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Result Synopsis

L&T Technology Services (INFO) reported strong financial performance for the quarter. While, the revenue growth was inline with estimates, EBIT margin came above expectation. It reported constant currency growth of 4.5% QoQ, led by Transportation vertical( up 7.4% QoQ) and Plant Engineering( up 4.6% QoQ). The INR reported growth of 6.5% QoQ was supported by depreciation of INR by 3.4% QoQ vs USD. There was sequential decline in EBIT margin(down 14 bps QoQ) led by impact of wage hike in the quarter(slightly offset by control on other expenses). There was slight increase in reported employee attrition as LTM attrition increased by 90 bps QoQ to 24.1%.

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 17.9% over FY22?24E with average EBIT margin of 18.9%. We maintain our NEUTRAL rating on the stock with revised target price of Rs 3,696/share at 28.5x on FY24E EPS. We have slightly increased its target valuation multiple from 27.5x to 28.5x. The stock trades at PER of 33.9x/28.3x on FY23E/FY24E EPS

Result Highlights

Reported revenue of Rs 19.9bn( up 6.5% QoQ in INR terms, up 3.2% QoQ in USD terms). The constant currency growth was 4.5% QoQ. The sequential revenue growth was led by Transportation vertical( up 7.4% QoQ), Plant Engineering( up 4.6% QoQ).Whereas, Telecom( down 1.3% QoQ), Medical Devices( down 2.3% QoQ) had muted performance.

EBIT margin was down 14 bps QoQ to 18.2%, led by impact of wage hike in the quarter, slightly mitigated by control on other expenses.

Deal bookings remained healthy during the quarter, as it won a $60 mn plus deal and a deal with TCV of $10 mn.

Offshore revenue mix declined by 130 bps QoQ to 54.9%. Number of Active clients increased by 6 QoQ to 343

Headcount addition was muted as total employees grew by 44 QoQ to 21,474 employees. LTM attrition increased by 90 bps QoQ to 24.1%

Increased its revenue growth guidance for FY23 from 13.5%-15.5% to 15.5%- 16.5%. in cc terms. Declared interim dividend of Rs 15/ share with Oct 28 as the record date.

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