'Add' Multibagger L&T Technology Services Stock For Near Term Gain: HDFC Securities Suggests

Top brokerage firm HDFC Securities recommends investors to add the stock of L&T Technology Services. It is a multibagger stock that has given around 367% return in the last 5 years.

Stock To Buy: Target Price & Financials

The Current Market Price (CMP) of L&T Technology Services is Rs. 3,818. HDFC Securities has estimated a Target Price for the stock at Rs. 3,390. It is a large-cap stock with a market capitalization of around Rs. 38,339 crore.

The company's revenue in FY22 was recorded at Rs. 880 b, which is expected to be at Rs. 999 b in FY23. Their EBIT in FY22 stood at Rs. 12.01 b, which is expected to be at Rs. 14.18 b in FY23. The company's adj. PAT in FY22 was recorded at Rs. 9.57 b, which is expected to be at Rs. 10.99 b in FY23.

Stock Advantages: HDFC Securities

Maintaining add rating, the brokerage firm said, "L&T Technology Services has established itself as a leading pure-play ER&D service provider with a diversified industry vertical base. Near-term growth momentum in transportation vertical and plant engineering will be supported by large deals and digital engineering. We have factored in USD revenue growth of +13.5/+12.8% and EBITM of 18.2/18.1% for FY23/24E respectively. L&T Technology is currently trading at 31.5x FY24E, with FY22-24E EPS CAGR at 16%. Our target price of Rs. 3,390 is based on 28x FY24E EPS (5Y average at 27x) on 16% EPS CAGR over FY22-24E."

However, in medical devices vertical, some of the large deals are in steady stage and the pace of large deals has slowed down; however, the company is trying to improve it.

Demands and ER&D spends

There are headwinds like higher interest rate and inflation which have some impact on demand; however, ER&D spends remain intact but there has been some prioritization of some projects. L&T Technology Services is optimistic about ER&D spends, while EV continues to give opportunity to grow in the Trucks & Off Highways segment. In telecom & hi-tech vertical, semi-conductor is doing well and chip companies are investing in design of new chipsets. In 5G, there is growth but deployment is slower for some of the operators while on the media side, newer technologies are being adopted.

Offshore presence

The company has a lower presence in Eastern Europe except in Poland (where a client wanted to expand). In Q2FY23, there will be wage hike impact w.e.f. July (-200bps impact) but the company will try to offset it through operational efficiency. Attrition will start reducing from the peak level in the coming few quarters. The company intends to increase the offshore mix, which will be a margin lever; however, in the near term, it will be at the same level, the brokerage firm stated.

Company Portfolio: L&T Technology Services

L&T Technology Services Limited is a global leader in Engineering and R&D (ER&D) services, with 913 patents filed for 57 of the Global Top 100 ER&D spenders. With 89 Innovation and R&D design centers globally, they specialize in disruptive technology spaces such as 5G, Artificial Intelligence, Collaborative Robots, Digital Factory, and Autonomous Transport. The company is a publicly listed subsidiary of Larsen & Toubro Limited, the $21 billion Indian conglomerate operating in over 30 countries.

Disclaimer

The above stock was picked from the brokerage report of HDFC Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.