Buy Larsen and Toubro Technology Services: target of Rs 5350: Sharekhan

The research firm ICICI Securities believes earnings of apparel brands and retail companies under their coverage may surprise positively from Q3FY22E as the likely demand recovery may result in better than expected margin performance. Some of the costs savings achieved during pandemic may sustain and coupled with high operating leverage may lead to higher than pre-covid margins from Q3FY22E.  Stocks like Trent, V-Mart and Aditya Birla Fashion and Retail are the preferred picks backed by their strong and consistent track record of execution.

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Sharekhan's research report on Larsen and Toubro Technology Services

Q4FY22 revenue growth moderated to 3.6% q-o-q due to weak growth in medical devices vertical, while EBIT margins beat our estimates despite higher attrition, lower utlisation and rising onsite mix. The quarter saw a record-high deal TCVs and good client mining. LTTS guided for revenue growth of 13.5-15.5% in USD terms for FY2023, broadly on the expected line, which implies USD CQGR of 3.0-3.7%. The management is confident of achieving over 18% EBIT margin in FY2023. LTTS is well-poised to garner higher market share among global competitors given its multi-domain expertise, a full-service model in engineering space and a robust client base. It is one of the best plays in the fast-growing ERD space.

Outlook

We maintain a Buy on LTTS with a revised PT of Rs. 5,350, given consistency in large deal intakes, continued strong growth in transportation vertical and pick-up in digital engineering spends across verticals.

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