Despite weak Q3 earnings, the price of L&T Technology Services’ shares has increased by over 3%. Should you buy, sell, or hold?

L&T Technology Services

L&T Technology Services: Overcoming Soft Q3, Charting a Positive Trajectory Despite L&T Technology Services’ (LTTS) soft Q3FY24 numbers, the company showcased resilience in the market, with its share price surging by 3.5% during Wednesday’s trading session. The encouraging response from investors comes in the wake of a strategic management outlook, a positive market sentiment, and enhanced revenue visibility for the upcoming quarters.

Market Performance and Analyst Insights

L&T Technology Services’ share price opened at ₹5,325.05 on Wednesday and touched an intraday high of ₹5,535.60, reflecting a notable upward momentum. Analysts suggest that this positive movement, supported by above-average trading volume, is indicative of renewed investor confidence in the company’s future prospects.

In response to the enhanced revenue visibility and a robust outlook for Q4, brokerage Nuvama Institutional Equities increased its FY24E/25E/26E estimates. Additionally, Nuvama upgraded its target multiple to 35x FY26E PE (from 30x) and elevated its target price for LTTS to ₹6,260, marking a significant increase from the previous target of ₹5,200. The brokerage’s report also led to the stock being upgraded to a ‘BUY’ recommendation.

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Technical Analysis and Projected Stock Movement

According to Rajesh Bhosale, Equity Technical and Derivative Analyst at Angel One, L&T Tech’s stock prices, after two days of profit booking, have started on a positive note. The upmove is supported by a good, above-average volume in the first hour of trading. Bhosale anticipates the positive momentum to continue, with stock prices likely heading towards ₹5,650. The support levels are identified at ₹5,300, indicating a favorable risk-reward scenario for investors.

Management Optimism and Future Outlook

The CEO of L&T Technology Services management expressed optimism, stating, “Spring is around the corner.” This positive sentiment aligns with Nuvama’s anticipation of significant revenue growth for both LTTS and the Engineering Research and Development (ERD) sector in the upcoming quarters. Nuvama expects LTTS to lead the recovery in the ERD segment, driven by its strong capabilities and diversified profile.

Brokerage Recommendations and Financial Performance

Motilal Oswal Financial Services, in its report, retained its BUY rating on L&T Technology, emphasizing a target price of ₹6,220 (based on 35x FY26E EPS). The brokerage underlined the favorable outlook for the ER&D services industry compared to the broader IT services universe and highlighted LTTS’s growing penetration in outsourced ER&D services.

In terms of financial performance, L&T Technology Services reported a net profit of ₹336.2 crore for Q3FY24, showcasing a robust growth of 13.3% from ₹296.8 crore in the corresponding quarter of the previous year. The company’s revenue in Q3FY24 increased by 12.3% to ₹2,421.8 crore, reflecting a positive trend in topline growth.

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Navigating Challenges, Charting Growth

In conclusion, L&T Technology Services has demonstrated its ability to overcome short-term challenges, garnering positive responses from investors and analysts alike. The company’s strategic outlook, coupled with a positive market sentiment, positions it favorably for future growth. As the ER&D sector gains momentum and digitalization becomes a driving force, LTTS is poised to exhibit robust sales growth in the coming years.

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