L&T Infotech Ltd

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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.

Q4FY22 Updates

Financial Results & Highlights

Detailed Results:

1. The company had a great quarter with 31.5% YoY growth in consolidated revenues and 16% YoY growth in consolidated profits.
2. The constant currency revenue growth was at 3.6% QoQ and 29% YoY in Q4.
3. USD revenues saw a growth of 27.5% YoY & 3.1% QoQ. 
4. ROE for the year stood at 28.5%.
5. EBITDA margin decreased by 34 bps QoQ to 19.7% in Q4.
6. Revenue breakup in Q4 by vertical is: 
   1. BFS: 32.7% (Up 35.5% YoY)
   2. Insurance: 13.4% (Up 17.6% YoY)
   3. Manufacturing: 16.8% (Up 26.5% YoY)
   4. Energy & Utilities: 8.8% (Up 23% YoY)
   5. CPG, Retail & Pharma: 10.3% (Up 21.9% YoY)
   6. Hi-tech, Media & Entertainment: 11.7% (Up 27.1% YoY)
   7. Others: 6.3% (Up 30.6% YoY)
7. Revenue breakup by Service Offerings is: 
   1. ADM and Testing: 33% (Up 26.1% YoY)
   2. Enterprise Solutions: 30.8% (Up 21.6% YoY)
   3. Cloud Infrastructure & Security: 13.7% (Up 15.9% YoY)
   4. Analytics, AI & Cognitive: 12.8% (Up 46.8% YoY)
   5. Enterprise Integration & Mobility: 9.7% (Up 51.8% YoY)
8. Geographical breakup was North America @ 65.6%, EU @ 16.2%, RoW @ 8.3% & India @ 9.9%.
9. Top 5 clients accounted for 28.2% of revenue, Top 10 accounted for 40.4% of revenue & Top 20 accounted for 55.8% of revenue.
10. The company added 25 new clients in Q4.
11. Effort Offshoring is at 84.6% while offshore revenues are at 60.2%.
12. Utilization including trainees is at 80.1% and excluding is at 81.5%.
13. Attrition rate for the quarter stood at 24%.
14. Cash and Cash equivalents as of end of Q4 was at Rs 759.4 Cr.
15. Few Recent deal wins of L&T Infotech in Q4 were:

• Selected by a Global Fortune 500 financial services company for an end-to-end managed services engagement involving transformation, governance and support for middleware and data as part of their global technology function
• A Global Fortune 500 corporation, a leading provider of ratings, benchmarks, analytics and financial data, has selected LTI as its primary partner for an engagement involving data and digital services to integrate its data platforms with its recent acquisition
• Selected by a Global Fortune 500 consumer goods company as their strategic partner for data and analytics work to transform and gain insights across their most critical business functions of manufacturing, supply chain, marketing and creation of a metadata hub
• Selected by a Global Fortune 500 corporation engaged in the supply of IT infrastructure products and services to upgrade its SAP S/4HANA ERP platform
• Selected by a global security services firm to set up a digital command center to monitor Infrastructure and network, and ensure minimal disruption
• A top healthcare provider in the Middle East has selected LTI, through its strategic partnership with a regional leader, for support on its security and network operation center
• Engaged by a key government body in the public healthcare space to develop an eco-system and technology infrastructure providing, storing and improving access to relevant public data and supporting public health insurance programs
• Selected by a large metals and mining company for an ERP managed services engagement involving key business modules like transportation management, technology, customer and supplier engagement across its legal entities and over 40 operating units
• The company announced a final dividend of Rs.30 for Q4 while total dividend for the year stood at Rs.55.

