
23
12
4
21,147
1,407
22,554
23%
77%
79.6
80.7
15.0
27.1
19.4
11.8
9.2
10.6
4.6
41.8
26.4
10.8
10.8
6.7
3.5
67.3
18.0
8.4
6.4
36.4
50.8
66.1
33.9
289
17
102
43
22
13
4
21,979
1,415
23,394
24%
76%
80.3
81.5
14.6
28.7
18.3
11.5
9.0
10.6
4.6
41.2
27.0
11.7
10.7
6.5
3.1
66.0
18.6
8.0
7.4
35.2
49.6
65.1
34.9
300
15
109
44
23
13
4
22,655
1,484
24,139
23%
77%
79.9
81.1
14.8
30.9
18.2
10.1
9.1
11.3
4.5
42.1
26.3
11.5
10.3
6.5
3.1
66.6
17.9
6.4
9.1
36.6
50.3
66.0
34.0
301
19
114
42
25
13
4
23,656
1,494
25,150
23%
77%
79.7
81.2
15.1
29.9
17.9
10.7
10.2
11.2
4.7
39.9
25.2
11.7
12.2
8.0
3.0
67.4
17.1
6.4
9.2
36.2
49.9
65.5
34.5
312
22
114
44
25
14
4
24,923
1,491
26,414
23%
77%
80.4
82.3
15.3
29.1
17.8
10.8
10.6
11.3
4.6
38.6
27.8
11.4
11.3
7.6
3.2
66.8
16.7
7.8
8.8
34.5
48.4
64.3
35.7
314
17
121
47
25
15
5
25,985
1,528
27,513
22%
78%
82.1
83.0
16.5
27.7
17.8
11.0
10.6
12.4
3.9
38.0
29.2
11.0
10.7
8.0
3.2
66.4
16.4
8.2
9.1
32.2
47.0
63.4
36.6
343
14
123
49
26
17
5
26,572
1,597
28,169
22%
78%
27.7
18.1
10.7
11.1
12.5
4.6
38.1
28.4
10.9
11.2
8.2
3.1
68.7
16.0
6.9
8.5
31.3
45.0
62.5
37.5
354
20
124
49
26
19
5
27,665
1,682
29,347
22%
78%
27.1
18.7
12.1
11.5
10.8
3.5
36.1
29.5
11.1
11.3
9.0
3.0
68.7
16.4
6.0
8.9
31.7
45.5
61.4
38.6
366
20
137
48
27
18
6
29,266
1,713
30,979
22%
78%
80.1
80.5
78.9
81.1
81.3
80.6
17.5
18.3
18.4
Source: MOSL, Company
11 December 2019
5
 Motilal Oswal Financial Services
L&T Infotech
Financials and valuations
Key Assumptions
Y/E March
INR/USD Rate
Revenues (USD m)
Offshore Revenue (%)
Total Headcount
Net Addition
Per Capita Productivity (USD)
Income Statement
Y/E March
Sales
Change (%)
Cost of Services
SG&A Expenses
EBITDA
% of Net Sales
Depreciation
Interest
Other Income
Forex
PBT
Tax
Rate (%)
Minority Interest
Extraordinary
Adjusted PAT
Change (%)
Reported PAT
Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
Minority Interest
Loan
Capital Employed
Gross Block
Less : Depreciation
Net Block
CWIP
Other LT Assets
Curr. Assets
Current Investments
Debtors
Cash & Bank Balance
Loans & Advances
Current Liab. & Prov
Current Liabilities
Other liabilities
Provisions
Net Current Assets
Deferred Tax
Application of Funds
FY14
60.7
747
47.9
17,654
1,641
42,291
FY14
49,205
27.8
29,198
9,649
10,358
21.1
1,300
305
52
-885
7,920
2,072
26.2
-1
-440
5,408
5
5,847
FY14
161
15,942
16,103
2
1,100
17,205
FY15
61.3
810
50.2
19,479
1,825
41,578
FY15
49,780
1.2
31,304
8,358
10,118
20.3
1,579
216
100
815
9,237
1,683
18.2
-2
-2
7,550
40
7,552
FY15
161
20,102
20,263
4
2,175
22,443
13,379
6,545
6,834
252
2,440
21,045
