A reality check for LTTS revenue goals | Mint
Active Stocks
Tue Feb 27 2024 15:57:55
  1. State Bank Of India share price
  2. 749.70 -1.23%
  1. Tata Steel share price
  2. 144.15 1.09%
  1. Power Grid Corporation Of India share price
  2. 292.50 1.65%
  1. Sun Pharmaceutical Industries share price
  2. 1,579.10 1.42%
  1. ITC share price
  2. 411.15 0.48%
Business News/ Markets / Mark To Market/  A reality check for LTTS revenue goals

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.

In Q2, LTTS won seven deals worth a total contract value of $10 million across segments. But this is not exciting enough. “Quarterly large deal wins have been range-bound at six for the past three years. Excluding Smart World & Communication (SWC), LTTS just won four deals in Q2FY24, weak in our view," said a Kotak Institutional Equities report.

The silver lining is that deals from the SWC acquisition have started flowing in. Also, falling attrition and improving employee pyramid would support operating margin. For FY24, the company has maintained its earnings before interest and tax (Ebit) margin guidance at 17%. In Q2, despite wage hikes, LTTS clocked a 17.1% Ebit margin thanks to cost saving efforts via investments in technology. But this does not alleviate concerns on revenue growth outlook. Plus, Q3 is expected to be a weak quarter due to furloughs and potential delays in decision-making by clients. Unsurprisingly, analysts have cut earnings estimates. At FY25 price-to-earnings, the LTTS stock is trading at a multiple of nearly 31 times, showed Bloomberg data. Not only is this a premium to key tier-1 IT companies, but also expensive considering the gloomy demand outlook.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Check all the latest action on Budget 2024 here. Download The Mint News App to get Daily Market Updates.
More Less
Published: 18 Oct 2023, 09:37 PM IST
Next Story footLogo
Recommended For You

Get the best recommendations on Stocks, Mutual Funds and more based on your Risk profile!

Let’s get started
Switch to the Mint app for fast and personalized news - Get App