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Inline operating performance; Reaffirmed FY24 revenue growth guidance to 17.5%-18.5% in cc

Result Synopsis

L&T Technology Services (LTTS) reported broadly inline financial performance for the quarter. Both, the sequential revenue growth and EBIT margin were as per expectation. It reported revenue growth of 0.9% QoQ in USD terms. The cc revenue growth was 0.9% QoQ in cc terms. There was sequential increase in EBIT margin (up 11 bps QoQ) to 17.2%. led by positive operating efficiency. Employee attrition continues to decline as LTM attrition decreased by 90 bps QoQ to 15.8%.

The near term demand environment remains challenging as 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 going ahead. We estimate revenue CAGR of 17.1% (including impact of SWC acquisition) over FY23?26E with average EBIT margin of 18.6%. We maintain our NEUTRAL rating on the stock with revised target price of Rs 5,447/share at 31x on FY26E EPS. The stock trades at PER of 34.4x/30.5x on FY25E/FY26E EPS.

Result Highlights

* Reported revenue of Rs 24.2bn (up 1.5% QoQ in INR terms, up 0.9% QoQ in USD terms). The sequential revenue growth was led by Transportation vertical (up 0.9% QoQ), Plant Engineering (up 0.9% QoQ) and Telecom & Hitech (up 0.9% QoQ).

* EBIT margin increased by 11 bps QoQ to 17.2%, due to lower direct costs (down 0.2% QoQ).

* Large deal wins were broad based, with 6 deals of USD 10 million plus TCV which includes one USD 40 million and one USD 20 million deal.

* The offshore revenue mix decreased by 90 bps QoQ to 58.7%. Number of Active clients increased to 364 clients in Q3FY24 from 362 clients in Q2FY24.

* Headcount decreased by 582 QoQ to 23,298 employees. LTM attrition decreased by 90 bps QoQ to 15.8%.

* Reaffirmed Guidance for FY24, USD revenue growth guidance of 17.5% to 18.5% in constant currency.

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