INSTITUTIONAL EQUITY RESEARCH L&T Technology...
Transcript of INSTITUTIONAL EQUITY RESEARCH L&T Technology...
INSTITUTIONAL EQUITY RESEARCH
Page | 1 | PHILLIPCAPITAL INDIA RESEARCH
L&T Technology Services
Attractive business model at expensive valuations
INDIA |IT Services | IPO Note
8 September 2016
L&T Technology Services (LTTS) is a mid-cap IT Services company, focussed on the Engineering
Services segment. It reported revenue of US$ 468mn in FY16, with EBITDA margins of 17%. The
company provides outsourcing services to engineering companies across the world, for their
research and design activities. Its clientele includes marquee names like BMW, Caterpillar, John
Deere and Intel. Transportation (30%) and Industrial (25%) constitute its main verticals – while
US/EU form 60%/20% of its revenues.
While the company operates in a segment with huge growth potential, we find the asking
valuations to be highly expensive. Assuming 10%/12% USD revenue growth over FY17/18 and
flat margins – we expect the company to report an EPS of Rs52 in FY18. That values the
company at 16x FY18 P/E at the upper price band of Rs860. We find the asking valuations
highly expensive – 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 recommend ‘Avoid’.
Engineering Research & Design (ERD) – huge growth potential: Over the last decade, Indian IT companies have developed significant capabilities and domain expertise in the field of ERD. With only 5% of the global ERD spend being currently outsourced; we see a huge opportunity over the next decade. The Indian companies are gradually moving up the value chain in this domain, with more strategic and high end design activities now being outsourced. LTTS, along with companies like Cyient, MindTree and Tata Elxsi have significant capabilities in this domain. Among the large-caps, HCL, TCS and Wipro together generate ~US$ 3bn annual revenues from this segment.
LTTS has a decent presence in ERD, with strong clientele: LTTS has a significant presence in the
ERD space, and works with 43 of top 100 global ERD spenders. The company derives 30% and
25% of its revenues from transportation and industrials, with marquee clients like BMW,
Caterpillar, John Deere and Intel. The company has a focussed strategy of ‘farming’ 30 existing customers which can be scaled up to US$ 50mn category (currently US$ 10mn) and ‘hunting’ 90 other customers (including potential customers). It employs 9,400+ engineers, with revenue productivity of US$50k – comparable with the IT Services industry. Attrition remains low at 12.1% and utilization at 71.4%.
Superior growth profile and robust ROEs; high client concentration: LTTS has reported revenue
CAGR of 23% over the last three years with stable margin profile (17%). It has followed a high
dividend payout policy, with payout of over 80% over the last two years. The same has resulted in
RoEs of 38% - much superior to the midcap and even large cap IT Services companies. Client
concentration however, remains high, with the top-5 accounting for 23% of its revenues.
Valuations expensive; especially when compared with Cyient: Amongst the listed IT Services
companies, Cyient has a similar profile as LTTS, with 65% of its revenues from ERD. It has slightly
inferior margins (13% vs 17% for LTTS) and ROEs (18% vs 38% for LTTS) – but superior clientele
(Boeing, P&W, Airbus, IBM). Yet, Cyient currently trades at 13x FY18 P/E (consensus estimates) as
compared to asking valuation of 16x for LTTS. Essentially, LTTS, with the same revenue base in
the same industry segment, is seeking 1.5x market-cap, as that of Cyient.
Recommend Avoid: We expect the growth of Indian IT Services companies to be under pressure
over the next few years (read our recent detailed reports here and here). However, we expect ERD segment to buck this trend and companies like LTTS and Cyient to be beneficiaries of the same. But the asking valuations for LTTS appear highly expensive. 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’.
RATING - Avoid COMPANY DATA
ISSUE OPENS 12th September 2016
ISSUE CLOSES 15th September 2016
OFFER FOR SALE 10.4 mn
PRICE BAND Rs 850-860
ISSUE SIZE Rs 8.9bn
MKT CAP Rs 87bn
Vibhor Singhal (+ 9122 6667 9949) [email protected] Shyamal Dhruve (+ 9122 6667 9992) [email protected]
read
Read our detailed GV report on ERD space
Page | 2 | PHILLIPCAPITAL INDIA RESEARCH
L&T TECHNOLOGY IPO NOTE
About the IPO 10.4mn shares (OFS) in a band of Rs 850-860 per share
Parent company looking to divest 10.2% share in the subsidiary
Objective of the issue; 1. To achieve the benefits of listing the equity shares on the Stock Exchanges 2. The parent company L&T to use the cash proceeds for WC requirement
Market capitalisation after the issue: ~Rs 87bn (at upper price band)
About the company L&T Technology Services (LTTS) is a pure-play ERD company incorporated in 2012. It
was formed by merger of Product Engineering division (PES – a wholly owned
subsidiary of L&T Infotech), and Integrated Engineering Services (IES – a wholly
owned subsidiary of L&T) in 2014, and is now a wholly-owned subsidiary of L&T
group. For FY16, the company has reported USD revenue of $468mn, a growth of
9.4% over the previous year. It has 9,400+ employees spread across its 12 global
delivery centres and 26 sales offices.
