Buy This Multibagger Software Stock For 32% Upside, Declared 5500% Dividend in 2022

HDFC Securities has given buy rating to the stock of Larsen & Toubro Infotech Ltd
for a target price of Rs 5230 apiece with a potential upside of 31.61%. L&T Infotech (LTI IN) delivered in-line revenue performance, driven by the BFSI vertical and a large services client ramp-up, offset by the manufacturing seasonality.

1. L&T Infotech Stock Outlook

The current market price of the stock is Rs 3974 apiece with a gain of 2.61% in today's trading. The 52-week high is Rs 7588 apiece and 52-week low is Rs 3733 apiece. The stock has given multibagger returns of 414% in the last 5 years. Recently, it turned ex-dividend on June 30 for 3000% dividend or Rs 30 per share. For the year ending March 2022, it declared an equity dividend of 5500% or Rs 55 per share.

2. L&T Infotech BFSI Momentum

According to HDFC Securities, "Our positive stance on LTI is predicated on (1) continuity in BFSI momentum (48% of revenue), supported by deal volumes and a net-new large deal; (2) growth visibility from the deal pipeline of USD 2bn, net-new bookings in Q1FY23 (similar to Q4FY22 bookings) and large deal bookings expectation in Q2FY23E, driven by the acceleration of technology programs by enterprises; and (3) strong H2 seasonality for LTI, joint-GTM deals with Mindtree and stability in margins, following wage increase in Q1.

LTI has demonstrated consistency in compounding, led by (1) a strong track record of account mining and new client additions; (2) solution expertise, aided by prior acquisitions and improved tiering with cloud providers; and (3) pipeline doubling in nearly three years reflecting competency.

3. L&T Infotech Q1FY23 highlights

LTI's revenue came in line with our estimate of USD 580mn, +1.7/+23.4% QoQ/YoY (+2.9/+26.6% QoQ/YoY CC terms), led by growth in offshore/onsite volume of +5.7/+3.6% QoQ. (2) Among the verticals, growth was led by BFSI (+7.9% QoQ CC), insurance (+4.5% QoQ CC) and energy & utilities (+2.6% QoQ CC) while manufacturing declined -by 11.5% QoQ CC, impacted by the absence of pass-through revenue. (3) EBITM declined by 129bps QoQ to 16% (higher than our estimate of 15.4%), impacted by a wage hike (-300bps) and higher visa & travel costs (-70bps), which was partially offset by productivity benefit (offshore mix) and absence of passthrough revenue (+240bps); (4) top-5 account improved +4.6% QoQ and the top-10 account grew by +1.7% QoQ in USD terms; LTI added four fortune 500 clients, taking the total to 77 clients; (5) LTI added 2,118 employees in Q1FY23 and plans to add 6,500+ freshers in FY23; (6) LTI reported stability in attrition at 23.8% (-20bps QoQ) and expects it to decline after a few quarters.

4. L&T Infotech Valuation

According to HDFC Securities, "We have factored in USD revenue growth of +19/15.8% and EBITM of 17.2/16.9% for FY23/24E. APATM is estimated at 14/13.8% for FY23/24E. At the CMP, LTI is trading at 21.5x FY24E, with an FY22-24E EPS CAGR of 17%.

5. About L&T Infotech

It is a leading global technology consulting and digital solutions companies helping more than 300 clients succeed in a converging world. It offers the winning edge to the clients by leveraging Business-to-IT Connect and deeply committed people. It has a market capitalization of Rs 69,682 crore.

Disclaimer

The stock has been picked from the brokerage report of HDFC Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.