Initiating Coverage |14
December
2016
Sector: Technology
L&T Infotech
Proficient miner
Sagar Lele
(Sagar.Lele@MotilalOswal.com); +91 22 3982 5585
Ashish Chopra
(Ashish.Chopra@MotilalOswal.com); +91 22 3982 5424
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

L&T Infotech
Contents
Summary ............................................................................................................. 3
Story in charts ...................................................................................................... 6
Portfolio has weighed on execution… ................................................................... 8
Augmenting Digital presence .............................................................................. 13
Potential to continue mining-led growth… .......................................................... 16
Financial performance expectations.................................................................... 19
Initiating coverage with a Buy rating, TP of INR800.............................................. 22
SWOT Analysis ................................................................................................... 27
Company description .......................................................................................... 28
Key management personnel ............................................................................... 29
Vertical Heads .................................................................................................... 30
Key risks ............................................................................................................. 31
Financials and Valuations ................................................................................... 32
14 December 2016
2

L&T Infotech
Initiating Coverage | Sector: Technology
L&T Infotech
Buy
BSE Sensex
26,602
S&P CNX
8,182
CMP: INR660
TP: INR800(+21%)
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val, INRm
Free float (%)
LTI IN
175.0
716/595
6/-/-
111
1.6
201.0
15.4
L&T Infotech (LTI IN) is a provider of technology services and solutions. With
USD887m in revenue in FY16, it is the sixth largest IT services company in
terms of export revenue. It offers an extensive range of services spread across
diverse industries such as Banking and Financial Services, Insurance, Energy
and Process, and others. LTI was incorporated in 1996 and is headquartered in
Mumbai. Its promoter is L&T, a leading Indian conglomerate in Engineering,
Construction, Manufacturing, Finance and Technology.
Proficient miner
A combination of proven abilities and marquee customers
Financial Snapshot (INR b)
Y/E Mar
2016 2017E 2018E
Net Sales
EBITDA
PAT
EPS (INR)
Gr. (%)
BV / Sh (INR)
RoE (%)
RoCE (%)
P/E (x)
P/BV (x)
58.5 64.6 72.6
10.4 12.5 13.4
9.2
9.6 10.2
52.4 55.1 58.5
21.5
5.1
6.1
115.6 144.3 174.7
45.3 42.4 36.7
39.9 45.5 39.4
12.6 12.0 11.3
5.7
4.6
3.8
L&T Infotech (LTI) is India’s sixth largest IT Services provider in terms of export
revenue, with top line of USD887m in FY16. It is primarily focused on the verticals
of Banking & Financial Services (BFS; 26%), Insurance (21%), and Energy & Utilities
(E&U; 13%), which together form ~60% of total revenue.
Revenue CAGR of 12.1% over the last three years has been in line with the
industry. Excluding E&U (which declined at a 5% CAGR during this period),
revenue CAGR for LTI would have been 15.7%.
Revenue growth has been a function of LTI’s ability to scale up key accounts
including Citi, Chevron and Barclays over the years. Top-10 accounts contributed
62% to incremental revenue over the last three years.
While E&U is stabilizing, macro challenges have impacted client spending in BFS.
At LTI, BFS has slowed to 6.3% in FY16, from 13.1% in the previous year.
LTI’s exposure to BFS and E&U may weigh on revenue growth in the near future,
which we bake in our estimated revenue CAGR of 8.3% over FY16-19, compared to
11.1% EBITDA CAGR and 5.7% earnings CAGR during this period. Excluding forex
Shareholding pattern (%)
As On
Dec-16
Promoter
84.6
Public
15.4
Others
--
Dec-16
84.6
15.4
--
L&T Infotech
Proficient Miner
gains, earnings CAGR over FY16-19 would be 11.5%.
We value LTI at 13x FY19E EPS (translating into a target price of INR800), given: [1]
revenue growth in line with industry and margins similar to like-sized peers, [2]
superior cash conversion, [3] superior return ratios, and [4] target multiples of 11-
14x for our tier-2 IT companies.
Deterioration in profitability on the back of any policy changes around H-1B visa
immigrants is a key risk to our earnings and valuation thesis.
+
91 22 3982 5585
Sagar.Lele@motilaloswal.com
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India’s sixth-largest technology services company
LTI is India’s sixth largest IT Services provider in terms of export revenue – in
FY16, it had revenue of USD887m. Its revenue CAGR of 12.1% over the last
three years has been in line with the industry.
LTI was incorporated in 1996 and is headquartered in Mumbai. Its promoter,
L&T is a leading Indian conglomerate in engineering, construction,
manufacturing, finance and technology.
As part of a business restructuring exercise conducted by L&T, all
engineering services businesses were consolidated under a separate
subsidiary, LTTSL. As part of this restructuring, on January 1, 2014, LTI sold
and transferred the assets and liabilities of its PES business to LTTSL.
14 December 2016
3

L&T Infotech
Outperformance aided by scaling up of strategic accounts
At the end of FY16, LTI had 258 active clients, of which 49 were Fortune Global
500 companies. Its relationship with marquee customers has been a key
ingredient in brewing above-industry growth rates.
Over FY13-16, LTI’s top-10/20 clients contributed 62/76% of incremental growth
compared to 19% for our coverage universe. This has helped LTI achieve 12.1%
revenue CAGR v/s 8.8% for our coverage universe.
In FY15, Citi, LTI’s largest customer (15% of total revenue) went through a
vendor consolidation exercise. LTI was on the winning side of this activity – it
grew in this account by 16.8% in FY15 and 15.7% in FY16.
Strong senior level relationships, and dedicated account managers, consultants
and delivery managers for each strategic account have helped LTI extract
continued growth in key accounts.
Successful mining track record can be replicated further…
LTI intends to replicate its client mining success beyond top-20 accounts. Large
number of G-500 customers in LTI’s portfolio lends opportunity for the same.
Investments towards the same have ramped up in past few months, with hiring
of new sales personnel, account managers, consultants, and digital evangelists.
Higher relevant penetration is also being ensured through initiatives like ADEA –
Analytics and Digital in Every Account, which aims to have a digital presence
across accounts.
Its track-record in being able to scale up accounts and rigor on penetrating these
customers with relevant offerings hold potential for continued outperformance.
…but exposure to BFS and E&U may keep growth in check
While LTI’s internal efforts have been bearing fruit, macro concerns that hit IT
spending in E&U and more lately BFS have impacted the company’s revenue
growth performance:
[1] Energy woes:
Revenue CAGR over the last three years has been 12.1% for LTI.
However, revenue in the E&U vertical declined 20% in FY15 and 14% in FY16.
Excluding this, LTI achieved revenue CAGR of 15.7%.
[2] BFS volatility:
Revenue growth in BFS slowed down to 6.3% in FY16 from 13.1%
in FY15. However, growth in Citi (57% of BFS revenue) was robust at 15.7% in
FY16 (16.8% in FY15). Excluding Citi, BFS revenue declined by 3.9% in FY16,
reflecting weakness in other areas. The situation reversed in 1HFY17, where Citi
revenue declined by 2.2% YoY, but BFS ex. Citi grew by 14.6% YoY. Overall, the
portfolio performance remains compensated by multiple factors.
Because of the heavy dependency on top customers and prospective issues in
top verticals, we are being cautious on growth, despite the potential that can be
ignited from internal efforts.
Valuation and view: Geared for any turnaround; Low risk to our growth estimates
Expect revival going forward:
Though E&U is seen stabilizing; we see a risk to
overall growth from BFS. Performance in BFS has already been volatile with
oscillating performance in both Citi and other accounts. High dependency on top
customers aggravates the potential risk. Embedding this into our estimates, we
expect 8.3% revenue CAGR over FY16-19. We also expect 180bp decline in
EBITDA margin over the next two years resulting out of pricing pressure and
investments made to drive the next leg of growth. Consequently, we expect
5.7% earnings CAGR over FY16-19 (11.5% ex. post tax forex gains).
14 December 2016
4

