Shares of L&T Technology Services (LTTS) rose 2.62% on BSE on July 18, hinting investors keep faith in the midcap IT player after its June quarter earnings.
The company's revenue in constant currency (CC) terms grew by 4.7% sequentially, beating analysts’ estimates. The demand environment continues to be strong, the management said.
Brokerage firms pointed out that the company's revenue and margin performance in Q1FY23 was broadly in-line with expectations while the demand environment continues to remain robust in all the operating segments.
Brokerage firm Motilal Oswal Financial Services has a 'buy' call on the stock with a target price of ₹3,590. It expects LTTS to see a flattish margin performance in FY23E, with good topline delivery offsetting supply-side pressures.
"EBIT margin should remain broadly stable over the next two years, in line with management guidance of 18%+ profitability. A favourable pyramid and better margins in the telecom vertical should more than offset the continued pressure on employee expenses and travel resumption," said Motilal Oswal.
"We continue to view LTTS as a beneficiary of the growing penetration of ER&D Services and the best Tier II IT Services play within our coverage universe. We marginally raise our FY23-24 EPS estimate (by 2-3%), and have factored in 14%/19% USD revenue/INR EPS CAGR over FY22-24," the brokerage firm added.
Brokerage firm IIFL Securities has a 'buy' call on the stock with a target price of ₹3,850.
IIFL Securities pointed out that LTTS' Q1FY23 CC revenue growth of 4.7% QoQ was a tad above IIFL's expectations of 4.1% QoQ.
"EBIT margins at 18.3% (down 30bps QoQ) were in line with IIFL/consensus expectations, as gains from forex were offset by higher employee costs. LTTS reported record deal wins for a second straight quarter − with 7 deals of over USD10m TCV each, including one over USD50m and four over USD15m. LTTS retained its FY23 USD revenue growth guidance of 13.5-15.5%, which implies a 100bps increase from the previous guidance, based on forex moves," said IIFl Securities.
The brokerage firm expects LTTS to deliver 15.2% USD revenue growth in FY23.
However, some brokerage firms have expressed concerns over the unfavourable risk-reward of the stock.
"While LTTS is well poised to play the ER&D theme and grow at premium rates we do not find risk-reward favourable," said brokerage firm ICICI Securities which has a 'reduce' call on the stock with a target price of ₹2,742.
"Our EPS estimates remain intact for FY23/FY24. LTTS trades at a valuation of 30 times/27 times for FY23E/24E. We continue to value LTTS at 24 times on FY24E EPS of ₹116 to arrive at a target price of ₹2,742 (prior: ₹2,758)," the brokerage firm added.
YES Securities has a 'neutral' call on the stock with a target price of ₹3,388. The brokerage firm said it expects a revenue CAGR of 16.2% over FY22-FY24E with an average EBIT margin of 18.3%.
"We change our rating from 'add' to 'neutral' on the stock, in line with revised Recommendation parameters and value it at 27.5 times on FY24E earnings, arriving at a target price of ₹3,388. We have cut down target multiple from 35 times to 27.5 times to account for a higher cost of capital (WACC) in this environment of high macroeconomic uncertainty," said YES Securities.
Disclaimer: The views and recommendations made above are those of individual analysts or broking firms and not of MintGenie.
