L&T Technology Shares Gain As Motilal Oswal Initiates Coverage With A ‘Buy’
A member works on laptop in an office space in Singapore. (Photographer: Wei Leng Tay/Bloomberg)

L&T Technology Shares Gain As Motilal Oswal Initiates Coverage With A ‘Buy’

Shares of L&T Technology Services Ltd. gained the most in more than a month after Motilal Oswal initiated coverage on the stock with a ‘buy’ rating.

The engineering services company has a unique position aided by a diversified portfolio and marquee clients, the brokerage said in a note, as it set a price target of Rs 2,830 apiece—implying a potential upside of 22% from Monday’s closing price.

“L&T Technology has one of the most diversified business mixes within its peer group, with lower client concentration and five large verticals with over 10% revenue contribution,” Motilal Oswal said. As of the third quarter of 2020-21, revenue contribution from the company’s top five clients stood at 16%. “This offers greater resiliency to its business from industry seasonality, the biggest structural issue with companies in the ER&D (engineering, research and development) industry.”

The company reported a 6.8% sequential growth in its dollar revenue for the October-December period and won seven new deals with a total contract value of more than $10 million.

“We see L&T Technology Services as a key beneficiary of growing tech adoption across R&D and new product development,” Motilal Oswal said. “With a digital revenue share of about 50%, it would benefit from high double-digit growth in global digital ER&D spend.”

While the brokerage expects the company’s growth to remain flat over FY19-21 due to Covid-19 disruptions and ramp-down at key clients, it projects a strong rebound over FY21-23, anticipating a 19% CAGR.

“We remain confident of L&T Technology’s ability to deliver mid-to-high double-digit growth over the medium term, aided by robust growth in global ER&D spends over FY18-23 due to the growing criticality of digital in new product development,” Motilal Oswal said.

It also expects the company’s EBIT margin to expand 290 basis points to 17.4% in FY22 on the back of improved operating leverage, a growing appetite for offshore delivery and higher employee utilisation.

Shares of L&T Technology Services gained as much as 8.6% in early trade on Wednesday to Rs 2,550 apiece, snapping a three-session losing streak. The stock touched a record high of Rs 2,780 on Jan. 15 this year, but since then has dropped more than 15%.

Of the 24 analysts tracking the company, 11 have a ‘buy’ rating, six suggest a ‘hold’ and seven recommend a ‘sell’. The stock crossed its Bloomberg consensus 12-month price target of Rs 2,366 on Wednesday.

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