L&T Technology Services, Shoppers Stop Gets 'Reduce' Ratings From HDFC Securities After Q3 Results; Here's Why

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HDFC Securities Institutional Equities

L&T Technology Services - Ask rate remains steep

L&T Technology Services Ltd.’s Q3 growth came in lower than our estimates, but a steep acceleration in Q4 is likely (due to SWC seasonality). While the organic growth outlook for FY25E was revised to 8%, down from the earlier 8-10% (as expected), management’s commentary indicated “better growth in FY26E versus FY25E.”

We reckon this is likely to include the Intelliswift acquisition, but is unlikely to be organic. Headwinds in the automotive subsegment of Mobility (32% of revenue) are likely to disrupt growth in the near term. L&T Tech’s growth will be supported by-

1. a marquee client base (large ER&D pool) and continued growth in sourcing/vendor consolidation,

2. strong partnerships in the chip ecosystem, and

3. enhanced capabilities in software product engineering services. However, longer conversion cycles and headwinds in automotive and business cyclicality will continue to add volatility.

Growth aspiration is factored in the current valuations of >14% revenue CAGR and ~17% Ebitm over FY24-34E. We revise estimates lower, factoring in the lower margin due to the acquisition. Maintain Reduce on L&T Tech with a target price of Rs 4,730, based on 28x FY27E EPS.

Shoppers Stop - Intune performance weaker than guided

Shoppers Stop Ltd.’s top-line grew 8.7% YoY to ~Rs 13.1 billion (our estimate: Rs 12.9 billion). Same-store sales growth stood at 4%. Beauty (including distribution) grew 6% in Q3. Non-App categories continue to outperform. “Intune” expansion is halted temporarily due to regulatory restrictions.

The company has launched a new private brand “Joyology” under the beauty category to target the masstige market. Improved productivity led to higher margins.

Gross margin/Ebitdam expanded by 92/83bps YoY to 40.7/8.2% (our estimate: 41/9.2%). We largely maintain our FY26/27 Ebitda estimates and our Reduce rating with a DCF-based target price of Rs 600/share, implying 19 times FY27E EV/Ebitda.

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