Buy Larsen and Toubro Technology Services; target of Rs 6220: Motilal Oswal

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

L&T Technology (LTTS) posted revenue of USD291m in 3QFY24, up 0.9% QoQ CC and slightly below our estimate. Revenue performance was broad based, led by Medical Devices (+2.4% QoQ). Despite 3Q seasonality, dealsigning was strong, as LTTS signed six large deals with USD10m+ TCV. The management maintained its FY24 revenue growth guidance at 17.5-18.5%, which implies a strong exit to FY24 (+4.0-7.0% QoQ CC), aided by SWC seasonality. EBIT margin wasflat at 17.2% (up 10bp QoQ), missing our estimate of a 60bp QoQ improvement. Despite the net headcount reduction of ~600, the margin improvement was muted in 3Q as utilization was low due to furloughs and higher SG&A costs.

Outlook

We keep our FY24/FY25 EPS estimates broadly unchanged after the 3QFY24 results. We retain our BUY rating on LTTS with a TP of INR6,220 (based on 35x FY26E EPS), considering 1) a better outlook for the ER&D services industry compared to the broader IT services universe, and 2) the growing penetration of outsourced ER&D services.

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