L&T Infotech
Attractive despite conservatism:
We value LTI at 13x FY19E earnings – at a
discount to peers such as PSYS and MTCL (which have demonstrated potential in
newer services), but at a premium to peers such as MPHL, KPIT and NITEC (given
strong positioning, superior return ratios and track record), translating into a
target price of INR800 – 21% upside.
Key risks:
Any policy change around H-1B visa immigrants is a key risk to our
earnings and valuation thesis. Other risks include: Impact of macroeconomic
uncertainties on revenue from BFS, high client concentration playing out for the
worse, near-term margin pressure on account of elevated investments.
Exhibit 2: Earnings CAGR bogged down by margin decline
and forex movement
16
14
12
10
8
6
NITEC
0%
5%
KPIT
10%
15%
20%
25%
30%
MTCL
Exhibit 1: Valuations attractive, given revenue growth
relative to peers
14
12
10
8
6
0%
5%
10%
15%
20%
Source: MOSL, Company, Bloomberg
LTIT
MPHL
NITEC
ZENT
KPIT
MTCL
HEXW
CYL
PSYS
LTIT
PSYS
HEXW
CYL
ZENT
MPHL
Source: MOSL, Company, Bloomberg
Exhibit 3: Valuations attractive
CMP
(INR)
TCS IN
INFO IN
WPRO IN
HCLT IN
TECHM IN
MPHL IN
LTIT IN
MTCL IN
KPIT IN
HEXW IN
CYL IN
ZENT IN
NITEC IN
PSYS IN
2,201
990
464
800
484
519
660
492
134
209
502
1,000
431
599
Reco.
EBITDA
Revenue margin Earnings
PE
TP
CAGR expansion CAGR
(FY17E)
(INR)
(FY16-18E) (FY16- (FY16-18E)
18E,bp)
2,500
1,250
560
960
550
560
800
520
165
230
600
1,250
450
700
9%
9%
7%
12%
8%
4%
8%
10%
5%
10%
14%
7%
4%
17%
(111)
(42)
(32)
(52)
1
104
71
(218)
42
(3)
101
203
(65)
57
9%
8%
5%
11%
6%
26%
6%
1%
7%
11%
23%
18%
5%
10%
16.6
15.9
13.4
13.9
15.1
12.4
12.0
18.2
9.9
15.0
14.5
14.1
11.2
15.8
PE
(FY18E)
14.9
14.3
11.7
12.3
12.4
9.5
11.3
13.3
7.9
12.9
11.1
10.6
8.6
13.3
ROE
(FY17E)
33.2
23.0
17.8
26.8
19.7
13.6
42.4
18.2
17.9
27.9
15.2
20.7
14.2
17.4
ROE
(FY18E)
31.7
22.9
18.9
25.8
20.7
16.5
36.7
22.3
18.8
28.2
17.3
23.4
16.6
19.1
Dividend Dividend
yield
yield
(FY17E) (FY18E)
2.0
3.1
2.6
2.5
1.9
7.2
4.6
2.7
1.4
2.7
2.2
1.5
2.7
1.8
2.4
3.0
2.6
2.4
1.9
4.3
3.8
2.6
1.4
2.0
2.9
1.9
2.7
1.8
Neutral
Buy
Neutral
Buy
Buy
Neutral
Buy
Neutral
Neutral
Neutral
Buy
Buy
Neutral
Neutral
Source: MOSL, Company
14 December 2016
5

L&T Infotech
Story in charts
Exhibit 4: High exposure to BFSI and E&U (~60% of portfolio)
Auto Aero
& Others ,
22
High-Tech,
Media &
Entertainm
ent , 11
CPG, Retail
and
Pharma , 8
Energy and
Process ,
12
Banking
and
financial
services ,
26
Exhibit 5: E&U declined in FY15, FY16 and 1HFY17…
Revenue in Energy & Utilities (USDm)
26%
Growth (YoY, %)
-5%
-20%
Insurance ,
21
Source: MOSL, Company
164
FY14
131
FY15
-14%
113
FY16
55
1HFY17
Source: MOSL, Company
Exhibit 6: …excluding which growth would be better than
industry
Revenue growth (YoY, %)
Revenue growth - Ex. E&U (YoY, %)
18.5%
16.6%
9.5%
16.5%
Exhibit 7: BFS spending in recent quarters is an overhang...
Revenue - BFS (USDm)
16.9
16.4
12.1
8.5
7.2
60
8.0
61
57
5.4
2.3
58
4.7
63
Growth (YoY, %)
14.1%
10.9%
8.9%
6.0
51
56
56
8.5%
56
55
FY14
FY15
FY16
1HFY17
Source: MOSL, Company
Source: MOSL, Company
Exhibit 8: …especially with a concentrated portfolio?
Others,
17%
Exhibit 9: Risks embedded in our revenue growth estimates
Revenue (USDm)
18.5
9.5
Growth (YoY, %)
Barclays,
12%
Canadian
SaaS
platform,
15%
Citi, 57%
7.5
630
747
8.5
7.9
8.4
8.6
810
887
957
1,038
1,127
Source: MOSL, Company
Source: MOSL, Company
14 December 2016
6

L&T Infotech
Story in charts
Exhibit 10: Client concentration has been high…
Revenue from top 10 clients (% of total revenue)
51
40
22
18
22
53
43
58
57
39
49
53
46
Exhibit 11: …but execution has ensured continued growth
LTI
12.1%
8.9%
7.9%
Coverage universe mean
14.9%
Revenue CAGR - FU13-16
Source: MOSL, Company
Revenue CAGR in Top 10 - FY13-
16
Source: MOSL, Company
Exhibit 12: …from superior client mining abilities (average
revenue per customer per year, USD m)
FY13
FY14
FY15
FY16
Exhibit 13: The intent now is to replicate this success in the
top 50 accounts
Contribution to incremental revenue: FY13-16 (%)
28
24
22
12
14
Top
Top 2-5
Top 6-10
Top 11-20 Non Top 20
Source: MOSL, Company
Top
customer
Top 2-5
Top 6-10
Top 11-20 Non Top 20
Source: MOSL, Company
Exhibit 14: Investments may weigh upon margins…
22.4
EBITDA (INRm)
21.1
20.3
17.7
EBITDA margin (%)
19.3
Exhibit 15: PAT CAGR of 6% over FY16-19E (11.5% ex. forex
gains)
PAT (INRm)
39.6
Growth (YoY, %)
20.8
18.4
17.5
27.5
21.5
5,408
5,159
4.8
7,550
9,171
9,642
5.1
10,229
6.1
10,838
6.0
Source: MOSL, Company
Source: MOSL, Company
14 December 2016
7

L&T Infotech
Portfolio has weighed on execution…
…Exposure to EAS and E&U has hurt growth in otherwise impressive show
Vertical mix dominated by BFSI and E&U
Banking & Financial Services, Insurance, and Energy & Process are the three largest
verticals for LTI, constituting 25%, 22% and 11% of revenue from continuing
operations, respectively as of June 2016. Together, these verticals form ~60% of
LTI’s revenue and at first glance, this comes off as a major risk factor, given the
macroeconomic uncertainties facing these verticals.
Factors like low interest rate regime, increased regulatory pressures, threat of new
entrants, and Brexit amongst others have been leading to increased uncertainty,
delays in decision making, severe cost pressures, and transformation in spending
patterns in BFSI. Increasingly, peers have cited multiple pressure points for growth
in the BFSI vertical.
Similarly, IT spend (discretionary and operational) in Energy & Utilities has been
waning on account of low oil prices. Despite stability seen in oil prices at current
levels, technology spend has failed to make a comeback.
While the negative impact on performance in the Energy and Process vertical has
been profound over the last two years, LTI’s Banking and Financial Services, and
Insurance verticals have performed well, contributing to 47% of the incremental
revenue over FY13-16.
A deeper view of the composition of these verticals unfolds
the reason behind the relative buffer against industry headwinds.
Exhibit 16: BFSI and Energy form a majority of the revenue mix for LTI
Auto Aero &
Others , 22
Banking and
financial services
, 26
High-Tech, Media
& Entertainment ,
11
CPG, Retail and
Pharma , 8
Energy and
Process , 12
Insurance , 21
Source: MOSL, Company
BFS – few clients and relevant services
The portfolio for LTI is highly concentrated in BFS. The three parts forming most (not
all) of the business are:
[1] LTI’s largest customer - Citi
Citi is the largest customer for LTI and formed 15% of total revenue in FY16. It
formed a bulk of the BFS revenue for LTI (57%) in FY16. The primary areas of
engagement for LTI in Citi are:
14 December 2016
8

