Prabhudas Lilladher has given Buy recommendation for Larsen and Toubro Technology Services with a target price of Rs. 5714 in its research report issued on Jan 19, 2022

Prabhudas Lilladher’s research report on Larsen and Toubro Technology Services

LTTS reported miss in revenue growth, +3.6% QoQ USD (Ple: 4.5% and Cons: 5.7%) led by lower working days and higher seasonal leaves in Q3 and weakness in Industrial Products (+0.7% QoQ USD) and Medical devices (+1.5% QoQ USD). However, demand environment remains strong indicated by – 1) increasing deal pipeline every quarter, 2) highest ever headcount addition (+11.9% QoQ, +25.2% YoY); 3000 freshers added in 9MFY22 and plan to add similar number in FY23 and 3) healthy deal momentum with 3 USD 10mn+ deals and two empanelment with potential TCV of USD 50 mn each over 5 years and 4) huge success in client mining with $45 mn large deal in EACV space being 3rd deal from same client in past three quarters adding to total TCV of $90 mn. FY22 USD revenue growth guidance of 19-20% remains intact implying 2-4% QoQ USD growth in Q4FY22. Consistent improvement in EBIT margin for six consecutive quarters led to highest ever margin of 18.6%, +20bps QoQ much above our and cons estimates (Ple: 17.5%, Cons: 18.3%) Management mentioned that 18%+ EBIT margin level is sustainable as headwinds from intermittent wage hike and travel costs will be offset by growth, quality of revenues and operational efficiency (including pyramid optimization and productivity improvement.


Our EPS estimates increase by 3.6%/2.3% in FY23/24 led by increase in margin estimates. We assume 18.1% margins in FY23/24. We arrive at DCF based TP of Rs. 5714 from earlier Rs. 5705 (implied target multiple of 43x P/E on FY24 EPS). LTTS is currently trading at 47x/41x on FY23/24 earnings of INR 115/132 respectively with Revenue/EPS CAGR of 19%/21% over FY22-24E.

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