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    Buy L&T Technology Services, target price Rs 1600: Sharekhan

    Synopsis

    Buy L&T Technology Services Ltd. at a price target of Rs 1600.0 .

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    Sharekhan has given a buy rating on L&T Technology Services Ltd. with a target price of Rs 1600.0. The current market price of L&T Technology Services Ltd. is Rs 1430.0. The share price moved up by 1.21% from its previous close of Rs 1406.50.

    According to the brokerage, the digital engineering spend is expected to clock a 19% CAGR to $1.1 trillion by 2025, which would account for 53% of overall ERD spends. Though implications of COVID-19 will be felt in the near term, technologies facilitating in building the new normal for enterprises are expected to speed-up adoption of digital engineering in the medium-to-long term. With marquee relationship with most large R&D spenders. The brokerage believes that LTTS is well-poised to deliver top quartile revenue growth in the industry.

    Investment Rationale: The stock price has corrected by around 20% from its peaks since YTD CY2020, which is higher as compared to some quality mid-cap and tier-I companies, owing to severe implications of COVID-19 on asset-heavy industries, exposure to project-based works, a sharp fall in crude oil prices and an anticipated delay in decision-making owing to the upcoming US election.

    However, the brokerage believes that this correction offers long-term investment opportunities to investors given the long runway for its growth, driven by leadership depth, broad client portfolio, multi-domain expertise and an underpenetrated ERD outsourcing market. Further, LTTS has the potential to recover faster and has been able to report strong growth among peers given its superior execution capabilities, status as preferred partner among top spenders and a promising deal pipeline once the situation settles down.

    At CMP, the stock is trading at 20x/16x/14x FY2021E/FY2022E/FY2023E earnings, which is at a premium to mid-cap companies given its superior technological expertise across segments, potential in improvement in dividend payout, strong return ratios and healthy cash conversion. Hence, we initiate coverage on LTTS with a Buy rating and price target of Rs. 1,600.
    L&t graphETMarkets.com

    Key risks:
    Macro uncertainties and trade wars could have an adverse impact on revenues; 2) rupee appreciation and adverse cross-currency movements; 3) lower ERD spends/ R&D budgets; and (4) loss of key customers.

    Financials:
    For the quarter ended 31-03-2020, the company has reported a Consolidated sales of Rs 1446.60 Crore, up 1.67 % from last quarter Sales of Rs 1422.90 Crore and up 7.71 % from last year same quarter Sales of Rs 1343.10 Crore Company has reported net profit after tax of Rs 206.30 Crore in latest quarter.

    Promoter/FII Holdings: Promoters held 74.60 per cent stake in the company as of March 31, 2020, while FIIs held 8.4 per cent, DIIs 4.9 and public and others 12.1 per cent.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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