L&T Infotech
Risk and compliance
Capital markets / investment banking
Cost efficiency programs
Following the financial crisis of 2007-09, multiple regulations have been introduced
across geographies, aimed at safeguarding the banking industry and consumers’
interest. The key drivers for increased technology spend on risk and compliance, in
this backdrop, have been the attempt made by banks to avoid fines and penalties
arising from non-compliance, and de-fragmentation and automation of risk
management processes.
Worldwide spending on risk and compliance technology is expected to reach
USD97.3b by 2018, from USD79.2b in 2015, according to IDC.
The key areas in which there has been an increased adoption of technology are:
Overhauling of IT infrastructure to support regulatory requirements of stress
tests.
Making provisions for providing real-time data to employees for making
decisions related to regulations such as KYC and AML.
The nature of work with Citi has resulted in an increased wallet share for LTI over
the last few years. Citi underwent a vendor consolidation exercise in the previous
year, and LTI turned out on the winning side of this. Moreover, it recently won an
additional deal in this account recently, resulting in strong growth in the last two
years, and confidence around the sustenance of this trend, despite the challenges
faced by the industry at large.
Exhibit 17: Growth in top customer above company average in the last two years
Top customer revenue (USDm)
16.8%
Growth (YoY, %)
15.7%
-3.6%
98
FY14
114
FY15
132
FY16
Source: MOSL, Company
[2] Canadian SaaS platform
LTI has a SaaS-based transfer agency solution called Unitrax, which is used by 180
fund houses in Canada. This business was acquired in FY11, and was a unit of
Citigroup, named Citigroup Fund Services Canada Inc. This was later renamed as
LTIFST.
Unitrax is used in the Canadian investment fund industry for services around
administration, transfer agency and record keeping. The platform is a transfer
agency record keeping system that enables mutual funds and insurance companies
to manage their investment products. It provides a number of solutions to handle
common fund industry and transfer agency issues, including maintaining client
14 December 2016
9

L&T Infotech
records and facilitating the associated administrative processes. These maintenance
and processing procedures include transaction entries, generating account
investment values, interfacing with external systems and producing various client
communications, such as tax receipts, reports, letters, statements and transaction
confirmations.
Growth in the platform has been a challenge, given its exposure to Canada and
difficulty in taking this capability to other geographies. However, several
capabilities/functionalities like business intelligence & analytics, and automation
have been launched, giving additional growth opportunities within the current
market (Investor Trax/Advisor Trax 3.0, BPM Case Management Workflow, TA
Process Automation, TA reporting Platform).
In FY16, revenue from the platform formed 15% of LTI’s BFS revenue. Together, the
largest customer and the platform form 72% of total BFS revenue.
Exhibit 18: Growth in top customer above company average in the last two years
Revenue
PBT
PBT margin (%)
Tax
PAT
FY16 (INR m)
2,297
271
11.8%
77
193
Source: MOSL, Company
[3] Operations in South Africa for a European bank
Relationships with a Nordics Bank, which is the second largest BFS customer for LTI
(and fifth largest customer overall) forms a majority of the rest of the BFS revenue.
LTI has recently started working with 5-6 more banking customers. However, these
relationships are yet in a nascent stage and maturity/deepening of relationships can
add to incremental growth. These customers are large institutions with multi-billion
dollar IT budgets, giving ample room for LTI to scale them up.
Slowing growth in BFS needs to be watched
BFS, which constitutes 26% of total revenue, has been under pressure for most
other service providers. LTI, however, hasn’t seen any pressure in the vertical,
stemming out of macroeconomic uncertainty or client-specific issues. Growth rates,
however, suggest otherwise.
Exhibit 19: BFS revenue growth has come off lately
Revenue - BFS (USDm)
16.9
16.4
12.1
6.0
51
56
56
56
8.5
7.2
60
8.0
57
5.4
2.3
58
4.7
63
96
105
Growth (YoY, %)
Exhibit 20: Performance ex. Citi is volatile
Revenue - BFS, ex. Citi (USDm)
17.6
9.3
(3.9)
101
57
Growth (YoY, %)
14.6
55
61
Source: MOSL, Company
Source: MOSL, Company
14 December 2016
10

L&T Infotech
Insurance – marquee clients and new-age services
LTI’s Insurance practice is primarily in P&C. The largest US insurance player is the
second largest customer for LTI. Of LTI’s top 10 customers, three are in Insurance,
suggesting a high amount of concentration in this vertical, too.
The service offerings in Insurance are high growth / new-age in nature, and include
Duckcreek implementation, commerce enablement, and management of Digital
Assets.
The company also has two IPs in Insurance: AccuRUSI and iCEOn – the former is a
framework for transforming underwriting capabilities for insurance companies, and
the latter is a cloud-based Employee Benefits Management solution for brokers.
Exhibit 21: Growth in Insurance has consistently been higher than company average
25.2%
Insurance growth (YoY, %)
Company growth (YoY, %)
15.4%
18.5%
13.4%
14.4%
8.5%
FY14
FY15
9.5%
FY16
8.9%
1HFY17
Source: MOSL, Company
Energy & Utilities – Stabilizing with the worst behind the company
We believe the worst is over in Energy & Utilities for LTI, as revenue from the
vertical has declined by 20% in FY15 and 14% in FY16. This has led to the share of
revenue from Energy & Utilities coming down to 12.7% in FY16, from 22% in FY14.
The YoY decline, however, has been reducing over the quarters.
Exhibit 22: The Energy vertical has been stabilizing slowly, with a steady reduction in the quantum of decline
Revenue in Energy & Utilities (USDm)
26%
Growth (YoY, %)
-6%
-23%
-20%
164
FY14
131
FY15
-14%
113
FY16
-5%
36
55
1HFY17
Source: MOSL, Company
33
-23%
32
-20.1%
Revenue in Energy & Utilities (USDm)
-11%
-29%
31
Growth (YoY, %)
-3.8% -5.3%
-13% -13%
29
29
27
28
28
28
14 December 2016
11

L&T Infotech
Enterprise Application Services – high exposure to most challenged
segment
LTI gets 25% of its revenue from ERP. This has been a problem area for the industry
on account of cloud migration, and the consequent absence of large
implementation deals, resulting in erosion of the revenue base. LTI’s exposure to
ERP is in the verticals barring BFS and Insurance. This would imply some portfolio
related pressure points in other verticals too.
Exhibit 23: Growth in Insurance has consistently been higher than company average
Digital solutions,
11
Testing , 10
IMS , 8
Platform based
solutions , 3
ADM , 43
ERP , 25
Source: MOSL, Company
14 December 2016
12

L&T Infotech
Augmenting Digital presence
Automation I Products I Platforms I MOSAIC
Cloud already constitutes ~25% of LTI’s enterprise application revenue. The
company also has strong expertise in the areas of digital commerce and S/4 HANA,
which should offset the pressures on packages moving to the cloud.
In Application Development and Management (ADM), LTI has a higher exposure to
Development, compared to Maintenance. Maintenance constitutes ~40% of the
revenue in this service line. Strides taken in the area of Enterprise Digital
Transformation should aid growth in Application Development, while the
Maintenance piece would stabilize the portfolio, protecting against the evaporation
of large on-site implementation deals, or their fragmentation into relatively smaller
size and duration deals.
The company also has a strong presence in Digital, with it contributing to 26% of
total revenue.
Five key investment areas
LTI is focused on investments in five key areas – [1] Digital, [2] Analytics, [3] IoT, [4]
Cloud, and [5] Automation. Growth rates in these segments are much above the
company average, and they are consistently forming a larger part of the overall pie.
The company has more than 2,000 people working on Digital, and 1,200 on
Automation projects, of the total 19,300 employees.
Social, mobility and analytics together contribute 11.5% of total revenue. In all, 22%
of all effort is
Digital.
The contribution to revenue may be higher since Digital has a
higher onsite mix, which would lead to better billing rates, and higher revenue.
LTI launched an IP-based platform and digital framework called MOSAIC – Mobile,
Online, Social, Analytics, IoT, Cloud. This is expected to be a differentiator in LTI’s
positioning in Digital. Although a presence in these areas wasn’t new for LTI, it
recently institutionalized its practices to package them better, bring tools under a
framework, and aid selling/positioning better.
The company has also launched a new initiative called ADEA (Analytics and Digital in
Every Account) for better penetration of newer/focus areas in existing accounts,
giving a thrust to client mining.
LTI’s bet in
automation
has been in robotic process automation (RPA). It has the
ability to get highly aggressive in this space as it doesn’t have a BPO practice, and
hence, wouldn’t lose out on any existing revenue because of cannibalization. The
company has been working with more than 20 customers on automation, primarily
in the verticals of BFSI and Travel. It has chosen the partnership route for RPA,
rather building and selling proprietary platforms. It has several partnerships with
market leaders in specific areas: EMC and KOFAX (document management),
14 December 2016
13

