L&T Technology Services Ltd. share price target

Maintain NEUTRAL with a TP of Rs 805, 15x Sep-19E EPS. L&T; Technology (LTT) posted strong revenue numbers (large accounts-led), while operating performance was in-line with estimates. Revenue came in at USD 139mn, 9.1% QoQ (5.6% organic), supported by strong growth in the Top-5 accounts (60% of incremental sequential growth in 2Q). EBITDA% came in at 15.3%, -2bps QoQ (15.5% est.), supported by lower SG&A;, which offset the negative impact of high onsite growth. APAT came in at Rs 1.1bn, 12.3% QoQ.

We return positive from LTTS' analyst meet. With a well-articulated growth strategy (esp. multi-vertical leadership, T30:A3 for client mining), marquee clients (48+ of Top 100 R&D;) and an impressive differentiated solutions portfolio (iBEMS, UBIQWeise etc.)

Valuations at 14x FY19E (MidCap-IT at 12.2x) may limit the upside. Maintain NEUTRAL with a TP of Rs. 800, 15x FY19E EPS. We attended L&T; Technologys (LTT) Analyst Meet, where the company showcased its IPs and multiple solutions (transportation value-engg. services, connected worker IoT etc). Going ahead, LTTs growth will be led by (1) Large client mining (geo-expansion strategy), with 48 clients from the global Top-100 R&D; spenders, (2) Diversified vertical mix (recovery in the Process Industry vertical), (3) Business de-risked from client concentration (lowest Top-10 revenue share vs peers at 37%), (4) Acquisition synergies (Esencia) in the Telecom and Hi-tech vertical, and (5) Margin levers of utilisation, fixed-price and IP revenue.

Huge addressable market of USD 365 bn with just ~7% penetration. We expect domain specialists like LTTS to showcase higher growth, deeper mining. While Global Engineering Research and Development (ER&D;) is USD 1 trn with G500 ER&D; spend at USD 614 bn, market addressed by India is ~USD 20 bn. India-b..

L&T; Technology Services Ltd's (L&T; Tech) provides a pure play in the Engineering and R&D; services (ER&D;) space which is expected to grow at CAGR of 14% over 2015-2020. Further, L&T; Tech's target of 15% growth in FY17 and doubling of revenue in ~4 years would enable it to outperform the industry. While PER of 21x FY16 is at a premium to the large-caps and is expensive in the current IT services business environment, we believe that it provides good investment opportunity...

Incorporated in 2012, L&T Technology Services (LTS) is a leading global pure-play in the growing ER&D services company. The company leverages the strengths and heritage of Larsen & Toubro, a leading Indian conglomerate with strong global engineering capabilities providing it deep domain expertise in product and process engineering. LTS operates in five diverse industry segments viz. transportation, industrial products, telecom and hi-tech, process industry and medical devices. In FY16, the company derived ~50% of revenues from the three segments of industrial products, process industry and medical devices. The company aims to raise ~| 894 crore through an offer for sale of shares (at a price band of | 850-860 per share).

Valuation : LTS is one of the leading players in the growing ER&D space. However, the stock is available at 15.5x FY18E EPS, which is at a premium to other IT players who has presence in ER&D space such as HCL Tech (12.3x FY18E EPS) and Cyient Technologies (11.9x FY18E EPS). Hence, we believe current valuations leaves limited upside. We recommend that investors AVOID the issue.

L&T; Technology Services Ltd incorporated in 2012 is a Mumbai India based third-party ER&D; (Engineering, Research and Development) service provider . L&T; Tech provide services to manufacturing, technology and process engineering companies to help them develop and build products, processes and infrastructure required to deliver products and services to their end customers. The company operates in five industry segments; transportation, industrial products, telecom and hitech, process industry and medical devices. It offers design and development solutions throughout the product development chain and provide solutions in the areas of mechanical and manufacturing engineering, embedded systems, software engineering and process engineering. 80.% of the company's revenues is derived from customers in North America and Europe and the majority of its work is executed by employees based out of delivery centers in India using an offshore delivery model. This gives L&T; Tech a competitive advantage in terms of talent pool availability and lower...

L&T Technology Services Limited (LTTS) is subsidiary of Engineering giant, L&T and was incorporated in Jun-2012. Post transfer of Product Engineering Services (PES) and Integrated Engineering Services (IES) division and 2 acquisitions in 2014-15, LTTS emerged as leading pure play Engineering Research & Development (ER&D) player.

Valuation: LTTS trades at 21.0x FY2016 EPS at upper-end of issue price band. On considering (1) strong growth potential of LTTS, which is ahead of some of the industry peers, coupled with (2) 38%+ RoE levels in FY2016, (3) FY2015-16 average cash flow from operations of `446cr, (4) strong ~64% dividend payout (translating to ~4% dividend yield), we are of view that LTTS stock has the potential to trade at premium to the peers. However, if we consider the average of the 3 peers, then LTTS stock has been priced at 19% discount. Given that the LTTS IPO has been priced at discount, Angel advises a SUBSCRIBE rating.

L&T Technology Services Ltd (LTTSL) is a leading global pure-play (engineering research and development) ER&D Services Company. It provides ER&D services, which is defined as the set of services provided to manufacturing, technology and process engineering companies, to help them develop and build products, processes and infrastructure required to deliver products and services to the end customers.

By region, LTTSL derive 80.2% of its revenues from customers in North America and Europe, which are the two largest regions of corporate ER&D spend and represented over 73% of the US$1,007 billion corporate ER&D services spend in 2015. The top 100 spenders in the G500 ER&D spend contribute 66.3% of the G500 ER&D spend and its key global customers include 43 of the top 100 global ER&D spenders, which offers significant growth opportunities for existing customer accounts. L and T Technology Services Ltd Issue Open: Sep 12 ? Sep 15 2016 with the Price Band: Rs. 850 - 860

L&T; Technology Services (LTTS) is a mid-cap IT Services company, focussed on the Engineering Services segment. It reported revenue of US$ 468mn in FY16, with EBITDA margins of 17%. The company provides outsourcing services to engineering companies across the world, for their research and design activities. Its clientele includes marquee names like BMW, Caterpillar, John Deere and Intel. Transportation (30%) and Industrial (25%) constitute its main verticals while US/EU form 60%/20% of its revenues. While the company operates in a segment with huge growth potential, we find the asking valuations to be highly expensive. Assuming 10%/12% USD revenue growth over FY17/18 and...