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HDFC Securities Institutional Equities
L&T Tec - Unchanged guidance implies a strong Q4
L&T Technology Services Ltd.'s maintained its FY24E outlook implying a strong exit in Q4 FY24E, even as Q3 performance was lower than expected. Revenue growth was impacted by softness in the telecom and hi-tech vertical (adjust. for SWC seasonality).
Guidance reiterated at 17.5% to 18.5% CC for FY24E implies 4-7% QoQ CC for Q4 FY24E, which will be supported by-
sequential improvement in furloughs/billing days/SWC seasonality,
six deals of $10 million plus total contract value booked in Q3 FY24, and
strategic partnership with bp (medium-term driver) and targeted mining program for top clients.
While L&T Tech prowess as a leading pureplay engineering research and development service provider with a diversified vertical base and strong credentials across domains persists, growth print is impacted by a longer deal conversion cycle and business cyclicality despite strong industrial tailwinds.
Risk-reward is unfavourable for L&T Tech as current valuations imply greater then 16% USD revenue compounded annual growth rate over FY23-33E.
Maintain 'Reduce' on L&T Tech with a target price of Rs 4,915, based on 27 times FY26E earning per share.
Federal Bank - Growth speedbumps enroute journey to top-tier bank
Federal Bank Ltd.'s reported its highest-ever quarterly earnings, despite a miss on net interest income, on the back of healthy loan growth (plus18% YoY), profit from stake sale in its non-banking financial company subsidiary and lower credit costs (31 basis points annualised).
Given the competitive intensity for low-cost deposits, Federal Bank too saw a decline in current account saving account ratio of 54 bps QoQ taking its CASA ratio to 30.6%.
Differentiated FinTech ecosystem partnerships to gain market share in relatively high-yield segments are key to drive further business productivity on both sides of the balance sheet.
Federal Bank appears on track to deliver its targeted return of asserts of 1.4% over FY24-25; however, we see challenges to growth with the credit-deposit ratio likely to be capped, going forward.
Following the Reserve Bank of India advisory on Chief Executive Officer succession, the Board of Directors has commissioned an agency to suggest internal/external candidates within two-three months.
We tweak our estimates to factor in lower provisions offset by higher opex; maintain 'Buy' with a target price of Rs 190 (1.4 times September 2025 adjusted book value per share).
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