L&T Infotech
Software AG and TIBCO (Landscape orchestration), GridGrain and Spark (Machine
Learning), Blue Prism, Automation Anywhere (UI).
Apart from RPA, automation initiatives are being used extensively to increase the
productivity of employees. Benefits arising from them can be realized to a larger
extent in fixed price contracts, which can be used as a margin lever over the course
of the contract. Fixed price contracts constituted 45% of total revenue, up from 37%
in FY14.
Exhibit 24: Proportion of fixed price contracts has increased over the last two years
Fixed price contracts (% of revenue)
37
40
45
FY14
FY15
FY16
Source: MOSL, Company
Zinnov has placed LTI in the Execution Zone for overall Digital ratings. The rating
scale from highest to lowest is as follows: Leadership Zone, Execution Zone,
Breakout Zone, and Nurture Zone.
Zinnov evaluates service providers across five service lines:
[1] Digital Consulting and Transformation Services (Leadership Zone)
[2] Design and Experience Services (Execution Zone)
[3] Digital Application Engineering Services (Execution Zone)
[4] Digital Platform Integration Services (Execution Zone)
[5] Data Management and Analytics Services (Execution Zone)
14 December 2016
14

L&T Infotech
Exhibit 25: LTI placed in the Execution Zone in Zinnov Ratings
Source: Company, MOSL
Parentage plus points
One of the key strengths for LTI is its access to group companies under the L&T
parentage. This would give it access to industry-specific knowledge, vertical/domain
expertise, and customers. This would be particularly relevant in the areas of
manufacturing, construction, energy, utilities, machinery and heavy industries.
It routinely brings in experts from various group companies to aid solution building,
consulting and sales. This would also help in development of Digital solutions that
are better suited for specific industries, and relevant in the current environment of
changing trends. The parentage would give benefits of an elevated understanding of
the intersection of Digital and Physical – giving an edge in playing the industrial IoT
opportunity.
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15

L&T Infotech
Potential to continue mining-led growth…
…as the focus set expands to include more accounts
Client concentration highest amongst Tier-II vendors…
LTI has high client concentration, with the top 10 contributing 53% of total revenue.
At USD887m, It has the second highest revenue in the Tier-II bracket (annual
revenue between USD350m and USD1b), after Mphasis. Yet, it has the second
highest client concentration after Hexaware. Usually, client concentration has
reduced, as companies have grown larger. Top 10 clients contribute 19-42% of total
revenue for Tier-I vendors (annual revenue >USD4b).
Exhibit 26: 51% of total revenue from top 10 customers (as of 2QFY17)
Revenue from top 10 clients (%)
51
40
22
18
22
53
58
43
57
39
49
53
46
Source: MOSL, Company
…reflecting successful mining
Client concentration can positively or negatively impact a company’s overall
performance depending on the client’s business, service provider’s relevance
within the client, and issues specifically relating to the service provider. If all
these factors are in place, it generally results in high growth in overall revenue
and in the revenue from top customers.
For LTI, top 10 customers have grown at a CAGR of 14.9% over FY13-16, which is
the highest amongst vendors we’ve considered (barring Mindtree). This has
resulted in revenue CAGR of 12.1% over the same period, which also puts LTI in
the top quartile when it comes to a three-year revenue growth performance.
Top 10 clients have contributed to 62% of the incremental growth over FY13-16,
reflecting successful client mining, and subsequently, robust performance.
Exhibit 27: LTI has seen the highest growth in Top 10 customers (after Mindtree)
Revenue CAGR - FY13-16 (%)
Revenue CAGR in Top 10 - FY13-16 (%)
Source: MOSL, Company
14 December 2016
16

L&T Infotech
Exhibit 28: 62% of the incremental growth over the last 3 years contributed by Top 10
Top 10 clients' contribution to incremental growth: FY13-16 (%)
62%
44%
15%
5%
15%
25%
66%
46%
22%
69%
43%
32%
-5%
Source: MOSL, Company
Exhibit 29: Best example of high growth from client mining
ZENT
CYL
NITEC
KPIT
WPRO
MPHL
Revenue CAGR (FY13-16)
Source: MOSL, Company
INFO
HCLT
HEXW
LTI
PSYS
TECHM
MTCL
What’s worked so far?
In its top 20 customers, LTI sees no risk arising out of its relationships with
customers. There is risk of business uncertainty at the customers’ end, which is
inevitable. Spend on technology (traditional) has come off for several customers;
however, LTI’s share in these accounts has not reduced. This can be attributed to,
Robust senior leadership relationships
Anchor accounts in each vertical
Account mining programs launched for top accounts
Dedicated account managers, delivery personnel and consultants for each of the
top 20 accounts
Relevance of presence in accounts (for example, risk, compliance, digital, cost
optimization for Citi)
This has resulted in the top 20 customers together contributing 62% of the
incremental revenue growth achieved over FY13-16. This has resulted out of a
steady increase in the revenue per customer in all the top customer brackets for LTI
over the last three years.
The non-top 20 customers, however, contributed 24% of the incremental growth
over FY13-16, and didn’t see a material change in the average revenue per
customer, which ranged between USD1.2m and USD1.6m. The company has,
however, added more customers during the period – net addition of 60 customers,
taking the total to 258 at the end of FY16.
14 December 2016
17

L&T Infotech
Exhibit 30: All top client buckets have seen an increase in
average revenue per customer
FY13
FY14
FY15
FY16
Exhibit 31: Top 20 clients contributed 76% of the total
incremental revenue over FY13-16
Contribution to incremental revenue: FY13-16 (%)
28
22
12
14
24
Source: MOSL, Company
Source: MOSL, Company
Repeating the same for the Top-50
With substantial success seen in mining of Top-20 accounts over the last three years,
and the consequent benefits reflecting in overall revenue growth, LTI intends to
replicate this process in its Top-50 accounts. Several steps have been undertaken to
enable this, including
ADEA – Analytics and Digital in Every Account
Sales team overhauled over the last year
Sales team now better structured and organized to achieve end goals;
performance targets set accordingly
Performance management revamped – incentive plans targeted not only at
revenue, but also based on DSO, CSAT, profitability
Higher priority given to selling Digital and winning large deals
Hiring of 30-40 new employees in sales, with a consulting background to better
align selling with technology trends and changing market dynamics
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L&T Infotech
Financial performance expectations
Exposure to E&U has weighed upon performance; BFS may be next!
Stabilizing E&U, and slowing BFSI
Revenue growth has been in high single digits for LTI in three out of the last four
years. During the same period, however, revenue growth was bogged down by the
decline in Energy & Utilities.
In FY15 and FY16, revenue from the Energy & Utilities vertical declined by 20% and
14%, respectively. Excluding this, revenue growth in FY15 and FY16 would have
been 16.5/14.1% (versus actual overall revenue growth of 8.5/9.5%). Excluding the
performance of Energy & Utilities, LTI outperformed the larger industry
performance.
With the vertical bottoming out, we expect revenue here to stabilize, although not
bounce back to growth. In the rest of the company (mainly in BFS and Insurance),
although the company has not cited any weakness in any of its customers, we are
building in some slowdown, given that the demand environment and
macroeconomic uncertainty have hit the entire industry.
Taking into account the uncertainties/issues in the BFSI/E&U verticals, we are
building in 8.3% revenue CAGR over the next three years.
Exhibit 32: Growth has been strong excluding Energy & Utilities
Revenue growth (YoY, %)
18.5%
16.6%
9.5%
16.5%
Revenue growth - Ex. E&U (YoY, %)
14.1%
10.9%
8.9%
8.5%
FY14
FY15
FY16
1HFY17
Source: Company, MOSL
Exhibit 33: Expect revenue CAGR of 8.3% over FY16-19
Revenue (USDm)
18.5
Growth (YoY, %)
7.5
8.5
9.5
7.9
8.4
8.6
630
FY13
747
FY14
810
FY15
887
FY16
957
FY17E
1,038
FY18E
1,127
FY19E
Source: Company, MOSL
14 December 2016
19

