L&T Technology Services (LTTS) shares rose 15 percent in intraday trading Thursday to a record high of Rs 3,345 on the BSE after the company reported better-than-expected results for the June quarter (Q1FY22).
The internet software and services company’s stock surpassed its previous high of 3,062.45 rupees on April 9, 2021. A total of 2.1 million shares had changed hands on the NSE and BSE by 9.45 a.m. At the same time, the S&P BSE Sensex rose by 0.27 percent to 53,046 points.
LTTS on Wednesday reported an 84 percent year-over-year (YoY) increase, 11.1 percent QoQ, of its net income for the first quarter of FY22 to Rs.216.2 billion, largely due to rising margins. In US dollars, sales increased 4.2 percent and currency-neutral (CC) sales increased 4.3 percent. Digital and cutting-edge technology sales were 54 percent for the quarter.
The EBIT margin (earnings before interest taxes) rose by 70 basis points (bps) QoQ to 17.3 percent, despite a wage increase in Q1FY22, supported by efficiency gains, better capacity utilization and ongoing workforce adjustments. The company expects revenue to grow 15-17 percent in FY22E. Deal traction was good for the quarter with six deal wins with total contract value (TCV) of more than $ 10 million, including two deals with TCV of more than $ 25 million.
Management said the last four consecutive quarters of operating margin improvement were the result of a gradual portfolio shift towards more digital engineering and operational efficiency initiatives in hiring, cross-skilling, productivity improvement and cost optimization.
“LTTS raised its forecast for FY22 sales growth in USD to 15-17 percent (an increase of 200 basis points) as it sees a significant reduction in delivery uncertainties associated with Covid. While we expected the forecast to be raised, the strong first quarter FY22 performance and comments suggest growth may well exceed the upper end of the revised forecast, “Motilal Oswal Financial Services said in an earnings update.
With strong demand comments across all industries and key regions and the ability to provide services during lockdown, LTTS shouldn’t see any significant disruption to business. We anticipate sales growth of 18.6 percent for the GJ22E, in part due to a cheap base, the brokerage firm added.
It went on to say it expects the margin to stay around current levels in FY22 as a partial wage increase (older workers) and investments should offset a gradual increase in operating metrics and an improvement in telecom and hi-tech margins. Given the low FY21 base, we consider an EBIT margin improvement of 280 basis points compared to FY21-23E.
The analyst sees LTTS as a major beneficiary of increasing technology adoption in the engineering and R&D (ER&D) industry, which is likely to double IT services in FY18-23E. Additionally, digital should also benefit from an 18 percent growth in digital ER&D spending, generating 53 percent of sales over the period, the brokerage firm said.