Profit Sheets

L&T Tech plunges 8%; has this multibagger’s rally run out of steam?

January 19, 2022 12:42 PM

L&T Tech plunges 8%; has this multibagger's rally run out of steam?
CLSA said the company's third results were broadly in line with its expectations. While suggesting a target of Rs 6,150, the brokerage said rich valuations might cap the near-term upside for the stock.

After rallying nearly five times since May 2020 low, shares of L&T Tech Services have been under pressure, more so after the company’s December quarter results.

The stock cracked over 8 per cent in Wednesday’s trade to hit a low of Rs 4,980, taking its fall from January 4 high of Rs 5,958.10 to 16 per cent. While price targets on the scrip do not look too bad, especially following the recent slide, analysts said upside could be capped for the stock near future amid a lack of positive triggers.

CLSA said the company’s third results were broadly in line with its expectations. While suggesting a target of Rs 6,150, the brokerage said rich valuations might cap the near-term upside for the stock.

“The structural attractiveness of engineering services and LTTS’ unique position in the space should keep investors engaged, though, in the absence of strong triggers in Q3 results, we expect range-bound stock movement in the near future,” the foreign brokerage said.

Kotak Institutional Equities finds the Q3 results steady, yet it downgraded the stock to ‘reduce’ citing valuations.

“We like the high growth characteristics of the business, but the upside is priced in by current valuations,” Kotak said while suggesting a target of Rs 5,500. Axis Securities has a target of Rs 5,960. Third-quarter results were slightly below the brokerage’s estimates

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The IT firm reported a 34 per cent YoY jump in net profit at Rs 248.80 crore on a 20 per cent YoY rise in revenue at Rs 1,687.50 crore. EBIT margin came in at 18.6 per cent, up 340 basis points YoY. Sequentially, growth in constant currency terms stood at 4.2 per cent.

The management has maintained its dollar revenue growth guidance of 19-20 per cent and suggested it is likely to be tilted towards the upper end. The guidance is factoring in a planned scale back in the part of the company’s Media subvertical, where it will exit a few low margin accounts in Q4FY22.

The management said the demand environment remains encouraging and the deal pipeline is healthy.

Arihant Capital said the outlook remains strong for L&T Tech, led by robust deal wins. It said L&T Tech has a resilient business structure and has long-term contracts with the world’s leading brands.

It felt that the IT firm would be able to manage travel expense-related headwinds through positive operating leverage and productivity-related measures.

Despite this, the brokerage downgraded the stock to ‘Neutral’ from ‘Hold’, valuing it at Rs 5,710 per share, 40 times its FY24 EPS of Rs 129.80.

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