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

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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26 Aug, 2025 12:21

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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.

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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