Prabhudas Lilladher recommended Hold rating on Larsen and Toubro Technology Services with a target price of Rs 1020 in its research report dated May 17, 2020.
Prabhudas Lilladher's research report on Larsen and Toubro Technology Services
LTTS reported revenue de-growth of -2.0% QoQ USD 3% below our estimates (Ple:1% QoQ, Cons: 1.2%). Weak revenue growth was on account of steep decline of 8.8% QoQ in plant & engineering. Vertical was impacted by project closures in O&G segment & we believe this vertical will take longer to revive. Reported EBIT margin at 15.2% was down 160 bps QoQ (Ple/Cons: 17.2%), while adjusted for one-off (contribution to PM CARES fund) was 16.5% (-30 bps QoQ). Margin was impacted by lower revenue but aided by strong currency tailwinds. We expect FY21 margin to be impacted by lower revenue. Challenges in Plant Engineering (higher-margin business) will pressure near-term margin performance; Telecom and Hi-tech is expected to do better, but they are low-margin verticals.
We maintain our HOLD rating with revised TP of Rs. 1020 valued on 12x FY22E earnings.
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