LTTS' valuations are at 30x FY23E and the stock has underperformed peers (especially its ER&D peers). We acknowledge LTTS' prowess/diversity in digital ER&D and the overarching ER&D addressability by assigning a 1.3x premium to its historical multiple (1.5x for mid-tier IT) to factor in the recovery trajectory and the embedded volatility. This growth will trail competitors with niche capabilities. LTTS' historical volatility in the large accounts bucket (>USD 20mn accounts) and volatility due to variability in segmental operating profile are reflected in the growth guidance of ~800bps below its strongest year. Two wins with TCV >USD 25mn (similar to Q4) will support growth in the transportation vertical. Revenue guidance has been increased to 15-17% growth for FY22 (13-15% earlier), which implies a decelerated trajectory of 2-3% CQGR (as compared to 4.2% QoQ delivered in Q1FY22), despite a base benefit (FY21 at -6%). L&T Technology Services: We maintain REDUCE on L&T Technology Services (LTTS), despite a slightly better Q1 revenue performance.
INFYs growth trajectory remains strong, supported by (1) a strong deal pipeline and. Revenue growth guidance for FY22E was increased to 16.5-17.5% CC (14-16% earlier) and the EBIT margin band was maintained at 22-24% (despite the near-term supply crunch). Infosys: We maintain BUY on Infosys (INFY), following the beat on both revenue and margin and a strong growth outlook. Our target price of INR 4,400 is based on 35x Dec-23E EPS (23% CAGR over FY21-24E on a high base in FY21 of >70%). We increase revenue/EPS estimates by 6/10% for FY23/24E to factor in higher growth.
To address the rising attrition (+400bps) the company will continue to hire freshers, focus on reskilling existing employees, and rely on sub-contracting for niche talent. The company remains confident of delivering an EBITDA margin of >20% despite the ongoing supply side challenges, supported by better margins in new deals, increasing offshoring, and better utilisation. Its sustainable structural improvement is validated by (1) the uptick in Q2 deal TCV at >USD 300mn and lower dependence on non-T1 account, (2) improved cross-sell and addition of strategic logos (seven in Q2), and (3) healthy growth in the travel vertical, supported by core modernisation. Mindtree's growth momentum will continue, supported by non-T1 accounts (+17.6% QoQ), customer success (+21.8% QoQ) and investments in Europe (manufacturing). The dependence on the top account is coming down and growth was broad-based across verticals/geographies/service lines. Mindtree: Mindtree (MTCL) delivered an exceptional quarter with double-digit QoQ growth and beat on margins despite wage hikes and supply side issues.
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