The only pure-play ERD player LTTS reported revenues of US$468mn in FY16 – making it the fourth largest ER&D company in India. The company has reported revenue CAGR of 23% over the last three years – above the industry average. In FY16, it reported US$ revenue growth of 9.4% - below industry growth of 12.3% (NASSCOM). It reported EBIT margin of 15% in FY16 (13.4% in FY15).
Midcap USD Revenue Comparison ($mn) Midcap EBITDA Margin Comparison (FY16)
ERD Revenue Comparison ($mn) LTTS Revenue/Margin performance
Source: Company, PhillipCapital India Research
913 887
714
490 485 472 468 411
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323 297
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L&T TECHNOLOGY IPO NOTE
Unique business model in ERD space LTTS has a unique business model, providing outsourcing services to engineering companies across the world, for their research and design activities. Verticals: Transportation accounts for 30% of its revenues – a segment which has the highest ERD opportunities. Industrial products and Telecom & Hi-Tech contribute 25% and 20% respectively.
Transportation is the largest vertical for LTTS LTTS verticals revenue pie
Source: Company, PhillipCapital India Research
Geography: US/EU form 60/20% of the total revenues – inline with most of its peers. It has very low exposure (<2%) to the UK region.
Contribution from US/Europe in-line with peers LTTS geographies revenue pie
Source: Company, PhillipCapital India Research
15% 17%
7%
37% 37% 30%
47%
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Transportation, 29.9
Industrial Products,
25.3
Telecom and Hi-Tech,
19.8
Process Industry,
18.7
Medical Devices, 6.3
66% 81%
67% 69% 69%
45% 60% 63%
25%
12% 30%
17% 18%
33%
20% 24%
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Europe US
North America,
60.4
Europe, 19.8
India, 8.3
RoW, 11.5
Page | 4 | PHILLIPCAPITAL INDIA RESEARCH
L&T TECHNOLOGY IPO NOTE
Engineering Research & Design (ERD): Huge growth potential Over the last decade, Indian IT Services companies have developed significant capabilities and domain expertise in the field of ERD. The top-4 IT Services companies have reported CAGR of 10% over the last five years in this domain (14% excl Wipro) – higher than the overall industry growth.
ERD space has witnessed stupendous growth for the top-4 (apart from Wipro) ERD (US$ mn) FY11 FY12 FY13 FY14 FY15 FY16 CAGR % of Revs
TCS 395 473 535 632 699 753 14% 4%
Infosys 146 238 246 270 298 323 17% 3%
HCL Tech 644 774 821 881 1,087 1,172 13% 17%
Wipro 726 734 689 673 694 762 1% 9%
Total top-4 1,911 2,219 2,291 2,456 2,779 3,010 10% 8%
HCL Tech is now amongst the top-3 ERD outsourcing companies in the world
Country Market Cap (US$ bn) ERD Revenue (US$ bn)
Altran Technologies France 2.5 2.2
Alten SA France 2.1 1.8
HCL Technologies India 17.7 1.2
Source: Company, PhillipCapital India Research
In FY15, global ERD spend grew by ~3% to US$ 1.5tn. Automotive and consumer electronics sectors accounted for over 25% of this spend—automotive driven by safety and emission- efficiency requirements and consumer electronics driven by increasing demand for new products and interfaces. US and Europe continued to account for over 2/3rd of this spend with Asia (excluding Japan) constituting 14% and growing fast.
Currently, the engineering services outsourcing (ESO) market stands at US$ 72bn – only 5% of the total global ERD spend. Of this US$ 72bn, China accounts for the largest market share (29%), driven by its manufacturing industry. India comes in close second (28%), driven primarily by the captives (61%) and third party outsources (39%). Of the third party outsourcers, the top-4 IT Services companies have almost 40% market share.
