L&T Technology Services - Unfavourable risk-reward, expensive valuations - ICICI Securities

LTTS reported a miss on revenue growth by 130bps at 3.1% QoQ USD (Isec:4.4%). In CC terms, revenues grew 3.6% QoQ. In terms of verticals, Transportation reported strong growth of 7.8% QoQ, followed by Plant Engineering (+3% QoQ). Telecom & Hi-tech grew 1.1% QoQ, while Industrial Products / Medical Devices remained largely flat sequentially. Management guided for organic growth of 13.5-15.5% YoY USD for FY23 which is way below our/consensus revenue growth estimate of ~19%. We believe the guidance is a bit conservative against the backdrop of the robust vertical and deal pipeline commentary. We forecast 14.5%/14% revenue growth for LTTS for FY23/24.

EBIT margin for the quarter stood at 18.6% (vs Isec: 18%), flat QoQ. We expect margins to remain range-bound in the near term (>18%) given supply side pressures and reinvestment back in the business for growth, and forecast margins of 18% for FY23/24. Headwinds from the return of travel and discretionary costs and wage inflation can be offset by a better margin profile in low-margin verticals, productivity gains and cost efficiencies.

In Q4, LTTS won a $100 million plus deal in the EACV space - being chosen as the strategic engineering partner for a new-age electric VTOL (Vertical Takeoff and Landing) aircraft program. Deal bookings continue to be strong with a total of six deals worth more than $10 million won in Q4, including a $100 million plus deal in EACV and another $25 million plus deal.

Our EPS estimates are reduced by 3.2%/6% for FY23/24 on account lower revenue growth guidance for FY23. Margin estimates remain intact at 18% for FY23/24. LTTS currently trades at 35x FY24E P/E for FY22-FY24E EPS CAGR of 16%, PEG of 2.1x.

While LTTS is well positioned to play the ERD theme and grow at premium rates, we do not find the risk-reward favourable. We value the stock at 32x (earlier 34x) FY24E EPS. Maintain REDUCE rating with a revised target price of Rs3,908 (prior: Rs4,413).

Shares of L&T Technology Services Limited was last trading in BSE at Rs. 4244.35 as compared to the previous close of Rs. 4184.70. The total number of shares traded during the day was 15794 in over 2814 trades.

The stock hit an intraday high of Rs. 4277.20 and intraday low of 4177.55. The net turnover during the day was Rs. 66983037.00.

Source : Equity Bulls

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LandTTechnologyServices INE010V01017 LTTS Q4FY22 FY2022 ResultUpdate ICICISecurities