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    Larsen & Toubro Infotech's all-round performance impresses investors but margin concerns persist

    business | IST

    Larsen & Toubro Infotech's all-round performance impresses investors but margin concerns persist


    Larsen & Toubro Infotech share price: LTI shares were in high demand on Friday after the software exporter reported a strong quarterly performance. However, attrition at the Mumbai-based IT company continued to be around 24 percent.

    Larsen & Toubro Infotech (LTI) shares were in high demand on Wednesday as the IT company surprised the Street with a strong set of earnings. The Mumbai-based software services exporter's profit exceeded analysts' estimates by a wide margin with a lower-than-expected drop in the margin — a key metric that determines profitability.
    LTI shares rose by as much as Rs 139.8 or 3.6 percent to Rs 4,013.5 a piece on BSE with large volumes.
    At 11:40 am, the L&T Infotech stock was up 2.4 percent at Rs 3,966.7, with a total of 30,000 shares having changed hands for the day as against a daily average of 22,000 in the past two weeks.
    Analysts are upbeat on the strong management commentary as well as headcount addition though persistently high levels of attrition remain a key concern.
    LTI's strong performance comes at a time when IT businesses are struggling against elevated employee costs thanks to high levels of attrition, even as robust demand and increasing spending on technology by other sectors continue to provide tailwinds.
    LTI's total headcount increased 27.3 percent to 48,766 in the April-June period compared with the previous three months.
    Nomura said the company's operating margin — revenue minus expenses towards taxes and interest (EBIT) — exceeded its forecast on account of non-recurrence of licence fees and favourable forex rates. 
    The brokerage's target of Rs 3,680 for LTI implies a discount of 5 percent from Thursday's closing price.
    Morgan Stanley — which has an 'equal-weight' rating on the stock with a target price of Rs 3,900 — said LTI's management commentary on the demand environment was more constructive than its peers. 
    L&T Infotech's revenue in dollars increased 1.7 percent sequentially to $580.2 million in the April-June period. Revenue in constant currency — or without fluctuations in currencies — increased 2.9 percent in the quarter ended June in comparison with the previous three months, as against analysts' estimate of 3.1-3.5 percent.
    Jigar Mistry of Buoyant Capital was of the view that investors should wait before going long on IT heavily.
    "Travel is coming back and attrition is much higher than what people imagined was a comfortable level and valuations have corrected... IT is not going anywhere per se. There is a certain level of growth that all these companies can theoretically report," he told CNBC-TV18.
    "But since margins are under pressure, and because we went up with the Nasdaq, it is a two-edged sword, commodities also, and therefore, you might have to bear the brunt a little bit," Mistry added.
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