L&T Tech shares jump 4% after Q3 results; why analysts are divided over this IT stock?

Shares of L&T Technology Services Ltd (LTTS) surged during the trading session on Wednesday after the company announced its earnings for the December 2023 quarter. The IT services player delivered upbeat performance in terms of profit, while revenue and Ebitda were a miss, said analysts, who remain divided on the stock.

L&T Technology Services reported a consolidated net profit of Rs 336.2 crore in the quarter ending December 2023, up 13 per cent compared to Rs 303 crore reported in the year-ago period. The consolidated revenue from operations in Q3FY24 came in at Rs 2,422 crore, rising 12 per cent on year-on-year (YoY) basis.

LTTS reported a soft Q3FY24. Revenue at $290.7 million rose 0.9 per cent QoQ, while EBIT margin edged up in-line 10 bps QoQ to 17.2 per cent. Despite the soft Q3, management maintained the FY24 growth guidance alluding to a strong Q4. Deal flow was solid with six $10 million deals, said Nuvama Institutional Equities.

LTTS management sounded very positive, with the CEO quoting 'Winter is over, Spring is around the corner'. We expect a strong pickup in revenue for LTTS over coming quarters. We are raising our target multiple to 35 times FY26E PE on enhanced revenue visibility, Nuvama added while upgrading the stock to 'buy' with a target price of Rs 6,260, from Rs 5,200 earlier.

In dollar terms, the revenue stood at $290.7 million in the December 2023 quarter, marking a growth of 11 per cent on YoY basis. LTTS' earnings before interest and taxes (Ebit) during the quarter stood at Rs 416 crore, while the EBIT margins came in at 17.2 per cent for Q3FY24.

3QFY24 earnings were largely in line while the management reiterating its FY24F guidance implies a 4-7 per cent QoQ CC revenue growth in 4QFY24F, said InCred Equities. The deal pipeline is better qoq/yoy but closure velocity has not improved, and client conversations suggest that CY24F spending could be flattish with a positive bias, it said.

"We believe 10-12 per cent could be a good starting point for FY25F US dollar revenue growth guidance. We tinker estimates and increase target price to Rs 5,361 to account for better margin execution and increase in the target PE/G to factor in improved demand visibility but retain our 'hold' rating," InCred added.

LTTS is working on multiple double-digit deals in SDVs, AI, cyber-security and next-gen communication to drive growth. There will be cost takeout and value engineering opportunities on product and supply chain as customers focus on higher productivity and efficiency. It has a good pipeline of opportunities across segments and there is an active M&A pipeline too, said Choice Broking.

The company re-affirms its revenue guidance of 17.5-18.5 per cent cc for FY24E on improving client core spends, focus on cost takeout deals and growth trajectory in SDV, AI and Next-Gen Communication, it said. "We maintain our rating to 'add' with a revised target price of Rs 6,090 implying a PE of 30 times on FY26E EPS of Rs 203."

Shares of L&T Technology Services surged more than 4 per cent to Rs 5,565 on Wednesday, merely shy of its 52-week high at Rs 5,567.85 hit on Monday, January 15, commanding a market capitalization of more than Rs 60,000 crore. The scrip had settled 5349.70 in the previous trading session on Tuesday.

Kotak Institutional Equities maintains its 'sell' rating on the stock on the back of expensive valuations. It has a fair value of Rs 4,700 on the stock. Deal wins were steady. "We retain our revenue estimates and increase EPS estimate on change in margin assumptions," it said.

LTTS revenues missed our estimates due to lack of seasonal kicker in India business from SWC and muted transportation verticals. A steep ask rate after management retention of 17.5-18.5 per cent revenue growth guidance is based on deal ramp-ups, seasonal strength in SWC and contribution from in-quarter ramp-ups of deals closed in 4QFY24E, added Kotak.

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