L&T Infotech
Pricing pressure and investments likely to aggravate
We expect pressure on industry margins on account of increasing pricing pressure
on traditional services and higher investments in newer technologies, accompanied
by changing onsite/offshore mix. While LTI has been targeting productivity
improvement through the adoption of automation, it is distant from being able to
move the needle. We expect pressure on LTI’s EBITDA margins to be two pronged:
[1] Pricing, and [2] Investments.
Exhibit 34: Expect 180bp margin decline in FY18/19
22.4
EBITDA (INRm)
21.1
20.3
17.7
EBITDA margin (%)
19.3
20.8
18.4
17.5
Source: Company, MOSL
We believe LTI’s high client concentration that leads to dependency on its largest
customers is likely to act against it and reduce bargaining power on pricing. For
instance, as per our checks, LTI’s top customer was offered some pricing comfort for
volume commitment. Many service providers have been seen giving discounts for an
increase in volume, with the intent of making up for the loss through productivity
gains over a longer duration.
Moreover, it has been investing in beefing up its sales and marketing functions to
tap the next set of growth accounts, and investing in products, capabilities and IP to
better align offerings with shifting technology trends. According to the company,
three-quarters of the sales and marketing transformation has already been carried
out, with a bit left for the coming quarters. While S&M would inch up in the near-
term, LTI has some lever in G&A costs as a percentage of revenue. We expect the
net impact of these two factors to offset one another over a longer duration.
Exhibit 35: Expect 180bp margin decline over FY18 and 19
443
166
(139)
(73)
(261)
EBITDA margin change (YoY, bp)
156
(85)
(94)
Source: Company, MOSL
14 December 2016
20

L&T Infotech
Exhibit 36: S&M and G&A likely to offset one another in the near term
SG&A (INRm)
17.1
16.0
19.6
16.8
SG&A (% of revenue)
15.8
16.2
16.3
15.7
5,440
6,175
9,649
8,358
9,238
10,470
11,834
12,724
Source: Company, MOSL
Other factors that could support margins from current levels are:
Utilization:
The desirable range of 78-80% suggests some improvement from
current levels. We expect utilization to continue inching higher through
sustained efforts to improve operational efficiency.
Pyramid rationalization:
The proportion of employees with less than three years
of experience is expected to touch 30% in FY17, up from 28% in FY16.
Leveraging the bench:
LTI’s bench is being trained on new technologies and
skills, leveraging the MOSAIC academy, in turn optimizing productivity.
Exhibit 37: Utilization has scope for improvement
Utilization (%)
73.4
71.3
69.4
71.6
73.8
76.7
77.0
78.0
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
FY19E
Source: Company, MOSL
Earnings growth impacted by forex gains
We expect earnings CAGR of 5.7% over FY16-19E. However, LTI saw massive gains
from its hedge position in FY16. Forex gain post tax was at INR13 per share (on an
EPS of INR52 per share; 24% of EPS). We expect this to reduce over FY17-19,
weighing earnings growth down, and making it optically subpar.
Excluding forex
gains post tax, earnings CAGR over FY16-19E would be 11.5%.
14 December 2016
21

L&T Infotech
Initiating coverage with a Buy rating, TP of INR800
Attractive despite risks from vertical mix and client concentration
Mining of Top-20 accounts has been robust…:
Growth and scale for LTI has
been primarily driven by the Top-20 accounts in the last few years. Successful
account mining, and focused penetration in anchor/target customers has aided
strong growth. Account managers, consultants and delivery for top accounts
have ensured all-round servicing despite the size of LTI leading to the Top-20
contributing 76% of the incremental growth achieved in the last three years.
…and future success will depend on replicating this in Top-50:
The formula for
success is now being replicated in the Top-50 accounts. Several employees have
been hired for the next stage of growth and account mining. The sales and
marketing functions and senior leadership have been heavily augmented in the
past year to aid this process. Moreover, initiatives like ADEA (Analytics and
Digital in Every Account) and thrust on MOSAIC are likely to result in penetration
in these accounts in newer technologies, enabling higher growth, along with a
rebalanced portfolio of services.
Portfolio may continue to weigh on growth…:
LTI’s revenues are heavily
skewed towards BFS, Insurance and E&U. These verticals together constitute
~60% of total revenue. While E&U has been facing the brunt of lower
technology spend on account of plummeting oil prices, the outlook for BFS and
Insurance has been getting sour lately, led by macroeconomic uncertainties –
upcoming elections in the US, impact of Brexit, and low interest rate regime.
Although the concentrated BFS and Insurance portfolios of LTI, and its presence
in the relatively shielded areas of risk, compliance, digital and cost optimization
auger well in this scenario, macro risks yet envelope this and pose prospective
risks and fluctuations in performance, which we have embedded in our
estimates. We expect revenue growth of 8.5% in both FY18 and FY19.
…with pricing and investments compounding impact on earnings:
To facilitate
the successful mining of the Top 50 accounts, LTI has hired resources in several
dimensions. This is likely to continue, as the right ammunition gets built up to
ensure successful execution of this strategy. Although some levers exist in the
form of G&A optimization, improved utilization, pyramid rationalization, and
higher operational efficiencies, we expect margins to face the headwinds of
pricing in traditional services and renewal deals, especially given the high
dependency of LTI on some key customers. Together, we expect these factors to
negatively impact EBITDA margins by 180bp in FY18 and FY19
But expect industry-average performance at the least:
Despite our
conservative estimates around growth in BFS, we expect 8.3% revenue CAGR
over the next two years, which places LTI in line with the industry. Margin
pressures around LTI too are common with the ones seen impacting the sector
overall. We believe this is factored into valuations, as despite the conservatism,
LTI is trading at 11.3/10.7x FY18/19E earnings.
14 December 2016
22

L&T Infotech
Exhibit 38: Risks factored into revenue growth estimates
Revenue (USDm)
18.5
20.8
7.5
630
747
8.5
9.5
8.4
8.5
8.5
6,612
Growth (YoY, %)
Exhibit 39: Pricing likely to adversely impact margins
EBITDA (INRm)
22.4
21.1
20.3
17.7
EBITDA margin (%)
19.4
18.5
17.5
810
887
962
1,044
1,132
8,643 10,358 10,118 10,359 12,623 13,521 14,255
Source: MOSL, Company
Source: MOSL, Company
Value LTI at INR800 per share
Strong cash flow generation to command some premium:
We believe LTI
warrants a premium to its peers considering: (1) successful track record of
account mining and potential growth, driven by next set of target accounts, (2)
higher than industry growth rates (ex E&U), (3) better margin profile compared
to peers, (4) higher return ratios than peers, and (5) strong cash conversion.
We value LTI at 13x forward EPS to arrive at a fair value of INR800/share (21%
upside).
Our valuation is at a 10% discount to peers such as PSYS and MTCL
(which have developed strong capabilities in newer services, and demonstrated
consistent stronger-than-industry growth), 30% discount to INFO, but at a 20%
premium to peers such as MPHL, KPIT and NITEC, given strong competitive
positioning and strategy to drive the next leg of growth.
Deterioration in profitability on the back of any policy changes around H-1B visa
immigrants is a key risk to our earnings and valuation thesis
Exhibit 41: Earnings CAGR bogged down by margin decline
and forex movement
16
14
12
10
8
6
NITEC
0%
5%
KPIT
10%
15%
20%
25%
30%
MTCL
Exhibit 40: Valuations attractive, given revenue growth
relative to peers
14
12
10
8
6
0%
5%
10%
15%
20%
Source: MOSL, Company, Bloomberg
LTIT
MPHL
NITEC
ZENT
KPIT
MTCL
HEXW
CYL
PSYS
LTIT
PSYS
HEXW
CYL
ZENT
MPHL
Source: MOSL, Company, Bloomberg
14 December 2016
23