Investor Conference Call Highlights:

1. As a part of localization strategy, the company has expanded its presence in US with a new engagement center in Hartford.
2. New TCV for Q4 was over $80 million.
3. Around 40 bps margin impact of higher employee costs was offset by SG&A leverage while the 60 bps drop in margins is primarily due to working days impact and business mix
4. The management reiterates its PAT margin guideline of 14-15% for FY23.
5. Billed DSO stood at 65 days vs 66 days in Q3.
6. DSO including unbilled revenue was at 99 days vs 100 days QoQ.
7. The management states that capex was slightly elevated this year due to investment in its own center in the form of Mahape facility which can seat 7,500 employees.
8. The management further expects to continue investing in its infrastructure in the coming years since it did a lot to the headcount in the past 2 years without increasing any infrastructure to accommodate them.
9. The company has given a salary hike on 1st April which will have an impact of 290 bps in quarter one itself. The company will focus on reducing onsite and offsite attrition rate which the management sees as the biggest challenge.
10. 2-4% of onsite volume growth got impacted due to high attrition.
11. The company hiring of freshers will stand at 6,500 this year vs 5,200 in the previous year.
12. The management doesn’t sees demand from European market softening despite Russia Ukraine conflict.

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 decent Q4 with major deal wins and good revenue growth of over 31% YoY while keeping EBITDA margin decline at only 34 bps. The management expects the growth drivers for the IT industry to remain intact due to the demand for core digitization across various industries. LTI is looking to continue hiring as long as it is necessary while keeping the PAT margin profile within the guided range of 14-15%. It remains to be seen how the company will be able to sustain its growth momentum and the increased competition in the tech space, & whether it will face any margin pressure due to the large hiring it is doing and very high attrition rates across the industry. 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.

Q3FY22 Updates

Financial Results & Highlights

Detailed Results:

1. The company had a great quarter with 31.5% YoY growth in consolidated revenues and 18% YoY growth in consolidated profits.
2. The constant Currency Revenue increase was at 9.2% QoQ and 30.1% YoY in Q2.
3. USD revenues saw a growth of 25.7% YoY & 6.3% QoQ.
4. EBITDA margin expanded 86 bps QoQ to 20.1% in Q3.
5. Revenue breakup in Q3 by vertical is:
   1. BFS: 32.8% (Up 38.4% YoY)
   2. Insurance: 13.3% (Up 14.3% YoY)
   3. Manufacturing: 17% (Up 30.4% YoY)
   4. Energy & Utilities: 8.8% (Up 13% YoY)
   5. CPG, Retail & Pharma: 10% (Up 18% YoY)
   6. Hi-tech, Media & Entertainment: 11.8% (Up 44.5% YoY)
   7. Others: 6.4% (Up 37.6% YoY)
6. Revenue breakup by Service Offerings is:
   1. ADM and Testing: 33.5% (Up 28.9% YoY)
   2. Enterprise Solutions: 31.4% (Up 29.1% YoY)
   3. Cloud Infrastructure & Security: 13.2% (Up 19% YoY)
   4. Analytics, AI & Cognitive: 12.7% (Up 37.9% YoY)
   5. Enterprise Integration & Mobility: 9.3% (Up 36.4% YoY)
7. Geographical breakup is North America @ 66%, EU @ 15.8%, RoW @ 8.6% & India @ 9.6%.
8. Top 5 clients account for 28.3% of revenue, Top 10 account for 40.4% of revenue & Top 20 account for 55.5% of revenue.
9. The company has added 27 new clients in Q3.
10. Effort Offshoring is at 84% while offshore revenues are at 59.9%.
11. Utilization including trainees is at 80.3% and excluding is at 81.4%
12. Attrition rate for the quarter stood at 22.5%.
13. Cash and Cash equivalents as of end of Q3 was at Rs 360.8 Cr.
14. Recent deal wins of L&T Infotech are:
    1. Selected by one of the largest global veterinary care practices and chain of North American pet clinics, a new logo, for a managed services deal involving cyber security and modernization of IT infrastructure including migration to cloud to gain operational efficiencies and transform clinic management and support
    2. Engaged by a Global Fortune 500 multinational pharma corporation to modernize and support its data platform.
    3. Selected by a Global Fortune 500 company and a world-wide leader in beauty and cosmetics for implementing its HR Transformation plan.
    4. Engaged by a Global Fortune 500 energy company to provide ‘Data Management as-a-Service’ for their Subsurface Platform ensuring efficient and seamless operations in a secure, cloud-based environment
    5. Selected by a North American utility company for cloud transformation across data, infrastructure, security and ERP systems to build resilient and scalable IT infrastructure
    6. world leader in semiconductor solutions partnered with LTI to rollout SAP S/4HANA to one of their largest manufacturing sites to optimize business performance and improve business agility
    7. Large bank in Namibia has appointed LTI as its partner on its digital transformation journey.
    8. Selected to partner with one of the largest banks in the Middle East on their wealth management transformation using Temenos Wealth Management Suite
    9. Engaged by a global bank headquartered in Europe for digital transformation of its payment processing functionality in 12 countries
    10. A financial services firm based in North America has selected LTI to build the necessary functionality to integrate, support and migrate record keeping system onto the Unitrax platform.

