LTTS Faces Stock Decline as Revenue Growth Guidance is Slashed

LTTS Faces Stock Decline as Revenue Growth Guidance is Slashed
LTTS Faces Stock Decline as Revenue Growth Guidance is Slashed
LTTS Faces Stock Decline as Revenue Growth Guidance is Slashed
LTTS Faces Stock Decline as Revenue Growth Guidance is Slashed

LTTS Faces Stock Decline as Revenue Growth Guidance is Slashed

LTTS Faces Stock Decline as Revenue Growth Guidance is Slashed

LTTS Faces Stock Decline as Revenue Growth Guidance is Slashed

The outlook for L&T Technology Services (LTTS) took a hit as the company reduced its revenue growth guidance for the current fiscal year, resulting in a sharp decline in its stock value. Despite reporting in-line revenue figures for the quarter ending September 2023 (FY24), the company’s shares plummeted by over 5.5 percent, reaching a day’s low of ₹4,360.35. This comes as a significant blow for investors, especially given that the stock had managed to gain 29 percent over the past year and 19 percent in the year-to-date of 2023. In contrast, Nifty IT posted a more modest 11 percent growth in both the last year and year-to-date for 2023.

Mixed Q2 Financial Results

In the company’s financial report for the September quarter, net profit registered a modest 5 percent increase, reaching ₹315.4 crore, compared to ₹300 crore in the same period last year. However, on a sequential basis, net profit grew by just 1.3 percent from ₹312 crore in the first quarter of FY24. The firm’s revenue showed a more positive trend, growing 4.6 percent year-on-year to ₹2,386.5 crore during the same quarter, compared to ₹2,281.7 crore in the previous year. Sequentially, it saw a 3.7 percent increase from ₹2,301.4 crore in the previous quarter.

The company attributed its growth to strong performance in the transportation vertical and plant engineering. In dollar terms, the revenue reached $288.1 million, reflecting a 2 percent year-on-year increase. On the operating front, earnings before interest, taxes, depreciation, and amortization (EBITDA) for Q2FY24 stood at ₹414 crore, a 3.4 percent increase from the ₹401 crore reported in June 2023. Despite the healthy EBITDA figure, the EBIT margin was somewhat muted on a quarter-on-quarter basis.

Guidance Cut Due to Workers Strike and Integration

LTTS management cited an elongated workers strike in the United States as the primary reason for revising the FY24 revenue growth guidance down from 20 percent year-on-year to a range of 17.5-18.5 percent. The strike has caused multiple project delays and hindered the ramping up of new projects. The company’s CEO and Managing Director, Amit Chadha, explained that the slower revenue growth is partly due to the integration with an acquired entity, noting that without this integration, growth would have been 16 percent.

Despite these challenges, LTTS has demonstrated strong deal momentum, securing a significant deal worth over $10 million that leverages SWC capabilities in North America. This win is attributed to LTTS having a superior end-to-end technology stack for wireless and 5G communications, which sets it apart in the industry.

In addition, L&T Tech announced an interim dividend of ₹17 per equity share, with October 27 set as the record date for the dividend payout.

Mixed Views from Brokerage Houses

Choice Broking upgraded its rating to ‘add’ and raised the target price to ₹5,090, suggesting an almost 17 percent upside. The brokerage highlighted LTTS’s investments in software-defined vehicles (SDVs), AI, and cybersecurity, as well as collaborations with hyper-scalers and chip companies, positioning the company to address the needs of industries such as auto, manufacturing, and medical.

On the other hand, YES Securities retained a ‘Neutral’ call on the stock with a target price of ₹4,689, implying a 7 percent upside. The brokerage noted that while LTTS reported broadly in-line financial performance for the quarter, the near-term demand environment remains challenging due to cautious clients and evolving macroeconomic situations. However, improving the employee pyramid and falling employee attrition are expected to support operating margin going forward.

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