L&T Technology shares gain on aggressive FY24 guidance but analysts see up to 28% downside

Shares of L&T Technology Services (LTTS) jumped 3 per cent in Wednesday's trade on aggressive FY24 guidance despite Q1 miss on revenues. There was a double digit-decline in telecom & hi-tech vertical revenues that led to the Q1 miss. Analysts said achieving the FY24 guidance will be a tall task for LTTS and that risk-reward for the stock is unfavourable, given expensive valuations. 

Nomura India has reduced its target on the stock to Rs 2,980 from Rs 3,000. On Wednesday, the stock was up 3.09 per cent at Rs 4,189 on NSE. At this price, Nomura's target suggests a 28 per cent potential downside.

Phillip Capital said FY24 organic CC growth guidance of 10 per cent-plus looks challenging and that margins aspiration of 17 per cent for FY24 also looks aggressive given wage hikes due in the September quarter, along with limited levers available.

"Overall, soft start in Q1 will likely be compensated through quick ramp ups of deals already announced, a higher ask rate leaves no room for any disappointment. At 33 times FY24 PE, valuations remain expensive," Phillip Capital said. This brokerage has a target of Rs 3,500 on the stock.

LTTS noted that the timely execution of six deals won in Q1 (one of $D50 million and five of 10 million-plus each), many deals are in advanced stage of closure. A strong pipeline and H2 seasonality of SWC give it the confidence of achieving its growth guidance. Nomura is not convinced. It said We note that the ask rate to achieve the annual growth is 4 per cent QoQ growth in the next three quarter, which is a tall task.

Antique Stock Broking said LTTS' Q1 performance for most verticals was muted, except transportation, due to delays in decision-making. It has maintained a 'Hold' rating and target of Rs 3,600 on the stock. It expects LTTS’ organic revenue to grow in the 12–15 per cent in the medium term, which is at a 10 per cent premium to IT services mid-cap peers.

The risk-reward is unfavourable at 33 times FY24 EPS, said HDFC Institutional Equities as it suggested a target of Rs 3,865.

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