Buy L&T Technology Services Ltd For Target Rs. 5,862 By Choice Broking Ltd
LTTS reported Q2FY25 revenues at $306.7mn, up 3.4% QoQ and 6.3% YoY in CC terms led by broad-based performance across all 3 segments. In USD terms, it was up 3.9% QoQ and 6.5% YoY whereas in INR terms, revenue came at INR25,729mn, up 4.5% QoQ and 7.8% YoY. During the quarter, LTTS won two USD20mn deals, four USD10mn TCV deals and two significant empanelment agreements in Sustainability. PAT for the quarter came at INR3,196mn, up 1.9% QoQ and 1.3% YoY with EPS at INR30.2.
* LTTS reported a robust quarter, achieving a sequential growth rate of 4%, driven by strong performance across all three segments. Notably, the Sustainability segment excelled, recording a 6.5% increase fueled by previous large deals and strategic empanelment agreements. Mobility also demonstrated impressive growth at 5%, largely attributable to its differentiated value proposition in SDV and hybridization efforts. In the Technology segment, it is witnessing an enhancement in growth momentum, particularly among hyperscaler customers. In Q3, Mobility segment is expected to remain soft on account of furloughs while Sustainability and Hi-Tech segment shall drive the growth. The focus on product, platform, and silicon engineering has positioned favorably enabling to secure larger deals and amplify our engagements significantly. The current pipeline is promising, featuring larger-sized deals that involve consolidation and advanced technology-led transformations. Management remains confident in the vision articulated for the company and anticipates the continuation of broad-based growth. This optimistic outlook is supported by the evolving landscape of technological advancements and the strategic initiatives being undertaken to capitalize on emerging opportunities. As the market dynamics shift, staying ahead of trends will be crucial for sustained success. Management has re-affirmed its revenue guidance of 8-10%cc growth for FY25E led by a bumper Q4.
* The company has experienced an increase in AI-led deal conversations, with its portfolio of AI and GenAI solutions and accelerators driving success in key focus areas across various segments. In line with the ‘Go Deeper to Scale’ strategy, the company has prioritized investments in three segments—sales, solutions, and labs— during H1 FY25. This focus on AI is enhancing its ability to secure deals in these critical areas.
* Operating (EBIT) margins for the quarter came at 15.1%, down 51bps QoQ and 201bps YoY impacted by investments in each segment leading to higher SGA expenses. Management identifies margin expansion levers like quality of revenue, off-shoring, SGA cost optimisation and pyramid optimization. The margins for the H2FY25 is expected to be higher than that of the H1FY25 as efforts are being made to optimise SGA expenses. The company has maintained its EBIT margin guidance at 16% for FY25E
Valuation: With a pipeline that includes substantial deals centered on consolidation and advanced technology-driven transformation, the company is confident in its vision and its medium-term outlook of achieving $2bn in revenue with an EBIT margin of 17- 18%. We have introduced FY27E and expect Revenue/EBIT/PAT to grow at a CAGR of 12.5%/12.1%/13.4% respectively over FY24-FY27E. We maintain our rating to BUY with a revised target price of INR5,862 implying a PE of 35x on Sep-FY27E EPS of INR168.
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