L&T Technology Services LTD

Table of Contents
Rpt. 68677467 L&T TECHNOLOGY SERVICES LTD 2 - 12

20-Jan-2020 HDFC SECURITIES INST RESEARCH
- PRASAD, APURVA, ET AL

19-Jan-2020 PHILLIPCAPITAL (INDIA) PVT LTD
- SINGHAL, VIBHOR, ET AL

19-Jan-2020 AXIS CAPITAL LIMITED
- BHUSAN, SHASHI, ET AL

19-Jan-2020 EDELWEISS SECURITIES LIMITED
- AGARWAL, SANDIP, ET AL
These reports were compiled using a product of Thomson Reuters www.thomsonreuters.com
1
RESULTS REVIEW 3QFY20 19 JAN 2020
L&T Technology Services

BUY
Soft quarter, recovery ahead INDUSTRY IT
We maintain our BUY on L&T Tech (LTTS) based on in-line 2 deals of >USD 30mn TCV each. Downsizing by the CMP (as on 17 Jan 2020) Rs 1,643
performance, growth bottoming-out in 3Q on strong large account (in Telecom & Hi-tech) has possibly Target Price Rs 1,790
wins/pipeline and expectation of stability/recovery in bottomed.
Nifty 12,352
Telecom & Hi-tech vertical. Our TP of Rs 1,790 implies 18x  EBIT margin stood at 16.8%, -23bps QoQ impacted by Sensex 41,945
Dec-21E EPS (marginal EPS est change). decline in Telecom & hi-tech and Transportation
KEY STOCK DATA
HIGHLIGHTS OF THE QUARTER segmental margins and higher G&A. Margin trajectory
Bloomberg LTTS IN
is expected to remain flattish as better op-
 LTTS posted revenue of USD 199mn, +0.6/7.5% QoQ CC No. of Shares (mn) 104
lev/utilisation ahead will be offset by business-mix
(in-line) as Telecom & Hi-tech vertical (18.5% of rev) MCap (Rs bn) / ($ mn) 171/2,413
change (recovery in lower margin telecom & hi-tech
continued to drag growth with a decline of 9.5/26.5%
vertical). 6m avg traded value (Rs mn) 171
QoQ/YoY. LTTS’ steep deceleration in rev growth from
STANCE STOCK PERFORMANCE (%)
22% CAGR over FY17-19 to 11% YoY in 9MFY20 (7.5%
in 3Q) was largely contributed by T2 accounts from We maintain our conviction on LTTS based on (1) 52 Week high / low Rs 1,820/1,321
Telecom & Hi-tech vertical that declined 17% in Preferred pick in ER&D on diversified vertical mix (low 3M 6M 12M
9MFY20, while ex-Telecom & Hitech growth was 22% concentration risk) and niche position in Process Industry Absolute (%) 3.1 (1.2) (3.0)
YoY. We believe that the vertical has bottomed-out and Industrial products, (2) At an inflexion point with Relative (%) (4.3) (8.2) (18.3)
and expect it to grow from 4Q supported by (1) 4 deal stability/recovery expected in Telecom & Hi-tech vertical, SHAREHOLDING PATTERN (%)
closures in 4Q (slipped from 3Q) across semicon, media (3) Strong account mining engine with T30 program (>USD Sep-19 Dec-19
& Hi-tech, (2) 3Q deal wins (VLSI engineering services, 10mn client bucket had 3 additions QoQ). Expect USD
Promoters 74.97 74.74
media co. chipset design & development), and (3) rev/EPS CAGR at 12.5/15.2% over FY19-22E factoring USD
FIs & Local MFs 4.76 4.52
Strong pipeline build-up. rev growth at 10.1/12.2/15.1% and EBIT% at
17.1/17.0/17.5% for FY20/21/22E, respectively. Key risk FPIs 8.93 8.26
 Guidance of 10% for FY20 was maintained and implies
continues to be macros, trade war escalation (Industrial Public & Others 11.34 12.48
>2.5% QoQ for 4Q. Deal wins continue to improve
sequentially and 3Q marked 9 multi million deals with products vertical). Pledged Shares 0.00 0.00
Source : BSE
Financial Summary
YE March (Rs bn) 3QFY20 3QFY19 YoY (%) 2QFY20 QoQ (%) FY18 FY19 FY20E FY21E FY22E
Net Revenue 14.23 13.17 8.0 14.02 1.5 37.47 50.78 56.23 63.85 75.05
Apurva Prasad
EBIT 2.39 2.18 9.8 2.39 0.1 5.76 9.15 11.27 12.76 15.37
apurva.prasad@hdfcsec.com
APAT 2.04 1.86 10.0 2.06 (0.8) 4.73 7.07 7.93 9.04 10.82
+91-22-6171-7327
Adjusted EPS (Rs) 19.6 17.8 10.0 19.7 (0.8) 45.4 67.8 76.0 86.6 103.7
P/E (x) 36.2 24.2 21.6 19.0 15.8
EV / EBITDA (x) 29.2 18.0 14.3 12.4 10.0 Amit Chandra
RoE (%) 27.7 32.0 29.4 28.4 28.5 amit.chandra@hdfcsec.com
Source: Company, HDFC sec Inst Research +91-22-6171-7345
HDFC securities Institutional Research is also available on Bloomberg ERH HDF <GO>& Thomson Reuters
2
L&T TECHNOLOGY SERVICES: RESULTS REVIEW 3QFY20
Quarterly Financials Snapshot (Consolidated)

Particulars (Rs bn) 3QFY20 3QFY19 YoY (%) 2QFY20 QoQ (%)
Net Sales USD mn 199.3 185.7 7.3 197.7 0.8
Revenue came at USD 199mn, Net Sales 14.23 13.17 8.0 14.02 1.5
0.8/7.3% QoQ/YoY led by Employee expenses 8.61 8.30 3.8 8.63 (0.2)
Plant engineering, Medical Operating Expenses 2.75 2.45 12.2 2.56 7.5
devices and Transportation EBITDA 2.86 2.42 18.5 2.83 1.1
growth Depreciation 0.47 0.24 97.5 0.44 6.3
EBIT 2.39 2.18 9.8 2.39 0.1
Other Income (incl forex) 0.44 0.36 23.4 0.47 (5.5)
Interest Cost 0.09 0.01 1383.3 0.09 (2.2)
PBT 2.75 2.53 8.5 2.77 (0.8)
Tax 0.69 0.67 2.5 0.70 (2.4)
RPAT 2.04 1.86 10.0 2.06 (0.8)
EO Items (Adj For Tax) - - NA - NA
EBIT margin stood at 16.8%, -
APAT 2.04 1.86 10.0 2.06 (0.8)
23bps QoQ impacted by lower
Source: Company, HDFC sec Inst Research
segmental margin and higher
G&A
Margin Analysis (%)
3QFY20 3QFY19 YoY (bps) 2QFY20 QoQ (bps)
Direct cost % Net Sales 60.5 63.0 (249) 61.5 (101)
Operating Expenses % Net Sales 19.4 18.6 72 18.3 109
Gross Margin % 39.5 37.0 249 38.5 101
EBITDA Margin (%) 20.1 18.4 177 20.2 (8)
EBIT Margin (%) 16.8 16.5 26 17.0 (23)
Tax Rate (%) 25.0 26.5 (144) 25.5 (42)
APAT Margin (%) 14.3 14.1 25 14.7 (33)
Page3| 2
Revenue Mix By Vertical

(% of revenue) 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20
Transportation 30.9 30.8 30.9 32.0 31.7 32.9 34.9 35.0 35.8
Industrial Products 21.8 20.9 20.4 20.6 20.2 19.3 19.6 19.4 19.2
Growth leadership by Plant Telecom & Hi-tech 27.9 29.5 28.7 26.7 27.0 26.2 22.3 20.6 18.5
engineering and Medical Process Industry/ Plant engineering 12.7 12.3 13.5 14.2 14.4 14.7 15.3 16.2 17.2
devices verticals continued in Medical Devices 6.7 6.5 6.5 6.5 6.7 7.0 8.0 8.8 9.4
3Q Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Vertical Revenue Growth

(QoQ, %) 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20
Decline in T2 account of LTTS Transportation 3.7 7.2 4.3 8.6 3.8 6.8 7.5 2.4 3.0
impacted by business Industrial Products 0.1 3.1 1.5 5.9 2.8 (1.6) 2.9 0.9 (0.5)
divestment by the enterprise Telecom & Hi-tech 24.4 13.8 1.2 (2.4) 6.0 (0.2) (13.8) (5.6) (9.5)
client from Telecom & Hi-tech Process Industry/ Plant engineering 7.5 4.2 14.1 10.3 6.3 5.2 5.5 8.0 7.0
vertical Medical Devices 3.7 4.4 4.0 4.9 8.0 7.6 15.8 12.2 7.7
Total 8.4 7.6 4.0 4.9 4.8 3.0 1.4 2.0 0.8
Geography Revenue Break-up

(% of revenue) 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20
3 deal wins in Transportation
vertical including 2 in Auto North America 58.7 57.6 56.3 57.7 57.8 58.9 60.9 61.7 61.3
and 1 in Aero (Airbus) Europe 17.2 18.6 18.5 17.2 16.2 16.0 15.6 14.4 14.2
India 11.5 11.7 12.4 12.5 14.4 13.9 12.8 13.2 13.2
Rest of the World 12.6 12.1 12.8 12.6 11.6 11.2 10.7 10.8 11.4
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Page4| 3
Geography Revenue Growth

North America 4.6 5.6 1.7 7.5 5.0 5.0 4.8 3.3 0.1
Progressive deal win trends Europe 13.0 16.3 3.4 (2.5) (1.3) 1.8 (1.2) (5.9) (0.9)
with 3Q TCV >2Q>1Q India 18.7 9.5 10.2 5.7 20.8 (0.6) (6.7) 4.7 1.2
Rest of the World 11.9 3.3 10.0 3.2 (3.5) (0.5) (3.2) 2.4 6.9
Total 8.4 7.6 4.0 4.9 4.8 3.0 1.4 2.0 0.8
Revenue Mix By Delivery

9 multi million deal wins in 3Q (% of revenue) 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20
with 2 deals >USD 30mn TCV Onsite 50.7 50.0 49.4 47.1 47.4 44.8 44.3 43.8 44.0
each Offshore 49.3 50.0 50.6 52.9 52.6 55.2 55.7 56.2 56.0
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Revenue Growth By Delivery

Onsite 8.1 6.1 2.7 (0.0) 5.5 (2.6) 0.2 0.8 1.3
Offshore 8.6 9.1 5.2 9.6 4.2 8.1 2.3 2.9 0.5
Total 8.4 7.6 4.0 4.9 4.8 3.0 1.4 2.0 0.8
Client-wise Revenue Break-up

(% of revenue TTM) 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20
Top 5 clients 28.8 28.6 28.3 28.2 27.4 26.4 24.7 22.9 21.1
Top 10 clients 41.2 41.4 40.5 39.9 38.9 37.7 36.7 35.7 33.9
Top 20 clients 56.4 56.7 55.6 55.1 54.4 53.5 52.5 51.3 49.8
Page5| 4
Headcount, Utilisation Data

