L&T Tech investors get a shock as Q4 falls short of expectations

MUMBAI : Ahead of its March quarter results, shares of L&T Technology Services Ltd (LTTS) boasted of one-year returns as high as 117%. The March quarter results of the mid-tier IT company, however, failed to set the Street on fire.

On a sequential basis, its constant currency revenue grew 3.8%, missing analysts’ estimates by 130-150 basis points (bps). One basis point is one-hundredth of a percentage point. It also under-performed close peer Cyient Ltd’s constant currency revenue growth of 4.7% in the March quarter. Operating margin improved 140bps quarter-on-quarter to 16.6%, aided by an increase in offshore mix and better utilization. This was largely in line with the expectations.


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Reacting to its earnings, the stock tanked 8% on the NSE on Tuesday.

A big turn-off for investors was the muted FY22 revenue growth guidance, despite strong deal wins and a low base in FY21. The company foresees dollar revenue growth of 13-15% this fiscal year. Many analysts were penciling in revenue growth to be in the high teens for FY22.


Mixed bag
Mixed bag
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The management has attributed the modest guidance to their increased caution due to the recent surge in covid cases in India. During the quarter, it won six deals with a total contract value of over $10 million, including two deals of over $25 million. In a post-earnings conference call, the company’s management said that going forward, its pipeline remains strong, however, deal closures are uncertain.

Domestic brokerage house HDFC Securities Ltd said this revenue guidance implies a modest 2.1-2.8% compounded quarterly growth rate despite the phase 2 ramp-up of its over $100 million oil and gas deal. The muted revenue guidance comes in the backdrop of rich valuations, which adds to the discomfort for investors.

According to analysts at ICICI Securities Ltd, the company continues to lag behind most of its peers on resilience and now on recovery. Still, it trades at lofty valuations. “LTTS is currently trading at 37 times FY22 estimated earnings per share, at a significant premium to TCS (29 times), Infosys (26 times) and Cyient (16 times) despite its growth/margin trajectory being either inferior or similar," it said in a report on 4 May.


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Analysts said given the high valuations, positives are more than priced in, and the stock’s performance could remain under pressure.


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