1,036
12,446
2,009
5,555
7,900
4,443
538
2,919
13,144
-228
22,443
FY16
65.9
887
49.7
20,072
593
44,196
FY16
58,471
17.5
38,873
9,238
10,359
17.7
1,740
158
164
2,796
11,422
2,250
19.7
-1
0
9,171
21
9,171
FY16
170
20,057
20,227
5
545
20,777
14,210
7,835
6,375
195
4,249
23,748
429
15,448
2,034
5,837
12,587
6,041
1,251
5,295
11,161
-1,204
20,777
FY17
67.0
970
48.3
21,023
951
46,135
FY17
65,009
11.2
42,123
10,583
12,303
18.9
1,780
0
192
1,643
12,358
2,649
21.4
0
0
9,709
6
9,709
FY17
171
31,272
31,443
8
0
31,451
11,407
5,988
5,419
13
4,191
33,287
9,406
16,421
3,795
3,665
12,722
10,666
0
2,056
20,565
1,263
31,451
FY18
64.5
1,132
53.7
24,139
3,116
46,907
FY18
73,065
12.4
48,506
12,065
12,494
17.1
1,563
0
710
3,391
15,032
3,423
22.8
0
-485
11,609
20
11,124
FY18
172
38,426
38,598
13
0
38,611
14,362
7,555
6,807
68
2,189
41,942
12,643
22,327
3,633
3,339
15,083
11,918
1,042
2,123
26,859
2,689
38,612
FY19
70.0
1,349
52.5
28,169
4,030
47,893
FY19
94,458
29.3
61,643
13,980
18,835
19.9
1,471
0
1,089
1,826
20,279
5,122
25.3
0
0
15,157
31
15,157
FY19
174
48,764
48,938
8
0
48,946
18,325
9,026
9,299
115
3,191
51,701
17,402
23,845
4,150
6,304
17,690
14,355
936
2,399
34,011
2,330
48,946
FY20E
70.9
1,484
51.8
32,209
4,040
46,067
FY20E
1,05,142
11.3
70,095
15,250
19,797
18.8
2,913
0
772
2,371
20,027
5,036
25.1
0
0
14,990
-1
14,990
(INR M)
FY21E
71.5
1,656
52.9
35,089
2,880
47,183
(INR M)
FY21E
1,18,375
12.6
77,156
17,875
23,344
19.7
3,551
0
1,097
2,000
22,890
5,837
25.5
0
0
17,053
14
17,053
6,488
567
2,535
17,415
1,688
10,504
1,589
3,634
9,388
6,151
729
2,508
8,027
-412
17,205
(INR Million)
FY20E
FY21E
174
174
60,157
73,117
60,331
73,291
8
8
0
0
60,339
73,299
20,362
23,362
8,398
8,398
11,964
14,964
68
0
1,835
2,085
64,484
76,438
17,402
17,402
30,246
32,431
10,029
18,960
6,807
7,644
20,343
22,518
17,284
19,459
936
936
2,123
2,123
44,142
53,920
2,330
2,330
60,339
73,299
11 December 2019
6
 Motilal Oswal Financial Services
L&T Infotech
Financials and valuations
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout %
Valuation (x)
P/E
Cash P/E
EV/EBITDA
EV/Sales
Price/Book Value
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
RoIC
Turnover Ratios
Debtors (Days)
Fixed Asset Turnover (x)
Cash Flow Statement
Y/E March
CF from Operations
Cash for Working Capital
Net Operating CF
Net Purchase of FA
Free Cash Flow
Net Purchase of Invest.
Net Cash from Invest.
Proc. from equity issues
Proceeds from LTB/STB
Dividend Payments
Cash Flow from Fin.
Exchange difference
Net Cash Flow
Opening Cash Bal.
Add: Net Cash
Closing Cash Bal.
