IGI Logo

Mixed performance; upbeat management commentary

LTTS’s operating performance in Q3 was a mixed bag. Revenue grew 0.9% QoQ (0.9% cc) but missed our expectations, while the 17.2% EBITM was a tad above our estimate. Company reported 6 large-deal wins (TCV of over USD10mn) and two empanelment agreements (with ‘bp’ and an auto OEM), with the pipeline seeing improvement from the previous quarter. The management highlighted that interactions with clients suggest CY24 tech spending to be steady/slightly higher, with continued focus on cost takeout, efficiency, and value engineering. The management is seeing some early green shoots, and metaphorically stated: winter is over, and spring is around the corner. LTTS retained FY24 revenue growth guidance of 17.5-18.5%, implying 4-7% QoQ growth in Q4, with a high degree of confidence on the lower end due to SWC seasonality as well as planned deal ramp-ups and working towards the upper-end, assuming new deal-wins. We largely retain our FY24-26 estimates. Given the rich valuations, we retain REDUCE on LTTS, with unchanged TP of Rs5,050 at 30x Dec-25E EPS.

Results Summary

LTTS’s revenue grew 0.9% QoQ (0.9% cc) to USD290.7mn, below consensus/our estimates. All five verticals reported positive sequential growth in Q3, led by medical devices (2.4%), Telecom and Hi-Tech (1%), Transportation (0.9%), Plant Engineering (0.7%), and Industrial Products (0.1%). In terms of geography, Europe/India/ROW logged growth of 6.4%/0.4%/0.5% QoQ, while America reported a dip of 0.4% QoQ. Top-5 clients’ revenue grew 6.3% QoQ and was the key driver of QoQ growth. EBIT margin was 17.2%, marginally higher than our estimate. LTTS reported 6 deal wins above USD10mn; these include one deal worth more than USD40mn and another above USD20mn. Overall headcount declined 2.4% QoQ to 23,298. What we liked: Broadbased growth, further moderation in attrition to 15.8%, steady deal wins. What we did not like: Weak cash conversion (56% OCF/ EBITDA), weakness, ex Top-5 clients.

Earnings Call KTAs

i) The management continues to see build-up of discussions around new technology across all the 3 sub-segments of Transportation. It believes SDV will witness the next big wave of spending in coming years. Company won a large deal in avionics in Aero and deal discussions are under way, with new logos in new age aerospace like electric hybrid aircraft building. Three large-deal wins and an SDV deal win in Q3 grant the management confidence on strong growth momentum ahead in transportation. ii) Plant engineering witnessed broad-based growth across FMCG, O&G, and Chemicals, and Company started a significant relationship with ‘bp’ in Q3. Customers continue to invest in new capex due to more regionally self-sufficient supply chains, embark on plant modernization, and look at sustainable investments like reducing energy consumption and moving towards greener fuels. iii) LTTS is seeing signs of turnaround in semicon, with spending freeze in the past few quarters being slowly lifted. The management expects growth to continue in Telecom and Hi-tech due to a good pipeline, and expects gradual improvement as deals are closed. iv) Budgets in medical are likely to remain constrained in the near term, but see consolidation and AI-driven opportunities driving growth in the medium term. v) The management commented that USD1.5bn revenue run-rate aspirations in FY25 hinge on M&A, and further update will be provided at end-FY24. vi) The lower-end of FY24 guidance bakes-in deals that are already ramping-up, while the upper-end includes deals that the company will win going forward. LTTS retained EBITM guidance of ~17% for FY24 and medium-term aspiration of 18% by H1FY26.

Forn More Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf

& SEBI Registration number is INH000000354