(Nos.) 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20
Total Headcount 11,941 12,307 13,081 13,585 14,777 15,140 15,913 16,789 16,787
Net headcount addition was Billable headcount 11,009 11,360 12,147 12,604 13,711 14,034 14,755 15,614 15,604
flat QoQ and attrition Sales & support 932 947 934 981 1,066 1,106 1,158 1,175 1,183
remained low at 13.4% Employee net additions 409 366 774 504 1,192 363 773 876 -2
Attrition rate (%) 13.2 13.5 15.4 15.0 14.9 14.8 15.8 13.4 13.4
Utilisation (incl. trainees) (%) 78.8 80.7 78.6 80.3 81.3 80.2 79.6 77.8 79.2
Key Assumptions
Particulars FY17 FY18 FY19 FY20E FY21E FY22E
Headcount (Nos) 10,463 12,307 15,140 17,199 19,058 21,557
Utilisation (%) 75.9 77.7 80.1 79.0 79.9 80.7
USD revenue growth (%) 3.4 19.8 24.6 10.1 12.2 15.1
USD/INR rate 67.1 64.6 70.2 70.6 71.5 73.0
EBIT margin (%) 16.1 13.0 16.0 17.1 17.0 17.5
Page6| 5
Change In Estimates
Particulars Earlier estimates Revised estimates % change
FY20E
Revenue (USD mn) 797 796 (0.1)
Revenue (Rs bn) 56.19 56.23 0.1
EBIT (Rs bn) 9.54 9.59 0.5
EBIT Margin (%) 17.0% 17.1% 7bps
EPS (Rs) 76.0 76.0 (0.0)
FY21E
Revenue (USD mn) 888 893 0.6
Revenue (Rs bn) 63.48 63.85 0.6
EBIT (Rs bn) 11.00 10.84 (1.4)
EBIT Margin (%) 17.3% 17.0% (35)bps
EPS (Rs) 88.5 86.6 (2.1)
FY22E
Revenue (USD mn) 1,000 1,028 2.8
Revenue (Rs bn) 73.01 75.05 2.8
EBIT (Rs bn) 12.87 13.12 1.9
EBIT Margin (%) 17.6% 17.5% (15)bps
EPS (Rs) 102.7 103.7 1.0
Source: HDFC sec Inst Research
Page7| 6
Peer Set Comparison

MCap CMP TP EPS (Rs) P/E (x) RoE (%)
Company RECO
(Rs bn) (Rs) (Rs) FY19 FY20E FY21E FY22E FY19 FY20E FY21E FY22E FY19 FY20E FY21E FY22E
TCS 8,328 2,219 2,025 NEU 83.9 86.5 93.6 104.7 26.5 25.6 23.7 21.2 36.1 35.7 37.2 39.7
Infosys 3,260 768 850 BUY 37.1 38.2 43.5 48.1 20.7 20.1 17.7 16.0 24.3 25.4 28.2 28.3
Wipro 1,432 251 235 NEU 15.8 17.4 18.3 20.0 15.9 14.4 13.7 12.5 17.3 17.7 17.3 16.2
HCL Tech 1,624 599 665 BUY 37.3 39.0 41.7 48.2 16.0 15.4 14.4 12.4 26.0 23.2 21.0 20.7
TechM 743 778 870 BUY 48.9 47.5 52.5 59.9 15.9 16.4 14.8 13.0 22.0 20.2 20.5 20.5
Tier-1 IT Median 16.0 16.4 14.8 13.0 24.3 22.4 20.9 20.6
LTI 331 1,902 2,090 BUY 87.1 85.6 101.6 120.7 21.8 22.2 18.7 15.8 34.6 28.0 28.4 28.7
Mphasis 167 898 1,165 BUY 57.6 58.3 65.5 75.0 15.6 15.4 13.7 12.0 20.0 19.7 19.9 20.2
L&T Tech 171 1,643 1,790 BUY 67.8 76.0 86.6 103.7 24.2 21.6 19.0 15.8 32.0 29.4 28.4 28.5
Mindtree 145 884 830 NEU 44.1 38.5 48.0 63.3 20.1 22.9 18.4 14.0 24.9 18.3 22.7 26.0
Hexaware * 102 341 450 BUY 19.6 21.6 24.5 28.3 17.4 15.8 13.9 12.1 26.5 24.7 24.1 24.0
Cyient 51 455 490 NEU 43.6 36.3 40.9 46.0 10.4 12.5 11.1 9.9 19.5 15.3 15.9 16.2
Zensar 43 188 245 BUY 14.3 14.9 17.9 21.4 13.2 12.7 10.5 8.8 17.6 16.0 16.9 17.6
Persistent 54 703 725 BUY 47.8 45.2 48.5 57.7 14.7 15.6 14.5 12.2 15.7 14.3 14.8 15.8
Tata Elxsi 59 947 875^ NR 46.6 39.4 49.5 57.0 20.3 24.1 19.1 16.6 34.5 24.2 26.1 25.4
Sonata 34 323 400 BUY 23.7 27.5 30.5 34.6 13.6 11.7 10.6 9.3 35.1 34.9 34.2 34.4
Intellect 21 160 255 BUY 7.7 2.6 7.3 11.2 21.0 62.6 22.0 14.3 11.1 3.3 8.7 12.1
eClerx 25 676 560^ NR 61.7 52.0 53.7 57.0 11.0 13.0 12.6 11.9 17.6 14.0 14.7 14.6
Majesco 12 416 655 BUY 18.3 19.9 30.0 36.7 22.7 20.9 13.9 11.3 8.4 7.9 11.0 12.2
HGS 13 645 745^ NR 84.6 100.3 110.9 129.5 7.6 6.4 5.8 5.0 8.5 13.1 13.3 13.7
Mastek 11 442 515 BUY 40.4 40.9 45.1 52.9 10.9 10.8 9.8 8.4 16.1 13.7 13.6 14.4
Tier-2 IT Median 15.6 15.6 13.9 12.0 19.5 16.0 16.9 17.6
Source: HDFC sec Inst Research, Bloomberg, *Dec YE, ^Fair value/Not Rated
Page8| 7
Income Statement (Consolidated) Balance Sheet (Consolidated)

YE March (Rs bn) FY18 FY19 FY20E FY21E FY22E YE March (Rs bn) FY18 FY19 FY20E FY21E FY22E
Net Revenues (US$ mn) 580 723 796 893 1,028 SOURCES OF FUNDS
Growth (%) 19.8% 24.6% 10.1% 12.2% 15.1% Share Capital - Equity 0.21 0.21 0.21 0.21 0.21
Net Revenues 37.47 50.78 56.23 63.85 75.05 Reserves 19.16 24.61 28.90 34.25 41.38
Growth (%) 15.4% 35.5% 10.7% 13.6% 17.5%
Total Shareholders Funds 19.37 24.82 29.11 34.46 41.59
Employee Expenses 24.60 31.79 34.42 39.04 45.61
Long Term Debt - - - - -
SG&A expenses 7.12 9.85 10.54 12.05 14.07
Short Term Debt 0.70 0.70 0.70 0.70 0.70
EBITDA 5.76 9.15 11.27 12.76 15.37
Depreciation 0.89 1.04 1.69 1.92 2.25 Total Debt 0.70 0.70 0.70 0.70 0.70
EBIT 4.87 8.11 9.59 10.84 13.12 Net Deferred Taxes (0.07) 0.06 0.06 0.06 0.06
EBIT Margin (%) 13.0% 16.0% 17.1% 17.0% 17.5% Long Term Provisions & Others - - - - -
EBIT Growth (%) -6.8% 66.5% 18.3% 13.1% 21.0% TOTAL SOURCES OF FUNDS 20.00 25.59 29.88 35.23 42.36
Other Income (Including EO APPLICATION OF FUNDS
1.93 2.23 1.49 1.74 1.86
Items)
Net Block 1.25 1.44 2.07 2.78 3.62
Interest 0.02 0.02 0.36 0.36 0.36
Goodwill & intangibles 5.84 6.33 6.37 6.42 6.48
PBT 6.78 10.31 10.71 12.22 14.62
Tax 1.71 2.63 2.74 3.12 3.73 LT Loans & Advances 1.08 2.00 1.08 1.08 1.08
RPAT 5.06 7.66 7.93 9.04 10.82 Total Non-current Assets 8.17 9.76 9.51 10.28 11.17
E/o (net of tax) 0.33 0.58 - - - Cash & Equivalents 3.75 7.83 11.24 14.23 18.13
APAT 4.73 7.07 7.93 9.04 10.82 Other Current Assets 5.24 5.27 5.67 6.23 7.06
APAT Growth (%) 11.4% 49.5% 12.1% 13.9% 19.7% Debtors 9.62 10.64 11.78 13.38 15.73
Adjusted EPS (Rs) 45.4 67.8 76.0 86.6 103.7 Total Current Assets 14.86 15.92 17.46 19.62 22.79
EPS Growth (%) 11.4% 49.5% 12.1% 13.9% 19.7% Creditors 1.81 1.88 2.08 2.36 2.78
Other Current Liabilities & Prov. 4.97 6.05 6.25 6.53 6.95
Total Current Liabilities 6.78 7.92 8.33 8.90 9.73
Net Current Assets 8.08 7.99 9.13 10.72 13.06
TOTAL APPLICATION OF FUNDS 20.00 25.59 29.88 35.23 42.36
Page9| 8
Cash Flow Statement (Consolidated) Key Ratios (Consolidated)

YE March (Rs bn) FY18 FY19 FY20E FY21E FY22E YE March FY18 FY19 FY20E FY21E FY22E
Reported PBT 6.78 10.31 10.71 12.22 14.62 PROFITABILITY (%)
Non-operating & EO items (0.13) 0.23 (1.10) (1.29) (1.38) GPM 34.3 37.4 38.8 38.9 39.2
Interest expenses 0.02 0.02 0.36 0.36 0.36 EBIT Margin 13.0 16.0 17.1 17.0 17.5
Depreciation 0.89 1.04 1.69 1.92 2.25 APAT Margin 12.6 13.9 14.1 14.2 14.4
RoE 27.7 32.0 29.4 28.4 28.5
Working Capital Change (1.70) (0.74) (1.14) (1.59) (2.34)
RoIC (or Core RoCE) 24.9 35.5 39.2 40.7 43.2
Tax Paid (1.72) (2.81) (2.74) (3.12) (3.73)
RoCE 26.7 31.1 29.6 28.6 28.6
OPERATING CASH FLOW ( a ) 4.14 8.06 7.78 8.49 9.78
EFFICIENCY
Capex (0.87) (0.89) (1.24) (1.40) (1.65)
Tax Rate (%) 25.3 25.5 25.6 25.5 25.5
Free cash flow (FCF) 3.27 7.18 6.54 7.09 8.13 Fixed Asset Turnover (x) 5.3 6.5 6.7 6.9 7.4
Investments - - - - - Debtors (days) 94 76 76 76 76
Non-operating Income 0.13 (0.23) 1.10 1.29 1.38 Other Current Assets (days) 51 38 37 36 34
INVESTING CASH FLOW ( b ) (0.87) (0.89) (1.24) (1.40) (1.65) Payables (days) 18 14 14 14 14
Debt Issuance/(Repaid) (0.32) - - - - Other Current Liab & Provns (days) 48 43 41 37 34
Interest Expenses (0.02) (0.02) (0.36) (0.36) (0.36) Cash Conversion Cycle (days) 79 57 59 61 64
FCFE 2.93 7.16 6.18 6.73 7.77 Debt/EBITDA (x) 0.1 0.1 0.1 0.1 0.0
Share Capital Issuance 0.00 0.00 - - - Net D/E (x) (0.2) (0.3) (0.4) (0.4) (0.4)
Dividend (0.98) (2.44) (3.07) (3.69) (3.69) Interest Coverage (x) 203 427 27 30 37
PER SHARE DATA (Rs)
FINANCING CASH FLOW ( c ) (1.32) (2.46) (3.43) (4.04) (4.04)
EPS 45.4 67.8 76.0 86.6 103.7
NET CASH FLOW (a+b+c) 1.95 4.72 3.11 3.04 4.08
CEPS 53.9 77.8 92.2 105.0 125.3
Closing Cash & Equivalents 3.75 7.83 11.24 14.23 18.13
Dividend 12 21 25 30 30
Book Value 186 238 279 330 399
VALUATION
P/E (x) 36.2 24.2 21.6 19.0 15.8
P/BV (x) 8.9 6.9 5.9 5.0 4.1
EV/EBITDA (x) 29.2 18.0 14.3 12.4 10.0
OCF/EV (%) 2.5 4.9 4.8 5.4 6.3
FCF/EV (%) 1.9 4.4 4.1 4.5 5.3
FCFE/Mkt Cap (%) 1.7 4.2 3.6 3.9 4.5
Dividend Yield (%) 0.7 1.3 1.5 1.8 1.8
Page10
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RECOMMENDATION HISTORY
Date CMP Reco Target
L&T Tech TP 8-Jan-19 1,650 BUY 2,055
2,100 18-Jan-19 1,693 BUY 2,030
1-Apr-19 1,572 BUY 1,845
2,000
9-Apr-19 1,595 BUY 1,845
1,900 4-May-19 1,691 BUY 1,830
1,800 5-Jul-19 1,703 BUY 2,020
20-Jul-19 1,605 BUY 1,955
1,700
27-Aug-19 1,580 BUY 1,955
1,600 22-Sep-19 1,618 BUY 1,970
1,500 4-Oct-19 1,591 BUY 1,960
18-Oct-19 1,639 BUY 1,705
1,400
30-Dec-19 1,479 BUY 1,705
1,300 7-Jan-20 1,502 BUY 1,760
1,200 19-Jan-20 1,643 BUY 1,790
1,100 Rating Definitions
Feb-19
Sep-19
Nov-19
Jun-19
May-19
Dec-19
Mar-19
Oct-19
Aug-19
Apr-19
Jan-19
Jan-20
Jul-19
BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period
NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period
HDFC securities
Institutional Equities
Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park,
Senapati Bapat Marg, Lower Parel,Mumbai - 400 013
Board : +91-22-6171 7330 www.hdfcsec.com
Page 11
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Disclosure:
We, Apurva Prasad, MBA & Amit Chandra, MBA, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject
issuer(s) or securities. HSL has no material adverse disciplinary history as on the date of publication of this report. We also certify that no part of our compensation was, is, or will be directly or indirectly related to
the specific recommendation(s) or view(s) in this report.
Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate may have
beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities
Ltd. or its associate does not have any material conflict of interest.
Any holding in stock –No
HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475.
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Page 12
| 11
INSTITUTIONAL EQUITY RESEARCH
L&T Technologies (LTTS IN)

