Maintaining growth momentum key for more gains in L&T Technology Services

L&T Technology Services (LTTS) reported a revenue of $312 million, up 3.1 per cent sequentially in constant currency terms while in rupee terms it was at Rs 2,650 crore. The growth was led by the tech and sustainability verticals which were up 9.8 per cent and 3.1 per cent Q-o-Q respectively

 

The mobility segment was down 7.1 per cent due to seasonality. Management expects tech and sustainability to continue the growth momentum in the near-to-medium term, while mobility is to remain muted in Q4 but should rebound by FY26. The company retains FY25 revenue growth guidance of near 10 per cent in constant currency terms, including 2 per cent inorganic contribution, implying a strong 6 per cent organic growth in Q4.

 

The earnings before interest and taxes or EBIT margin for the quarter came in at 15.9 per cent. Management targets EBIT margin of 16 per cent levels for FY25 for its organic business. However, the consolidation of Intelliswift in Q4FY25 is expected to impact the EBIT margin by 150 basis points leading to its drop to the 15 per cent level.

 

Management expects the margin to rebound to mid-16 per cent levels by the end of FY27 or early FY28. Large deal wins came in strong at $200 million vs $80 million in Q2 and an average of $120 million over the last four quarters driven by development of new-age products and platforms, as well as business transformation initiatives. LTTS won eight large deals during the quarter, which includes a $50 million win, two $35 million deals, a couple of $25 million contracts and three $10 million deals. The number of active clients increased to 378, up 5 per cent Q-o-Q.

 

LTTS Q3FY25 revenue on an organic and Y-o-Y basis was up 8.7 per cent vs. peers-TCS (+4.5 per cent), Accenture (+5 per cent) and HCLT (+4 per cent). EBIT margin came in at 15.9 per cent (16.2 per cent excluding one-time acquisition cost), after absorbing wage hikes.

 

LTTS expects FY25 revenue growth of near 10 per cent in constant currency terms, including contribution from Intelliswift, while holding to medium-term guidance of $2 billion revenue.

 

Headcount stood at 23,465, sequentially down 1 per cent. Last 12-month attrition was at 14.4 per cent, up 10 basis points Q-o-Q. The patent portfolio stood at 1,448, out of which 903 are co-authored with customers and the rest are filed by LTTS. In Gen AI, a total of 174 patents are filed so far, compared to 165 last quarter.

 

Among verticals, growth was led by tech (36.4 per cent of total revenue), up 9.8 per cent Q-o-Q, helped by ramping up of deals from MedTech, hyperscalers and communication providers.

 

In sustainability (31.2 per cent of total revenue), revenue was up 3.1 per cent Q-o-Q, aided by plant modernisation/automation demand. Mobility (32.4 per cent of total revenue) declined 7.1 per cent Q-o-Q. Demand remains challenging in mobility as OEMs postpone major investments.

 

Among geographies, North America was down 0.2 per cent Q-o-Q, Europe was up 0.6 per cent, India was up 5.6 per cent, and the rest of the world was up 6.5 per cent. Management says the acquisition of Intelliswift will help enter new sectors of retail, fintech and healthcare, and enhance AI, digital, and software product capabilities.

 

Management guidance FY25 revenue growth (10 per cent) indicates a strong +6 per cent organic constant currency growth in Q4 and expects CY25 to be a decent year in terms of tech spending. But margin expectation was negative, leading to cuts in EPS estimates. Analysts are cutting target prices although the market response was very positive.