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Buy Larsen and Toubro Technology Services target of Rs 4791: Prabhudas Lilladher

Prabhudas Lilladher is bullish on Larsen and Toubro Technology Services has recommended buy rating on the stock with a target price of Rs 4791 in its research report dated September 03, 2021.

September 06, 2021 / 01:52 PM IST
HDFC Securities research report's outlook and valuations:  500bps growth outperformance over FY21-24E as compared to 250bps earlier). We roll over valuations to Sepemtember-23E and increase target multiples for most of the companies in our coverage universe. We remain broadly constructive across the sector and ahead of consensus on growth/EPS; our preferred picks are Infosys, HCLT, Mphasis and Zensar."" title="HDFC Securities research report's outlook and valuations:  "The YTD EPS upgrades (consensus) have been led by mid-tiers such as Tata Elxis, Mindtree, Mastek, and Persistent Systems, ranging from 20-40 percent and, within tier 1, by Wipro (~15%). We expect the sector (coverage universe) to post 13 percent and 14.5 percent USD revenue/APAT CAGR over FY21-24E compared to 6.5/7.5 percent over the past five years. The mid-tier valuation premium relative to tier 1s may sustain, based on its relative outperformance (>500bps growth outperformance over FY21-24E as compared to 250bps earlier). We roll over valuations to Sepemtember-23E and increase target multiples for most of the companies in our coverage universe. We remain broadly constructive across the sector and ahead of consensus on growth/EPS; our preferred picks are Infosys, HCLT, Mphasis and Zensar."" width="100%" height="auto" >

HDFC Securities research report's outlook and valuations:  "The YTD EPS upgrades (consensus) have been led by mid-tiers such as Tata Elxis, Mindtree, Mastek, and Persistent Systems, ranging from 20-40 percent and, within tier 1, by Wipro (~15%). We expect the sector (coverage universe) to post 13 percent and 14.5 percent USD revenue/APAT CAGR over FY21-24E compared to 6.5/7.5 percent over the past five years. The mid-tier valuation premium relative to tier 1s may sustain, based on its relative outperformance (>500bps growth outperformance over FY21-24E as compared to 250bps earlier). We roll over valuations to Sepemtember-23E and increase target multiples for most of the companies in our coverage universe. We remain broadly constructive across the sector and ahead of consensus on growth/EPS; our preferred picks are Infosys, HCLT, Mphasis and Zensar."

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


We attended LTTS investor and analyst meet in which management gave insights into company’s’ growth strategies and changing industry landscape. Management aims to reach US$ 1.5 Bn annualized revenue run-rate by Q4FY25 and US$ 1 Bn by Q2/Q3FY23 implying ~18% growth over FY21-25E. Strong guidance till FY25 reinforces our belief in sustenance of strong demand tailwinds for next 3-5 years. We believe that the guidance is achievable given 1) strong broad-based ER&D spending and expansion in addressable market size, 2) LTTS’s focused bets on 6 strategic high growth areas, 3) increasing share of software and technology as compared to hardware in ER&D spends, and 4) investments in sales, large deals and talent pool.



Outlook


We anticipate 18% revenue CAGR over FY21-25E and margins to improve from 17.3% in FY22E to 18% in FY25E. We value LTTS based on DCF valuation (risk free rate at 6.2%, equity risk premium at 5.7% & terminal growth rate at 7.5%) to arrive at TP of INR 4,791 (earlier: 4018). LTTS is currently trading at 51.8x/40.5x on FY22/23 earnings of INR 83.8/107.2 respectively with Revenue/EPS CAGR of 18%/30% over FY21-23.

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