LTI is up ~130% considering the fact that its inclusion in our model portfolio (in 3QFY20) and is at present the most costly (28x FY23 EPS) IT enterprise inside our coverage universe. While we continue to deem it amongst the finest-in-class IT services businesses on execution and management high-quality, we think the stock more than things in the prospective therefore, we downgrade the stock to neutral.
In our view, LTI is in an enviable position – it added benefits from its position as a enterprise with sufficient scale to compete with bigger players, but is nonetheless smaller sufficient to leverage the array of smaller offers to develop ahead of its peer group.
LTI also has a effectively-diversified portfolio of service lines – ADM, ERP, and IMS contribute 36%, 31%, and 14%, respectively, to total revenues. It has a very good presence in all the main verticals, with BFS contributing 30% to total revenues.
The mixture of a size- and sector-relevant portfolio has helped the enterprise win offers (big deal pipeline of $1.9b) across service lines and geographies. LTI has clocked a 16.3% income CAGR in the previous 3 years, amongst the highest in the IT services pack.
Aligning itself with customers’ digital transformation initiatives, LTI has structured its executive concentrate on cloud and information merchandise. This, along with a capable sales group, has permitted it to each mine current accounts as effectively as hunt for new accounts (beyond the major 20 consumers). We anticipate LTI to continue to acquire from these capabilities and provide sector- top income development in the medium term (+14% USD CAGR more than FY20–23E). This, coupled with robust margin improvement from FY21, would outcome in 20% INR PAT development more than the very same period.
LTI is anticipated to provide robust sequential development (4.5% q-o-q USD) in a seasonally weak quarter, led by a ramp-up in deal wins in the preceding quarter. After a robust margin overall performance in 2Q (EBIT margin up 370bps y-o-y), we anticipate steady margin overall performance in 3Q.
LTI at present trades at 28.0x our FY23 EPS estimates v/s the sector typical of 24x and at a peak relative to its history. While we stay confident of the company’s execution capabilities, we downgrade the stock to neutral, led by the current rally in stock cost (130% in a single year). We worth the stock at 26.5x FY23 EPS (+2 ST Dev median P/E). We revise our TP to Rs 3,910, implying a 6% downside.