Sharekhan is bullish on L&T Technology Services has recommended buy rating on the stock with a target price of Rs 5900 in its research report dated October 20, 2021.
Broker Research
October 20, 2021 / 12:48 PM IST
L&T Technology Services (LTTS) delivered yet another strong quarter beating estimates on all fronts, with healthy improvement in EBIT margins, client additions, offshoring revenue mix and free cash flows (FCF). The company reported CC revenue growth of 6% q-o-q and 22.3% y-o-y, led by strong growth in medical devices, industrial products and transportation verticals. EBIT margins improved for the fifth consecutive quarter to 18.4% despite wage hikes for mid and senior management along with lower utilisation, aided by productivity improvement and cost optimisation. The management increased its annual USD revenue growth guidance to 19-20% from 15-17% earlier and 13-15% at the beginning of the year, ahead of our expectations. The revision in guidance is very impressive and reflects strong demand for digital engineering and market share gains. The management cited that the company is progressing well in terms of transaction, deal wins, deal pipeline and solutions across its six big bets within ERD space.
Outlook
LTTS is one of the best plays in the faster growing ERD space for its multi-industry expertise, deep engineering capabilities, end-to-end offerings, and long standing relationships with large enterprises worldwide. LTTS is well-placed to gain market share among global competitors because of being the preferred engineering partner among clients, strong customer-centric approach and a full-service model. We expect LTTS’ USD revenue and earnings to post a CAGR of 18% and 23% over FY2022-FY2024E. At CMP, the stock trades at 44x/37x its FY2023E/FY2024E earnings estimates, which justifies premium valuations, given strong deal wins, presence in the fast-growing ERD segment, and consistent dividend pay-outs. Hence, we retain a Buy on LTTS with a revised PT of Rs. 5,900.
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