Results Review For L&T Infotech And CDSL

  • 2 months ago
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Larsen & Toubro Infotech Ltd (NS:): We maintain ADD on L&T Infotech (LTI), following a strong 4Q (in-line revenue, better margins) and continuity in top quadrant growth ahead (only TELX is higher). LTI’s growth profile has been the most consistent and it’s expected to continue, based on (1) net new large deal wins trajectory (26% growth in TCV in FY21) and consistent USD20mn+ net new wins, (2) strong tractions in BFS (uptick in deal volumes, new logo/T24 deal ramp-up) and positive outlook on T1 account, (3) recovery expectation in E&U vertical (deal ramp-up) and Insurance vertical (leadership changes and vendor consolidation deal), (4) investments to augment capabilities with hyperscalers – AWS/Azure, and (5) continuity of strong new logo addition (5 F500 added in FY21 taking the F500 count to 71) supplemented by LTI’s robust client mining program. Our Target Price of INR 4,210 values LTI at 26x Mar-23E EPS, factoring in 17/22% CAGR in revenue/EPS over FY21-23E.

Central Depository Services India Ltd (NS:): CDSL delivered a strong revenue performance (+19.7% QoQ), driven by transaction and online data charges (KYC) revenue. Key attributes that underscore our positive stance include (1) strong momentum in transaction revenue (+178% in FY21), driven by retail activity (online brokers) and pledge income; (2) continued gain in BO account market share (+770bps YoY to 60.7%); (3) sustained growth in annual issuer charges (annuity income), led by BO accounts addition and unlisted opportunity; (4) investment in technology for enhanced security; (5) high cash generation (OCF/EBITDA of 90%) and high net cash of INR 9.1bn (11% of MCap); and (6) +18/20% revenue/EBITDA CAGR over FY21-23E, following a strong FY21. Operating margin contracted 220bps QoQ to 59.9% (stood lower than the estimate) due to wage hike and higher investments in technology (cybersecurity). We increase our revenue estimates for FY22/23 by 10.9/12.8% and raise the target multiple to 35x (from 33x earlier). FY22/23E EPS increases by 8.5/10.1%. We value CDSL on a SoTP basis by assigning 35x to FY23E core profit and adding net cash to arrive at a target price of INR 870. The stock trades at a P/E of 34.1/29.3x FY22/23E EPS. Maintain BUY.

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