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* L&T Technology (LTTS) posted muted revenue of USD280m in 1QFY24, down 2.9% QoQ CC after adjusting for the SWC acquisition. Organic revenue growth of 0.6% QoQ CC/7.5% YoY CC missed our estimate of 2.4% QoQ due to push-out in the execution of few deals. Despite the revenue miss, LTTS management has reiterated its FY24 revenue growth guidance of 20% YoY (10% YoY organic), highlighting the ramp-up in deals from Jun’23 onward.

* EBIT margin declined 160bp QoQ due to the impact of the SWC acquisition (70bp on restated base) to 17.2%, in line with our estimate. LTTS has reaffirmed its FY24 EBIT margin guidance of 17%+ and expects to return to its historical margin level by FY26. It announced six USD10m+ deal wins (one USD50m+), which suggests a big jump in deal TCV vs. last quarter.

* While 1Q revenue performance was affected by deal delays, we hope for a recovery in FY24, as the management has guided for strong 2Q growth on account of a pick-up in execution across all six deals won in 1Q and expects better growth in 2HFY24 than in 1HFY24, aided by a large deal pipeline with many deals in USD25-50m TCV. Although our estimate (FY24 YoY CC growth of 9.5%) is slightly lower than the management’s organic growth guidance, we continue to anticipate a strong pickup in growth in FY25, resulting in a USD revenue CAGR of 18.0% over FY23-25 (13.6% YoY organic CAGR).

* We expect LTTS to achieve its consolidated EBIT margin guidance of 17%+ in FY24 (our est. 17.1%), and improve in FY25. Improving profitability should help the company deliver a robust INR EPS CAGR of 17.8% over FY23-25.

* We continue to see LTTS as attractive due to a better outlook for the ER&D services industry compared to the broader IT services universe and the growing penetration of outsourced ER&D services. We lower our FY24 EPS estimate by 3% on account of the 1Q revenue miss, but keep our FY25 EPS estimate intact. We retain our BUY rating on the stock with a TP of INR4,760 (premised on 31x FY25E EPS).

Miss on both revenue and margins

* Organic growth stood at 0.6% CC QoQ, missing our estimate of 2.4%. Revenue at USD280m declined 2.9% QoQ in CC (on restated 4QFY23 numbers). Reported growth was down 2.9% QoQ/up 9.1% YoY.

* The reported decline was led by the Telecom & Hi-Tech vertical (-12.8% QoQ on decline in SWC), followed by a 4.5% decline in Plant & Engineering.

* Growth was aided by Plant & Eng (+6.2% QoQ) and Medical Devices (+7.7% QoQ), followed by Industrial (+4.5% QoQ) and Telecom & Hi-Tech (+4.0% QoQ). Transportation was down 1.1% QoQ.

* EBIT margin at 17.2% (down 70bp QoQ) missed our estimate by 20bp QoQ.

* PAT of INR3.1bn was down 8.5% QoQ, below our estimate of INR3.4b.

* Cash conversion was strong at 62% OCF/EBITDA and 73% FCF/PAT.

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