2 Stocks To Buy From The Midcap IT And Infrastructure Space

Revenue growth for Birlasoft expected in mid teens in FY 2022

According to Emkay Global the demand remains robust across verticals, specifically in the areas of Cloud, Digital and Cybersecurity.

The management is confident of delivering revenue growth in the mid-teens in FY22, driven by strong deal intake (USD 861mn TCV in LTM; 13% YoY), robust deal pipeline and improving win rates, growing annuity revenue, and broad-based demand. Management indicated that the supply-side issue is the only constraint to growth and that Birlasoft could have achieved
revenue growth of 20% in FY22 in the absence of the talent crunch," the brokerage has said.

The company expects the supply-side constraints to ease by the end of FY22. Annuity revenue is currently at 70% and management aims to take it to 75% by FY22-end, which would further improve revenue predictability.

"Management indicated that Birlasoft will continue to make investments to capitalize on demand. As part of its micro vertical strategy, Birlasoft has identified medical devices (part of Life sciences), high tech (part of Manufacturing; growing at over 20%), heavy industries (Cement, Building Materials; part of Manufacturing), and lending and payment (partof BFSI) as key micro verticals to focus on in order to accelerate growth. Birlasoft has also improved its partnership status with Microsoft Azure and AWS, while progress on Google cloud has been slow but may soon accelerate," the brokerage has said.

Birlsoft: Buy for a price target of Rs 500

"The management remains confident of accelerating revenue growth on the back of broad-based demand and increased traction in the areas of Cloud, Digital and Cybersecurity. While the shortage of talent is a constraint on achieving higher growth (20%), Birlasoft is confident of delivering revenue growth in the mid-teens in FY22," the brokerage has said.

According to Emkay Global, supply side challenges persist due to an industry-wide shortage of talent. Management expects the situation to improve by the end of FY22. Supply-side hurdles, wage hikes and high subcontracting costs could limit any upside in margins in the near term. "Considering improving earnings predictability (annuity revenue at 70% from 60% in Q1FY21), strong earnings trajectory (25% EPS compounded annual growth rate over FY21-24E) and robust cash generation, we retain Buy on Birlasoft with a target price (Sep'22E) of Rs 500 at 25 times Sep'23E EPS," the brokerage has said.

Buy L&T says Motilal Oswal

Broking firm, Motilal Oswal is bullish on the stock of L&T and has recommended buying the stock for a price target of Rs 1,950. The brokerage remains optimistic and sees good value in the stock.

"L&T is our top pick in the wider Capital Goods space as a proxy to play India's capex story. So far, weak order inflows have impacted the stock's performance, but will gain momentum once final awarding picks up. We estimate an FY21-24E EPS CAGR of 24%, driven by 15% CAGR in the core E&C business and declining loss from the Hyderabad Metro. Over last

one month, L&T Infotech/ Mindtree/ L&T Technology Services rallied by 18%/28%/11%. Factoring in the current maret price of the listed subsidiaries (holding
company discount of 20%), our target price for L&T now stands at Rs 1,950. Adjusted for the valuation of subsidiaries, the core business is available at 14.3 times FY23E PE v/s its long-term one-year forward average P/E multiple of 22x. We maintain our Buy rating on the stock," the brokerage has said.

Disclaimer

The above stock is based on the report of Emkay Global and Motilal Oswal Investing in stocks is risky and investors should do their own research. The author, the brokerage firms or Greynium Information Technologies are not responsible for any losses incurred due to a decision based on the above article. Investors should hence exercise due caution as are at record peaks. Please consult a professional advisor.