Apart from large deals, the addition of new logos and the scaling up of existing clients are the company’s growth levers. According to the company management, overall demand is reasonably strong and will compensate for shortfalls in large deal
L&T Infotech expects the demand environment to remain strong for at least 2-3 years
Larsen & Toubro Infotech, an Indian IT service provider, is on January 19 expected to report strong numbers, buoyed by demand from clients shifting towards cloud and IT transformation.
Experts expect the company’s consolidated net profit to increase by 15-18 percent on year to Rs 595-620 crore. Revenue is forecast to rise about 30 percent to Rs 4,050-4,100 crore from a year earlier.
L&T Infotech had posted a profit of Rs 519 crore a year earlier and revenue of Rs 3,153 crore. Profit in the previous quarter was Rs 552 crore on revenue of Rs 3,767 crore.
Brokerage expectations
Analysts expect the strong growth momentum from the second quarter to have continued in the third quarter, aided by broad-based growth across verticals.
The company’s management has indicated in the past that large deals are only one of the levers for growth, with the others such as the addition of new logos and the scaling up of existing clients. Overall demand is reasonably strong and is expected to compensate for a shortfall in large deals.
“We forecast strong growth rate of 6.3 percent QoQ and 26.5% YoY in c/c led by discretionary spending on effecting transformation roadmaps,” Kotak Institutional Equities said in its report. The company’s strong cloud practice and supply side is aiding overall growth, it added.
Kotak forecasts the company’s revenue at Rs 4,036 crore, which is a YoY growth of 28 percent and a sequential growth of 7.1 percent.
EBITDA (earnings before interest, tax, depreciation and amortisation) is expected to grow by 7.5 percent on both YoY and sequential basis, but the EBITDA margin is expected to remain unchanged sequentially and decline by 372 basis points from a year earlier.
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The brokerage expects the EBIT margin to remain stable sequentially, with a 326 bps decline on YoY comparison. One basis point is equal to one-hundredth of a percent.
The benefits of scale and growth are likely to be offset by the high costs of backfilling attrition.
“We forecast forex gain of Rs 61 crore, down from Rs 68 crore recorded in the previous quarter and up from Rs 17 crore achieved in the corresponding quarter of last year,” the brokerage said.
Net profit at Rs 597 crore is expected to grow 15 percent YoY and 8 percent on QoQ basis.
“We expect net profit margin at the higher end of the 14-15% band,” it added.
Motilal Oswal expects 6.4 percent YoY growth in dollar revenue to $542 million, while rupee revenue is expected to grow 30 percent to Rs 4,094 crore.
The EBITDA margin at 19.7 percent is expected to remain little changed sequentially but may decline 350 bps on a yearly basis as “benefits from revenue growth will be offset by strong hiring and lower utilisation”, the brokerage added.
It expects net profit to increase to Rs 597 crore, a growth of 15 percent YoY and 8.2 percent QoQ.
“We expect 7.5 percent QoQ USD revenue growth, after factoring in 40 bps cross-currency headwinds, on the back of broad-based demand and seasonal uptick in licence revenue pass-through in the India business,” Emkay Research said in its report.
It said revenue may jump 30 percent YoY to Rs 4,104 crore and EBITDA to grow by 11.5 percent on both YoY and sequential basis.
According to the brokerage, “EBIT margins are expected to expand by 50 bps sequentially on the back of revenue growth momentum and higher offshoring, partially offset by supply-side issues and passthrough revenue.”
However, on a yearly basis, the margins may contract by 320 bps.
It said the company may report net profit of Rs 603 crore, growing around 16 percent from last year and about 9 percent from the previous quarter.
Key things to watch
Experts will look for durability of growth and the new deal pipeline and wins. Apart from this, the demand outlook in areas such as banking, financial services, insurance, manufacturing and energy & utilities will be key factors, along with the pricing environment and attrition.
They will also watch for the management’s views on investment plans and the progress made in new business units—cloud and data products—along with the revenue and margin guidance for the rest of the year.
L&T Infotech shares fell 2 percent to Rs 6,700 on the National Stock Exchange on the morning of January 19. The stock has generated returns of 62 percent during the past one year, but is down 10 percent in this financial year. During the past one month, the stock declined 5 percent.
