L&T Technology Services rated ‘BUY’ with TP of Rs 1,725

By: | Published: September 5, 2018 12:35 AM

LTTS’ confidence in achieving its 20% growth target is anchored by strong $1 billion plus deal pipeline spread uniformly across businesses. Management is focusing on deriving bulk of the growth from top-30 clients.

Analyst Corner: ‘Buy’ on L&T Technology Services with TP of Rs 1,725

We attended the analyst meet hosted by L&T Technology Services (LTTS) on August 30, 2018. In the medium term, management is targeting 20% revenue growth, 20% margin and addition of 20 patents per annum. Potential opportunity areas, according to LTTS, are: 1) 5G ($ 250 billion); 2) robotics ($ 87 billion); and 3) IOT ($ 756 billion). Moreover, discussions with clients have now shifted from cost cutting to: a) workforce optimisation; b) agile iterative models for faster go to market; c) renewal of old & building of new manufacturing set ups; and d) identifying & building products for the future. The analyst meet reinforced our confidence that LTTS’ strong growth will sustain given the large deal pipeline, marquee clients and strong execution capability. Retain ‘BUY’ with TP of `1,725.

Management highlighted six focus areas, which it envisages to contribute to its 20% growth target — expand top 30 accounts, focus on large deals, win top spenders, target geography-specific opportunities, services to solutions leap and approaching business with an investors’ perspective. We believe that each of the above will contribute to the company’s growth target in varied proportions.

LTTS’ confidence in achieving its 20% growth target is anchored by strong $1 billion plus deal pipeline spread uniformly across businesses. Management is focusing on deriving bulk of the growth from top-30 clients.

Although 20% plus revenue growth rate looks challenging, given large deal pipeline, marquee clients and strong execution capability, we remain confident of LTTS’ growth prospects.

At the meet, LTTS showcased its leadership capability as well as product expertise via a few demonstration booths and devices. We believe, its focus on top-30 clients and winning large deals should do the trick. The stock trades at 23.0x FY20E EPS. We maintain ‘Buy’ with target price of `1,725 (23x FY20E EPS).

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