A reality check for LTTS revenue goals
The worry is that the demand for engineering and R&D services could come under pressure given its discretionary nature and high sensitivity to macroeconomic conditions.
The caution on muted client spending is spreading fast to midcap information technology (IT) companies from larger peers. L&T Technology Services Ltd (LTTS) now expects its constant currency (CC) revenue growth for FY24 to be 17.5-18.5%, against its earlier expectation of 20% plus. The downward revision is on the back of a protracted United Auto Workers strike in the US. This is leading to a pause in multiple projects and causing deferrals in ramping up new projects, the management said. Against this backdrop, investors took the stock down by 5.6% on Wednesday even as LTTS’s September quarter (Q2FY24) CC revenue growth was up 3.2% sequentially, beating analysts’ estimates as well as key tier-1 peers. The worry is that the demand for engineering and R&D (ER&D) services could come under pressure given its discretionary nature and high sensitivity to macroeconomic conditions. According to HDFC Securities, LTTS’s differentiation as a pure-play ER&D services company lies in its domain capabilities across a diversified vertical base, but revenue growth print may be impacted by a longer deal conversion cycle.
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