Add L and T Technology Services Ltd For Target Rs.5,251 - Yes Securities
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Overall, performance was ahead of expectations
Our view
Overall, the revenue and margin performance in the quarter was ahead of expectation. Demand environment continues to remain robust in all the operating segments of the company. Well placed to meet its FY22 growth guidance of 19â20% in USD terms. We expect revenue to grow at CAGR of 17.5% over FY22EâFY24E with average EBIT margin of 18%. Trades at stretched valuation of PE of 40.6x on FY24E EPS. We maintain ADD on the stock with revised target price of Rs 5,251/share.
Result Highlights
* Reported revenue of $217mn ( Rs 16.077 mn) up 5.7% in USD terms; up 5.9% in INR terms. The revenue growth was 6% QoQ in cc terms. The growth was led by strong performance in Medical Devices (up 9.6% QoQ) and industrial products (8.6% QoQ).. Raised revenue growth guidance for FY22 from 15â17% to 19â20%.
* EBIT margin increased by 116 bps QoQ to 18.4% (significantly above estimate even after wage hike for seniors in the quarter) led by positive operating leverage as other expenses declined from 12.4% of revenue in Q1FY22 to 11.6% of revenue in Q2FY22. 5th consecutive quarter of improvement in EBIT margin.
* Offshore revenue mix grew by 110 bps QoQ to 59.2% in line with industry trend.
* Employee utilization including trainees decreased by 110 bps QoQ to 78.1% on higher hiring. Added 1011 employees during the quarter to 17983 employees. LTM attrition increased by 200 bps QoQ to 16.5%, better than other tier 2 IT companies.
* Also declared special dividend of Rs 10/ share on completion of 5 years of listing.
Valuation
The stock trades at stretched PER of 40.6x on FY24E EPS. Robust deal booking provides strong visibility about revenue outlook over medium term. However, it faces potential margin headwinds such as travel expenses coming back and high attrition. We rollover to FY24E estimates and value the stock at 43x on FY24E earnings, arriving at target price of Rs 5,251/share.
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