Buy Larsen and Toubro Technology Services; target of Rs 4040 : Motilal Oswal

Motilal Oswal's research report on Larsen and Toubro Technology Services

L&T Technology (LTTS) posted 2.2% CC QoQ revenue growth in 4QFY23, beating our estimates of 1.3% growth and implying a limited hit from macro headwinds. Q4 growth was broad-based across verticals with the exception of Transportation, which declined 1.1% QoQ from a high base. EBIT margin was flat at 18.7%, marginally missing our estimate. LTTS announced four USD10m+ deal wins, with one above USD40m, and indicated that the deal ACV in FY23 was up YoY, along with continued momentum in new deals.  Strong topline performance in Q4 resulted in FY23 revenue growth of 15.8% YoY CC, ahead of the company’s guidance (trimmed in 3Q). LTTS also provided its initial FY24 USD CC revenue growth guidance of 20%+ (10%+ YoY CC organic growth), which included a USD100m contribution from the SWC acquisition.

Outlook

We continue to view LTTS as a beneficiary of the growing penetration of ER&D Services. We raise our FY24-25 EPS estimates by 3% on account of a good Q4 performance and retain our BUY rating on the stock. We value LTTS at INR4,040 (premised on 26x FY25E EPS).

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