E: MOSL Estimates
FY14
9,827
-1,408
8,420
2,850
11,269
-1,047
1,803
0
-1,331
-6,356
-7,686
-2,141
395
1,194
395
1,589
FY15
10,112
-922
9,190
-1,845
7,345
816
-1,029
0
957
-5,931
-4,974
-2,767
420
1,589
420
2,009
FY16
12,226
-936
11,290
-1,141
10,149
700
-441
69
-1,721
-6,516
-8,167
-2,657
24
2,009
24
2,034
FY17
14,570
1,606
16,176
-754
15,422
-8,756
-9,510
4
-469
-1,888
-2,353
-2,552
1,761
2,034
1,854
3,794
FY18
15,779
-3,760
12,019
-982
11,037
-3,624
-4,606
3
-545
-3,534
-4,076
-3,498
-161
3,794
-244
3,632
FY19
21,764
-3,062
18,702
-1,531
17,171
-5,907
-7,438
3
-605
-5,340
-5,942
-4,804
518
3,632
568
4,149
FY20E
19,797
-4,251
15,546
-5,531
10,015
4,498
-1,032
0
0
-3,598
-3,598
-5,035
5,881
4,149
5,879
10,028
FY14
32.1
39.8
95.6
32.7
67.5
FY15
44.8
54.2
120.2
28.5
62.9
FY16
52.4
62.3
115.6
31.2
59.6
FY17
55.5
65.7
179.7
16.5
29.7
FY18
66.3
75.3
220.6
13.5
21.2
FY19
86.6
95.0
279.6
28.0
32.3
FY20E
85.7
102.3
344.7
17.1
20.0
(INR M)
FY21E
97.4
117.7
418.8
19.5
20.0
37.3
30.8
27.7
5.6
13.9
1.7
31.9
26.8
28.0
5.0
14.4
1.9
30.1
25.4
22.7
4.3
9.3
1.0
25.2
22.2
22.1
3.8
7.6
0.8
19.3
17.6
14.4
2.9
6.0
1.7
19.5
16.3
13.4
2.5
4.8
1.0
17.1
14.2
11.0
2.2
4.0
1.2
36.7
55.0
49.9
41.5
43.1
42.0
45.3
39.9
33.0
37.6
40.3
40.3
33.1
31.2
35.3
34.6
41.5
46.7
27.4
32.0
37.7
25.5
30.8
38.5
78
7.6
91
7.3
96
9.2
92
12.0
112
10.7
92
10.2
105
8.8
100
7.9
(INR M)
FY21E
23,344
-848
22,496
-6,483
16,013
2,847
-3,636
0
0
-4,093
-4,093
-5,836
8,932
10,028
8,931
18,959
11 December 2019
7
 Motilal Oswal Financial Services
L&T Infotech
Explanation of Investment Rating
Investment Rating
BUY
SELL
NEUTRAL
UNDER REVIEW
NOT RATED
Expected return (over 12-month)
>=15%
< - 10%
> - 10 % to 15%
Rating may undergo a change
We have forward looking estimates for the stock but we refrain from assigning recommendation
*In
case the recommendation given by the Research Analyst is inconsistent with the investment rating legend for a continuous period of 30 days,the Research Analyst shall within following 30 days take appropriate measures to make the recommendation
consistent with the investment rating legend.
The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).
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Disclosures:
Disclosure of Interest Statement
Analyst ownership of the stock
L&T Infotech
No
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Research Analyst views on Subject Company may vary based on Fundamental research and Technical Research. Proprietary trading desk of MOFSL or its
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Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be
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Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should
consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. Certain transactions including those involving futures, options, another derivative products as
well as non-investment grade securities - involve substantial risk and are not suitable for all investors. No representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of the information and opinions contained in this
document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. This information is subject to change without any prior
notice. The Company reserves the right to make modifications and alternations to this statement as may be required from time to time without any prior approval. MOFSL, its associates, their directors and the employees may from time to time, effect or have
effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any
company referred to in this report. Each of these entities functions as a separate, distinct and independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of information that
is already available in publicly accessible media or developed through analysis of MOFSL. The views expressed are those of the analyst, and the Company may or may not subscribe to all the views expressed therein. This document is being supplied to you
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Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022 71934200/ 022-71934263; Website
www.motilaloswal.com.
CIN No.: L67190MH2005PLC153397.Correspondence Office Address: Palm Spring Centre, 2nd Floor, Palm Court Complex, New Link Road, Malad(West), Mumbai- 400 064. Tel No: 022 7188 1000.
Registration Nos.: Motilal Oswal Financial Services Limited (MOFSL)*: INZ000158836(BSE/NSE/MCX/NCDEX); CDSL and NSDL: IN-DP-16-2015; Research Analyst: INH000000412. AMFI: ARN - 146822; Investment Adviser: INA000007100; Insurance
Corporate Agent: CA0579; PMS:INP000006712. Motilal Oswal Asset Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670); PMS and Mutual Funds are offered through MOAMC which is group company of MOFSL. Motilal Oswal Wealth
Management Ltd. (MOWML): PMS (Registration No.: INP000004409) is offered through MOWML, which is a group company of MOFSL. Motilal Oswal Financial Services Limited is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs,Insurance
Products and IPOs.Real Estate is offered through Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. which is a group company of MOFSL. Private Equity is offered through Motilal Oswal Private Equity Investment Advisors Pvt. Ltd which is a group
company of MOFSL. Research & Advisory services is backed by proper research. Please read the Risk Disclosure Document prescribed by the Stock Exchanges carefully before investing. There is no assurance or guarantee of the returns. Investment in
securities market is subject to market risk, read all the related documents carefully before investing. Details of Compliance Officer: Name: Neeraj Agarwal, Email ID: na@motilaloswal.com, Contact No.:022-71881085.
* MOSL has been amalgamated with Motilal Oswal Financial Services Limited (MOFSL) w.e.f August 21, 2018 pursuant to order dated July 30, 2018 issued by Hon'ble National Company Law Tribunal, Mumbai Bench.
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