Investor Conference Call Highlights:

1. The company recorded its best sequential growth since listing.
2. After the addition of 27 new clients, it has a total of 72 fortune 500 clients.
3. Manufacturing saw relatively higher growth of 18% due to higher pass-through in one of its Indian clients.
4. The management is confident of maintaining PAT margins of 14-15%.
5. Operating margins improved by 70bps from 17.2% to 17.9% which was contributed by tailwinds/growth & operating efficiency (40 bps) & currency change (30 bps)
6. Added 1818 employees on a net basis in the current quarter.
7. Billed DSO stood at 66 days as compared to 61 days last quarter whereas e DSO including unbilled revenue was at 100 days compared to 98 days last quarter.
8. Conversion of net income to net cash flow from operations stood at 70.3% vs 91.3% QoQ due to licenses that were booked on the last day of the quarter leading to an increase in DSO
9. The management sees very high demand along with urgency by the clients for getting work done due to the paradigm shift that covid has brought. The company further took steps to mitigate the supply-side crisis by employing & training 1000 people in Q2 to create a pipeline for ever-growing demand.
10. The management expects demand to persist for new few years due to great restructuring of industries, higher spending in newer areas like ESG, and high attrition in offshore client business leading to a greater need for support from I.T. companies
11. The management expects the offshore mix to remain stable at these levels/increase by a little.
12. The management believes that it is a growth company & thus if focusing more on acquiring market share & keeping prices stable.
13. The company signed a large multi-year deal with a pharma company worth $32 million.
14. Due to fortune 500 & other companies’ demand for customized solutions & expertise instead of scale, the company can land several large customers by differentiating itself.
15. The focus is currently more on the acquisition of talent rather than the costs of talent due to very high demand.
16. The company expects to get 2% additional revenues in Q3 & Q4 due to seasonality.

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 stellar Q3 with major deal wins and achieving revenues of over $500 million. It expects the growth drivers for the IT industry to remain intact due to the demand for core digitization across various industries. The management also expects the current supply issues to stabilize in the next 3-4 quarters. LTI is looking to continue hiring as long as it is necessary while keeping the margin profile within the guided range of 14-15%. It remains to be seen how the company will be able to sustain its growth momentum and the increased competition in the tech space, & whether it will face any margin pressure due to the large hiring it is doing. 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.

Q2FY22 Updates

Financial Results & Highlights

Detailed Results:

1. The company had a great quarter with 28% YoY growth in consolidated revenues and 21% YoY growth in consolidated profits.
2. The constant Currency Revenue increase was at 8.9% QoQ and 25.5% YoY in Q2.
3. USD revenues were at $509 million which is a growth of 25.8% YoY.
4. EBITDA margin expanded 80 bps QoQ to 17.2% in Q2.
5. Revenue breakup in Q2 by vertical is:
   1. BFS: 32.5% (Up 36.8% YoY)
   2. Insurance: 14.2% (Up 11.4% YoY)
   3. Manufacturing: 15.6% (Up 20.8% YoY)
   4. Energy & Utilities: 8.9% (Up 6% YoY)
   5. CPG, Retail & Pharma: 10.1% (Up 15.3% YoY)
   6. Hi-tech, Media & Entertainment: 12.5% (Up 48.5% YoY)
   7. Others: 6.2% (Up 38.4% YoY)
6. Revenue breakup by Service Offerings is:
   1. ADM and Testing: 34.2% (Up 19.5% YoY)
   2. Enterprise Solutions: 30.4% (Up 24.3% YoY)
   3. Cloud Infrastructure & Security: 14% (Up 22.7% YoY)
   4. Analytics, AI & Cognitive: 12.1% (Up 43.7% YoY)
   5. Enterprise Integration & Mobility: 9.3% (Up 41.3% YoY)
7. Geographical breakup is North America @ 67.5%, EU @ 16.1%, RoW @ 9.8% & India @ 6.6%.
8. Top 5 clients account for 28.2% of revenue, Top 10 account for 40.7% of revenue & Top 20 account for 55% of revenue.
9. The company has added 25 new clients in Q2.
10. Effort Offshoring is at 83.6% while offshore revenues are at 59.2%.
11. Utilization including trainees is at 81.6% and excluding is at 83.7%.
12. Cash and Cash equivalents as of end of Q2 was at Rs 539.2 Cr.
13. Recent deal wins of L&T Infotech are:
    1. A global, end-to-end managed services deal spanning across the internal IT department for a European company providing digital marketing solutions.
    2. A global end-to-end IT managed services deal for a North American manufacturer of golf cars and utility vehicles.
    3. A data platform on cloud spanning all core and foundational functions for a leading Indian private sector bank.
    4. Selected as a primary managed services partner to support applications and infrastructure landscape for a leading specialty vehicle manufacturing company.
    5. A vendor consolidation exercise for database management for a leading mass media company.
    6. Migration from SAP systems to cloud for a Global Fortune 500 company and a world-wide leader in beauty and cosmetics.
    7. Process automation for a global bank for solving regulatory reporting issues and improving business operations efficiency.
    8. Transformation of traditional operations to an agile based service delivery for a Global Fortune 500 oil exploration and production company.
14. LTI has entered into a Strategic Partnership with eClinicalHealth Limited to accelerate digital innovation in R&D clinical trials management process for patient centric drug development.
15. The company has announced an interim dividend of Rs 15 per share for Q2.

Investor Conference Call Highlights:

1. LTI added 1 client in $50 million, 3 in $20 million, 5 each in $10 million, and $5 million buckets in Q2.
2. The new 5-year deal with the European company has a TCV of $30 million.
3. There are 3 main drivers for growth for the It industry currently according to the management. They are:
   1. Restructuring and Transformation across industries acting as a demand-side driver
   2. Development of new spend and focus areas acting as a demand-side driver
   3. The dearth of talent acting as a supply-side driver
4. The company made 4000+ net hires in Q2 and is looking to add around 5500 freshers in FY22.
5. Most of the attrition in the industry is taking place in the 3 to 6 years experienced bracket.
6. The revival in the manufacturing segment is mainly driven by the core digitization, rising application of data analytics, and transformation of the business models in the segment using technologies.
7. The management expects the situation regarding attrition and dearth of talent in the IT industry to stabilize in the next 3-4 quarters.
8. The management does not expect the offshore ratio to change going forward despite business activity coming back to normal.
9. The management has stated that the entire It industry is seeing rising realizations.
10. The management assures that LTI will be maintaining its margins in the guided range of 14-15% and it will continue to expand capacity and hire people as long as it is required while maintaining the margin profile.
11. The management stresses that growth for any company in the IT industry is not dependent on size but capabilities.
12. There are some opportunities for price increases due to the current situation in the IT industry but long-term contracts are not affected much by them according to the management.
13. The management states that the company can see the offshore movement go on as its customers are also facing attrition issues while India is churning out talent at a good rate.
14. Deal completion and digital transformation speed are acting as the biggest differentiator for clients according to the management.
15. The CTG, Retail & Pharma segment has seen pickup primarily in the USA across the cloud, security, and ERP segments.
16. The management expects H2 to be better than H1 as it has been most of the time for LTI.

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 stellar Q2 with major deal wins and achieving revenues of over $500 million. The management expects more deal wins incoming in H2. It expects the growth drivers for the IT industry to remain intact due to the demand for core digitization. The management also expects the current supply issues to stabilize in the next 3-4 quarters. LTI is looking to continue hiring as long as it is necessary while keeping the margin profile within the guided range of 14-15%. It remains to be seen how the company will be able to sustain its growth momentum and the increased competition in the tech space, & whether it will face any margin pressure due to the large hiring it is doing. 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.

Q4FY21 Updates

Financial Results & Highlights

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

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

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 20^th 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 30^th 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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