Inline results, Positive Outlook
18 January 2020
INDIA | IT SERVICES | Quarterly Update
LTTS reported inline revenue and margins performance in Q3. Growth was driven by Plant
Engineering (eight consecutive quarter of strong growth), Transportation and Medical BUY (Maintain)
devices (tenth consecutive quarter of strong growth). Weakness in the Telecom/Hitech CMP RS 1649
(which was a key drag to growth in FY20) is expected to recover and outlook on TARGET RS 1890 (+15%)
semiconductor segment is also positive. Deal win TCV continued to improve (Q3 TCV higher
than Q2, which again was higher than Q1) and deal pipeline is higher than last year. SEBI CATEGORY: MIDCAP
Management has maintained its FY20 revenue growth guidance (@10% yoy) which makes COMPANY DATA
the ask rate for Q4 at 2.5% qoq/6.8% yoy, which looks achievable in our view. We believe O/S SHARES (MN) : 104
that as the key overhang on growth (Telecom & hitech vertical) subsides along with better MARKET CAP (RSBN) : 171
MARKET CAP (USDBN) : 2.4
deal TCV and pipeline, LTTS is set for strong growth in FY21 & FY22. We continue to like LTTS,
52 - WK HI/LO (RS) : 1818 / 1396
with its diversified client profile and strong credentials. With time correction, the valuations LIQUIDITY 3M (USDMN) : 2.4
that once appeared expensive are now into the attractive range (@16.5x FY22). PAR VALUE (RS) : 2
Key takeaways from Q3FY20 SHARE HOLDING PATTERN, %

 Revenue at US$199.3mn; CC growth of +0.6% qoq (+7.5% yoy) Dec 19 Sep 19 Jun 19
 USD revenue growth of +0.8% qoq, +7.3% yoy – BANG inline with our estimates. PROMOTERS : 74.7 75.0 75.0
 Verticals: Medical Devices +50.6% yoy, Plant Engineering +28.2% yoy, Transport FII / NRI : 9.0 9.8 9.4
FI / MF : 3.8 3.9 3.9
+21.2% yoy, Industrial Products +2% yoy Telecom & Hi-tech -26.5% yoy. NON PRO : 4.4 3.6 2.4
 Geographies: US (+13.6% yoy), RoW 5.5% yoy. Europe/India declined -6.6%/-1.6% yoy. PUBLIC & OTHERS : 8.1 7.7 9.4
 EBIT margin at 16.8%, -20bps qoq, +30bps yoy – inline with our estimates.
 PAT at Rs 2.04bn, -0.8% qoq (+10% yoy) – again bang inline with our estimates of Rs KEY FINANCIALS
Rs mn FY20E FY21E FY22E
2.05bn.
Net Sales 56,232 63,289 72,536
 Top 5/10/20 clients reported decline of -7.3%/-4.4%/-2.3% qoq (-17.4%/-6.5%/-1.8%
EBIT 9,479 10,506 12,275
yoy). Top 6-10 clients reported strong growth (+0.7% qoq, +19.5% yoy); Top 11-20 also 8,212 8,887 10,368
Net Profit
reported strong growth (+2.6% qoq, +10.1% yoy) EPS, Rs 79.0 85.5 99.7
 Attrition increased 50bps qoq to 13.9%. PER, x 20.9 19.3 16.5
 For FY20, the management has maintained its guidance of USD revenue growth 10%. EV/EBIT, x 18.2 16.3 13.7
P/BV, x 6.2 5.1 4.2
Management comments/concall takeaways: ROE, % 29.6 26.4 25.6
 The management mentioned that telecom and Hitech revenue decline seems over and
it is expected to grow from Q4. Semiconductor segment represents 40%+ of this CHANGE IN ESTIMATES
vertical and is expected to return to growth from here on. Revised Est. % Revision
 Overall the company won nine deals in Q3, two of these are US$30mn+ deals Rs mn FY20E FY21E FY20E FY21E
Rev ($mn) 796 891 0.1% 0.1%
 Management mentioned that deal win TCV has improved in Q3 over Q2, which again
EBIT 9,479 10,506 1.2% 0.8%
was higher than Q1FY20. Also, deal pipeline is bigger than last year; while pipeline is
Core PAT 8,212 8,887 0.9% -0.7%
broad based across verticals, but is more heavy towards verticals like Transportation, EPS (Rs) 79.0 85.5 0.9% -0.7%
Hitech, Plant Engineering.
 In Industrial Products, softness was due to client specific issues in large accounts due to Vibhor Singhal, Research Analyst
(+ 9122 6246 4109) vsinghal@phillipcapital.in
budget constraints. However, small accounts are growing well.
Karan Uppal, Research Analyst
Outlook and valuation: We have marginally changed our FY20-22 earnings estimates (-0.7% (+ 9122 6246 4106) kuppal@phillipcapital.in
to +1.9%). We now forecast USD revenue growth of 12%/13% for FY21/FY22, better than
FY20 (10%), based on better deal win TCV, pipeline and positive outlook on telecom & hitech
vertical. We value the stock at 19x FY22 P/E (earlier 18x) – on better growth visibility. We
maintain BUY, with the price target of Rs 1890 (Rs 1760 earlier).
Rs mn Q3FY20 Q3FY19 yoy growth Q2FY20 qoq growth vs. expectations Comments
% %
US$ revenues (mn) 199 186 7.3 198 0.7 0.4 Revenue inline with estimates
Net sales 14,230 13,169 8.1 14,021 1.5 0.7
EBIT 2,391 2,178 9.8 2,388 0.1 0.8
Margins (%) 16.8% 16.5% 30bps 17.0% -20bps 0bps Margin also inline with estimates
Profit after tax 2,041 1,856 10.0 2,059 (0.9) (0.4) PAT bang inline with our estimates
EPS (Rs) 19.8 17.9 10.4 19.8 (0.2) 0.5
Page | 1 | PHILLIPCAPITAL INDIA RESEARCH

Please see penultimate page for additional important disclosures. PhillipCapital (India) Private Limited. (“PHILLIPCAP”) is a foreign broker-dealer unregistered in the USA. PHILLIPCAP research
is prepared by research analysts who are not registered in the USA. PHILLIPCAP research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934 solely by
Rosenblatt Securities Inc, an SEC registered and FINRA-member broker-dealer.
13
L&T TECHNOLOGIES QUARTERLY UPDATE
Quarterly performance
Rs mn 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20
US$ revenues 186 191 194 198 199
QoQ growth % 4.8% 3.0% 1.4% 2.1% 0.7%
Net sales 13,169 13,431 13,475 14,021 14,230
QoQ growth % 4.0% 2.0% 0.3% 4.1% 1.5%
YoY growth % 36% 27% 17% 11% 8%
Cost of revenues 9,269 9,167 9,040 9,497 9,557
SGA & other exp 1,483 1,784 1,708 1,692 1,810
EBITDA 2,417 2,480 2,727 2,832 2,863
QoQ growth % 5.6% 2.6% 10.0% 3.9% 1.1%
YoY growth % 63% 51% 39% 24% 18%
Margins (%) 18.4% 18.5% 20.2% 20.2% 20.1%
Depreciation 239 273 428 444 472
EBIT 2,178 2,207 2,299 2,388 2,391
Margins (%) 16.5% 16.4% 17.1% 17.0% 16.8%
Interest expenses 0 0 0 0 0
Other income incl FX 353 334 474 378 354
Pre-tax profit 2,531 2,541 2,773 2,766 2,745
Tax provided 670 616 733 704 687
Profit after tax 1,861 1,925 2,040 2,062 2,058
QoQ growth % -3.0% 3.4% 6.0% 1.1% -0.2%
YoY growth % 47% 21% 3% 7% 11%
Margins (%) 14.1% 14.3% 15.1% 14.7% 14.5%
Minority interest -5 -9 -2 -3 -17
PAT (after MI) 1,856 1,916 2,038 2,059 2,041
EPS, Rs 17.9 18.4 19.6 19.8 19.8
Source: Company, PhillipCapital India Research
Quarterly operating metrics

YoY growth % 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20
Verticals
Transportation 26.2% 25.8% 29.7% 22.2% 21.2%
Industrial Products 14.0% 8.8% 10.3% 5.2% 2.0%
Telecom and Hi-Tech 19.0% 4.6% -10.8% -13.8% -26.5%
Process Industry 39.4% 40.8% 30.1% 27.5% 28.2%
Medical Devices 23.0% 26.9% 41.3% 51.3% 50.6%
Geographies
North America 21.1% 20.5% 24.2% 19.5% 13.6%
Europe 15.8% 1.3% -3.2% -6.5% -6.6%
India 54.0% 39.9% 18.5% 17.1% -1.6%
ROW 13.2% 9.0% -4.0% -5.1% 5.5%
Clients
Top-5 17.0% 14.8% 0.2% -9.3% -17.4%
Top-10 16.1% 11.9% 4.0% 0.0% -6.5%
Top-20 18.6% 15.0% 8.4% 4.0% -1.8%

14
US$ revenue vs. qoq growth INR revenue vs. qoq growth
USD Revenue (mn) qoq growth % yoy growth % INR Revenue (mn) qoq growth % (rhs)
220 40% 15,000 12%

35% 14,000
200 10%
30% 13,000
180 8%
25% 12,000
US$ mn
INR mn
160 20% 11,000 6%
15% 10,000
140 4%
10% 9,000
120 2%
5% 8,000
100 0% 7,000 0%
Q3FY18
Q4FY19
Q4FY18
Q1FY19
Q2FY19
Q3FY19
Q1FY20
Q2FY20
Q3FY20
Q2FY20
Q3FY18
Q4FY18
Q1FY19
Q2FY19
Q3FY19
Q4FY19
Q1FY20
Q3FY20
EBIT margin vs. SG&A as a % of sales Transportation growth performance (qoq %)

