Arihant Capital has given Hold recommendation for Larsen and Toubro Technology Services with a target price of Rs. 4257 in its research report issued on Sep 03, 2021

Arihant Capital’s research report on Larsen and Toubro Technology Services

LTTS is investing and scaling in its 6 key industry bets: 1) Electric/Automation connected vehicles 2) MedTech 3) 5G 4) AI & Digital Products 5) Digital Manufacturing and 6) Sustainability. Management guided revenue run-rate of USD 1.5 Bn by FY25. They also guided LTM run rate of USD 1Bn by Q2/Q3 FY23. Guidance includes organic as well as effect from potential acquisitions. The company mentioned that they are open for potential acquisitions (~USD 20-100m in size) given their healthy cash balance of (~USD 200m cash) Strong guidance is driven by large deal wins (23 large deals (>$5mn) won in last 4 quarters), robust pipeline (51 large deals in pipeline), strong digital engineering demand tailwinds and ability to consistently increase market share (as share of offshore spending improves) •The company guided operating margins to gradually increase to 18% by FY25 (17.3% in Q1FY22 and 14.5% in FY21) on back of favourable operating metrics such as utilization and offshore mix and scope for margin improvement in Telecom and Hi-tech vertical, which have seen subdued margins for some time.

Outlook

At a CMP of INR 4,047, LTTS is trading at FY23E P/E of 36.6x. to its FY23E EPS of INR 110.6. We value LTTS at a P/E of 38.5x to its FY23E EPS INR 110.6, which yields a target price of INR 4,257 per share. We assign a Hold rating on the stock.

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