Analyst Corner: Retain ‘constructive’ view on L&T Infotech, demand recovery healthy

Optimistic on demand: LTI remains well-positioned to lead the industry on growth. In our conversation, CEO Sanjay Jalona and CFO Ashok Sonthalia highlighted that demand recovery is largely healthy, Covid-19 has pushed organisations to change operating models, driving technology spends and benefiting LTI, demand for large deals is intact although conversions have been delayed in a few cases, and new account openings can be impacted for the industry. We retain our constructive view on L&T.

LTI’s CEO indicated that the number and quality of conversations with clients have increased in the past few months, suggesting meaningful demand recovery. Demand is healthy across several verticals. Demand is healthy in BFSI, the largest vertical for the company, and strong in the top client. Demand is strong in the CPG vertical as well. However, demand recovery has been sluggish in manufacturing (16% of revenues) and oil & gas (part of E&U, which accounts for 11% of revenues) verticals, where recovery will be gradual. LTI does not have any meaningful exposure to the highly impacted travel segment.

LTI indicated that the Covid impact has resulted in an urgent need for organisations to change their operating models to adapt to the new normal of remote working and remote interactions with customers. Technology spends are required to enact this change and create demand opportunities for IT services companies. For example, organisations have increased spending on enabling direct to consumer channels and contactless operations. LTI is seeing strong demand across all its four strategic themes- digitising the core, data-driven organisation, experience transformation and operate to transform. A common factor across all strategic areas is two more themes- data and cloud. LTI is well-positioned to capture large tracts of real estate spending of clients and win deals in core transformation.