Shares of Larsen & Toubro Infotech (LTI) rose almost 4% in intraday trade on BSE on July 15, a day after the largecap IT firm announced its June quarter earnings.
The company's revenue for the June quarter of FY23 came at ₹4,522.8 crore, up 5.1% quarter-on-quarter (QoQ) and 30.6% year-on-year (YoY). Net income for the said quarter stood at ₹6,34.4 crore, down 0.5% QoQ and up 27.7% YoY.
Broekrages remain mixed
Brokerage firm Motilal Oswal Financial Services has a 'neutral' call on the stock with a target price of ₹4,120 while raising its FY23/FY24 earnings per share (EPS) estimates by nearly 2%/4% on higher growth and better margin.
"LTI’s deep domain capabilities, strong partnerships with hyperscalers, and a robust sales engine will continue to result in industry-leading growth rates. We expect USD revenue CAGR of nearly 16% over FY22-24, which is at the top end of our Tier-2 IT coverage universe. While we remain confident of the management’s execution capabilities, we remain on the sidelines in the stock, due to a significant valuation re-rating," said Motilal Oswal.
The brokerage firm expects strong growth and offshoring to drive margin resilience. It said it has maintained the PAT margin estimate within the management’s guided range of 14-15% as LTI’s focus is on driving growth with a stable margin.
Kotak Securities has a 'reduce' call on the stock with a target price of ₹4,150, citing LTI is among better placed mid-tier IT companies heading into a possible slowdown or recessionary scenario.
The brokerage firm added that the current multiples do not provide an adequate safety cushion, given risks from Mindtree’s portfolio of services that is more weighted towards discretionary spending on the experience layer and from risks in the integration process.
"We await a better entry price to recommend the stock. We bring down revenue forecasts a tad resulting in 0-2% cut in FY2023-25 EPS estimates," said Kotak.
ICICI Securities also has a 'reduce' call on the stock with a target price of ₹3,577 and said LTI’s high share of financial services (46.1% of revenue) and core backend services (ERP in manufacturing) positions the company well during a slowdown, but higher presence in the capital market and merger ahead will create headwinds for growth in FY23E/FY24E.
"Our EPS estimate increases by 3.3% for FY23E on account of higher other income. We are estimating revenue growth of 15.6%/11.6% in reported terms with EPS of ₹151.1/170 for FY23E/FY24E, respectively. LTI trades at a valuation of 26 times/23 times EPS for FY23E/FY24E," ICICI Securities said.
Meanwhile, YES Securities has a 'buy' call on the stock with a target price of ₹4,960, citing demand environment continues to remain robust for the company; though few clients have become cautious about evolving macroeconomic situations.
"Offshore and onsite employee attrition has started to moderate and that should ease pressure on margin. We expect it to be among the growth leaders in the Tier 2 IT companies led by its capabilities across verticals and service lines and should be able to maintain a net margin of 14-15% for FY23," said YES Securities.
"Its hiring target for FY23 remains well on track and that offers strong revenue growth visibility. It continues to remain one of our top picks in Tier-2 IT space, well positioned to capitalize on the robust demand environment. We expect a revenue CAGR of 18.8% over FY22-FY24E, with an average EBIT margin of 17%," said the brokerage firm.
YES Securities has cut down the target multiple from 34 times to 27 times to account for a higher cost of capital(WACC) in this environment of high macroeconomic uncertainty.
Disclaimer: The views and recommendations made above are those of individual analysts or broking firms and not of MintGenie.