Buy L&T Technology Services Ltd For Target Rs.4,583 - Yes Securities
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Performance was broadly as per expectation
Our view and valuation
Overall, the revenue and margin performance in the quarter was broadly inline with expectation. Demand environment continues to remain robust in all the operating segments of the company and the rising frequency of large sized deals provides strong revenue growth visibility. FY23 revenue guidance of 13.5‐15.5% growth in USD terms remains as per expectation. It faces certain cost headwinds like travel and higher admin costs as offices open gradually. However, positive operating leverage, better revenue mix and continued focus on productivity measures should enable EBIT margin above 18%. We expect revenue CAGR of 17.4% over FY22‐FY24E with average EBIT margin of 19%.
We maintain ADD rating on the stock and value it at 35x on FY24E earnings, arriving at target price of Rs 4,583 /share. The stock trades at PER of 31.3x on FY24E EPS.
Result Highlights
* Reported revenue of Rs 17,561mn( up 3.1% QoQ in USD terms, up 4.1% YoY in INR terms). The sequential growth was led by Transportation vertical ( up 7.8% QoQ); while Industrial products( down 0.5% QoQ) Medical Devices( down 0.2% QoQ) had muted quarter. Digital technologies now account for 57% of revenue compared to 56% in Q3FY22.
* EBIT margin was flat QoQ at 18.6% on better optimisation of SG&A expenses.
* Deal booking remained strong as it won a $100mn plus deal, a $25mn plus deal and 4 other deals with TCV of $10 mn plus.
* Offshore revenue mix was down 410 bps QoQ to 54.6% as travel resumes globally.
* Number of active clients increased by 6 during the quarter compared to addition of 4 clients in Q3FY22.
* Added 743 employees in quarter ( 3.5% of Q3 employee base) to reach 20,861 employees. LTM attrition increased by 290 bps QoQ to 20.4% in line with industry trend.
* Utilization( including trainees) was down 80 bps QoQ 75.1% on higher fresher addition.
* Declared final dividend of Rs 15/ share, subject to approval of shareholders
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