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Prabhudas Lilladher Report
We cut LTTS’s rating to Accumulate from Buy as we cut DCF based target price to Rs. 4549 (earlier: Rs.5428) given expensive valuations on backdrop of possible moderation in ER&D spends (more discretionary in nature) given high inflationary environment, supply chain issues and global macro uncertainties and little scope for further margin expansion over FY23-24 due to higher manpower costs, return of travel costs and investments for future growth.
Our EPS estimates cut by 3.3%/4.2% in FY23/24 led by cut in revenue estimates. We assume ~18% margins in FY23 & FY24. FY23 USD revenue growth guidance of 13.5-15.5% YoY USD appears to be conservative given pickup in large deal wins especially in EACV segment in FY22 and all-time large deal pipeline. However, given possibility of moderation in ER&D spends due to macro uncertainties, guidance may not be upgraded by same level as it was done in FY22 (upgraded from 13-15% to 19-20%). Management targets to maintain 18%+ EBIT margin factoring in headwinds from intermittent wage hikes, travel costs, high admin expenses partially offset by tailwinds of growth leverage, better quality of revenues, pyramid optimization and operational efficiencies.
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