Goal is to get back to the FY18-19 growth levels– LTTS

Update on the Indian Equity Market:

On Wednesday, Nifty closed 0.9% higher at 13,692. Within NIFTY50, HINDALCO (+2.8%), BHARTIARTL (+2.8%), and HDFC (+2.8%) were the top gainers, while ICICIBANK (-1.1%), INDUSINDBK(-1.0%), and ULTRACEMCO (-0.8%) were the top losing stocks. Among the sectoral indices, REALTY (+5.1%),METAL (+1.8%) and AUTO (+1.0%) were the top gainerswhilePSU BANK (-1.6%) was the only losing sector.

Goal is to get back to the FY18-19 growth levels– LTTS

Excerpts of an interview with Mr. Keshab Panda, CEO, L&T Tech Services, aired on CNBC-TV18 on 15thDecember 2020
● The new normal is presenting new opportunities for engineering and technology companies like L&T Tech Services (LTTS).
● LTTS recently received a USD 100 mn + plant engineering order from a global oil and gas major. The deal is the biggest ever plant engineering deal in India and includes sustenance engineering, control automation, smart manufacturing, and efficiency improvement.
● The revenue contribution of the deal will start coming in FY22E onward.
● The current deal is for 2 plants of the client. The opportunity could be much more than that if extended to other plants. The opportunity in the 2 plants itself could extend by 50-100%.
● For this deal, the model will be 20% onsite and 80% offshore.
● The deal wins pipeline has increased multifold from the pre-covid levels.
● The revenue growth for FY18 and FY19 was 20% and 26% respectively. Growth came down to 8%-9% in FY20 due to customer issue. Now the goal is to get back to the FY18-19 growth levels quickly.
● LTTS is also working on improving margins from the 2QFY21 levels.
● Among sectors that LTTS operates in, plant engineering is doing well, medical is doing best, transportation except aerospace is also coming back.

Consensus Estimate (Source: market screener website)
● The closing price of LTTS was ₹ 1844 as of 16-December-2020. It traded at 30x/ 23 x/ 20x the consensus EPS estimate of ₹ 62.6/80.5/92.4 for FY21E/ FY22E/ FY23E respectively.
● The consensus target price of ₹ 1750/- implies a PE multiple of 19x on FY23E EPS of ₹92.4/-.

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