Business insights:

Over the past four years, LTI has continuously strengthened the moats around its business through a slew of measures. Client specific issues, which led to muted performance over 9MCY19, now seem to be largely behind.

Despite the cautious IT spending trend, the recent large deal wins and client additions give us the confidence to expect strong revenue CAGR of 11% (USD) over FY19-21E. Lower exposure to disrupted horizontals (e.g. legacy IMS, BPO, etc.) and scale benefits should help negate some of the macro/vertical headwinds.

As growth returns, we expect utilization to increase by ~200bp, which should be a key near-term margin lever.

Valuation Insights:

Multiples have corrected ~27% from its peak on concerns related to key clients and immediate integration with Mindtree.

LTI’s multiple should be supported by high ROCEs (42% in FY19) and industry leading earnings growth.

Currently LTI trades at a 25% discount to TCS.

Disclaimer: The above report is compiled from information available on public platforms. inChat team advises users to check with certified experts before taking any investment decisions.

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