EBIT margin % SG&A margin % (rhs) Transportation growth QoQ %
18% 25% 10%
16% 9%
14% 20% 8%
12% 7%
15% 6%
10%
5%
8%
10% 4%
6%
3%
4% 5% 2%
13.6%
13.8%
11.3%
14.8%
15.9%
16.5%
16.4%
17.1%
17.0%
16.8%
2% 1%
0% 0% 0%
Q2FY18
Q3FY18
Q4FY18
Q1FY19
Q2FY19
Q3FY19
Q4FY19
Q1FY20
Q2FY20
Q3FY20
Q2FY20
Q2FY18
Q3FY18
Q4FY18
Q1FY19
Q2FY19
Q3FY19
Q4FY19
Q1FY20
Q3FY20
Top-5 client revenue Utilization and attrition
Top 5 client revenues ($mn) Contribution % (rhs) Utilization % (incl trainees) Attirition % (rhs)
60 30% 82% 16%
50 28% 81% 15%

40 80%
26% 14%
US$ mn
30 79%
24% 13%
20 78%
10 22% 12%
77%
0 20% 76% 11%

Q3FY18
Q4FY18
Q1FY19
Q2FY19
Q3FY19
Q4FY19
Q1FY20
Q2FY20
Q3FY20
Q3FY18
Q4FY18
Q1FY19
Q2FY19
Q3FY19
Q4FY19
Q1FY20
Q2FY20
Q3FY20

15
Financials
Income Statement Cash Flow
Y/E Mar, Rs mn FY19 FY20E FY21E FY22E Y/E Mar, Rs mn FY19 FY20E FY21E FY22E
Net sales 50,783 56,232 63,289 72,536 Pre-tax profit 10,315 11,058 12,010 14,011
Growth, % 36 11 13 15 Depreciation 1,042 1,790 1,821 1,882
Total income 50,783 56,232 63,289 72,536 Chg in working capital -833 2,216 -2,153 -1,834
Employee expenses -35,165 -37,868 -42,544 -48,514 Total tax paid -2,496 -2,909 -3,123 -3,643
Other Operating expenses -6,472 -7,096 -8,417 -9,865 Cash flow from operating activities 8,028 12,154 8,556 10,416
EBITDA (Core) 9,146 11,268 12,328 14,158 Capital expenditure -1,747 -5,772 -2,221 -2,282
Growth, % 58.9 23.2 9.4 14.8 Chg in investments -3,542 -678 -2,000 -1,600
Margin, % 18.0 20.0 19.5 19.5 Chg in marketable securities 0 0 0 0
Depreciation -1,042 -1,790 -1,821 -1,882 Other investing activities 0 0 0 0
EBIT 8,104 9,479 10,506 12,275 Cash flow from investing activities -5,289 -6,450 -4,221 -3,882
Growth, % 66.5 17.0 10.8 16.8 Free cash flow 2,739 5,704 4,334 6,534
Margin, % 16.0 16.9 16.6 16.9 Equity raised/(repaid) 3 0 0 0
Interest paid 0 0 -105 115 Debt raised/(repaid) 0 0 0 0
Other Income 1,277 922 1,048 1,261 Dividend (incl. tax) -2,248 -2,738 -3,042 -3,529
Pre-tax profit 10,315 11,058 12,010 14,011 Other financing activities 15 -2,521 0 0
Tax provided -2,630 -2,845 -3,123 -3,643 Cash flow from financing activities -2,230 -5,259 -3,042 -3,529
Profit after tax 7,685 8,212 8,887 10,368 Net chg in cash 509 445 1,292 3,005
Others (Minorities, Associates) 0 0 0 0
Net Profit 7,685 8,212 8,887 10,368
Growth, % 51.7 6.9 8.2 16.7
Net Profit (adjusted) 7,685 8,212 8,887 10,368 Valuation Ratios
Wtd avg shares (m) 104 104 104 104 FY19 FY20E FY21E FY22E
Per Share data
EPS (INR) 73.9 79.0 85.5 99.7
Growth, % 48.3 6.9 8.2 16.7
FY19 FY20E FY21E FY22E Book NAV/share (INR) 238.7 267.1 323.3 389.0
US$ Revenue ($ mn) 723 796 891 1,007 CEPS (INR) 83.9 96.2 103.0 117.8
Growth, % 24.6 10.0 12.1 13.0 CFPS (INR) 50.0 108.2 79.2 89.0
Re / US$ (rate) 70.2 70.7 71.0 72.0 DPS (INR) 18.5 22.5 25.0 29.0
Return ratios
Return on assets (%) 25.3 22.3 20.7 20.7
Return on equity (%) 31.0 29.6 26.4 25.6
Balance Sheet Return on capital employed (%) 32.6 29.6 27.9 26.9
Y/E Mar, Rs mn FY19 FY20E FY21E FY22E Turnover ratios
Cash & bank 2,051 2,496 3,788 6,794 Asset turnover (x) 3.0 2.9 3.0 3.2
Debtors 10,643 11,923 12,714 14,500 Sales/Total assets (x) 1.7 1.5 1.5 1.5
Loans & advances 3,783 4,310 5,081 5,176 Sales/Net FA (x) 6.8 5.7 5.3 5.9
Other current assets 0 0 0 0 Working capital/Sales (x) 0.1 0.1 0.1 0.1
Total current assets 16,477 18,729 21,583 26,470 Receivable days 76.5 77.4 73.3 73.0
Investments 5,749 6,427 8,427 10,027 Payable days 16.5 17.7 17.8 18.9
Net fixed assets 7,800 11,782 12,182 12,582 Working capital days 51.3 34.7 37.8 41.5
Non-current assets 3,486 3,179 3,996 4,143 Liquidity ratios
Total assets 33,638 40,117 46,188 53,221 Current ratio (x) 2.3 1.7 1.9 2.3
Current liabilities 7,285 10,891 11,241 11,438 Quick ratio (x) 2.3 1.7 1.9 2.3
Provisions 1,341 1,451 1,326 1,323 Interest cover (x) 100.2 n/a
Total current liabilities 8,626 12,342 12,567 12,761 Dividend cover (x) 4.0 3.5 3.4 3.4
Non-current liabilities 190 0 0 0 Total debt/Equity (%) 13.9 11.2 9.5 8.0
Total liabilities 8,816 12,342 12,567 12,761 Net debt/Equity (%) 5.6 2.2 (1.8) (8.8)
Paid-up capital 208 208 208 208 Valuation
Reserves & surplus 24,614 27,567 33,413 40,252 PER (x) 22.3 20.9 19.3 16.5
Shareholders’ equity 24,822 27,775 33,621 40,460 PEG (x) - y-o-y growth 0.5 3.0 2.3 1.0
Total equity & liabilities 33,638 40,117 46,188 53,221 Price/Book (x) 6.9 6.2 5.1 4.2
Yield (%) 1.1 1.4 1.5 1.8
EV/Net sales (x) 3.4 3.1 2.7 2.3
Source: Company, PhillipCapital India Research Estimates EV/EBITDA (x) 18.9 15.3 13.9 11.9
EV/EBIT (x) 21.3 18.2 16.3 13.7

16
Stock Price, Price Target and Rating History

2000
1800
N (TP 1320)
N (TP 1620)
N (TP 1520) N (TP 1530)
1600 N (TP 1600)
O-18
1400
N (TP 1320)N (TP 1300)
1200
1000 B (TP 1090)
800 B (T 870)
B (TP 850)
B (TP 850)
600
400
200
J-17 F-17 A-17 M-17 J-17 A-17 O-17 N-17 D-17 F-18 M-18M-18 J-18 A-18 S-18 N-18 D-18 F-19 M-19M-19 J-19 J-19 S-19 O-19 D-19
Rating Methodology
We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one
year. We have different threshold for large market capitalisation stock and Mid/small market capitalisation
stock. The categorisation of stock based on market capitalisation is as per the SEBI requirement.
Large cap stocks

Rating Criteria Definition
BUY >= +10% Target price is equal to or more than 10% of current market price
NEUTRAL -10% > to < +10% Target price is less than +10% but more than -10%
SELL <= -10% Target price is less than or equal to -10%.
Mid cap and Small cap stocks

Rating Criteria Definition
BUY >= +15% Target price is equal to or more than 15% of current market price
NEUTRAL -15% > to < +15% Target price is less than +15% but more than -15%
SELL <= -15% Target price is less than or equal to -15%.
Disclosures and Disclaimers

PhillipCapital (India) Pvt. Ltd. has three independent equity research groups: Institutional Equities, Institutional Equity Derivatives, and Private Client Group.
This report has been prepared by Institutional Equities Group. The views and opinions expressed in this document may, may not match, or may be contrary at
times with the views, estimates, rating, and target price of the other equity research groups of PhillipCapital (India) Pvt. Ltd.
This report is issued by PhillipCapital (India) Pvt. Ltd., which is regulated by the SEBI. PhillipCapital (India) Pvt. Ltd. is a subsidiary of Phillip (Mauritius) Pvt. Ltd.
References to "PCIPL" in this report shall mean PhillipCapital (India) Pvt. Ltd unless otherwise stated. This report is prepared and distributed by PCIPL for
information purposes only, and neither the information contained herein, nor any opinion expressed should be construed or deemed to be construed as
solicitation or as offering advice for the purposes of the purchase or sale of any security, investment, or derivatives. The information and opinions contained in
the report were considered by PCIPL to be valid when published. The report also contains information provided to PCIPL by third parties. The source of such
information will usually be disclosed in the report. Whilst PCIPL has taken all reasonable steps to ensure that this information is correct, PCIPL does not offer
any warranty as to the accuracy or completeness of such information. Any person placing reliance on the report to undertake trading does so entirely at his or
her own risk and PCIPL does not accept any liability as a result. Securities and Derivatives markets may be subject to rapid and unexpected price movements
and past performance is not necessarily an indication of future performance.
This report does not regard the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report.
Investors must undertake independent analysis with their own legal, tax, and financial advisors and reach their own conclusions regarding the appropriateness
of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future
prospects may not be realised. Under no circumstances can it be used or considered as an offer to sell or as a solicitation of any offer to buy or sell the

17
securities mentioned within it. The information contained in the research reports may have been taken from trade and statistical services and other sources,
which PCIL believe is reliable. PhillipCapital (India) Pvt. Ltd. or any of its group/associate/affiliate companies do not guarantee that such information is accurate
or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice.
Important: These disclosures and disclaimers must be read in conjunction with the research report of which it forms part. Receipt and use of the research
report is subject to all aspects of these disclosures and disclaimers. Additional information about the issuers and securities discussed in this research report is
available on request.
Certifications: The research analyst(s) who prepared this research report hereby certifies that the views expressed in this research report accurately reflect the
research analyst’s personal views about all of the subject issuers and/or securities, that the analyst(s) have no known conflict of interest and no part of the
research analyst’s compensation was, is, or will be, directly or indirectly, related to the specific views or recommendations contained in this research report.
Additional Disclosures of Interest:
Unless specifically mentioned in Point No. 9 below:
1. The Research Analyst(s), PCIL, or its associates or relatives of the Research Analyst does not have any financial interest in the company(ies) covered in
this report.
2. The Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively do not hold more than 1% of the securities of the
company (ies)covered in this report as of the end of the month immediately preceding the distribution of the research report.
3. The Research Analyst, his/her associate, his/her relative, and PCIL, do not have any other material conflict of interest at the time of publication of this
research report.
4. The Research Analyst, PCIL, and its associates have not received compensation for investment banking or merchant banking or brokerage services or for
any other products or services from the company(ies) covered in this report, in the past twelve months.
5. The Research Analyst, PCIL or its associates have not managed or co-managed in the previous twelve months, a private or public offering of securities for
the company (ies) covered in this report.
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19
17 JAN 2020 Quarterly Update
NOW ON APP
L&T TECHNOLOGY SERVICES

Research at your
finger tips ADD
IT - SERVICES Target Price: Rs 1,790
Muted quarter; gradual recovery ahead