L&T Infotech
Exhibit 42: Valuations attractive
CMP
(INR)
TCS IN
INFO IN
WPRO IN
HCLT IN
TECHM IN
MPHL IN
LTIT IN
MTCL IN
KPIT IN
HEXW IN
CYL IN
ZENT IN
NITEC IN
PSYS IN
2,201
990
464
800
484
519
660
492
134
209
502
1,000
431
599
Reco.
EBITDA
Revenue margin Earnings
PE
TP
CAGR expansion CAGR
(FY17E)
(INR)
(FY16-18E) (FY16- (FY16-18E)
18E,bp)
2,500
1,250
560
960
550
560
800
520
165
230
600
1,250
450
700
9%
9%
7%
12%
8%
4%
8%
10%
5%
10%
14%
7%
4%
17%
(111)
(42)
(32)
(52)
1
104
71
(218)
42
(3)
101
203
(65)
57
9%
8%
5%
11%
6%
26%
6%
1%
7%
11%
23%
18%
5%
10%
16.6
15.9
13.4
13.9
15.1
12.4
12.0
18.2
9.9
15.0
14.5
14.1
11.2
15.8
PE
(FY18E)
14.9
14.3
11.7
12.3
12.4
9.5
11.3
13.3
7.9
12.9
11.1
10.6
8.6
13.3
ROE
(FY17E)
33.2
23.0
17.8
26.8
19.7
13.6
42.4
18.2
17.9
27.9
15.2
20.7
14.2
17.4
ROE
(FY18E)
31.7
22.9
18.9
25.8
20.7
16.5
36.7
22.3
18.8
28.2
17.3
23.4
16.6
19.1
Dividend Dividend
yield
yield
(FY17E) (FY18E)
2.0
3.1
2.6
2.5
1.9
7.2
4.6
2.7
1.4
2.7
2.2
1.5
2.7
1.8
2.4
3.0
2.6
2.4
1.9
4.3
3.8
2.6
1.4
2.0
2.9
1.9
2.7
1.8
Neutral
Buy
Neutral
Buy
Buy
Neutral
Buy
Neutral
Neutral
Neutral
Buy
Buy
Neutral
Neutral
Source: MOSL, Company
Exhibit 43: Return ratios higher than peers
ROE (FY17E)
42.4
36.7
22.3
18.2
17.918.8
27.928.2
15.217.3
23.4
20.7
19.1
16.6 17.4
14.2
ROE (FY18E)
16.5
13.6
Source: Company, MOSL
Exhibit 44: FCF margins have been healthy
FCF/Revenue (%)
18.6
12.8
9.3
5.6
9.2
8.6
7.6
7.5
(2.5)
Source: Company, MOSL
14 December 2016
24

L&T Infotech
Scenario analysis – Favorable risk reward
Exhibit 45: Scenario analysis suggest ~50% upside in bull case v/s ~15% downside in bear case
FY17
943
6.3
63,688
11,273
17.7
239
11,034
2,322
8,712
49.8
Bear case
FY18
1,006
6.7
70,389
12,107
17.2
370
11,736
2,465
9,272
53.0
FY19
1,083
7.6
77,993
13,025
16.7
401
12,624
2,651
9,973
57.0
10
540
-17
FY17
957
7.9
64,641
12,461
19.3
249
12,212
2,570
9,642
55.1
Base case
FY18
1,038
8.4
72,602
13,376
18.4
428
12,948
2,719
10,229
58.5
FY19
1,127
8.6
81,216
14,203
17.5
485
13,719
2,881
10,838
61.9
13
800
22
FY17
976
10.0
65,904
12,805
19.4
303
12,502
2,631
9,871
56.4
Bull case
FY18
1,083
11.0
75,775
14,722
19.4
530
14,192
2,980
11,212
64.1
FY19
1,213
12.0
87,393
16,980
19.4
669
16,311
3,425
12,885
73.6
14
970
47
Source: Company, MOSL
Revenues (USDm)
Revenue growth (%)
Revenues (INRm)
EBITDA
EBITDA margin (%)
Dep/int/other income
PBT
Tax
PAT
EPS
Target PE (x)
Target price (INR)
Potential return (%)
Exhibit 46: Scenario analysis suggests ~50% upside in bull case v/s ~15% downside in bear case
FY17
3.5%
11.1%
-6.7%
9.9%
6.3%
Bear
FY18
4.0%
10.0%
-6.0%
10.0%
6.7%
FY19
5.0%
10.0%
-3.0%
10.3%
7.6%
FY17
3.5%
12.7%
-4.8%
12.3%
7.9%
Base
FY18
5.0%
12.0%
-4.0%
12.0%
8.4%
FY19
5.0%
10.0%
-1.6%
12.0%
8.6%
FY17
5.9%
13.1%
-2.4%
15.3%
10.0%
Bull
FY18
8.0%
12.0%
0.8%
15.0%
11.0%
FY19
10.0%
12.0%
3.8%
15.0%
12.0%
BFS
Insurance
E&U
Others
Total
Bull case suggests ~50% upside from current levels
Our sensitivity analysis suggests that in the bull case, LTI could generate EPS of
~INR74 (v/s INR62 in base case). Valuing LTI at 14x forward earnings (in line with
peers like MTCL and PSYS v/s 13x in base case – 10% discount to peers) yields a fair
value of INR970 (v/s TP of INR800), implying upside of 47%.
Stability in E&U:
Revenue in the E&U vertical declined by 20% in FY15 and 14%
in FY16. The pressure generated here resulted in overall revenue growth of
8.5/9.5% in FY15/16, excluding which growth was 16.5/14.1%. LTI believes the
worst is behind and expects stability going forward. While the sequential decline
reduced to 1.9% in 1QFY17 (v/s 11.1% in 1QFY16), the YoY decline has reduced
to 5.3% in 2QFY17, v/s 10.5% in 2QFY16. In our bull case, we are assuming a
seizure of decline at current levels, and gradual improvement, going forward.
No impact in BFS and Insurance:
BFSI, which constitutes 47% of total revenue,
has been under pressure for most other service providers. LTI, however, hasn’t
seen any pressure in the vertical, stemming out of macroeconomic uncertainty
or client-specific issues. Assuming no impact for LTI would lead to industry-
leading growth rates.
Valuation multiples in line with peers rather than at discount:
In our base case,
we have assumed target multiple of ~13x (10% discount to peers like MTCL and
25
14 December 2016

L&T Infotech
PSYS). MTCL and PSYS have been commanding higher multiples amongst mid-
cap peers on account of their presence in new-age services, and the fact that
this expertise has led to outperformance to industry. Improvement in traction
and scaling up of smaller accounts can lead to sustained industry-leading growth
for LTI, resulting in a higher multiple.
Bear case analysis indicates 17% downside from current levels
Our bear case sensitivity analysis shows that LTI could generate EPS of ~INR57 (v/s
INR62 in base case). Valuing LTI at 10x forward earnings (30% discount to peers like
MTCL and PSYS and in line with KPIT/NITEC v/s 13x in base case) yields a fair value of
INR540 (v/s TP of INR800), implying downside of 17% from CMP.
E&U woes continue:
In our bear case assumptions, we assume that the E&U
vertical continues going through pain, and declines by 3-6% in FY17/18/19 each
BFSI growth decelerates:
In FY16, BFS grew by 6.3%, which is below company
average of 9.5%, and below FY15 BFS growth rate of 13.1%. Assuming pressure
in BFSI spend, and its impact on LTI too, we would arrive at a lower growth rate
compared to the base case. If LTI gets impacted by these factors, the impact on
it could be aggravated compared to peers because of higher dependency on a
lower number of clients in this vertical.
Valuation multiple gap to broaden to 30% discount to peers:
In this case, we
have assumed target multiple at 10x v/s 13x in the base case. This multiple, we
have witnessed for peers with sub-par revenue growth, margin pressures and a
recovery lifecycle.
14 December 2016
26

