L&T Technology zooms 15%, hits record high on strong June quarter results

Shares of L&T Technology Services (LTTS) zoomed 15 per cent to a record high of Rs 3,345 on the BSE in intra-day trade on Thursday after the company reported better-than-expected June quarter (Q1FY22) results.

The stock of the internet software and services company surpassed its previous high of Rs 3,062.45 hit on April 9, 2021. A combined 2.1 million shares had changed hands on the counter on the NSE and BSE as of 9.45 am. At the same time, the S&P BSE Sensex was up 0.27 per cent at 53,046 points.

LTTS on Wednesday reported an 84 per cent year-on-year (YoY), 11.1 per cent quarter-on-quarter (QoQ) jump in its Q1FY22 net profit at Rs 216.2 crore, largely on widening margins. In dollar terms, revenues increased 4.2 per cent and rose 4.3 per cent in constant currency (CC) terms, sequentially. Revenues from digital and leading-edge technologies were at 54 per cent during the quarter.

EBIT (earnings before interest tax) margin increased 70 basis points (bps) QoQ to 17.3 per cent, despite a wage hike during Q1FY22, aided by efficiency improvement, better utilisation, and ongoing rightsizing of the workforce. The company expects revenues to increase 15-17 per cent in FY22E. Deal traction was healthy in the quarter with six deal wins of total contract value (TCV) of $10 million-plus, which includes two deals with TCV of $25 million-plus.

The management said the last four consecutive quarters of operating margin improvement has been a result of a gradual portfolio shift towards more digital engineering as well as operational efficiency initiatives around hiring, cross-skilling, productivity improvement and cost optimization.

“LTTS increased its FY22 USD revenue growth guidance to 15-17 per cent (a 200bp increase) as it sees a significant reduction in Covid-related supply uncertainty. While we were expecting the guidance to increase, its strong Q1FY22 performance and commentary indicate that growth can significantly exceed the upper end of its revised guidance,” Motilal Oswal Financial Services said in a results update.

With strong demand commentary across industries and key regions and the capability to deliver services during the lockdown, LTTS should not see a meaningful disruption in the business. We bake in an 18.6 per cent revenue growth for FY22E, partially on account of a favourable base, the brokerage firm added.

It further said it expects the margin to remain rangebound from current levels in FY22 as a partial wage hike (senior employees) and investments should offset a gradual boost in operating metrics and an improvement in Telecom and HiTech margin. Given the low base of FY21, we factor in a 280bp EBIT margin improvement over FY21-23E.

The analyst sees LTTS as a key beneficiary of growing tech adoption in the engineering and R&D industry (ER&D), which should grow by around two times that of IT Services over FY18-23E. Moreover, with Digital at 53 per cent of revenue, it should also benefit from 18 per cent growth in Digital ER&D spends over this period, the brokerage firm said.