Q3 was a miss on revenue, up 0.7% QoQ, at USD 199 mn CMP : Rs 1,635
(AxisCap/Cons: USD 203/201 mn) on steep decline in Telecom and Potential Upside : 9%
Hi-tech. EBIT margin at 16.8% was below the estimates (AxisCap/Cons:
17.4%/16.9%). Company won 9 large multi-million dollar deals in Q3.
MARKET DATA
FY20 revenue growth guidance maintained at 10%: Client ramp-down
No. of Shares : 104 mn
coupled with slowdown in few verticals (semiconductor and Free Float : 25%
entertainment) and longer sales cycle have impacted LTTS in FY20. Deal Market Cap : Rs 171 bn
pipeline remains healthy in transportation, medical devices and plant 52-week High / Low : Rs 1,818 / Rs 1,396
engineering which would drive growth momentum. Management is Avg. Daily vol. (6mth) : 112,306 shares
optimistic on growth prospects driven by momentum on large deal wins Bloomberg Code : LTTS IB Equity
and healthy pipeline. We remain watchful on the conversion (especially Promoters Holding : 75%
Hi-tech) and expect 11% USD revenue CAGR (FY19-22E). Roll forward FII / DII : 9% / 5%
to FY22E; retain ADD with revised TP of Rs 1,790 vs. Rs 1,770 earlier.
Deal win momentum remains healthy, challenges bottoming out: Deal win momentum continued, with 9 large wins in
Q3FY20 with 2 deals having TCV of USD 30 mn+ each. Management is optimistic on growth deriving confidence from
new deal bookings (where Q3>Q2>Q1FY20) and strong deal pipeline (up QoQ and YoY). Moreover, prolonged
challenges in Telecom and Hi-tech verticals are bottoming out and, they will see stability hereon. We believe that
expanding deal booking trend and pipeline would aid gradual growth recovery.
Overall conversion stable – Telecom and Hi-tech conversion still witnessing deferrals: Overall deal pipeline continues to
grow and conversion is steady, (i) Transportation: LTTS closed all 3 deals in the pipeline during the quarter. Moreover, it
is witnessing tailwind from consolidation of vendors within Aerospace vertical; (ii) Telecom and Hi-tech: Out of 4 large
deals LTTS was targeting, it closed 1 deal in Media while others got pushed to Q4; (iii) Plant Engineering: It closed
2 new deals in the vertical in addition to 1 large renewal contract in O&G client. We see stable deal conversion along
with absence of headwinds from Telecom vertical to aid low double-digit revenue growth over FY19-22.
Financial summary (Consolidated) Key drivers

Y/E March FY19 FY20E FY21E FY22E FY19 FY20E FY21E FY22E
Sales (Rs mn) 50,783 56,369 64,095 71,277 USD rev (mn) 723 795 878 976
Adj PAT (Rs mn) 7,656 8,403 9,628 10,476 YoY % growth 24.6% 9.9% 10.4% 11.2%
Con. EPS* (Rs) - 77 87 96 EBIT margin 16.0% 16.9% 16.9% 16.6%
EPS (Rs) 72 80 91 99
Change YOY (%) 50.9 9.8 14.6 8.8
Price performance
P/E (x) 22.6 20.5 17.9 16.5
140
RoE (%) 34.7 30.7 29.4 27.0 Sensex L&T Technology Services
120
RoCE (%) 45.0 40.3 38.6 35.6
100
EV/E (x) 18.5 14.7 12.9 11.4
80
DPS (Rs) 21 26 30 33
60
Source: *Consensus broker estimates, Company, Axis Capital Jan-19 Apr-19 Jul-19 Oct-19 Jan-20
Shashi Bhusan Executive Director – IT & Telecom Santosh Sinha AVP – IT, Telecom & Internet Akshay Ramnani Sr. Manager – IT, Internet & Telecom
shashi.bhusan@axiscap.in 91 22 4325 1104 santosh.sinha@axiscap.in 91 22 4325 1121 akshay.ramnani@axiscap.in 9122 43251119
Axis Capital is available on Bloomberg (AXCP<GO>), Reuters.com, Firstcall.com and Factset.com 01

FOR IMPORTANT DISCLOSURES AND DISCLAIMERS, REFER TO THE END OF THIS MATERIAL
20
IT - SERVICES
Exhibit 1: Results update

Quarter ended 12 months ended
(Rs. mn) Dec-19 Dec-18 % Chg Sep-19 % Chg FY20E FY19 % Chg
Net sales 14,229 13,169 8.0 14,021 1.5 56,369 50,783 11.0
EBIDTA 2,863 2,417 18.5 2,832 1.1 11,336 9,158 23.8
Other income 354 353 - 378 - 1,806 2,211 -
PBIDT 3,217 2,770 - 3,210 - 13,142 11,369 -
Depreciation 472 239 - 444 - 1,798 1,053 -
Interest 0 0 - 0 - 0 0 -
PBT 2,745 2,531 8.5 2,766 (0.8) 11,344 10,316 10.0
Tax 687 670 - 704 - 2,920 2,630 -
Minority Interest 17 5 - 4 - 22 30 -
Adjusted PAT 2,041 1,856 10.0 2,058 (0.8) 8,403 7,656 9.8
No. of shares (mn) 106 106 - 106 - 106 106 -
EBIDTA margin (%) 20.1 18.4 - 20.2 - 20.1 18.0 -
PBIDT margin (%) 22.6 21.0 - 22.9 - 23.3 22.4 -
EPS - annualized (Rs.) 77.4 70.3 10.0 78.0 (0.8) 79.6 72.5 9.8
Source: Company, Axis Capital
Margin trajectory to be stable: Q3FY20 EBIT margin at 16.8% was down 23 bps
QoQ (AxisCap/Cons: 17.4%/16.9%) hit by margin dip in Telecom and Hi-tech
segment (-9.6% QoQ). We see the margin to be stable hereon, as growth tailwinds
from better business mix verticals of Industrial Products and Plant Engineering get
offset by growth revival in low-margin Telecom and Hi-tech vertical. Moreover, LTTS
is operating at 79.2% utilization which is near peak levels; this would act as
another headwind for the margin. We expect EBIT margin of 16.9/16.7/16.6% in
FY20/21/22E.
Result highlights
♦ Miss on revenue, margin down slightly: Revenue up 0.7% QoQ (+0.6% cc
terms) at USD 199 mn (AxCap/Cons: USD 203 mn/ USD 201 mn).
EBIT margin at 16.8% (AxisCap: 17.4%; consensus: 16.9%) was down 23 bps
QoQ. Adj EPS at Rs. 19.3 (AxisCap: Rs 20.9, consensus: Rs 19.7).
♦ Vertical growth: Transportation/ Industrial Products/ Telecom & Hi-tech/ Plant
Engineering/ Medical Devices: +3.0%/-0.4%/-9.6%/+6.9%/+7.5%.
♦ Geography growth: NA/ Europe/ India/ RoW grew -0.2%/
-1.4%/ +1.4%/ +7.2%.
♦ Utilization expanded ~140 bps and attrition inched up 50 bps to 13.9%.
Axis Capital is available on Bloomberg (AXCP<Go>), Reuters.com, Firstcall.com and Factset.com 02
21
IT - SERVICES
Vertical commentary
♦ Transportation: Growth was 3.0% QoQ. Pipeline in transportation remains
robust. Company closed 3 net-new deals in this vertical (2 in Auto and 1 in
Aerospace). Moreover, LTTS is witnessing a tailwind from vendor consolidation
within Aerospace.
♦ Telecom and Hi-tech: Sharp decline of 9.6% QoQ. Management believes that
the worst is over for the vertical and expects stability hereon with marginal
growth in Q4. LTTS closed 1 Chip design deal within Media space in Q3.
Other deals in pipeline got pushed to Q4. These deals are expected to close
in Q4.
♦ Medical: Strong growth of 7.5% QoQ; expect growth momentum to continue.
New account additions and higher penetration in existing accounts is driving
growth.
♦ Plant Engineering: LTTS closed 2 deals in Europe (duration: 12 months and 3
years respectively). Moreover, there was 1 large deal renewal with an oil &
gas client.
♦ Industrial products: Muted performance of -0.4% QoQ. The vertical is impacted
by slowdown in large accounts which is offset by ramp-up of smaller accounts.
LTTS closed 1 out of 3 deals which were in pipeline; other 2 deals have moved
to closure stage and would be closed in Q4.
Change in estimates
We cut our FY20E/FY21E USD revenue estimate by 1.1%/ 3.3% to factor in
slower-than-expected growth recovery. We also cut our margin estimates, which
have caused downward revision of EPS by 4.5%/ 7.1% in FY20/21. We have
assumed USD-INR rate of Rs 73 for FY21 and FY22 (vs. 73.3 earlier).
Exhibit 2: Revision in estimates

Change in estimates FY20E FY21E FY22E
Revenue (USD m)
- New 795 878 976
- Old 804 908 NA
Change (%) -1.1% -3.3% NA
Fully diluted EPS (Rs)

- New 80 91 99
- Old 83 98 NA
Change (%) -4.5% -7.1% NA
Source: Company
Valuation & recommendation – recovery to be gradual; reiterate ADD

LTTS’ revenue momentum moderated further in Q3FY20 on client-specific issues and
weakness in couple of verticals. The management retained FY20 revenue growth
guidance of 10%. We see margin trajectory to be stable impacted by multiple
headwinds. Expect 11% USD revenue CAGR over FY19-22.
We roll forward to FY22E. Reiterate ADD rating with revised TP of Rs 1,790 (18x
FY22E) vs. Rs 1,770 earlier, implying an upside of 9% from CMP of Rs 1,635.
The stock trades at 18x/ 16x FY21E/22E EPS of Rs 91/ 99.
22
IT - SERVICES
Exhibit 3: Result analysis

Q3FY20 Q2FY20 QoQ Q3FY19 YoY AxisCap Cons. Var (vs. AxisCap)
USD revenue 199 198 0.7% 186 7% 203 201 -1.8%
Revenue (Rs mn) 14,229 14,021 1.5% 13,169 8% 14,461 14,291 -2%
EBIT (Rs m) 2,391 2,388 0.1% 2,178 10% 2,523 2,419 -5%
EBIT Margin 16.8% 17.0% -23 bps 16.5% 26 bps 17.4% 16.9% -64 bps
Adj. PAT (Rs m) 2,041 2,058 -0.8% 1,856 10% 2,207 2,027 -8%
Adj. EPS (Rs) 19.3 19.5 -0.8% 17.6 10% 20.90 19.7 -7%
Exhibit 4: Geography mix

QoQ YoY
Q2'18 Q3'18 Q4'18 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20
change change
Revenue (USD mn) 151 162 169 177 186 191 194 198 199
Geography Break-Up (%)

North America 59% 58% 56% 58% 58% 59% 61% 62% 61%
Europe 17% 19% 19% 17% 16% 16% 16% 14% 14%
India 12% 12% 12% 13% 14% 14% 13% 13% 13%
RoW 13% 12% 13% 13% 12% 11% 11% 11% 11%
Revenue by Geographies 151 162 169 177 186 191 194 198 199
North America 89 94 95 102 107 113 118 122 122 -0.2% 14%
Europe 26 30 31 30 30 31 30 29 28 -1.4% -7%
India 17 19 21 22 27 27 25 26 26 1.4% -2%
RoW 19 20 22 22 22 21 21 21 23 7.2% 5%
Exhibit 5: Vertical mix

QoQ YoY
Q2'18 Q3'18 Q4'18 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20
change change
Revenue (USD mn) 151 162 169 177 186 191 194 198 199
Vertical Break-Up (%)

Transportation 31% 31% 31% 32% 32% 33% 35% 35% 36%
Industrial Products 22% 21% 20% 21% 20% 19% 20% 19% 19%
Telecom & Hi-tech 28% 30% 29% 27% 27% 26% 22% 21% 19%
Process Industry 13% 12% 14% 14% 14% 15% 15% 16% 17%
Medical Devices 7% 7% 7% 7% 7% 7% 8% 9% 9%
Revenue by verticals 151 162 169 177 186 191 194 198 199
Transportation 47 50 52 57 59 63 68 69 71 3.0% 21.2%
Industrial Products 33 34 34 37 38 37 38 38 38 -0.4% 2.0%
Telecom & Hi-tech 42 48 48 47 50 50 43 41 37 -9.6% -26.5%
Process Industry 19 20 23 25 27 28 30 32 34 6.9% 28.2%
Medical Devices 10 11 11 12 12 13 16 17 19 7.5% 50.6%
23
IT - SERVICES
Exhibit 6: Client metrics

