Markets
L&T Tech's FY24 revenue growth target looks ambitious
Summary
- Analysts believe LTTS would continue to deliver on core business, but SWC adds to uncertainty and would consume management bandwidth for the next two years
Shares of L&T Technology Services Ltd (LTTS) slipped 1.6% on the National Stock Exchange on Thursday, as investors were disappointing with the mid-cap IT company's June quarter (Q1FY24) earnings performance. Much like its peers, a delay in decision-making and seasonal impact on its Smart World and Communication (SWC) segment were key factors that weighed on LTTS' Q1 revenues.
The company's Q1 organic revenue grew 0.6% in constant currency (CC) terms sequentially, falling short of analysts' predictions. However, in a post-earnings discussion, LTTS management said that there has been an improved decision-making trajectory in June and July, instilling confidence in potential growth acceleration from Q2FY24. It maintained FY24 revenue growth projection of 20% CC on a reported basis, and 10% organic, aspiring to hit a $1.5 billion revenue run rate by FY25.
"We believe LTTS would continue to deliver on core business, but SWC adds to uncertainty and would consume management bandwidth for the next two years," said analysts at Nuvama Research.
LTTS management reiterated its Ebit margin forecast of around 17% for FY24. Ebit, or earnings before interest and tax, faced an organic dip due to investments in deal acceleration. The SWC's lower margin profile contributed to the reported margin of 17.2%, which fell shy of several analysts' expectations.
The road ahead may be bumpy for LTTS investors amid challenging global macroeconomic climate.
“With a weak start, FY24 organic growth of 10%+ in CC looks challenging (c4% CQGR required). Margins aspiration of 17% for FY24 also looks aggressive given wage hikes due in Q2 along with limited levers available (offshore multi-year high, S&A already optimised, lower margins in SWC)," said a Phillip Capital India Research report.
"Overall, soft start in Q1 will likely be compensated through quick ramp ups of deals already announced, a higher ask rate leaves no room for any disappointment. At 33x FY24 price-to-earnings, valuations remain expensive," added the report.
