Hold Larsen and Toubro Technology Services target of Rs 3535: Sharekhan

Sharekhan's research report on Larsen and Toubro Technology Services

For Q3FY23 LTTS reported revenue at $248mn, up 2.7% q-o-q .Revenue growth in constant currency was flat, missing our estimates by 140bps, impacted by higher-than-expected furloughs and seasonality. EBIT margin at 18.7% improved by ~60 bps which was ~25 bps above our estimates. In Q3FY23, LTTS won five USD 10 million plus TCV deals and a significant empanelment with Airbus in digital manufacturing. Only Transportation vertical grew at a healthy pace, aided by the ramp-up of large deals, while Plant engineering, Hitech and Medical devices verticals declined q-o-q. The Telecom & Hi-tech segment witnessed a challenging quarter due to the weakness in ISV consumer electronics and semi-conductors while Plant engineering was impacted by higher furloughs. LTTS cut its revenue growth guidance to 15% from 15.5-16.5% in CC terms for FY2023E. On the recent acquisition of SWC, the company expects the margin to decline by 180-200 bps q-o-q due to integration in Q1FY24.

Outlook

We expect FY24 outlook to be uncertain on account of global headwinds and any recovery is most likely to be gradual. The recent SWC acquisition will be margin dilutive for FY24 and may provide only marginal synergies in the near-term. Hence, we maintain Hold rating on LTTS with revised PT of 3535 given strong deal wins in the diversified vertical mix. At the CMP, the stock trades at 28.5x / 23.2x its FY24E / FY25E EPS respectively.