L&T Tech trades lower as subdued Q1 earnings keep brokerages cautious

L&T Tech’s management has also maintained its revenue growth guidance of over 20 percent in constant currency terms, at a time when other peers have lowered their targets due to a difficult macroeconomic environment.

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Shares of L&T Technology Services dipped over 1 percent in early deals on July 19 after the company’s bottomline for the April-June period showed erosions that pushed brokerages to maintain a cautious outlook for the information technology services company.

L&T Tech recorded an 8.5 percent sequential decline in its consolidated profit during the quarter to Rs 311.1 crore, though it was 13 percent above the last year’s record.

Topline for Q1 stood at Rs 2,301 crore. The company’s revenue was down 2.9 percent from the last quarter acquisition of SWC, but spiked over 14.7 percent over the last year.  In dollar terms, its revenue was at $280 million, down from the $288.4 million in the last quarter.

Organically, revenue for the quarter came in at Rs 2,109 crore, up 0.6 percent sequentially. The EBIT margin also declined 70 basis points on a sequential basis to 17.2 percent in April-June, largely due to the integration of the SWC acquisition.

At 9.25am, shares of L&T Tech were down 0.4 percent at Rs 4,051.75 on the National Stock Exchange.

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The management also maintained its revenue growth guidance of over 20 percent in constant currency terms at a time when other peers have lowered their targets due to a difficult macroeconomic environment.

Foreign brokerage firm Nomura, which has a ‘reduce’ rating for the IT services company, along with a price target of Rs 2,980, sees the management’s 20 percent revenue guidance as lofty. The firm also believes that margin recovery to 18 percent is still some time away for L&T Tech.

Also Read: L&T Tech Services profit declines by 8.5% sequentially to Rs 311.1 crore in Q1FY24

Morgan Stanley also took notice of the decline in revenues on an organic basis but chose to maintain its ‘underweight’ stance on L&T Tech due to its valuation. Morgan Stanley has an ‘underweight’ rating on the IT services major, with a target price of Rs 3,200.

Nuvama Institutional Equities believes L&T Tech would continue to deliver on core business, but its SWC acquisition adds to uncertainty and would consume management bandwidth for the next two years. On that account, the domestic brokerage retained its ‘hold’ rating for the stock with a price target of Rs 3,870.

However, Motilal Oswal Financial Services has a slightly positive view for the IT company. The firm sees valuations as attractive for L&T Tech due to a better outlook for the ER&D (Engineering, Research, and Development) services industry compared to the broader IT services universe and the growing penetration of outsourced ER&D services.

Though the firm did lower its FY24 EPS estimate by 3 percent on account of the 1Q revenue miss, it still kept its FY25 EPS estimate intact for L&T Tech. MOFSL also has a ‘buy’ call on the stock, with a target price of Rs 4,760.

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