Earnings Outlook
Weakness in verticals may hit L&T Tech's topline
This story was originally published at 20:05 IST on 15 July 2024
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By Rajesh Gajra
MUMBAI – Weak revenues from the communication vertical due to seasonality and continued negative growth trends in sales from industrial products and medical verticals will likely hit the sequential revenue growth of L&T Technology Services Ltd in the quarter ended June. The company's net profit will largely mirror its revenue performance, according to analysts.
The company's consolidated revenue is likely to decline 0.8% sequentially to 25.16 bln rupees in Apr-Jun, according to an average of estimates by eight brokerages. On an annual basis, the topline will be 9.3% higher, according to the estimates.
L&T Technology's net profit for the quarter is likely to fall 4.6% on quarter to 3.25 bln rupees, according to the average of estimates. The net profit is seen rising 4.6% from a year ago. The operating profit, as denoted by the earnings before interest, tax, depreciation, and amortisation, is seen in the range of 4.64 bln rupees to 4.86 bln rupees, as per estimates of four brokerages.
L&T Technology, which provides technology solutions to clients executing engineering or other projects, operates in five main verticals -- communication, transportation, plant engineering, industrial products, and medical devices.
As per March quarter data, 53.7% of the company's revenue comes from North American clients, 23.7% from domestic clients, 15.8% from the European region and nearly 7% from the rest of the world. Larsen & Toubro Ltd holds a 73.75% stake in the company, which was listed on the exchanges in September 2016.
While Motilal Oswal Financial Services and Incred Research Services expect L&T Technology to report a flat to modest sales growth for the June quarter, Kotak Institutional Equities Research believes the company's topline would likely decline sequentially driven by seasonality in communications vertical sales, partly offset by large deal ramp-ups, which include a Maharashtra government deal and another from Forvia. Kotak Securities also expects muted trends in industrial product and medical device verticals and a strong performance in the transportation segment.
The EBITDA margin is seen contracting in Apr-Jun, mainly due to an increase in operating costs. Kotak Institutional Equities expects L&T Technology to clock a 130 bps decline on quarter in earnings before interest and tax margin to 15.6% due to the impact of lower margins and large deal ramp-ups.
L&T Technology will detail its Apr-Jun earnings on Thursday. Investors and analysts will watch out for management's commentary on its outlook for verticals, deal wins, profitability improvement measures, and the impact of an uptick in large deals.
Investors will also look to see if there are any signs of improvement in client decision-making timelines and spending on new programs. L&T Technology management had indicated, in an investor call after its March quarter earnings, that the company was concerned about decision-making delays by clients.
Investors will also be tracking the company management's update on its guidance of 8-10% growth in constant revenue in dollar terms. Most brokerages expect the guidance to be retained.
Today, shares of the company were 1.3% down at 4,990.50 rupees on the National Stock Exchange.
Following are the Apr-Jun consolidated earnings estimates of L&T Technology Services based on reports compiled by Informist from 8 brokerage houses:
| Broker name | Net Sales | Net Profit | EBITDA |
| -------(In mln rupees)------- | |||
| Anand Rathi Share and Stock Brokers Ltd | 25,071 | 3,135 | 4,751 |
| Incred Research Services Pvt Ltd | 24,980 | 3,295 | -- |
| Indsec Securities and Finance Ltd | 25,300 | 3,200 | -- |
| Kotak Institutional Equities | 25,073 | 3,196 | 4,636 |
| Motilal Oswal Financial Services Ltd | 25,308 | 3,385 | 4,859 |
| Nuvama Wealth Management Ltd | 25,070 | 3,406 | 4,823 |
| PhillipCapital (India) Pvt Ltd | 25,376 | 3,254 | -- |
| Sharekhan Ltd | 25,130 | 3,160 | -- |
| Average | 25,164 | 3,254 | 4,767 |
End
Edited by Saji George Titus
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