Neutral L&T Technology Services Ltd For Target Rs.4,295 - Yes Securities Ltd
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Result Synopsis
L&T Technology Services (INFO) reported mixed financial performance for the quarter. Both, the sequential revenue growth and EBIT margin were slightly below expectation. It reported revenue growth of 9.8% QoQ in USD terms, led by acquisition of SWC, which got completed with effect from 1st April 2023. Organic growth was 0.6% QoQ in cc terms. There was sequential decline in EBIT margin(down 155 bps QoQ) to 17.2%. impacted due to low margin SWC business. Employee attrition continues to decline as LTM attrition decreased by 330 bps QoQ to 18.9%. The long term demand environment remains intact led by growing outsourcing of ER&D services. However, the clients across sectors remain cautious regarding the evolving macroeconomic situation leading to slow decision making and thus impacting near term revenue performance. Improving employee pyramid and falling employee attrition will support operating margin. We estimate revenue CAGR of 18.2% (including impact of SWC acquisition) over FY23?25E with average EBIT margin of 17.7%. We maintain our NEUTRAL rating on the stock with revised target price of Rs 4,295/share at 29x on FY25E EPS. The stock trades at PER of 32.5x/27.5x on FY24E/FY25E EPS.
Result Highlights
* Reported revenue of Rs 23.0bn (up 9.8% QoQ in INR terms, up 9.8% QoQ in USD terms). On an adjusted basis the sequential revenue growth was led by Transportation vertical (up 3.9% QoQ); whereas Plant Engineering was down 4.5% QoQ and Telecom & Hitech was down 12.8% QoQ.
* EBIT margin decreased by 155 bps QoQ to 17.2%, led by impact from acquisition of SWC.
* Deal bookings remained healthy during the quarter, as it won 1 USD 50 million plus TCV deal and 5 USD 10 million plus TCV deal.
* The adjusted offshore revenue mix decreased by 270 bps QoQ to 59.3%. Number of Active clients increased to 357 clients in Q1FY24 from 356 clients in Q4FY23.
* Headcount addition grew by 318 QoQ to 23,393 employees. LTM attrition decreased by 330 bps QoQ to 18.9%.
* Guidance for FY24, USD revenue growth guidance of 20% plus in constant currency. The company aspires to reach $1.5 billion revenue run rate in FY25.
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