QoQ YoY
Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20
change change
Revenue (USD mn) 151 162 169 177 186 191 194 198 199
Clientele dependence
Top 5 Clients 25.5% 27.1% 28.3% 28.2% 27.4% 26.4% 24.7% 22.9% 21.1%
Top 10 Clients 37.9% 39.7% 40.5% 39.9% 38.9% 37.7% 36.7% 35.7% 33.9%
Top 20 Clients 53.3% 54.8% 55.6% 55.1% 54.4% 53.5% 52.5% 51.3% 49.8%
Remaining Clients 46.7% 45.2% 44.4% 44.9% 45.6% 46.5% 47.5% 48.7% 50.2%
Revenue by clients
Top 5 Clients 39 44 48 50 51 51 48 45 42 -7% -17%
Top 6-10 clients 19 20 21 21 21 22 23 25 26 1% 19%
Top 11-20 clients 23 25 26 27 29 30 31 31 32 3% 10%
Remaining clients 71 73 75 80 85 89 92 96 100 4% 18%
Total 151 162 169 177 186 191 194 198 199
Client Profile
Active Clients 233 235 235 239 244 251 258 259 265 6 21
50 Million dollar + 1 0 2 2 2 2 1 1 0 (1) (2)
30 Million dollar + 3 3 2 3 3 3 3 3 3 0 0
20 Million dollar + 4 4 3 3 5 5 5 7 7 0 2
10 Million dollar + 12 12 12 14 16 16 17 17 20 3 4
5 Million dollar + 30 31 33 34 39 41 44 42 43 1 4
1 Million dollar + 79 84 89 94 98 106 110 106 107 1 9
Exhibit 7: 1-Yr Forward P/E band

+1 SD Avg -1 SD fwd PER
24
(x)
18
12
6
Jul-17
Jul-18
Jul-19
Mar-18
Mar-17
Mar-19
May-17
May-19
May-18
Sep-17
Sep-18
Sep-19
Jan-17
Jan-18
Jan-19
Jan-20
Nov-17
Nov-19
Nov-18
Source: Bloomberg, Axis Capital
24
IT - SERVICES
Financial summary (Consolidated)

Profit & loss (Rs mn) Cash flow (Rs mn)
Y/E March FY19 FY20E FY21E FY22E Y/E March FY19 FY20E FY21E FY22E
Net sales 50,783 56,369 64,095 71,277 Profit before tax 10,316 11,344 12,924 14,062
Other operating income - - - - Depreciation & Amortisation 1,053 1,798 1,915 2,129
Total operating income 50,783 56,369 64,095 71,277 Chg in working capital (3,616) (1,092) (1,388) (1,308)
Cost of goods sold (31,788) (34,585) (39,535) (43,926) Cash flow from operations 2,912 7,325 7,955 9,097
Gross profit 18,995 21,784 24,560 27,351 Capital expenditure (1,758) (3,107) (3,066) (3,308)
Gross margin (%) 37 39 38 38 Cash flow from investing (2,531) (3,301) (3,066) (3,308)
Total operating expenses (9,837) (10,447) (11,922) (13,360) Equity raised/ (repaid) 17 (597) (648) (705)
EBITDA 9,158 11,336 12,639 13,991 Debt raised/ (repaid) - - - -
EBITDA margin (%) 18 20 20 20 Dividend paid (2,218) (2,773) (3,177) (3,457)
Depreciation (1,053) (1,798) (1,915) (2,129) Cash flow from financing 126 (1,585) (1,626) (1,962)
EBIT 8,105 9,538 10,724 11,862 Net chg in cash 507 2,438 3,263 3,826
Net interest - - - -
Other income 2,211 1,806 2,200 2,200 Key ratios
Profit before tax 10,316 11,344 12,924 14,062 Y/E March FY19 FY20E FY21E FY22E
Total taxation (2,630) (2,920) (3,296) (3,586) OPERATIONAL
Tax rate (%) 25 26 26 26 FDEPS (Rs) 72 80 91 99
Profit after tax 7,686 8,425 9,628 10,476 CEPS (Rs) 82 97 109 119
Minorities (30) (22) - - DPS (Rs) 21 26 30 33
Profit/ Loss associate co(s) - - - - Dividend payout ratio (%) 29 33 33 33
Adjusted net profit 7,656 8,403 9,628 10,476 GROWTH
Adj. PAT margin (%) 15 15 15 15 Net sales (%) 36 11 14 11
Net non-recurring items - - - - EBITDA (%) 58 24 11 11
Reported net profit 7,656 8,403 9,628 10,476 Adj net profit (%) 51 10 15 9
FDEPS (%) 50.9 9.8 14.6 8.8
Balance sheet (Rs mn) PERFORMANCE
Y/E March FY19 FY20E FY21E FY22E RoE (%) 34.7 30.7 29.4 27.0
Paid-up capital 208 208 208 208 RoCE (%) 45.0 40.3 38.6 35.6
Reserves & surplus 24,614 29,647 35,450 41,764 EFFICIENCY
Net worth 24,822 29,855 35,658 41,972 Asset turnover (x) 2.4 2.3 2.3 2.4
Borrowing 702 702 702 702 Sales/ total assets (x) 1.7 1.6 1.5 1.5
Other non-current liabilities 194 - - - Working capital/ sales (x) 0.2 0.3 0.2 0.2
Total liabilities 25,718 30,557 36,360 42,674 Receivable days 76.5 76.0 76.0 76.0
Gross fixed assets 7,800 9,069 10,220 11,399 Inventory days - - - -
Less: Depreciation - - - - Payable days 16.5 16.0 16.0 16.0
Net fixed assets 7,800 9,069 10,220 11,399 FINANCIAL STABILITY
Add: Capital WIP - 40 40 40 Total debt/ equity (x) - - - -
Total fixed assets 7,800 9,109 10,260 11,439 Net debt/ equity (x) (0.1) (0.1) (0.2) (0.3)
Total Investment - - - - Current ratio (x) 3.0 3.3 3.6 4.0
Debtors 10,643 11,737 13,346 14,841 Interest cover (x) - - - -
Cash & bank 2,048 4,486 7,750 11,576 VALUATION
Loans & advances 3,739 4,170 4,741 5,273 PE (x) 22.6 20.5 17.9 16.5
Current liabilities 7,920 8,353 9,145 9,864 EV/ EBITDA (x) 18.5 14.7 12.9 11.4
Net current assets 15,795 19,325 23,977 29,111 EV/ Net sales (x) 3.3 3.0 2.6 2.2
Other non-current assets 2,123 2,123 2,123 2,123 PB (x) 7.0 5.8 4.8 4.1
Total assets 25,718 30,557 36,360 42,674 Dividend yield (%) 1.3 1.6 1.8 2.0
- - - - Free cash flow yield (%) 0.7 2.5 2.9 3.4
Source: Company, Axis Capital Source: Company, Axis Capital
25
IT - SERVICES
Axis Capital Limited is registered with the Securities & Exchange Board of India (SEBI) as “Research Analyst” with SEBI-registration
number INH000002434 and which registration is valid till it is suspended or cancelled by the SEBI.
DISCLAIMERS / DISCLOSURES
The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).
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viii. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alternations to this statement as
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26
IT - SERVICES
xi. This document is being supplied to the recipient solely for information and may not be reproduced, redistributed or passed on, directly or indirectly, to any
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may come shall inform themselves about, and observe, any such restrictions.
xiv. Neither the Firm, not its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or
consequential including but not limited to loss of capital, revenue or profits that may arise from or in connection with the use of the information.
xv. Copyright of this document vests exclusively with Axis Capital Limited.
Research Disclosure - NOTICE TO US INVESTORS:
This report was prepared, approved, published and distributed by Axis Capital Limited, a company located outside of the United States (a “non-US Company”). This
report is distributed in the U.S. by Axis Capital USA LLC, a U.S. registered broker dealer, which assumes responsibility for the research report’s content, and is meant
only for major U.S. institutional investors (as defined in Rule 15a-6 under the U.S. Securities Exchange Act of 1934 (the “Exchange Act”)) pursuant to the exemption in
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Neither the report nor any analyst who prepared or approved the report is subject to U.S. legal requirements or the Financial Industry Regulatory Authority, Inc.
(“FINRA”) or other regulatory requirements pertaining to research reports or research analysts. The non-US Company is not registered as a broker-dealer under the
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The non-US Company will refrain from initiating follow-up contacts with any recipient of this research report that does not qualify as a Major Institutional Investor, or
seek to otherwise induce or attempt to induce the purchase or sale of any security addressed in this research report by such recipient.
ANALYST DISCLOSURES
1. The analyst(s) declares that neither he/ his relatives have a Beneficial or Actual ownership of > 1% of equity of subject company/ companies;
2. The analyst(s) declares that he has no material conflict of interest with the subject company/ companies of this report;
3. The research analyst (or analysts) certifies that the views expressed in the research report accurately reflect such research analyst's personal views
about the subject securities and issuers; and
4. The research analyst (or analysts) certifies that no part of his or her compensation was, is, or will be directly or indirectly related to the specific
recommendations or views contained in the research report.
27
IT - SERVICES
Axis Capital Limited

Axis House, C2, Wadia International Centre, P.B Marg, Worli, Mumbai 400 025, India.
Tel:- Board +91-22 4325 2525; Dealing +91-22 2438 8861-69;
Fax:- Research +91-22 4325 1100; Dealing +91-22 4325 3500
DEFINITION OF RATINGS
Ratings Expected absolute returns over 12 months
BUY More than 15%
ADD Between 5% to 15%
REDUCE Between 5% to -10 %
SELL More than -10%
L&T Technology Services (LTEH.BO, LTTS IB) Price and Recommendation History
CMP Buy Add Hold Reduce Sell Under Review Not Rated
2,500
(Rs)
2,000
1,500
1,000
500
0
Feb-19
Feb-17
Feb-18
Dec-17
Dec-18
Dec-19
Oct-17
Oct-18
Oct-19
Nov-17
Nov-18
Nov-19
May-17
May-18
May-19
Jan-17
Apr-17
Jan-18
Jan-19
Jan-20
Apr-18
Apr-19
Aug-17
Aug-18
Aug-19
Jul-17
Jul-18
Jul-19
Mar-17
Mar-18
Mar-19
Jun-19
Jun-17
Jun-18
Sep-17
Sep-18
Sep-19
Dat e Tar ge t P r i ce Re co Dat e Tar ge t P r i ce Re co

11-Jul-17 915 B uy 30-Aug-18 1,915 B uy
25-Jul-17 920 B uy 6-Sep-18 1,915 B uy
28-Jul-17 920 B uy 24-Oct-18 1,920 B uy
5-Oct-17 920 B uy 25-Oct-18 1,855 B uy
7-Nov-17 914 B uy 17-Jan-19 1,870 B uy
11-Jan-18 1,270 B uy 3-May-19 1,950 B uy
23-Jan-18 1,305 B uy 19-Jul-19 1,800 Add
3-Apr-18 1,305 Hold 28-Aug-19 1,800 Add
22-May-18 1,410 B uy 23-Sep-19 1,800 Add
8-Jun-18 1,410 B uy 18-Oct-19 1,770 Add
2-Jul-18 1,410 B uy
24-Jul-18 1,525 B uy
Source: Axis Capital
28
RESULT UPDATE

