L&T Technology stock hits new 52-week high as June quarter earnings impress
L&T Technology Services Ltd (LTTS) posted robust earnings in the June quarter. Its revenue recovery continued with a constant currency growth of 4.3% on a sequential basis. Revenue growth was ahead of analysts' estimates and was aided by improvement in client metrics. Growth was healthy across verticals, except medical devices, and geography-wise growth was led by North America and Europe. Also, there was an unexpected jump in margins despite wage hikes.
Reacting to the earnings, shares of the company soared 15% to a new 52-week high of ₹3344 on the NSE on Thursday.
Further, the company increased its FY2022 dollar revenue growth guidance to 15-17% from 13-15% earlier. Analysts say, this guidance implies compounded quarterly growth rate of 2-3.1% over the next three quarters and is achievable given the strength of recovery.
"While we were expecting the guidance to increase, its strong 1QFY22 performance and commentary indicate that growth can significantly exceed the upper end of its revised guidance," analysts at Motilal Oswal Financial Services Ltd said in a report.
Another positive takeaway from the company's June quarter earnings performance was a 70 basis point (bps) sequential increase in Ebit margin to 17.3% despite wage hikes. EBIT is short for earnings before interest and tax. One basis point is one hundredeth of a percentage point.
Analysts at Kotak Institutional Equities point out that operating margins were 260bps higher than their estimate. Wage hike impact of around150 bps and higher subcontractor cost were absorbed by tailwinds from operational efficiencies, cost optimization, rupee depreciation and growth in higher-margin business, the management said.
The company's management said that margin in 2QFY22 would be impacted on account of a residual wage hike. However, it is taking efforts to absorb the same through employee pyramid rationalization and improved productivity. As for rising attrition, the management said it is taking various measures to control it and is making efforts to sustain margin at current levels.
Meanwhile, on the deal front, the company added six large deals of over USD10 million, with two having a total contact value of over $25 million. The management said that its deal pipeline has seen a rise over the last two quarters as client spends recover across both the US and Europe. The management remains extremely positive on the deal pipeline.
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