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Centrum Broking
L&T Technology (Add)
Target: ₹1,825
CMP: ₹1698.25
L&T Technology Services (LTTS) has delivered steady Q2-FY21 with modest revenue and margin beat. PAT was 21 per cent higher than our estimates led by higher other Income owing to export Incentive Income.
Post steady Q2-FY21, we expect LTTS USD revenues to grow/(decline) by (7.9)/14.8 per cent for FY21/FY22 ( vs (9)/14 per cent modelled earlier). Organic Revenue decline would be 8.8 per cent for FY21 and Orchestra acquisition consolidated from October 2020 is inorganic component.
We raise FY21 EPS estimates by 4 per cent led by Q2-FY21 PAT beat. However, we retain FY22/FY23E EPS estimates. Stock trades at 24x FY22 EPS and 21.3x Sept 22 EPS. With commentary on turnaround picking, multiples can re-rate.
We now value LTTS at 22x Sept 22 EPS which yields a TP of ₹1,825/share. This represents a 18 per cent upgrade in TP led by P/E upgrade. Engineering Design business gets premium multiples and LTTS is the only pure play E&RD company with multi vertical expertise.
With worst behind, we see P/E multiple expansion as business upturn in expected in FY22.
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