The global ERD-ESO market
Source: NASSCOM, Zinnov, PhillipCapital India Research
Historically most global engineering companies have been reluctant to outsource their R&D – because of obvious concerns of intellectual property theft and perception of inferior capabilities of the Indian companies. However, over the last two decades, we have seen a significant increase in the ERD outsourcing deals – with new client joining the bandwagon, as well as, existing clients outsourcing larger and more strategic share of their ERD work.
China, 29.2%
Captives, 61.3% Top-4 IT,
30.7%
Outsourced, 4.8%
India, 27.8%
Third Party, 38.8% Others,
69.3%
Others, 43.1%
0%
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Global ERD Spend Global ESO Market India ESO Market Indian Third-party ESO Market
US$ 1.5trn US$ 82bn US$ 20bn US$ 7.8bn
Read our detailed report on the potential of the ERD segment here
Page | 5 | PHILLIPCAPITAL INDIA RESEARCH
L&T TECHNOLOGY IPO NOTE
Evolution of the ESO industry
Source: PhillipCapital India Research
Top five imperatives for engineering services providers
Source: HCL Tech
Waves Propelling the Engineering Service Industry
Technology Shift Industry Examples
Wave 1,
2000-2010
Embedded software in the
product and product ecosystem
Auto manufacturing – telematics and infotainment
Healthcare – medical devices and implants
Consumer electronics – embedded intelligence in
white goods
Wave 2,
2010-2017
IoT/M2M adoption and
Digital transformation.
(IT envelopes the product)
Auto – V2V, V2I, driver assistance
Smart homes - connected home appliances
Healthcare - remote and continuous monitoring
Engineering information management
Wave 3,
2015 onwards
Integrating manufacturing with
engineering and IT systems; and
3-D or Additive Printing
(IoT evolution)
Smart manufacturing
PLM-MES-ERP integration – leveraging social media
and analytics to drive product usage and design
Digital oil fields - integrated, optimized asset
utilization
3-D and additive printing applications
Source: ISG
The Indian IT Service companies are now able to contribute more to the client than just being a relatively inexpensive alternative. The Indian companies have also been helped by the abundant pool of engineers, which the country produces every year. ERD being a highly technical domain, requires engineers trained on specific CAD/CAM platforms, as against an IT graduate for traditional IT Services contract.
29%
22%
18% 16% 15%
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Reduce operational cost
Drive product innovation
Shorten TTM Improve quality Emerging market focus
Page | 6 | PHILLIPCAPITAL INDIA RESEARCH
L&T TECHNOLOGY IPO NOTE
India accounts for the largest pool of engineers graduating every year
Source: OECD, AICTE
Poles apart – ERD and other traditional IT service lines
Parameter Traditional service lines Engineering research and design
Educational/technical qualification of
the 'developer'
Software developers Engineers—preferably Mechanical/Electrical
Training to be imparted to the
'developer' before induction
Various software platforms like Java, .net, C++ Various engineering design platforms like CATIA, SolidWorks,
Pro/E
Nature of project deliverable Customized software solution, with post-delivery
maintenance
Parts of the Product Life-cycle Management (PLM), that can be
integrated with various such deliverables from across the globe
Failure risk Medium - Problems in the deliverable can be
fixed in post-delivery maintenance period
High - Problems in deliverable can lead to faulty product design
for the client; can lead to potential loss of client
Major verticals BFSI, manufacturing, telecom - across the
spectrum
Manufacturing - auto, aerospace, consumer electronics;
healthcare - medical devices
Project duration Medium to long: varying from 2- 7 years (for IMS) Short: Less than 12-18 months
Source: PhillipCapital India Research
Key ESOs in each vertical
Automotive Aerospace Energy & Utilities Consumer Electronics
Captives Bosch Airbus Shell Samsung
Daimler Honeywell Petrofac LG
Ford
Schlumberger Phillips
Third party KPIT Cyient Wipro TCS
Infosys HCL Tech Quest MindTree
Tata Technologies Tech Mahindra Geometric HCL
TCS Aker Solutions Tata Elxsi
Key strengths of the key companies
TCS Infosys HCL Tech Wipro Tech Mahindra
All sectors - Auto/Aero/Com-
sumer Electronics
Overall weak presence -
mainly Aerospace
Avionics Medical devices Product design
Geometric Ltd Quest Cap Gemini IBM Accenture
Product Lifecycle manage-
ment
After sales - esp for
aerospace
Technical Publication /
Documentation
Process Consultation / PLM
implementation
Process Consultation / PLM
implementation
Source: PhillipCapital India Research
In the wake of the deal sizes shrinking in the traditional IT services domain, and cannibalization of revenues by new age digital platforms like cloud and analytics, we expect ERD to provide some respite to Indian IT Services companies. We expect more companies to focus on this segment, and acquire companies with existing capabilities/clientele in ERD.
