Recent multiple deal wins point to improved outlook for L&T Technology

Analysts have revised their growth guidance for FY22

After underperforming during the earlier part of the financial year (FY21), L&T Technology Services has trended up and hit fresh highs. The stock has risen close to 71.6 per cent since the start of July, and 20 per cent of the gains have come in the last two sessions. 

The trigger for the recent rally has been the multiple deals that the company has won in the ongoing December quarter, and expectations of a recovery in the engineering, research and development (ER&D) segment. 

Its client mix — which is tilted towards discretionary sectors — and spends were key reasons for the earlier underperformance. Most analysts now expect the company to report better-than-expected growth in the present  financial year, compared to the earlier guidance of an 8-10 per cent fall in dollar revenues.

Among the few deals announced recently was the five-year deal of over $100 million to provide engineering services to a global oil and gas major for its two integrated refining and chemicals facilities in the US. 

The company was also selected by Swiss firm Schindler, which makes elevators and escalators, in a multi-year deal for digitisation and connectivity solutions. 

Analysts at Antique Stock Broking say the management commentary and recent deal wins point to a strong pick-up in growth for the company. They believe the company will grow at 16-18 per cent in FY22 and FY23, which is up to 200 basis points higher than their previous estimate. 

The strong beat by Accenture in the recent quarter, along with an upward revision in revenue and earnings for FY21, has also led to higher expectations on the growth front for Indian IT services companies. 

Given that ER&D services are expected to outperform IT sector firms in the coming years, analysts expect the company to post steady growth rates. However, the sharp run-up means that most of the gains have already been priced in, with the valuation now standing at 27x its FY22 earnings estimates. Investors could, therefore, await a better entry point.