MOSL: L&T TECHNOLOGY (Buy)-Structural theme remains on track
L&T TECHNOLOGY: Structural theme remains on track
(LTTS IN, Mkt Cap USD7.2b, CMP INR5123, TP INR5670, 11% Upside, Buy)
Upward revisions on guidance front to continue
- L&T Technology Services (LTTS) reported 6% QoQ CC growth in 2QFY22, above our estimate of 5% QoQ CC, led by a broad-based performance across verticals. Operating leverage led to EBIT margin improvement of 110bp QoQ to 18.4% (above our estimate of 16.8%), despite strong employee additions (+6% QoQ) and lower utilization (-110bps). It reported better-than-expected attrition of 16.5% (+200bps QoQ).
- The 350bps increase in the FY22E USD revenue growth guidance to 19-20% (v/s 15-17% in 1Q) came as a welcome surprise. While we were anticipating a raise, the quantum has surpassed our estimate of 19% and indicates a robust demand environment for engineering and R&D (ER&D) services.
- Moreover, the management commentary of continued strength in end demand suggests growth could significantly exceed the upper end of the revised guidance. We continue to see LTTS as a beneficiary of the growing penetration of ER&D services and the best Tier II IT services play within our coverage. We bake in 21.2% revenue growth for FY22E and expect the company to continue to revise its guidance upwards over 2HFY22. LTTS should continue to deliver 20%+ USD growth in FY23 as well.
L&T Technology Services Limited is an India-based engineering research and development services company. The Company is engaged in providing a range of engineering services and related technologies in the areas of embedded systems, mechanical and others. Its segments include Transportation, Process Engineering, Industrial Products, Medical devices and Telecom. The Company also acts as a service provider to companies in India and abroad. It offers services, including embedded system and applications; engineering process services; mechanical engineering; product lifecycle management (PLM), and consulting services. It also offers solutions, including engineering analytics; Internet of Things and machine to machine; power electronics, and semiconductor Internet protocol (IP) solutions. The Company exports engineering and design services to North America, Europe, the Middle East, Japan, Korea and other Asia-Pacific (APAC) countries. The Company is a subsidiary of Larsen & Toubro Limited.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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