L&T Tech Achieved Key Milestones Despite Muted Q3 Growth, Says CEO

L&T Technology Services Ltd. achieved two big milestones in the December quarter even as it saw muted revenue growth, according to Chief Executive Officer and Managing Director Amit Chadha.

"One, we have filed the 1,000th patent. Our net profit has crossed Rs 300 crore and achieved margins of 18.7% (for the) first time ever," Chadha said.

Revenue growth was below their expectation mainly because a few of the plant and engineering customers paused some projects towards the end of the quarter and moved it to January; those have now resumed, he said.

L&T Technology (Consolidated, QoQ)

• Revenue up 3% at Rs 2048.6 crore against the Bloomberg consensus estimate of Rs 2,061.9 crore.

• Ebitda up 5% at Rs 441.2 crore against an estimated Rs 437.8 crore.

• Ebitda margin at 21.5% versus 21% versus estimate of 21.2%.

• Net profit up 8% at Rs 303.6 crore compared with an estimate of Rs 296.7 crore.

Even though L&T Tech will be at 15% organic growth annually, the March quarter is expected to reflect growth levels of the first half of the current fiscal, according to Chadha. He expects L&T Tech's heritage business to continue to grow in double digits.

The acquisition of the Smart World and Communication business of L&T is for capability enhancement, rather than a revenue and client acquisition, Chadha said.

"5G and sustainability were two areas where we had constraints. SWC acquisition brings capability to the table for large deals in 5G and sustainability, which we did not have," he said.

The SWC acquisition will help the company accelerate growth in the telecom and hi-tech division, Chadha said.

The company was managing a 18.5% earnings before interest and taxes, he said. "Any acquisition at this scale will either help you improve margins and create more value for shareholders or buy something with high margins and pay higher for the acquisition," he said.

"The company has the leadership and playbook that can turn around the margins of SWC. Immediate margins will go down by 180-200 bps in quarter one. However, we see recovery thereafter."

By the first half of the financial year 2025-26, it should be back at the same levels jointly and be at $1.5 billion plus. Hence, it is margin-accretive and will help unlock value for shareholders, Chadha said.

The L&T Tech CEO does not expect a recessionary phase like what happened during Covid-19. Electrification of vehicles, automation of the workplace, digitisation, 5G and medical technologies will continue to expand, he said.

However, there will be a shift in the profits pool and spending pool. Companies which are agile in the market place and listening to the consumer are the ones that will survive, he said.

In terms of segmental outlook, Chadha expects industrials to see an ongoing growth trajectory, while plant and engineering are expected to make a comeback in the January-March quarter.

Medical technology is expected to see growth from the fourth quarter onwards. Telecom and hi-tech will see recovery from the first half of the next fiscal, he said.

He expects attrition to inch lower in the March quarter. The firm has reached the 80%-plus utilisation rate and hiring is expected to continue in the near-to-medium term, he said.

L&T Tech is looking to grow onshore revenues as it helps the company improve profit margins. It is aspiring to increase offshore to 60% from the current 50%, Chadha said.

The firm is seeing a fair amount of momentum in $5-million and $10-million deals, according to him.