Light at the end of the tunnel
LTD
COMPANYNAME
India Equity Research| IT
L&T Technology Services’ (LTTS) Q3FY20 USD revenue growth of 0.8% EDELWEISS 4D RATINGS
missed Street’s 1.4% estimate while EBIT margin at 20.1% came in flat Absolute Rating BUY
QoQ (in line with estimate). LTTS continues to perform extremely well in Rating Relative to Sector Outperform
three of its five verticals, but client-specific issues in telecom and hi-tech Risk Rating Relative to Sector Medium
ail its overall growth story. We believe LTTS has finally found enough Sector Relative to Market Overweight
revenues to offset this impact, and should see a turnaround next quarter.
It maintained FY20 revenue growth guidance at 10%, a number we
believe it can top next year. The company also remains disciplined in its MARKET DATA (R: LTEH BO, B: LTTS IN)
CMP : INR 1,643
execution, and we expect it to consistently deliver stable margins. We
Target Price : INR 1,885
remain bullish on long-term prospects of the fast-growing ER&D, and
52-week range (INR) : 1,820 / 1,321
believe LTTS is in a pole position to benefit from the same. Maintain Share in issue (mn) : 104.3
‘BUY’ with a revised TP of INR1,885 (INR1,801 earlier, 20x Q1FY22E EPS). M cap (INR bn/USD mn) : 171 / 2,434
Avg. Daily Vol.BSE/NSE(‘000) : 120.7
Worst behind for telecom and hi-tech
While transportation (up 21% YoY) and Plant Engineering (up 28.2% YoY) continue to SHARE HOLDING PATTERN (%)
deliver quarter after quarter, geopolitical concerns and client-specific issues hampered Current Q2FY20 Q1FY20
revenues from telecom and hi-tech for most of FY19. We, however, argue that the Promoters * 75.0 75.0 75.0
worst is behind on this front, and growth should return to the vertical from Q4. This MF's, FI's & BK’s 4.8 4.8 4.7
along with an excellent performance in other verticals should drive robust overall FII's 8.9 8.9 8.5
growth in FY21E. Others 11.3 11.3 11.8
* Promoters pledged shares : NIL
(% of share in issue)
Laser-sharp focus on execution holds margins steady
LTTS delivered another resilient quarter on margins by dint of its execution disciple. We PRICE PERFORMANCE (%)
believe LTTS has expertly navigated its operating margin in a narrow band despite its EW
recently shaky revenues and that this is one of the reasons the company continues to Stock Nifty Technology
Index
command a premium multiple. We expect LTTS’s operating margin to remain in the
18–20% range. Any revival in volumes should be of further help. 1 month (9.3) 7.0 (1.0)
3 months (6.6) 7.9 (4.5)
Outlook and valuation: Looking at an upturn; retain ‘BUY’ 12 months (13.9) 12.4 6.1
While the outlook for ER&D revenue growth continues to be marred by uncertainty,
demand in the ER&D segment has potential to revive strongly, based on which LTTS
should be able to realise its growth potential. The stock is trading at 17.4x FY21E EPS.
We maintain ‘BUY/SO’ with a revised TP of INR1,801.
Financials (INR mn) Sandip Agarwal
Year to March Q3FY20 Q3FY19 Chg % Q2FY20 Chg % FY19E FY20E FY21E +91 22 6623 3474
sandip.agarwal@edelweissfin.com
Revenue 14,230 13,169 8.1 14,021 1.5 50,783 56,281 64,754
EBITDA 2863 2417 18.5 2832 1.1 9,157 11,276 13,579 Pranav Kshatriya
EBIT (INR mn) 2391 2178 9.8 2388 0.1 8,083 9,574 12,623 +91 22 4040 7495
pranav.kshatriya@edelweissfin.com
Adjusted profit 2058 1861 10.6 2062 (0.2) 7,662 8,195 9,935
Diluted EPS (INR) 19.3 17.6 10.0 19.5 (0.8) 72.6 77.5 94.3 Abhishek Pathak
+91 (22) 4063 5456
Diluted P/E (x) 22.6 21.2 17.4
Abhishek.Pathak@edelweissfin.com
EV/EBITDA (x) 17.9 14.2 11.4
EV/Revenues (X) 3.2 2.8 2.4 January 17, 2020
Edelweiss Research is also available on www.edelresearch.com,
Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset. Edelweiss Securities Limited
29
IT
Key highlights
 Revenue grew 1.5% QoQ/8.1% YoY to INR14.2bn. In USD, revenue rose 0.8% QoQ to
USD199.3mn.
 EBIT stood at INR2,391mn; margin down 20bps QoQ at 16.8%.
 Net profit came in at INR2,041mn versus INR2,62mn in Q2FY20.
 Industry performance: Growth was led by Transportation (up 21.3% YoY, cc) and plant
engineering (up 28.2%). Telecom and hi-tech had another poor quarter (down 26.7%
YoY), dragging overall growth once more..
 Performance by geography: QoQ, North America grew 13.7%, India declined 1.8%, and
Europe declined 6.3%.
 Utilisation increased 140bps QoQ to 79.2%.
 Attrition decreased 50bps QoQ to 13.9%.
 Employee metrics: Headcount was flat QoQ at 16787.
 USD50mn-plus bucket increased by 1 QoQ and USD30mn-plus bucket remained flat

QoQ; USD20mn-plus bucket was flat as well, QoQ.
 Top-5 and -10 clients: The Top-5 and -10 clients declined 17.4% YoY and 6.5% YoY,
respectively; growth outside top-10 clients stood at 16.1% YoY.
2 Edelweiss Securities Limited
30
L&T Technology Services Ltd
Financial snapshot (INR mn)

Year to March Q3FY20 Q2FY20 % Change Q3FY19 % Change YTD20 FY20E FY21E
Net revenues 14,230 14,021 1.5 13,169 8.1 41,726 56,281 64,754
Direct costs 9,557 9,497 0.6 8,298 15.2 28,094 37,757 41,462
Gross profit 4,673 4,524 3.3 4,871 (4.1) 13,632 18,524 23,292
SG&A 1,810 1,692 7.0 2,454 (26.2) 5,210 7,248 9,713
EBITDA 2,863 2,832 1.1 2,417 18.5 8,422 11,276 13,579
Depreciation 472 444 6.3 239 97.5 1,344 1,702 956
EBIT 2,391 2,388 0.1 2,178 9.8 7,078 9,574 12,623
Other income 354 378 (6.3) 353 0.3 1,206 1,454 772
Profit before tax 2,745 2,766 (0.8) 2,531 8.5 8,284 11,028 13,395
Tax 687 704 (2.4) 670 2.5 2,124 2,833 3,460
Reported net profit 2,058 2,062 (0.2) 1,861 10.6 6,160 8,195 9,935
Diluted EPS (INR) 19.3 19.5 (0.8) 17.6 10.0 58.1 77.5 94.3
Diluted P/E (x) - - - - 21.2 17.4
EV/EBITDA (x) - - - - 14.2 11.5
EV/Revenues (x) - - - - 2.9 2.4
Direct costs 67.2 67.7 63.0 67.3 67.1 64.0
Gross profit 32.8 32.3 37.0 32.7 32.9 36.0
SG&A 12.7 12.1 18.6 12.5 12.9 15.0
EBITDA 20.1 20.2 18.4 20.2 20.0 21.0
EBIT 16.8 17.0 16.5 17.0 17.0 19.5
Reported net profit 14.5 14.7 14.1 14.8 14.6 15.3
Tax rate 25.0 25.5 26.5 25.6 25.7 25.8
31
IT
Company Description
L&T Technology Services (LTTS) was established through a group restructuring exercise by
the L&T Group, wherein, integrated engineering services of L&T and product engineering
services business of L&T Infotech were trasferred to LTTS. As a result, LTTS has emerged as
one of the leading global pure-play ER&D services, providing services to manufacturing,
technology and process engineering companies to help develop and build products,
processes and infrastructure required to deliver products and services to end customers.
The company leverages on the strengths of parent company, L&T, a leading Indian
conglomerate in technology, engineering, construction, manufacturing and finance. The
company derives 58.9% from North America, 16.0% from Europe, 13.9% from India and
11.2% from Rest of the World (RoW). It has operations spread across five industry
segments, viz., transportation, industrial products, telecom and hi-tech, process industry
and medical devices.
Investment Theme
L&T Technology Services (LTTS), a niche play on ER&D services, is on the cusp of high-growth
trajectory steered by potent catalysts: 1) ongoing strong digital and IoT wave to spearhead
ER&D growth; 2) ‘T30A3’ strategy is well etched out to ramp up LTTS’s offerings to top-30
clients and target adjacent three customers in each vertical; 3) well-diversified presence
across verticals along-with lower top clients’ concentration insulates its revenues in
downturns; and 4) strong parent in L&T – LTTS leverages on strong engineering capabilities
and relationships of L&T.
Key Risks
Reduction in ER&D spends
Rise in captive R&D centres
Intense competition in ER&D services
Loss of key customers

Adverse exchange rate fluctuations
32
Financial Statements
Key assumptions Income statement (INR mn)
Year to March FY19E FY20E FY21E FY22E Year to March FY19 FY20E FY21E FY22E
Macro - GDP(Y-o-Y %) 6.8 5.0 5.8 6.5 Net revenue 50,783 56,281 64,754 71,959
Inflation (Avg) 3.4 4.3 4.8 5.0 Cost of revenues 32,770 37,757 41,462 46,559
Repo rate (exit rate) 6.3 5.2 4.5 5.0 Gross profit 18,013 18,524 23,292 25,401
Total SG&A expenses 8,856 7,248 9,713 10,794
USD/INR (Avg) 70.0 71.5 71.0 70.0
EBITDA 9,157 11,276 13,579 14,607
Company
Depreciation 1,074 1,702 956 1,040
Employee nos
EBIT 8,083 9,574 12,623 13,567
Total employees 15,140 17,162 18,662 20,162
Add: Other income 2,247.00 1,458.00 788.00 788.00
Net additions 2,833 2,022 1,500 1,500 Profit Before Tax 10,330 11,032 13,411 14,355
Cost assumptions 2.1 2.1 2.1 2.1 Less: Provision for Tax 2,630 2,833 3,460 3,704
Cost of revenues 64.5 67.1 64.0 64.7 Reported Profit 7,700 8,199 9,951 10,651
Direct Cost per emplo. (INR '000) 593.4 575.4 578.7 599.5 Adjusted Profit 7,700 8,199 9,951 10,651
Cost per employee YoY growth 10.3 (3.0) 0.6 3.6 Shares o /s (mn) 104 104 104 104
SG&A expenses (% of rev) 17.4 12.9 15.0 15.0 Adjusted Basic EPS 74.1 78.5 95.4 102.1
Financial Assumption 2.1 2.1 2.1 2.1 Diluted shares o/s (mn) 106 106 106 106
Deprecia. (% of gross block) 19.9 25.8 12.2 11.5 Adjusted Diluted EPS 72.7 77.5 94.3 100.9
Tax rate as % of PBT 25.6 25.7 25.8 25.8 Adjusted Cash EPS 84.5 94.8 104.6 112.1
Capex (INR mn) 1,000 1,200 1,200 1,200 Dividend per share (DPS) 25.9 31.4 38.2 40.9
Receivable (days) 73 73 70 72 Dividend Payout Ratio(%) 35.7 40.5 40.5 40.5
Payable (days) 21 24 30 30
Cash conversion cycle (days) 52 48 41 42 Common size metrics
Year to March FY19 FY20E FY21E FY22E
Cost of revenues 64.5 67.1 64.0 64.7
Gross margin 35.5 32.9 36.0 35.3
SG&A expenses 17.4 12.9 15.0 15.0
EBITDA margins 18.0 20.0 21.0 20.3
EBIT margins 15.9 17.0 19.5 18.9
Net Profit margins 15.2 14.6 15.4 14.8
Growth ratios (%)

Year to March FY19 FY20E FY21E FY22E
Revenues 35.5 10.8 15.1 11.1
EBITDA 59.1 23.1 20.4 7.6
PBT 51.3 6.8 21.6 7.0
Adjusted Profit 50.6 6.5 21.4 7.0
EPS 49.6 6.6 21.7 7.0
33
IT
Balance sheet (INR mn) Cash flow metrics

