Update on the Indian Equity Market:
On Wednesday, NIFTY closed lower at 18,266 (-0.83%) led by CONSUMER DURABLES (-2.91%), REALTY (-2.16%) and METAL (-2.06%). PSU BANK (+1.54%) and MEDIA (+1.03%) were the only gaining sectors.
Top gainers in NIFTY50 were BHARTIARTL (+3.96%), SBIN (+2.66%) and TATAMOTORS (+1.62%). The top losers were HINDALCO (-3.94%), BPCL (-2.66%), and TITAN (-2.61%).
Edited excerpts of an interview with Mr. Sanjay Jalona, Chief Executive Officer and Managing Director, Larsen & Toubro Infotech with CNBCTV18 on 19th Oct 2021:
- The company is seeing three key drivers of revenue growth
- Restructuring: Every industry is reimagining its processes to deal with the new normal. All industrial manufacturing companies, which typically have been business-to-business (B2B) companies, are spending to transform from B2B to business-to-consumer (B2C) and that creates a lot of opportunities for the company in the tech world.
- Cyber Security and environmental, social, and governance (ESG) are emerging as new pockets of growth. Work from home culture requires information security which is a big area of growth. ESG is another area having potential as every company has a goal on carbon neutrality and sustainability. So, ESG creates a lot of data opportunities for the industry, unlike in the past.
- Great Resignation: Companies are currently seeing a double-digit attrition rate which they are not used to.
- There has been a change in the way, format, and size of the deals. There are a lot of deals for the transformation journeys of the customers.
- Large deals typically are consolidation deals that have taken a back seat in their (customers) priorities as customers are focusing on their digital transformation journey. The bulk of investment, time, and efforts are going into the digital transformation journey.
- Overall, the deal pipeline will be stronger for the company. The large deal pipeline will continue to be strong for at least the next two to three years.
- Even after giving 2 consecutive wage hikes, the attrition rate for 3QFY22 stands at ~19.6% (up 470 bps QoQ). The reason for such a high attrition rate is that the talent market is very hot currently as every company is hiring tech talent. The overall demand is high and will continue to be high for the next 2-3 years. The need for automating is creating a further gap in the skill set that is required.
- To cope up with the high attrition rate:
- The company have increased the freshers hiring target to 5,500 v/s 4,500 for FY22E,
- Plans to hire additional 1000 employees on Hired Trained Deployed (HTD) basis,
- It is also ramping up the skilling and upskilling program for the company’s talent, and
- Evaluating ways to hire non-tech (non-engineers) bright talents across India who desire to enter the computer field to create a talent pool.
- The company has given guidance to cross Rs 2 bn in revenues.
Asset Multiplier Comments
- The company has been performing consistently well with robust and broad-based growth – across verticals, geographies, and service lines.
- We believe that the large deal wins, strong large deal pipeline, and aggressive hiring/re-skilling plans, which would help overcome the supply-side constraints will help the company to drive profitable and sustainable growth in the medium term.
Consensus Estimate (Source: market screener websites)
- The closing price of Larsen & Toubro Infotech was ₹ 6,960/- as of 20-Oct-21. It traded at 52x/44x/38x the consensus EPS estimate of ₹ 131/156/179 for FY22E/ FY23E/FY24E respectively.
- The consensus target price of ₹ 6,090/- implies a PE multiple of 34x on FY24E EPS of ₹ 179/-.
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”