L&T Technology Falls As Analysts See Valuation Stretched, Guidance Ambitious

Shares of L&T Technology Services Ltd. fell the most in over a month after most analysts saw the current valuation stretched amid fears of softer growth in a potential economic slowdown.

The long-term revenue guidance also seemed ambitious.

The company reported net profit, revenue, Ebitda and Ebitda margin that beat the average analyst estimate in the quarter-ended September.

• Revenue up 6% at Rs 1,995 crore

• Net profit rose 3% to Rs 282.4 crore

• Ebitda up 5% at Rs 421.80 crore

• Ebitda margin flat at 21%

• Declared interim dividend of Rs 15 per share

Shares of the company fell nearly 3.92% to Rs 3,531.05 as of 10:50 am, while the Nifty 50 traded 0.62% higher.

Of the 29 analysts tracking the company, nine maintain a 'buy', seven suggest a 'hold' and 13 recommend a 'sell', according to Bloomberg data. The 12-month consensus price target implies a downside of 4.3%.

Brokerages' take on L&T Technology Services' quarterly results:

ICICI Securities

• The brokerage maintained 'reduce' on the stock post the results, with the target price at Rs 3,132, up from Rs 3,079 earlier, still an implied downside of 14.78%.

• The brokerage noted that the guidance suggested a weak H2FY2023. L&T Technology narrowed its revenue growth guidance to 15.5-16.5% YoY from 14.5-16.5% earlier, which implied soft revenue growth in the next two quarters and factored the impact of macro headwinds facing the company.

• The brokerage sees the company's long-term revenue guidance of $1.5 billion revenue run rate by FY25 as stretched and will be difficult to achieve organically in two years amid the macro challenges.

• The brokerage added that the company is well placed in the ER&D theme, but the risk-reward as unfavourable.

Motilal Oswal

• Motilal Oswal, however, reiterated 'buy' citing strong margin performance despite wage hikes.

• The brokerage also expected the guidance of the company as achievable, and added that deal wins remained health and the pipeline remained strong.

• It expect L&T Tech to be a key beneficiary of the rising penetration of ER&D services and picked it as the best Tier-II services play in its coverage universe.

• The brokerage has set a target of Rs 4,230 on the stock, an implied upside of 15%.

Kotak Institutional Equities

• The brokerage has set a target of Rs 4,230 on the stock, an implied upside of 15% and termed the performance 'half full or half empty' noting healthy and in-line growth as positives while adding that the challenges remained in telecom/hitech and medical devices segment, which together accounted for 30% of revenues.

• It retained 'sell' on the stock with the fair value kept at Rs 3,200, a discount to current market price of Rs 3,675.

• The brokerage said the stock is trading at premium valuations and did not adequately bake in risks from potential economic slowdown.

Since the earnings, Investec, Antique Stock Broking and Asian Markets have downgraded the stock to 'sell', 'hold' and 'sell' recommendations, respectively.