As on 31st March FY19 FY20E FY21E FY22E Year to March FY19 FY20E FY21E FY22E
Share capital 208 209 209 209 Operating cash flow 8,072 8,582 8,867 9,421
Reserves & Surplus 24,583 28,961 34,256 39,922 Financing cash flow (2,454) (4,047) (4,805) (5,088)
Shareholders' funds 24,791 29,170 34,464 40,131 Investing cash flow (5,093) (2,916) (2,831) (5,169)
Minority Interest 31 31 31 31 Net cash Flow 525 1,619 1,231 (836)
Def. Tax Liability (net) (66) (66) (66) (66) Capex (901) (1,873) (172) (1,200)
Sources of funds 25,592 29,761 34,907 40,470 Dividend paid (2,440) (3,837) (4,657) (4,985)
Gross Block 2,020 2,720 3,560 4,400
Net Block 1,443 2,351 1,514 1,648 Profitability and efficiency ratios
Capital work in progress - 1 1 1 Year to March FY19 FY20E FY21E FY22E
Intangible Assets 6,357 5,618 5,672 5,698 ROAE (%) 34.8 30.4 31.2 28.5
Total Fixed Assets 7,800 7,970 7,187 7,347 ROACE (%) 45.2 39.8 41.4 38.0
Cash and Equivalents 7,800 11,735 16,185 19,856 Debtors Days 73 73 70 72
Sundry Debtors 10,643 11,733 13,264 14,982 Payable Days 21 24 30 30
Loans & Advances 2,898 3,341 3,860 4,467 Cash Conversion Cycle 52 48 41 42
Other Current Assets 4,371 4,809 5,290 5,819 Current Ratio 3.2 3.2 3.5 3.8
Current Assets (ex cash) 17,912 19,883 22,414 25,268
Trade payable 1,879 3,188 3,581 3,979 Operating ratios
Other Current Liab 6,041 6,640 7,298 8,022 Year to March FY19 FY20E FY21E FY22E
Total Current Liab 7,920 9,828 10,879 12,001 Total Asset Turnover 2.2 2.0 2.0 1.9
Net Curr Assets-ex cash 9,992 10,055 11,535 13,267 Fixed Asset Turnover 6.8 7.1 8.5 9.9
Uses of funds 25,592 29,761 34,907 40,470 Equity Turnover 2.3 2.1 2.0 1.9
BVPS (INR) 234.0 275.6 326.6 380.3
Valuation parameters
Free cash flow (INR mn) Year to March FY19 FY20E FY21E FY22E
Year to March FY19 FY20E FY21E FY22E Adj. Diluted EPS (INR) 72.7 77.5 94.3 100.9
Reported Profit 7,700 8,199 9,951 10,651 Y-o-Y growth (%) 49.6 6.6 21.7 7.0
Add: Depreciation 1,074 1,702 956 1,040 Adjusted Cash EPS (INR) 84.5 94.8 104.6 112.1
Others 290 (1,256) (560) (538) Diluted P/E (x) 22.6 21.2 17.4 16.3
Less: Changes in WC 992 63 1,479 1,732 P/B (x) 7.0 6.0 5.0 4.3
Operating cash flow 8,072 8,582 8,867 9,421 EV / Sales (x) 3.2 2.9 2.4 2.1
Less: Capex 901 1,873 172 1,200 EV / EBITDA (x) 17.8 14.2 11.4 10.4
Free Cash Flow 7,171 6,709 8,695 8,221 Dividend Yield (%) 1.6 1.9 2.3 2.5
Peer comparison valuation

Market cap Diluted P/E (X) EV / EBITDA (X) EV / Sales (X)
Name (USD mn) FY20E FY21E FY20E FY21E FY20E FY21E
L&T Technology Services Ltd 2,434 21.2 17.4 14.2 11.4 2.9 2.4
Cyient 698 11.2 9.5 6.9 5.7 1.0 0.9
HCL Technologies 22,670 15.3 14.0 9.9 8.5 2.3 2.1
Hexaware Technologies 1,415 15.7 15.1 10.4 9.8 1.8 1.5
Infosys 46,012 19.6 16.2 13.7 11.0 3.3 2.9
L&T Infotech Ltd 4,662 21.9 17.6 15.2 11.9 2.9 2.4
Persistent Systems 753 14.9 13.4 8.6 6.9 1.3 1.1
Tata Consultancy Services 118,263 25.4 22.9 18.8 16.9 5.0 4.5
Tech Mahindra 10,638 15.1 13.3 9.0 7.0 1.5 1.2
Wipro 20,151 15.2 15.3 11.6 11.9 2.5 2.4
Median - 15.5 15.2 11.0 10.4 2.4 2.2
AVERAGE - 17.6 15.5 11.8 10.1 2.4 2.2
Source: Edelweiss research
34
Additional Data
Directors Data
A. M. Naik Chairman S. N. Subrahmanyam Vice Chairman
Dr. Keshab Panda CEO & MD Amit Chadha President- Sales
Sudip Banerjee Director Samir Desai Director
Arjun Gupta Director Narayan Kumar Director
Renuka Ramnath Director
Auditors - M/s. Sharp & Tannan

*as per last annual report
Holding – Top10
Perc. Holding Perc. Holding
Larsen & toubro ltd 74.74 Hdfc asset managemen 2.05
Naik anilkumar manib 1.25 Icici prudential lif 1.1
Na 0.88 Vanguard group 0.71
Sundaram asset manag 0.61 Grandeur peak global 0.54
Jpmorgan chase & co 0.39 Blackrock 0.29
*in last one year
Bulk Deals
Data Acquired / Seller B/S Qty Traded Price
No Data Available
*in last one year
Insider Trades
Reporting Data Acquired / Seller B/S Qty Traded
28 Jun 2019 Larsen & Toubro Limited Sell 180000.00
01 Feb 2019 Larsen & Toubro Limited Sell 1545281.00
*in last one year
35
RATING & INTERPRETATION
Company Absolute Relative Relative Company Absolute Relative Relative

reco reco risk reco reco Risk
Cyient BUY SP H ECLERX SERVICES BUY SP M
HCL Technologies BUY SP H Hexaware Technologies HOLD SP M
IndiaMART BUY SO H Info Edge BUY SP M
Infosys BUY SO L Just Dial HOLD SP M
L&T Infotech Ltd BUY SO M L&T Technology Services Ltd BUY SO M
MINDTREE LTD BUY SO M Persistent Systems BUY SP L
Redington India Ltd BUY SO L Tata Consultancy Services HOLD SP L
Tech Mahindra BUY SP M Wipro HOLD SP L
ABSOLUTE RATING
Ratings Expected absolute returns over 12 months
Buy More than 15%
Hold Between 15% and - 5%
Reduce Less than -5%
RELATIVE RETURNS RATING

Ratings Criteria
Sector Outperformer (SO) Stock return > 1.25 x Sector return
Sector Performer (SP) Stock return > 0.75 x Sector return
Stock return < 1.25 x Sector return
Sector Underperformer (SU) Stock return < 0.75 x Sector return
Sector return is market cap weighted average return for the coverage universe
within the sector
RELATIVE RISK RATING

Ratings Criteria
Low (L) Bottom 1/3rd percentile in the sector
Medium (M) Middle 1/3rd percentile in the sector
High (H) Top 1/3rd percentile in the sector
Risk ratings are based on Edelweiss risk model
SECTOR RATING
Ratings Criteria
Overweight (OW) Sector return > 1.25 x Nifty return
Equalweight (EW) Sector return > 0.75 x Nifty return
Sector return < 1.25 x Nifty return
Underweight (UW) Sector return < 0.75 x Nifty return
36
Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai – 400 098.
Board: (91-22) 4009 4400, Email: research@edelweissfin.com
Aditya Narain
Head of Research
aditya.narain@edelweissfin.com
Coverage group(s) of stocks by primary analyst(s): IT

Cyient, ECLERX SERVICES, HCL Technologies, Hexaware Technologies, Infosys, Info Edge, IndiaMART, Just Dial, L&T Infotech Ltd, L&T Technology Services
Ltd, MINDTREE LTD, Persistent Systems, Redington India Ltd, Tata Consultancy Services, Tech Mahindra, Wipro
Recent Research
Date Company Title Price (INR) Recos
17-Jan-20 HCL Tech IBM products chip in; 599 Buy

Result Update
16-Jan-20 Cyient Green shoots; 451 Buy
Result Update
15-Jan-20 L&T Infotech Reclaiming its mojo; 1,934 Buy
Result Update
Distribution of Ratings / Market Cap

Edelweiss Research Coverage Universe Rating Interpretation
Buy Hold Reduce Total Rating Expected to
Rating Distribution* 161 67 11 240 Buy appreciate more than 15% over a 12-month period
* 1stocks under review
Hold appreciate up to 15% over a 12-month period
> 50bn Between 10bn and 50 bn < 10bn
743
Reduce depreciate more than 5% over a 12-month period
Market Cap (INR) 156 62 11
594
One year price chart

446
(INR)
1,800
297 1,700
149 1,600
(INR)
- 1,500
Apr-14
Sep-14
Feb-14
Mar-14
Jun-14
Dec-14
Jul-14
Aug-14
Oct-14
Nov-14
May-14
Jan-14
1,400
1,300
Dec-19
Oct-19
Aug-19
Apr-19
May-19
Nov-19
Jan-19
Jan-20
Feb-19
Sep-19
Jun-19
Mar-19
Jul-19
L&T Technology Services
37
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Table of Contents

Rpt. 68677467 L&T TECHNOLOGY SERVICES LTD 2 - 12

Rpt. 68676156 L&T TECHNOLOGY SERVICES LTD 13 - 19

Rpt. 68677979 L&T TECHNOLOGY SERVICES LTD 20 - 28

Rpt. 68678030 L&T TECHNOLOGY SERVICES LTD 29 - 40

These reports were compiled using a product of Thomson Reuters www.thomsonreuters.com

L&T Technology Services

Quarterly Financials Snapshot (Consolidated)

Revenue Mix By Vertical

Vertical Revenue Growth

Geography Revenue Break-up

Geography Revenue Growth

Revenue Mix By Delivery

Revenue Growth By Delivery

Client-wise Revenue Break-up

Headcount, Utilisation Data

Peer Set Comparison

Income Statement (Consolidated) Balance Sheet (Consolidated)

Cash Flow Statement (Consolidated) Key Ratios (Consolidated)

L&T Technologies (LTTS IN)

Key takeaways from Q3FY20 SHARE HOLDING PATTERN, %

Page | 1 | PHILLIPCAPITAL INDIA RESEARCH

Quarterly operating metrics

Page | 2 | PHILLIPCAPITAL INDIA RESEARCH

220 40% 15,000 12%

EBIT margin vs. SG&A as a % of sales Transportation growth performance (qoq %)

50 28% 81% 15%

0 20% 76% 11%

Source: Company, PhillipCapital India Research

Page | 3 | PHILLIPCAPITAL INDIA RESEARCH

Page | 4 | PHILLIPCAPITAL INDIA RESEARCH

Stock Price, Price Target and Rating History

1000 B (TP 1090)

Large cap stocks

Mid cap and Small cap stocks

Disclosures and Disclaimers

Page | 5 | PHILLIPCAPITAL INDIA RESEARCH

Sr. no. Particulars Yes/No

Page | 6 | PHILLIPCAPITAL INDIA RESEARCH

For Detailed Disclaimer: Please visit our website www.phillipcapital.in

IMPORTANT DISCLOSURES FOR U.S. PERSONS

Ownership and Material Conflicts of Interest

Compensation and Investment Banking Activities

PhillipCapital (India) Pvt. Ltd.

Page | 7 | PHILLIPCAPITAL INDIA RESEARCH

L&T TECHNOLOGY SERVICES

Muted quarter; gradual recovery ahead

to FY22E; retain ADD with revised TP of Rs 1,790 vs. Rs 1,770 earlier.

Financial summary (Consolidated) Key drivers

Axis Capital is available on Bloomberg (AXCP<GO>), Reuters.com, Firstcall.com and Factset.com 01

Exhibit 1: Results update

Axis Capital is available on Bloomberg (AXCP<Go>), Reuters.com, Firstcall.com and Factset.com 02

Exhibit 2: Revision in estimates

Fully diluted EPS (Rs)

Valuation & recommendation – recovery to be gradual; reiterate ADD

Axis Capital is available on Bloomberg (AXCP<Go>), Reuters.com, Firstcall.com and Factset.com 03

Exhibit 3: Result analysis

Source: Company, Axis Capital