IT Stocks: After rallying 1,000% in 5 years, this IT stock is showing weakness. What’s ahead?

To add to that, March quarter results were a miss on both revenues and margins as the IT firm carries the burden of high expectations. Analysts said while Larsen & Toubro Infotech remains a good growth story, expensive valuations may keep upside capped for the stock.

“We remain confident of the management’s execution capabilities, but remain on the sidelines in the stock, led by a significant valuation re-rating. We value the stock at 30 times FY24 EPS. Our target is Rs 5,710 per share,” said Motilal Oswal Securities.

This target suggests a mere 4 per cent potential upside ahead for the stock.

L&T Infotech said its revenue grew 3.1 per cent sequentially and 27.5 per cent YoY to $570.4 million, which was lower than Street’s estimates of $571.6 million. A sequential growth of 3.6 per cent in constant currency terms on a high base also fell below the estimate of 4.2 per cent.

Revenue growth for the March quarter was lower than last couple of quarters due to seasonality and higher onsite supply-side challenges. In the last two quarters, the IT firm had reported a 8 per cent-plus sequential growth in revenues.

Profit for the quarter rose 17 per cent YoY to Rs 637.50 crore.

L&T Infotech said it can deliver industry-leading growth in FY2023 and has kept net profit margin target unchanged at 14-15 per cent band. But analysts have trimmed their growth forecasts a bit.

“We cut FY2023-24E EPS by 2-3 per cent to account for margin headwinds. We like scalability attributes of LTI’s business but find current valuations expensive,” Kotak said while slashing its target on the stock to Rs 5,500 from Rs 6,130 earlier.

Morgan Stanley said Larsen & Toubro Infotech reported “an all-around miss” on revenue and margins. Demand trends are secular but supply side challenges persists, it said. This brokerage has cut FY23 and FY24 earnings estimates by 4-5 per cent and maintained its ‘underweight’ rating on the stock with a target of Rs 5,500.

The scrip closed at Rs 5,486.15 on Wednesday.

Analysts said L&T Infotech is witnessing increased macro uncertainty, but no impact on demand.

Emkay Global has cut its FY23 and FY24 EPS estimates by 3.7 per cent and 2.5 per cent, respectively, factoring in the Q4 performance miss and softness in onsite volume in H1. It has maintained a Hold rating on the stock with a revised target of Rs 6,350 from Rs 6,500 earlier.

HDFC Institutional Equities said that the IT firm has demonstrated consistency in compounding with FY18-22 revenues having nearly doubled and headed for a 40 per cent rise over FY22-24E.

“Following a 17 per cent CAGR in profit over the last five years, LTI is likely to deliver 18 per cent earnings CAGR over FY22-24,” the brokerage said while suggesting a target of Rs 6,185 on the stock.