L&T Infotech Q2FY23 review: Strong H2; integration with Mindtree likely in Q4FY23

What’s Buzzing

Net adds picked up in Q2 as it added 4,510 employees. Merger of Mindtree into LTI is in the last leg of regulatory approval; integration is likely in Q4FY23. 

Context 

LTI posted revenue growth of 4.6% QoQ and 21.6% YoY in CC terms. In dollar terms, growth was 3.6% QoQ to US$601 mn. In rupee terms, revenue grew 6.9% QoQ to Rs 4,836.7 crore. EBIT margin of the company improved ~10 bps QoQ to 16.1% on account of following tailwinds a) currency benefits +120 bps, b) higher working days +20 bps mitigated by the following headwinds: a) wage hike -90 bps & b) utilisation down impact -40 bps. Vertical wise, growth was aided by BFS, insurance, manufacturing, utilities & others, which grew 5%, 4.5%, 3.9%, 14% & 9.8% QoQ, respectively, in CC terms while hi-tech declined 4.7% due to client specific issue. Geography wise, North America & Europe reported strong growth of 5.2% & 6.3% QoQ, respectively. The company added 4510 net employees including 1600 freshers in Q2 taking sit total headcount to 53,276. LTM attrition increased 50 bps QoQ to 24.3%. The company won four large deals with TCV of US$80 mn including a Fortune 500 client. 

Our Perspective 

The company indicated that demand remains robust across all verticals and geographies. In BFS, LTI does not have meaningful exposure to retail banking & mortgage business where macro related issues are expected to hit more. The company also has a strong deal pipeline and continues to win large deals, which will continue to aid revenue growth. LTI also indicated that growth in H2 will be stronger than to H1. On attrition, it maintains that demand in certain niche skills is high. Hence, attrition is expected to be elevated for two to three quarters before cooling off. The company mentioned that Mindtree’s merger with LTI is in the last leg of regulatory leg and integration is likely to be completed in Q4FY23. We estimate 15.1%, 19.7%, 17.6% revenue, EBITDA, PAT CAGR, respectively, in FY22-25E.