L&T Infotech
SWOT Analysis
Strengths
Customer relationships:
LTI gets 68% of its total revenue from its top 20 customers. It has
strong relationships with these customers, which have grown in size and quality over the
years. Over the last three years, the top 20 clients have contributed to 76% of the
incremental revenue for LTI. In cases like Citi, LTI gained tremendous share in vendor
consolidation exercise proving its criticality.
Parentage:
LTI’s promoter is L&T, which is a leading Indian conglomerate in engineering,
construction, manufacturing, finance and technology. The parentage provides LTI with
access to professionals with deep industry knowledge in the sectors it is present in,
corporate and business culture and corporate governance practices.
Business to IT connect model:
The model leverages domain experience of L&T group
across industries to assist LTI in developing and delivering services and solutions, providing
an advantage over competition by being able to capitalize on strategic opportunities at a
faster pace.
Weaknesses
Portfolio composition:
With ~60% of total revenue from BFSI and E&U, LTI’s business
faces risks of downturn in these industries. Its performance has weakened over the last
two years because of weakness in E&U, which declined by 20/14% in FY15/16. The
pressure generated here resulted in overall revenue growth of 8.5/9.5% in FY15/16,
excluding which growth was 16.5/14.1%.
Hunting capabilities:
Hunting has lagged over the years in LTI, as the prime focus has been
to mine strategic accounts and scale them to drive overall growth. This has resulted in a
dominance of revenue and incremental growth from top customers. Non top 20
customers only drove 24% of the incremental growth between FY13-16.
Opportunities
Strategic accounts:
LTI’s success in its top 20 accounts can be replicated for the next set of
strategic accounts, leading to higher revenue growth going forward. Superior account
management, dedicated teams for multi-dimensional growth and reference cases can help
LTI maintain industry-leading growth rates.
Automation:
LTI’s bet in automation has been in robotic process automation (RPA). It has
the ability to get highly aggressive in this space as it doesn’t have a BPO practice and
hence wouldn’t lose out on any existing revenue because of cannibalization.
Expansion of Digital services:
Social, mobility and analytics together contribute to 11.5%
of total revenue. In all, 22% of all effort (and 26% of revenue) is Digital. Given growth seen
in this space, and LTI’s positioning, efforts, capability addition and new initiatives, overall
growth can be boosted further from these areas.
Threats
Cloud migration in ERP:
Cloud already constitutes to ~25% of the enterprise application
revenue for LTI. The company also has very strong expertise in the areas of digital
commerce, and S/4 HANA. However, pressure in the rest of the ERP portfolio because of
reducing deal sizes and duration can amount to pressure on growth.
Client concentration:
LTI gets 15/38/53/68% of its total revenue from its top 1/5/10/20
customers. Any customer facing issues (because of macroeconomic conditions or issues
specific to the customer) can lead to pressure on LTI's overall revenue growth and
performance.
Costs overshooting revenue in the near-term:
The company is currently in an investment-
mode as it gets ready to capitalize on new opportunities. This requires investments in the
form of people, capabilities, solutions and
reorganization. Investments may lead to
margin pressures if revenue growth follows with a lag.
14 December 2016
27

Company name
Company description
L&T Infotech (Bloomberg: LTI) is a provider of technology services and solutions.
With USD887m in revenue in FY16, it is the sixth largest IT services company in
terms of export revenue.
It offers an extensive range of services spread across diverse industries such as
banking and financial services, insurance, energy and process, consumer packaged
goods, retail and pharmaceuticals, media and entertainment, hi-tech and consumer
electronics and automotive and aerospace.
The company’s range of services includes application development, maintenance
and outsourcing, enterprise solutions, infrastructure management services, testing,
digital solutions and platform-based solutions.
LTI was incorporated in 1996 and is headquartered in Mumbai. Its promoter is L&T,
which is a leading Indian conglomerate in engineering, construction, manufacturing,
finance and technology. The parentage provides LTI with access to professionals
with deep industry knowledge in the sectors it is present in, corporate and business
culture and corporate governance practices.
As part of a business restructuring exercise conducted by L&T, all engineering
services businesses were consolidated under a separate subsidiary, LTTSL. As part of
this restructuring, on January 1, 2014, LTI sold and transferred the assets and
liabilities of its PES Business to LTTSL.
Exhibit 47: Revenue composition by verticals and services
Auto Aero
& Others ,
22
High-Tech,
Media &
Entertainm
ent , 11
CPG, Retail
and Pharma
, 8
Banking
and
financial
services ,
26
Digital
solutions,
11
Testing ,
10
Platform
based
solutions ,
3
ADM , 43
Insurance ,
21
IMS , 8
Energy and
Process ,
12
ERP , 25
Source: MOSL, Company
14 December 2016
28

L&T Infotech
Key management personnel
Sanjay Jalona, Chief Executive Officer & Managing Director
He has over 25 years of experience in the IT industry. Prior to joining LTI, he worked
at Infosys Limited as the Executive Vice President and Global Head of High-Tech,
Manufacturing and Engineering Services. He also served as a member of the Board
of Lodestone Holding AG and has also chaired the Board of Infosys Technologies
(China) Company Limited and Infosys Technologies (Shanghai) Company Limited.
Aftab Ullah, Chief Operating Officer
He has over 20 years of experience in the IT industry. Previously, he worked with BA
Continuum India Private Limited in various capacities including Senior Vice President
and Head, Global Delivery Centre of Expertise, India as well as Whole Time Director.
Ashok Kumar Sonthalia, Chief Financial Officer
He has over 24 years of experience in the areas of strategic financial planning,
treasury and finance and accounts in various industry verticals. Previously, he has
worked at senior finance positions in L&T Power IC, Greaves Cotton Limited and Tata
Group Companies – Tata Inc (USA), and Tata Chemicals Limited.
Manoj Biswas, Global HR Head
He has had business stints, where he has lead successful business /product verticals
in the US, in his earlier assignments. As Managing Director Human Resources with
Accenture, and IBM, he has led a successful people transformation journey, and has
worked for them, not only in India, but also outside the country.
Subramanya Bhatt, Company Secretary
He has over 44 years of experience in various fields such as banking, corporate
finance, legal and corporate compliance. Prior to this, he has worked with Bank of
India, Chemical Terminal Trombay Limited, a subsidiary of Tata Power Company
Limited, and Godrej Industries. He was appointed by L&T as the Chief Legal Advisor
on May 2, 2009, a position he holds currently.
Peeyush Dubey, Chief Marketing Officer
Peeyush joined LTI in 2015 and has been leading marketing organizations since
1999. Prior to this, he has worked with Mindtree, Infosys, iGate and IDS NEXT.
Sudhir Chaturvedi, President – Sales
Sudhir joined LTI in September 2016. Prior to this he was the Chief Operating Officer
at NIIT Tech, responsible for global sales and delivery of all technology and business
services. Before this, he worked with Infosys in several roles, the last being
responsible for heading Financial Services in Americas; and the others including
Head of UK, Head of Sales for Europe and Head of Manufacturing vertical for
Europe.
14 December 2016
29

L&T Infotech
Vertical Heads
Anil Vazirani, Chief Business Officer – Insurance & Testing, Americas
Harsh Naidu, Chief Business Officer – BFS, Americas
Siddharth Bohra, Chief Business Officer – Tech, Media, CRP & Digital, Americas
Rohit Kedia, Chief Business Officer – Manufacturing & ERP, Americas
Makarand Deolalkar, Chief Business Officer – Europe
Sarbajit Deb, Chief Business Officer – Nordic Region
Rajat Mathur, Chief Business Officer – Emerging Markets
Exhibit 48: Organization structure
Source: Company, MOSL
14 December 2016
30

