Neutral L&T Technology Ltd For Target Rs. 4,400 by Motilal Oswal Financial Services Ltd
A soft quarter
Macro headwinds stall growth in 4QFY25
* L&T Technology (LTTS)’s 4QFY25 revenue was up 10.6% QoQ/13.1% YoY in USD terms vs. our estimate of ~14.6% QoQ growth. In CC terms, revenue was up 10.5% QoQ/14.2% YoY. Growth was led by Hi-Tech (up by 27.9% QoQ) and Sustainability (up 1.9% QoQ), while Mobility was flat QoQ.
* EBIT margin stood at 13.2% vs. our estimate of 15%. Adj. PAT stood at INR3.0b (est. INR3.8b), down 2.3% QoQ/9.3% YoY.
* For FY25, revenue grew 10.6%, but EBIT/PAT declined 3.7%/3.4% YoY in INR terms. We expect revenue/EBIT/PAT to grow by 18.6%/6.5%/8.1% in 1QFY26 YoY. We reiterate our Neutral rating on the stock with a revised TP of INR4,400 (based on 27x FY27E EPS).
Our view: Weak 4Q margin exit slightly worrying
* Revenue misses guidance on macro headwinds: LTTS’ Q4 performance came in below expectations despite record large deal TCV wins, as macro pressures led to ramp-up delays and deferment of deal signings. Some engagements were also executed on an investment basis to support strategic clients, impacting organic revenue realization.
* Margins under pressure; trajectory must improve for a re-rating: EBIT margin dipped to 13.2% in 4Q, dragged by the full-quarter impact of Intelliswift (~150bp), revenue deferrals in high-margin segments, and oneoff client support investments. While management reiterated its 16% margin aspiration by Q4FY27–Q1FY28, the miss raises concerns. A clear margin trajectory reversal is critical for any sustained re-rating.
* Vertical commentary mixed: Tech delivered a strong 28% QoQ growth, buoyed by Intelliswift and traction in hyperscalers, retail, and healthcare. Sustainability grew 2% QoQ, with better visibility ahead in plant engineering and industrial. Mobility remained flat amid auto and offhighway softness, but management expects a turnaround by end-2Q.
Valuation and revisions to our estimates
* We expect USD revenue CAGR of 12% over FY25-27, with an EBIT margin of 14.6%/15.5% in FY26/27. We cut our FY26/FY27 EPS estimates by 7%/5% due to macro uncertainty and the recalibration of margin expectations. We reiterate our Neutral rating on the stock with a revised TP of INR4,400 (based on 27x FY27E EPS)
Revenue and margins below estimates; fall short of FY25 guidance
* USD revenue grew 10.5% QoQ CC below our estimated growth of 15% QoQ CC. Revenue stood at USD345.1m. For FY25, revenue stood at USD1.2b, up 8.9% YoY in CC vs. the guidance of 10% YoY in CC.
* LTTS has guided FY26 to be better than FY25, with double-digit constant currency growth and a reaffirmed medium-term revenue target of USD2b.
* Growth was led by Hi-Tech (up by 27.9% QoQ) and Sustainability (up 1.9% QoQ), while Mobility was flat QoQ.
* EBIT margin stood at 13.2%; down 270bp QoQ vs. our estimate of 15%. For Full year, EBIT margin stood at 14.9%.
* Adj. PAT was down 2.3% QoQ to INR3.0b but below our estimate of INR3.8b. For the full year, PAT stood at INR12.5b, down 3.4% YoY.
* The employee count increased 3% QoQ to 24,258, and attrition was down 10bp to 14.3%.
* Deal signings: one USD80m+, one USD50m+ along with a USD30m+, a USD20m+, and three USD 10m+ deals.
* For the full year, cash conversion was at 109% FCF/PAT.
Key highlights from the management commentary
* Investments made in 1HFY25 are expected to support future large deals. TCV in 1QFY26 appears similar to 4QFY25.
* The company anticipates FY26 to be a better year than FY25, targeting doubledigit constant currency revenue growth. The medium-term goal of achieving USD2b in revenue is reaffirmed.
* Growth is expected from key clients, supported by targeted client mining initiatives. A strong deal backlog supports the FY26 double-digit revenue growth guidance.
* LTTS posted a third consecutive quarter of organic QoQ growth, despite macroeconomic headwinds.
* Deals won in 3Q are ramping up and will contribute to revenues from 1QFY26.
* Clients are increasingly demanding efficiency improvements through AI.
* A good amount of traction in digital transformation and consolidation deals are underway in the US and Europe.
* Successful integration of Intelliswift has expanded the company’s portfolio in hyperscaler-driven segments, enabling LTTS to serve adjacent markets in Retail, Fintech, and Healthcare.
Valuation and view
* LTTS remains a diversified ER&D play, and with the added platform engineering capabilities from Intelliswift, it could be in pole position to capture the mediumterm growth recovery.
* We expect USD revenue CAGR of 12% over FY25-27, with EBIT margins of 14.6%/15.5% in FY26/27. We have lowered our FY26/FY27 EPS estimates by 7%/5% due to macro uncertainty and the recalibration of margin expectations.
* We reiterate our Neutral rating on the stock with a revised TP of INR4,400 (based on 27x FY27E EPS).
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