Buy L&T Technology Services; target of Rs 5,500: Sharekhan

Sharekhan's research report on L&T Technology Services

Reported revenue stood at $295 million, down 3.1% q-o-q/ up 6.1% y-o-y in constant currency (cc), missing our estimates of $301 million on account of SWC seasonality. EBIT margins declined~ 130 bps q-o-q to 15.6% in-line with estimates. The company won seven deals during the quarter, two $30 million deals, two $15 million deals and three deals with TCV of $10 million. The company is confident of achieving 8-10% revenue growth and expects growth in all upcoming quarters and a stronger H2FY25 as compared to H1FY25 while continuing the aspiration for $1.5 billion run-rate for FY25.

Outlook

LTTS reported weak revenue growth and margin performance owing to SWC seasonality. The company is confident of achieving an 8-10% revenue growth and aspires for 16% margin for FY25. The company expects EBIT margin trajectory in H2 to be better than H1. Despite the weak start to FY25, we believe the company is likely to see incremental uptick in the quarters to follow from rebound in the hi-tech vertical, recovery in Sustainability segment, ramp up of deals, strong pipeline and seasonal SWC benefit in H2FY25. We expect a sales/PAT CAGR of 14.7%/16.3% over FY24-26E. We maintain Buy on the stock with unchanged PT of Rs 5,500. At CMP, the stock trades at 38.4/29.3x its FY25/FY26E EPS.