L&T Infotech
Key risks
Policy changes:
Any policy change around H-1B visa immigrants is a key risk to
our earnings and valuation thesis.
Cloud migration in ERP:
Cloud already constitutes ~25% of the enterprise
application revenue for LTI. The company also has very strong expertise in the
areas of digital commerce, and S/4 HANA. However, pressure in the rest of the
ERP portfolio because of reducing deal sizes and duration can amount to
pressure on growth.
Client concentration:
LTI gets 15/38/53/68% of its total revenue from its top
1/5/10/20 customers. Any customer facing issues (because of macroeconomic
conditions or issues specific to the customer) can lead to pressure on LTI’s
overall revenue growth and performance.
Costs overshooting revenue in the near-term:
The company is currently in an
investment mode as it gets ready to capitalize on new opportunities. This
requires investments in the form of people, capabilities, solutions and
reorganization. Investments may lead to margin pressures if revenue growth
follows with a lag.
14 December 2016
31

L&T Infotech
Financials and Valuations
Income Statement
Y/E Mar
Net Sales
Change (%)
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
Other Income
Extraordinary items
PBT
Tax
Tax Rate (%)
Min. Int. & Assoc. Share
Reported PAT
Adjusted PAT
Change (%)
2012
31,820
33.1
6,612
20.8
1,049
5,563
342
96
138
5,454
1,409
25.8
0
4,045
3,907
24.7
2012
161
10,892
11,054
2,688
97
13,839
9,287
2,965
6,322
1,076
571
13,290
0
7,741
1,321
4,228
7,419
5,750
1,670
5,871
13,839
2013
38,514
21.0
8,643
22.4
1,232
7,411
208
221
-395
7,029
1,870
26.6
1
5,159
5,554
42.1
2013
161
13,227
13,388
2,336
148
15,874
11,004
4,013
6,991
1,424
487
14,696
0
8,744
1,194
4,758
7,723
5,842
1,880
6,973
15,874
2014
49,205
27.8
10,358
21.1
1,300
9,058
305
-833
-440
7,480
2,072
27.7
1
5,408
5,847
5.3
2014
161
15,942
16,103
1,100
412
17,617
11,733
5,245
6,488
567
1,688
18,262
0
10,504
1,589
6,169
9,388
6,880
2,508
8,874
17,617
2015
49,780
1.2
10,118
20.3
1,579
8,538
216
915
-2
9,235
1,683
18.2
2
7,550
7,552
29.2
2015
161
20,102
20,263
2,175
228
22,670
13,379
6,545
6,834
252
1,036
22,449
0
12,446
2,009
7,994
7,900
4,981
2,919
14,549
22,670
2016
58,471
17.5
10,359
17.7
1,740
8,620
158
2,960
0
11,422
2,250
19.7
1
9,171
9,171
21.4
2016
170
20,057
20,227
545
1,204
21,981
14,210
7,835
6,375
195
429
27,568
0
15,448
2,034
10,087
12,587
7,292
5,295
14,981
21,981
2017E
64,641
10.6
12,461
19.3
1,869
10,592
0
1,620
0
12,212
2,570
21.0
0
9,642
9,642
5.1
2017E
175
25,071
25,246
545
1,204
27,000
17,210
9,785
7,425
195
429
31,872
0
16,647
4,598
10,626
12,921
7,626
5,295
18,950
27,000
(INR Million)
2018E
72,602
12.3
13,376
18.4
2,163
11,213
0
1,735
0
12,948
2,719
21.0
0
10,229
10,229
6.1
2018E
175
30,390
30,565
545
1,204
32,319
20,210
11,948
8,262
195
429
36,741
0
18,300
6,905
11,537
13,309
8,013
5,295
23,433
32,319
2019E
81,216
11.9
14,203
17.5
2,325
11,879
0
1,840
0
13,719
2,881
21.0
0
10,838
10,838
6.0
2019E
175
36,026
36,200
545
1,204
37,954
23,210
14,273
8,937
195
429
42,059
0
20,026
9,573
12,460
13,666
8,371
5,295
28,393
37,954
Balance Sheet
Y/E Mar
Share Capital
Reserves
Net Worth
Debt
Deferred Tax
Total Capital Employed
Gross Fixed Assets
Less: Acc Depreciation
Net Fixed Assets
Capital WIP
Investments
Current Assets
Inventory
Debtors
Cash & Bank
Loans & Adv, Others
Curr Liabs & Provns
Curr. Liabilities
Provisions
Net Current Assets
Total Assets
(INR Million)
14 December 2016
32

L&T Infotech
Financials and Valuations
Ratios
Y/E Mar
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Cash P/E
Price / Book Value
EV/Sales
EV/EBITDA
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios (%)
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Creditors (No. of Days)
Leverage Ratios (%)
Net Debt/Equity (x)
2012
24.0
30.2
65.6
15.1
63.0
2013
30.6
37.9
79.4
18.0
53.4
2014
32.1
39.8
95.6
32.7
67.5
2015
44.8
54.2
120.2
28.5
62.9
2016
52.4
62.3
115.6
31.2
59.6
12.6
10.6
5.7
1.9
11.0
4.7
36.1
40.8
0.0
89
0
0
0.0
2012
6,612
-778
-1,402
-1,068
0
3,363
-1,594
1,769
588
35
-971
0
488
-61
-2,960
-2,533
-141
1,462
1,321
42.2
50.3
0.0
83
0
0
0.0
2013
8,643
349
-819
-2,096
0
6,076
-2,479
3,597
208
30
-2,242
0
-377
-98
-3,487
-3,962
-127
1,321
1,194
36.7
55.0
0.0
78
0
0
0.0
2014
10,358
-531
-1,408
-2,141
0
6,279
-950
5,329
-1,122
3,875
1,803
0
-1,229
-102
-6,356
-7,686
396
1,194
1,589
41.5
43.1
0.0
91
0
0
0.0
2015
10,118
-5
-922
-2,767
0
6,423
-1,939
4,484
794
117
-1,029
0
1,013
-56
-5,931
-4,974
420
1,589
2,009
45.3
39.9
0.0
96
0
0
0.0
2016
10,359
1,867
-936
-2,657
0
8,633
-1,141
7,492
675
25
-441
69
-1,663
-58
-6,516
-8,167
24
2,009
2,034
2017E
55.1
65.8
144.3
22.0
40.0
12.0
10.0
4.6
1.7
8.9
3.3
42.4
45.5
0.0
94
0
0
0.0
2017E
12,461
0
-1,405
-2,570
0
8,486
-2,919
5,568
0
1,620
-1,298
5
0
0
-4,628
-4,623
2,565
2,034
4,598
2018E
58.5
70.8
174.7
23.4
40.0
11.3
9.3
3.8
1.5
8.1
3.5
36.7
39.4
0.0
92
0
0
0.0
2018E
13,376
0
-2,176
-2,719
0
8,482
-3,000
5,482
0
1,735
-1,265
0
0
0
-4,910
-4,910
2,307
4,598
6,905
2019E
61.9
75.2
206.9
24.8
40.0
10.7
8.8
3.2
1.3
7.5
3.8
32.5
35.6
0.0
90
0
0
0.0
2019E
14,203
0
-2,293
-2,881
0
9,030
-3,000
6,030
0
1,840
-1,160
0
0
0
-5,202
-5,202
2,668
6,905
9,573
Cash Flow Statement
Y/E Mar
Adjusted EBITDA
Non cash opr. exp (inc)
(Inc)/Dec in Wkg. Cap.
Tax Paid
Other operating activities
CF from Op. Activity
(Inc)/Dec in FA & CWIP
Free cash flows
(Pur)/Sale of Invt
Others
CF from Inv. Activity
Inc/(Dec) in Net Worth
Inc / (Dec) in Debt
Interest Paid
Divd Paid (incl Tax) & Others
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
(INR Million)
14 December 2016
33

REPORT GALLERY
RECENT INITIATING COVERAGE REPORTS

L&T Infotech
NOTES
14 December 2016
35

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L&T Infotech
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Varun Kumar
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