Hold Larsen and Toubro Technology Services; target of Rs 3800: Sharekhan

Sharekhan's research report on Larsen and Toubro Technology Services

LTTS reported a revenue of $255.1million with constant currency (cc) revenue growth of 2.2% q-o-q/12.1% y-o-y, beating our estimates of 1.2% cc revenue growth q-o-q led by strong growth in Medical devices and Plant Engineering verticals. EBIT margin was flat q-o-q at 18.7% slightly above our estimates of 18.5%. LTTS won a $40 million deal and three $10 million plus TCV during Q4FY23 . The management expects to see another strong year of growth for FY24 and provided guidance of 20% plus in constant currency terms, within this organic growth would be 10% plus while the rest would come from SWC. The company expects the margin to decline by 180 bps q-o-q (180-200 bps earlier) due to integration of SWC in Q1FY24 Apart from near term uncertainty, the SWC acquisition is margin dilutive for FY24 and may provide only marginal synergies in the near-term.

Outlook

Hence, we maintain Hold rating on LTTS with revised PT of Rs 3800 despite strong deal wins, differentiated engineering capabilities and domain expertise in the diversified vertical mix. At CMP, the stock trades at 28.6x / 23.5x its FY24E/FY25E EPS respectively.