Buy L&T Technology Services Ltd For Target Rs. 3,502 - Yes Securities
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Mixed operating performance for the quarter; seeing signs of softness in certain segments
Result Synopsis
L&T Technology Services (INFO) reported mixed financial performance for the quarter. While, the revenue growth was below with estimates, EBIT margin came slightly above expectation. It reported revenue growth of 0.4% QoQ in USD terms, led by Transportation vertical( up 4.4% QoQ) and Industrial products( up 0.9% QoQ). The INR reported growth of 2.7% QoQ was supported by depreciation of INR by 2.9% QoQ vs USD. There was sequential improvement in EBIT margin(up 51 bps QoQ) led by control on other expenses. There was slight decrease in reported employee attrition as LTM attrition decreased by 80 bps QoQ to 23.3%
The long term demand environment remains intact led by growing outsourcing of ER&D services. However, the clients especially in sectors such as Hitech and Medical devices have become cautious regarding the evolving macroeconomic situation leading to signs of demand softness in these segments and it poses near term risks. Employee attrition is expected to come down in H2FY23 and should support operating margin going ahead. We estimate revenue CAGR of 17.5% over FY22?24E with average EBIT margin of 18.3%. We maintain our NEUTRAL rating on the stock with revised target price of Rs 3,502/share at 28.5x on FY24E EPS. The stock trades at PER of 31.3x/27.7x on FY23E/FY24E EPS
Result Highlights
* Reported revenue of Rs 20.5bn (up 2.7% QoQ in INR terms, up 0.4% QoQ in USD terms). The constant currency growth was 13.5% YoY. The sequential revenue growth was led by Transportation vertical (up 4.4% QoQ), Industrial Products (up 0.9% QoQ). Whereas Telecom (down 2.7% QoQ), Medical Devices (down 1.5% QoQ) and Plant Engineering (down 2.7% QoQ) had muted performance.
* EBIT margin improved by 51 bps QoQ to 18.7%, led by control on other expenses.
* Deal bookings remained healthy during the quarter, as it won five USD 10 million plus TCV deals and a significant empanelment with Airbus in digital manufacturing.
* Offshore revenue mix improved by 210 bps QoQ to 57.0%. Number of Active clients remained flat at 343.
* Headcount addition was muted as total employees grew by 175 QoQ to 21,649 employees. LTM attrition decreased by 80 bps QoQ to 23.3%.
* Lowered its FY23 revenue growth guidance to 15% in cc terms from 15.5-16.5% earlier guidance.
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