Buy L&T Technology Services, target Rs 2,030: HDFC Securities

HDFC Securities has a buy call on L&T Technology Services with a target price of Rs 2,030.

The current market price of L&T Technology Services is Rs 1,637.35.

Time period given by the brokerage is one year when L&T Technology Services price can reach the defined target.


Investment rationale by the brokerage-
L&T Technology Services (LTTS) reported strong revenue and operating performance, in-line with expectations and increased its FY19E rev guidance to 24 per cent (21 per cent earlier).

A blip emerges with decline expected in a large account in FY20E. However, growth outlook is a robust ‘mid-teens’ for FY20E with improvement in margins (CC terms), supported by continuity in strong deal momentum and a robust pipeline.

Revenue came at $185.7mn, 4.8/23.0 per cent QoQ/YoY and EBITDA per cent stood at 18.4 per cent, +28bps QoQ. While we moderate rev est. to factor ‘potential’ decline, we remain positive on LTTS based on (1) Continuity in large deal wins (8 wins vs. 6 in 2Q) with incremental TCV of $80mn, (2) Strong and broad-based deal pipeline across Automotive (4 deals), Hi-tech, Process industry verticals, (3) Margin tailwinds of improving business-mix and productivity improvement in lower-margin Transportation and Hi-tech verticals, (4) Solution/ platform strategy driving cross-vertical opportunities (Hi-tech-Automotive), and (5) Strong T-30 growth potential with limited competition in multiple verticals.

Expect rev/EPS CAGR at 18/28 per cent CAGR over FY18-21, factoring $rev growth at 24.1 per cent, 15.0 per cent, 17.7 per cent and EBITDA per cent at 17.7/18.3/19.5 per cent for FY19/20/21E.

Maintain BUY with a target price of Rs 2,030, at 22x Dec-20E. Valuation premium to the sector expected to continue supported by industry leading growth.