LTTS investors revel in Q4 results, set aside SWC acquisition concerns for now

Excluding transportation, revenue grew 2.2% sequentially in constant currency (CC) terms, fueled by strong performance across most segments.

In reaction to the news, LTTS shares jumped 5.15% in Thursday’s opening trade on the NSE. The robust results stand in contrast to the tepid revenue growth experienced by larger competitors.

Analysts at Motilal Oswal Financial Services suggest that LTTS’s performance implies limited impact from macroeconomic headwinds.

The company has provided a 20% year-on-year constant currency revenue growth guidance for FY24, with 10% organic growth.

“FY24 organic revenue growth guidance of 10%+ is in line with our estimate, although the positive vertical commentary from management (especially the strong start to transportation in Q1) suggests an upside risk,” said the Motilal Oswal report.

Earnings before interest and tax (Ebit) margin remained flat sequentially at 18.7% in Q4, with a 17% target for FY24. The expected margin dip could be attributed to the consolidation of the Smart World and Communication (SWC) acquisition and a shift in business mix.

The company has managed to perform better than tier-1 peers but the SWC acquisition may present short-term challenges to earnings growth, as noted by Nuvama Research. As SWC integration begins in Q1FY24, the focus will be on its turnaround, potentially consuming management resources for the next two years.

“We believe LTTS would continue delivering on core business, but SWC adds to uncertainty and would consume management bandwidth for the next two years,” said the Nuvama report.

The stock’s valuation multiple has moderated from the recent peak, but global macro uncertainties and company-specific factors could dampen earnings growth. 

“While we are positive on LTTS’s story given its strong fundamentals, impressive clientele and capabilities across segments, the SWC acquisition shall keep the stock under pressure. We are also cautious on the entire ERD space given the likely impact of slowdown/recession on ERD spends,” added the Nuvama report.