L&T Tech Q1 Review: Brokerages Split As Morgan Stanley Sees Gradual Recovery But Citi Stays Bearish

L&T Technology Services posted its first-quarter earnings for the current fiscal year, drawing a mixed bag of sentiments from Citi and Morgan Stanley. While both firms acknowledged the prevailing macroeconomic challenges, they took divergent stances on L&T Tech's performance.

Citi maintained a 'sell' rating, adjusting its target price slightly downward to Rs 4,015 from Rs 4,055, citing a weaker-than-expected quarter and persistent concerns. In contrast, Morgan Stanley held an 'equal-weight' rating, with a marginally increased target price of Rs 4,500 from Rs 4,300, suggesting that while the results were largely in line, the path to a recovery would be gradual, with limited immediate upside.

Citi's assessment points to a subdued performance. The brokerage noted that overall revenues came in at $335 million, a 4.2% sequential decline, despite a 12.8% year-on-year growth in constant currency, falling short of their expectations. Although the Ebit margin of 13.3% was largely in line with Citi's forecast, it represented a notable 230 basis points contraction year-on-year.

Citi's primary concerns are around the mobility segment, which experienced a 1.5% sequential decline due to project pauses, delays, and some cancellations. They anticipate this segment will remain muted in the near term, with a potential turnaround expected only in the second half of the fiscal year.

Further, negative free cash flow in the first quarter, attributed to seasonality in the services, work, and consulting segments, is also an area of focus. While management has reiterated its ambition for double-digit revenue growth in fiscal year 2026 and expects a stronger second half, Citi emphasised that execution needs close monitoring, given the uncertain macroeconomic environment. The brokerage concluded that valuations appear expensive in view of the low visibility on consistent growth.

Morgan Stanley's take is more measured, describing the results as having "no negative surprises" and largely aligning with their expectations. A key positive highlighted by Morgan Stanley is consistent momentum on deal wins, with the company announcing 10 large deals worth over $200 million in the quarter. This marks the third consecutive quarter of achieving such a significant run rate, indicating a healthy pipeline that management expects to sustain.

The brokerage anticipates the mobility segment to show growth from the second half of the fiscal year as current project pauses and deferrals subside. They also point to continued strength in the sustainability vertical and resilient pockets within hi-tech.

While Ebit margins in the first quarter were flattish, Morgan Stanley believes a gradual margin recovery will play out from the second half of the fiscal year, with management maintaining its aspiration to reach around 16.5% Ebit margins by the fourth quarter of fiscal year 2027 or first quarter of fiscal year 2028. Morgan Stanley views L&T Tech as a better-diversified play to navigate the macro impact compared to peers, expecting better organic growth for fiscal year 2026.