Broker's call: L&T Technologies (Add)

| Updated on April 03, 2020

Centrum Broking

L&T Technologies (Add)

CMP: ₹1,106.65

Target: ₹1,430

L&T Technologies has organised a concall with investors to give a business update on Covid-19 impact. Management cited pockets of weakness in select sub-verticals (automotive, energy, industrial). Execution has been shifted to work-from-home for both onsite and offshore.

We note that L&T Technologies has high exposure to project-based work owing to nature of service offering (engineering design). Hence, we see potential for client pushback projects owing to current challenges (travel restrictions, lockdowns, weak macros). Hence, we see soft 1HFY21 owing to slowdown in decision making and challenges in select sub verticals.

We downgrade L&T Technologies dollar revenue growth to (1.2)/12.3 per cent for FY21/FY22E (versus 13/14.4 per cent modelled earlier). Hence, we model dollar revenues to decline in FY21E owing to soft start (versus 13 per cent dollar revenue growth modelled earlier). However, we reset USD vs INR assumptions to 74/73 for FY21/FY22E (versus 71/71 earlier). This acts as a tailwind for margins and lower quantum of EPS downgrade.

We lower EPS estimates by 10/13 per cent for FY21/FY22E. Stock trades at 13.7x FY22E EPS. We lower our target price by 25 per cent to ₹1430/sh (16.5x FY22E EPS vs 18.5x Dec21E EPS earlier). Our steep target price reduction is driven by EPS downgrade as well as P/E downgrade. Retain ‘Add’.

Published on April 04, 2020

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