L&T Technology Services - Large deal wins are more than priced-in! - ICICI Securities

Recovery continued at a modest pace for L&T Technology Services (LTTS) for the second quarter in succession post a sharp fall in revenues / profitability in Q1FY21. On an organic basis, recovery during Dec-20 was led by verticals like Plant engineering (+9.2% QoQ, USD) and Industrial products (+5.5%) which were severely impacted and had not fully recovered in earlier quarters. Gross margin expanded by a meagre ~70bps QoQ despite the industry tailwinds provided by offshore shift (+220 bps) and utilisation (+210bps) increase. Strength in large deal wins during Dec-20 in conjunction with favourable base in FY21E will likely translate into optically robust revenue growth in FY22E. However, its sustainability needs to be seen given the post Covid: 1) reprioritisation of capital, 2) focus on increasing utilisation of existing assets, and 3) elongation of product development cycles. Even after factoring-in the company's aspirational margin of 17% by Q4FY22E, current multiples (35x FY22E EPS) appear lofty. While the fall in discount rates (-150bps) should translate into rerating just in line with the market, we believe valuations are way too stretched ahead of fundamentals.

Shares of L&T Technology Services Ltd was last trading in BSE at Rs.2662.55 as compared to the previous close of Rs. 2577.6. The total number of shares traded during the day was 34256 in over 4223 trades.

The stock hit an intraday high of Rs. 2684 and intraday low of 2580. The net turnover during the day was Rs. 90725055.

Source : Equity Bulls

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