Robust revenue growth of 14.2% YoY driven by large deals has given a sharp boost to L&T Infotech’s stock price. After the Q3FY20 results were announced, the sixth-largest IT firm hit an all-time high of Rs.2,003. But investors are not upbeat about EBIT margin contraction from 19.1% in Q3FY19 to 16% this quarter. Thus, after the initial euphoria, the stock lost steam and now trades at Rs.1,930. Still, the 29% rally over the past six months makes L&T Infotech one of the most expensive midcap IT stocks. It currently trades at 19x for FY21, whereas Mphasis and Mindtree trade at 13.8x and 18.5x, respectively, for FY21.
A week after the results were announced, CEO of L&T Infotech, Sanjay Jalona sold shares worth Rs.57.4 million in three tranches between January 20 and 23. This was Jalona’s second disposal in the past three years. He had also sold shares worth Rs.64.9 million in two tranches in August 2018. He still holds stock worth Rs.268 million in the company. Other top management officials have offloaded shares worth Rs.35.8 million over the past two weeks.
Similarly, mutual funds have reduced their stake from 6.26% in September 2019 to 5.18% in December 2019. ICICI Prudential MF and DSP MF have reduced their stake from 0.63% and 0.52% to 0.50% and 0.27%, respectively. But the largest MF in the stock, UTI MF, has increased its holding slightly from 1.78% to 1.92%.
Rich valuation and disposal by top management is not dampening analysts’ spirits either. An HDFC Securities report states, “L&T Infotech’s pedigree coupled with growth momentum will continue to support its premium valuations.” They have maintained their conviction on the stock based on “broad-based growth drivers and a strong uptick in large account”, which provide growth visibility.
Foreign investors, too, have increased their stake from 7.70% in September 2019 to 9.11% in December 2019. Auburn, the biggest foreign investor in the firm, has kept its stake steady over the past year at 1.01%.