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Accumulate L&T Technology Services, target Rs 1,693: Prabhudas Lilladher

"LTTS’ Q1 revenue was below our estimates at $194 million, 1.3 per cent quarter-on-quarter (QoQ) CC," said the brokerage.

ETMarkets.com|
Updated: Jul 23, 2019, 01.14 PM IST
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The brokerage has set a one-year horizon for the stock to hit the target price.
Prabhudas Lilladher has given an 'accumulate' recommendation on L&T Technology Services (LTTS) with a target price of Rs 1,693.

Shares of L&T Technology Services traded at Rs 1,450.35 around 1 pm on 23 July, 2019. The brokerage has set a one-year horizon for the stock to hit the target price.

Rationale behind the recommendation-

"LTTS’ Q1 revenue was below our estimates at $194 million, 1.3 per cent quarter-on-quarter (QoQ) and 15.2 per cent year-on-year (YoY) CC," said the brokerage.

Growth (ex-telecom & hi-tech vertical) was at 6.7 per cent QoQ. Telecom & hi-tech vertical declined ($7 million QoQ) impacted by large hi-tech account.

Increased macro concerns in telecom & hi-tech vertical (22.3 per cent of revenue) led to lowering of FY20 growth guidance to 12 to 14 per cent (14 to 16 per cent earlier).

Telecom & hi-tech vertical to remain soft in Q2FY20 also and management mentioned growth will happen in the second half of FY20. "We remain watchful on this recovery," said the brokerage.

Transportation (34.9 per cent of rev) grew 7.5 per cent QoQ despite challenges witnessed by peers in auto (Tata Elxsi) and in aerospace (Cyient). Process Industry has grown higher than company average growth for the past 5 quarters.

Margins to remain stable
Q1FY20 Ebit margin at 17.1 per cent was up about 60 bps QoQ driven by strong operational efficiencies, SG&A optimization and better revenue mix which more than offset the impact of visa (70 bps) and currency (down 30 bps).

As per the brokerage, Q2 will have impact of wage increases (160 bps) but levers exist in the form of operational efficiencies and better growth revenue mix.

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