HDFCB saw strong earnings performance at Rs63.5bn (PLe: Rs60.1bn) on back of lower tax rate & steady operating performance. Although, NII growth was slower at 15% YoY on back of solid growth in term liabilities but was offset by both strong fees & treasury gains. Asset quality was quite stable with slippages & w.off down sequentially and commentary on delinquencies in portfolios was steady. On prudent basis, bank used the lower tax rate to make another Rs6.6bn of contingency provisions and passing Rs4.5bn of net effect (post DTA) to earnings. Continued penetration provides strong access to sticky customer base and with steady asset quality trends, NIMs of 4.2- 4.3% and ROEs of 18-19%, HDFCB continues to remain on strong path. Retain BUY with TP of Rs1,406 (unchanged) based on 3.7x Sep-21 ABV.
We maintain BUY on L&T Infotech (LTI) following an in- line rev/margin performance and unchanged est. Large deal wins, deal ramps and reduction in client-specific challenges provide growth visibility (2H acceleration). Our TP of Rs 1,845 is based on 18x Sep-21E EPS.
Strong quarter on revenue execution front, receding of client specific issues, deal winning momentum and better outlook for banking segment (led by recoup in top client & large deal win) gives us a belief of improving trajectory ahead. In light of these factors, we revise our recommendation from HOLD to BUY with revised target price of Rs 1870.
We maintain BUY on L&T Infotech (LTI) post a soft (in- line) 1QFY20. Cut estimates by ~4% to factor near-term client-specific challenges, however deal wins provide growth visibility. Our TP of Rs 2,115 is based on 20x Jun- 21E EPS.
LTI top client in it’s latest earnings call was cautious about IT spending & has intended to increase more focus towards cost rationalization. We believe weakness of top client & further decline in financial services vertical (BFS accounts to ~28% of total revenues) will weigh on the growth of FY20E. We cut our revenue estimates by ~2% in FY20E & ~3% in FY21E. We cut our margins by 42bps & 100bps for FY20E & FY21E to factor higher S&M spends & spike in attrition (+320bps YoY to 18.3%) may lead to salary hike & may put execution risk. We downgrade LTI from Buy to Accumulate & value LTI at 17X FY21E multiple at an EPS of Rs.85 & Rs. 100 to arrive at a changed target price of Rs. 1701 (earlier: Rs.1981). LTI is currently trading at 18.4x/15.8x FY20E/21E earnings multiple.
We like LTI based on its digital story, strength in diversified niche segments & core modernisation, ability to win large deals and better margin profile vs. industry peers. However, near term concerns of client specific challenges and currency headwind prompt us to revise our EPS estimates downwards by ~10-11% in FY20E to FY21E. Hence, we downgrade the stock from BUY to HOLD with revised target price of | 1,710 (18x FY21E EPS).
We estimate LTI to post revenue/PAT growth at a CAGR of 17%/12% respectively over FY19-21E. LTI’s FY19 revenue has grown in double digit (constant currency) for third consecutive year and would continue to be among top quartile (among top 2 player) in terms of growth. With revenue growth in the top quadrant of the industry and operating margins in high teens, LTI is likely to sustain its industry leading performance. We maintain a BUY with a target of Rs. 1,950
We believe weakness of top client will weigh on the growth of FY20E. We cut our revenue estimates by ~2% in FY20E & ~1% in FY21E. We cut our margins by 80bps & 30bps for FY20E & FY21E to factor higher S&M spends & spike in attrition (+100bps QoQ to 17.5%) may lead to salary hike. Despite headwinds ahead in top client & margins, we expect LTI to deliver revenue growth of 14% & 15% in FY20E & FY21E respectively. We value LTI at 18X FY21E multiple at an EPS of Rs.93 & Rs. 110 to arrive at a changed target price of Rs. 1981(earlier: Rs.2032).
Although growth in the top client remains a concern, acceleration of its digital story, large deal pipeline, strength in diversified niche segments and better margin profile compared to industry peers would lead to healthy operating performance. Hence, we maintain our BUY recommendation with a revised target price of Rs 1940/share (~18x FY21E EPS).
We like LTI given its- 1) digital story acceleration, 2) focus on client mining, 3) healthy deal pipeline and 4) strong management foothold. Hence, we believe it is better positioned with relatively higher revenue/margin visibility. We expect LTI to witness healthy double digit revenue growth of 16.7% CAGR in FY18-21E in dollar terms with stable EBITDA margins of 19.3% and net profit margins of 15% in FY21E. Thus, we initiate coverage on the stock with a BUY recommendation and a target price of | 1950/share based on 18x FY21E EPS. In our view, our target multiple for LTI is justified considering the robust growth trajectory implying a PEG ratio of 0.8x and strong return ratio (RoCE – 34.4% in FY21E).
We estimate LTI to post revenue/PAT growth at a CAGR of 21%/21% respectively over FY18-21E. It has given consistent double digit cc growth (YoY) for more than 8 straight quarters ending Q3FY19 and would continue to be among top quartile (among top 2 player) in terms of growth. We value LTI at 19x FY21E given the growth prospects on the back of strong client mining, opening of new logos (Clients), L&T’s parentage benefit and focus on acquiring capabilities to arrive at a target price of Rs 2,138 (31% upside).