Arihant Capital has given Reduce recommendation for Larsen and Toubro Technology Services with a target price of Rs. 3802 in its research report issued on Apr 22, 2022
Arihant Capital’s research report on Larsen and Toubro Technology Services
The company clocked a revenue constant currency of $232 mn, +3.1%/+17.5% QoQ/YoY against our estimate of $235 mn led by growth in Transportation, Industrial Products and Plant Engineering. The consolidated revenue stood at INR 17,561 Mn, +4.1%/+21.9% QoQ/YoY against our estimate of INR 17,574 Mn.EBIT of INR 3,274 Mn +4.1%/+36.9% QoQ/YoY against our estimate of INR 3,339 Mn. EBIT margin of 18.6%, 1bps QoQ/+342bps YoY against our estimate of 19.0% supported by investments in talent and innovation. PAT of INR 2,632 Mn +5.4%/+27.8% QoQ/YoY was against our estimate of INR 2,759 Mn. EPS stood at INR 24.83, +5.2%/+34.8% QoQ/YoY. The company maintains FY23 USD revenue growth guidance of 13.5-15.5% Deal bookings strong: Total of 6 deals more than $10 mn won in Q4, that includes a $100 mn plus deal in EACV and another $25 mn plus deal. Revenues from digital and leading-edge technologies stood at 57% during the quarter. Headcount stood at 20,861 in Q4FY22. Offshore revenue mix was down 410 bps QoQ to 54.6% as travel resumes globally. The company’s utilization (including trainees) was down 80 bps QoQ 75.1% on higher fresher addition. L&T Technology Services declares a final dividend of INR 15/share.
The demand environment in FY23 would continue to be very strong led by its focus on 6 key bets. Considering expensive valuations and near-term margin pressure, we value LTTS at a PE of 31x to its FY24E EPS of INR 122.7, which yields a target price of INR 3,802 per share. We downgrade our rating to Reduce from Neutral.