Shares of IT major Larsen and Toubro Technology Services (LTTS) slipped nearly 5% in trade on Wednesday (October 18), after the management trimmed the company's revenue growth guidance to 17.5-18.5% for the current financial year from 20% earlier.

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At 12:06 pm, the stock was trading 5% lower at Rs 4,382.85 apiece on the NSE. The scrip has gained 17.75% so far this year and has risen 19.26% in the last one year.

LTTS logged a 5.17% rise in its September quarter profit at Rs 315.4 crore. In line with larger peers, including Infosys and HCL Technologies, the company's guidance revision was due to an elongated United Workers Strike (UWS) in the US, which is leading to a pause in multiple projects and causing deferrals in ramping up new projects.

The company has also announced an interim dividend of Rs 17 per equity share.

Following the earnings announcement, a clutch of foreign and domestic brokerages came out with their views, wherein Nomura has assigned a 'Reduce' rating on the stock, with a target price of Rs 3,450 per share. This implies a potential downside of 21% from its current market price of Rs 4,382.

Morgan Stanley remained 'Underweight' on LTTS, with a target of Rs 4,000 per share, stating that the cut in revenue growth guidance was a negative surprise. However, the foreign brokerage said that Q2 results were better than expectations.

Morgan Stanley noted that the LTTS stock could underperform with premium valuation and strong stock performance since the last results.

Analysts remain positive on LTTS’s story given its strong fundamentals, impressive clientele and capabilities across segments — but expensive

valuations make the risk-reward unfavourable.

"With strong fundamentals, a solid client base, and diverse capabilities across segments, the company remains well-positioned, even though longer decision cycles and macroeconomic challenges are currently affecting the ER&D sector," said Arihant Capital Markets.

The brokerage values LTTS at 25 times its FY26 EPS (earnings per share) of Rs 164, which yields a target price of Rs 4,099 per share against an earlier target of Rs 3,915 per share.

According to Motilal Oswal, LTTS posted in-line revenue of $288 million in the second quarter, up 3.2% QoQ in constant currency terms, noting that the growth was driven by transportation and plant engineering verticals, with 4.4% and 3.8% sequential growth, respectively.

EBIT margin was flat, beating Motilal's estimate of a 90 basis point drop as it completely absorbed the Q2 wage hike impact. The margin improvement was attributed to a better business mix.

"We continue to see LTTS as attractive due to a better outlook for the ER&D services industry compared to the broader IT services universe and the growing penetration of outsourced ER&D services," it noted.

LTTS CEO and Managing Director Amit Chadha said the deal momentum for the second quarter was strong with the highlight being a $10 million-plus deal win leveraging SWC capabilities in North America. "This win has been the result of having a superior end-to-end technology stack for wireless and 5G communications which is becoming a key differentiator for us," he added.

Although the management has maintained caution in the near term, the overall deal funnel is higher than last year and it continues to chase multiple large deals, Motilal said.

However, the brokerage noted that the slower deal velocity and increasing deal tenure (3.5 versus 2.5 year earlier) create a near-term revenue leakage.

(Edited by : Akanksha Upadhyay)

First Published:Oct 18, 2023 12:14 PM IST