Shares of L&T Technology Services (LTTS) fell 9.5 percent on Friday (April 26) after the IT firm forecasted a 100 basis point decline in its FY25 EBIT (earnings before interest and taxes) margin in guidance.
L&T Tech reported a modest 0.2 percent YoY increase in net profit, reaching ₹340 crore, due to slower revenue growth and a reduction in margins. Its revenue grew 5 percent YoY to ₹2,537.5 crore. In terms of margins, management expects a “slightly muted” performance in the near term as the company invests in critical areas for future growth.
For the quarter under review, the operating profit margin came at 16.9 percent as against 17.9 percent in the year-ago period and 17.2 percent in the quarter-ago period.
Meanwhile, the engineering services company’s net profit for FY24 grew 7.6 percent to ₹1,303.7 crore.
LTTS Managing Director and Chief Executive Amit Chadha said the revenues in the year-ago period were higher because of the gains coming out of the acquired company, Smart World. He added the company has been reporting the operating profit margin at 17-18 percent in the past, but the level may get compressed due to investments.
He also announced a restructuring of the organisation, under which it has narrowed down the number of business verticals to three from the earlier five.
Stock price trend
Unable to cheer the Street with its Q4 results, the stock tanked 9.5 percent to its day’s low of ₹4,689.50. It is now over 20 percent away from its peak of ₹5,884.95, hit on April 4, 2024. Meanwhile, it is still up 34 percent from its 52-week low of ₹3,500, hit on April 27, 2023.
It has gained almost 51 percent in the last 1 year but is down 9 percent in 2024 YTD.
LTTS Q4 results review
Post the Q4 results, most brokerages remained cautious on the stock and cut their earnings estimates for the IT firm.
Morgan Stanley: Morgan Stanley has issued an “underweight” rating for L&T Tech with a target price of ₹4,200, indicating a 19 percent downside. The firm’s fourth-quarter results were below expectations, and the guidance for weaker revenue growth was already incorporated into buy-side estimates. Given the stock’s strong performance so far this year and the downward revision of EPS estimates, Morgan Stanley expects underperformance from the stock in the near future.
Antique Broking: The brokerage downgraded its rating for L&T Tech to “hold” and reduced its target price to ₹4,500 ( 13 percent downside) from ₹5,000, citing lower-than-expected near-term guidance of a 16 percent EBIT margin for FY25. This was below Antique’s expectations of an 18 percent margin for FY25/FY26. Despite a strong exit rate, LTTS management’s FY25 revenue growth projection of 8-10 percent in constant currency terms was less than Antique’s expectation of 10-12 percent. Additionally, Antique anticipates decision-making delays due to increasing geopolitical risks and continued tightening of financial conditions in the US, which may contribute to a softer EBIT margin for FY25.
Emkay: The brokerage has retained its ‘reduce’ rating on the stock given rich valuations, with a target price of ₹4,750, implying an over 8 percent downside.
For FY25, revenue growth guidance is set at 8-10 percent (a quarterly growth rate of 1.2-1.9 percent), considering delayed decision-making, geopolitical risks, and macroeconomic uncertainty. These factors, along with investments in personnel and technology, are expected to impact margins and keep them around 16 percent. The company’s aspiration for a $1.5 billion revenue run rate by FY25 is contingent on mergers and acquisitions, said Emkay. It cut FY25E/26E EPS 9.6 percent/7.2 percent, accounting for the Q4 performance and weaker margin trajectory.
Nuvama: The brokerage has maintained its “hold” rating on the stock with a target price of ₹4,970, indicating a 4 percent downside. The brokerage remains cautious about the entire ERD sector in the short term due to the potential impact of a slowdown or recession in the US and EU on the discretionary spend-based ERD business. However, it is optimistic about LTTS, citing its strong fundamentals, reputable client base, and diverse capabilities across segments as factors that will contribute to robust earnings growth over the next three years.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision.
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