L&T Technology Services Ltd (LTTS) is a leading global pure-play engineering research and development (ER&D) services company
focused on transportation, industrial products, telecom & hi-tech, process industry and medical devices industry segments.
The entire issue of 10.4mn shares is an
Offer for Sale by the promoter, Larsen & Toubro (L&T), and thus the company is not raising any capital. L&T's stake will reduce to 89.8% post the IPO.
Rajiv Mehta and Franklin Moraes of IIFL Capital have the following view,
At the upper end of the price band, valuation stands at 21x P/E and 15x EV/EBITDA on FY16 financials. While LTTS deserves better valuation than IT companies, the near-perfect IPO pricing leaves very limited room for listing gains. Long term investors can hope for decent returns
Omkar Hadkar of Antique Stock broking said,
LTTS with a strong parentage has the requisite expertise to gain from this opportunity. However execution will be key, given the increased adoption of IoT, analytics, robotics etc in delivery of ER&D services and will entail the usage of IPs and end-to-end solutions. As per our estimates the offered price at the upper end (INR860/share) implies a P/E of 16x FY18e EPS which we believe factors in the premium owing to its L&T parentage in the engineering space.
Urmil Shah of IDBI Capital has the following Review,
At the price-band of Rs850-860, L&T Tech’s implied PER is 21x on FY16 EPS of Rs41 (adjusted to rights issue in Q1FY17). Post the recent correction in the IT sector, L&T Tech’s PER is higher than even Tata Consultancy Services (19x). While the near term gains may be capped, we believe that L&T Tech provides a good investment opportunity in the long-term given its potential to outperform the sector growth.
Phillip Capital Analysts have the following Recommendation
On our estimates of Rs 52 EPS in FY18, the upper band of the IPO is priced at 16x FY18 – at premium to all IT Services companies (excl TCS) and even its fraternal twin Cyient. We would have been more comfortable with a valuation inline with Cyient (13x FY18 P/E) – leaving something on the table for the investors. We hence find the offer unattractive and recommend ‘Avoid’.
Destimoney Securities has the following Recommendation,
The management expects to double the top line in next three to four years. Out of this incremental topline, 32-43% is likely to come from acquisitions. This translates to organic growth at a rate of 12-14% in next four years which is in line with industry growth estimates by Zinnov. Although, there is limited history of financial health of the company, L&T Tech’s return ratio profile is one of the best in the industry. At upper price band, the stock provides limited upside for listing gains. However, investor seeking long term exposure to pure play in ER&D space can SUBSCRIBE to the IPO at CUT-OFF.
Sharekhan has the following Review,
At a price band of Rs850-860, the LTTS IPO is priced at 20.7-21.0x FY2016 consolidated earnings per share (EPS) of Rs41.0. LTTS has better return ratio and earning profile than peers and some of the pure mid-cap IT service companies. At the upper price band of Rs860, the PER valuation stands at 21x based on the FY2016 earnings.
K R Choksey analyst Mayank Babla said ,
At the price band of Rs850-Rs860 per share, the LTTS offer comes at a PE of 20.7x-20.9x its FY16 EPS, which is at ~20% discount to peers group average (~25x). We believe the promoters have rightly priced the IPO which would have been as even a higher valuation would be alright given the premium it can demand due to the reputation of the parentage. We like L&T Technology Services as a long term story and advise investors to SUBSCRIBE the IPO of the company.
Ajcon Global analyst Akash Jain said,
With due consideration to factors like a) underpenetrated corporate ER&D market, b) leading global pure – play ER& D services Company, c) niche business model with very few players in India, d) well diversified player with multi – vertical industry expertise and long standing customer relationships, e) focused on driving innovation through in – house R&D, IP and strategic alliances, f) strong L&T parentage and long history of engineering expertise, g) marquee global clients, h) no Brexit impact as major operations in North America, i) robust ROE of 38.85%, we recommend to SUBSCRIBE the issue for long term.
IndiaNivesh recommended as below,
At the upper band of the issue, the stock is priced at ~21x FY16 P/E. ROE and ROCE is at ~39% and ~42% respectively. Future profitability is expected to improve on the back of investments in R&D and Innovation labs, expansion in transportation & industrial products, overseas growth and offshore/onshore mix. L&T Technology services Ltd is priced at relatively rich valuations compared to its global peers like Alten, Harman Technologies, QuEST Global etc. which are trading in the range of 15-17 P/E multiples. Due to lower penetration in these niche segments, L&T Technology will get the advantage to control higher market share of third party businesses outsourced in India. Despite of expensive valuation, our take on this stock is positive.
SPA Securities has the following review,
LTTS is favourably priced at PE of 21.0x based on FY16 earnings compared to its peers, Tata Elxsi (31.1x) and Cyient (15.6x), which is justifiable considering above industry growth rate, strong operating margin (17.0%), high RoE (38.1%) and strong cash flow generation. We are slightly cautious owing to short operating history of the company. We recommend investors to SUBSCRIBE to the issue for long term gains.
