Hold Larsen and Toubro Technology Services; target of Rs 5100: Sharekhan

Sharekhan's research report on Larsen and Toubro Technology Services

LTTS reported revenue of $288.1 million with constant currency (cc) revenue growth of 3.2% q-o-q/1.4% y-o-y, nearly in line with our 3.5% CC revenue growth estimate led by broad-based growth, especially from Transportation and Plant & Engineering verticals. EBIT margin was flat q-o-q at 17.1% slightly missing our estimates of 17.3% as margin pressure due to wage hikes and investments in new technologies was offset by improved utilization and cost optimisation. Large deal wins were broad based, with seven deals more than $10 million plus TCV out of which six were $15 million each. The management has revised the revenue growth guidance for FY24 to 17.5-18.5% in constant currency from 20% plus considering the UAW strikes from mid-September in US and the macros that are developing amid prevailing uncertainty. Despite the strong deal wins and improving traction in its diversified verticals, the management has baked in a general caution by revising the guidance to reflect the longer decision cycles and incremental headwinds from the macro-economic stress in various geographies.

Outlook

Hence, we maintain a Hold rating with a revised price target of Rs. 5,100 (increase in PT reflects roll forward to FY26E EPS). Stock is currently trading at a multiple of 31.4/27.2x its estimated FY25 and FY26E EPS, respectively.