10 times return in 5 years! Should you buy this multibagger IT firm now?

You might need a lot of patience on high conviction bets to get a multibagger return. Information technology firm Larsen & Toubro Infotech (LTI), which disappointed investors in the initial months post listing in 2016, is one such firm in the listed space on Dalal Street. Shares of the company have rallied over 10 times in the past five years. The scrip has moved 938 per cent higher to Rs 6,781.85 on December 13, 2021 from Rs 653 in December 2016.

Of late, market watchers retained their mixed view on the company post the analyst day which was held on December 9. Brokerage firm Prabhudas Lilladher holds a ‘Buy’ rating on Larsen & Toubro Infotech with a target price of Rs 6,710, while Ambit Capital gave ‘Sell’ call to the IT firm with a target price of Rs 4,000.

L&T Infotech’s senior management outlined their strategy to sustain a track record of consistent revenue growth, scaling up tech capabilities, mining existing strategic clients, investing in new high potential verticals and markets and building sales and marketing teams. The management also mentioned that demand continues to be strong across all verticals, markets and service lines.

Consolidated revenue of the company has increased by over 16 per cent CAGR to Rs 12,369.80 crore during the past five years. Likewise, net profit has grown by 18.30 per cent CAGR to Rs 1,938.20 crore during the same period.

Prabhudas Lilladher believes that LTI’s strategy to sustain profit after tax margins at 14-15 per cent and invest back into business for building capabilities for the future will help it garner a higher market share and maintain its position in the leader’s quadrant.

Anand Rathi Share and Stock Brokers has a ‘Hold’ rating on LTI with a target price of Rs 6,960. It believes that medium-term demand is likely to be high on greater digital spending and high developed-world attrition.

On the other hand, Ambit Capital added that profit after tax of L&T Infotech to be at the lower end of the guided band of 14-15 per cent over FY23 and FY24 and look for EPS CAGR of 13.7 per cent over FY21-24E.

“We prefer Mphasis (Buy) within tier-2 IT, trading at around 23 per cent discount to L&T Infotech, despite stronger growth within its direct business and better margin stability,” Ambit Capital said in a report.

Overall, the domestic IT industry is showing strong growth momentum and management of most of the companies are sounding very confident about the growth story for the next 4-5 years.

Commenting on the further movement of LTI, Santosh Meena, head of research, Swastika Investmart said, “L&T Infotech is one of the fastest-growing IT firm and its management reiterated its guidance for strong broad-based growth for the coming 3–5 years. The growth momentum is likely to continue with more than a 15 per cent margin on the back of a strong demand outlook.”

LTI's management highlighted ‘Great Restructuring’ as a key growth driver where the next leg of revenue growth will be driven by cloud, data, and digital services.

“Technically, LTI is in strong bullish momentum where it is consolidating before resuming its uptrend where it may head towards Rs 9,000 mark in the next 6-8 months while Rs 11,000 looks a possibility in the next 1-2 years.  On the downside, Rs 6400 is acting as a near-term base while the Rs 6,000-5,600 area will be a critical support zone at any meaningful correction,” Meena said.

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