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Page | 7 | PHILLIPCAPITAL INDIA RESEARCH
L&T TECHNOLOGY IPO NOTE
LTTS – placed attractively in the ERD space
LTTS has a significant presence in the ERD space, and works with 43 of top 100 global ERD spenders. The company derives 30% and 25% of its revenues from transportation
and industrials, with marquee clients like BMW, Caterpillar, John Deere and Intel. The
company has a focussed strategy of ‘farming’ 30 existing customers which can be scaled up to US$ 50mn category (currently US$ 10mn) and ‘hunting’ 90 other customers (including potential customers).
Competitive analysis of ERD companies - Zinnov
Source: LTTS, Zinnov
LTTS – Key clients
Company Industry vertical
BMW Transportation
Calsonic Kansei Transportation
Caterpillar Industrial Products
Danaher Industrial Products
Eaton Industrial Products
Intel Telecom and Hi-Tech
John Deere Industrial Products
P&G Process Industry
Rockwell Automation Industrial Products
Scania Transportation
Shell Process Industry
UTC Industrial Products
Client concentration (FY16) Number of Clients (FY16)
Source: Company, PhillipCapital India Research
23% 36% 54% 0%
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Top 5 Top 10 Top 20
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US$ 20mn+ US$10-20mn US$5-10mn >US$1-5mn
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Page | 8 | PHILLIPCAPITAL INDIA RESEARCH
L&T TECHNOLOGY IPO NOTE
High dividend payout, leading to superior ROEs LTTS has followed a high dividend payout policy, with payout of over 80% over the last two years. The same has resulted in ROEs of 38% - much superior to the midcap and even large cap IT Services companies. We note that only Hexaware and LTI (same group company) come close to the payout ratio of LTTS – the high ratio at the former driven by its parent PE company.
Dividend payout & RoE highest in the industry
Source: Company, PhillipCapital India Research
On employee metrics like utilization (71.4%), attrition (12.1%) and employee productivity (US$ 50k per employee) – the company is broadly in-line with the industry and the midcap average.
Utilization/Attrition in-line with the industry Revenue productivity (USD ‘000/employee)
Source: Company, PhillipCapital India Research
32%
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71% 70% 76% 70% 79% 71% 75%
16% 16% 18%
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Utilization (%) Atrition (%) (RHS)
46 45 45 45 46 50
38
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Page | 9 | PHILLIPCAPITAL INDIA RESEARCH
L&T TECHNOLOGY IPO NOTE
Management history/profile
LTTS does not have a long history, being incorporated in 2012 – with the major contributing subsidiaries of Product Engineering division (PES – a wholly owned subsidiary of L&T Infotech), and Integrated Engineering Services (IES – a wholly owned subsidiary of L&T) merging into it in 2014. However, its sister subsidiary and recently listed, L&T Infotech has had a history of unstable management, with four CEO/COO exits over the last five years. Most recently, in Aug-2015, Mr Sanjay Jalona – who was heading Infosys’ manufacturing division – was appointed as the MD and CEO of the company. For long, one of the major concerns with L&T subsidiaries has been the management NOT being given enough freedom and independence to operate – we do not rule out the same for LTTS in near future. Key Management Personnel: Dr Keshab Panda – MD and CEO: Dr Keshab Panda has been serving as the CEO of LTSS since Jan ’15. He has 31 years of experience in IT and engineering services businesses. Before joining LTTS, he had served in Satyam Computer Services in various capacities. Mr. Kumar Prabhas – COO: Mr. Kumar Prabhas has been serving as the COO effective Nov ’15. Prior to joining LTTS, he had worked at Unisys India Private Limited as the Managing Director and General Manager of Global End User Services. He has obtained a graduate degree in technology in electrical engineering from the Indian Institute of Technology, Kanpur. He has over 19 years of experience in management. Mr. P Ramakrishnan – CFO: Mr. P Ramakrishna has been serving as the CFO of LTTS effective Jan ’16. He had been with the L&T group for last 24 years. He has worked in different areas of finance and accounts covering treasury, corporate accounts and corporate finance. He has a graduate degree in Commerce (Honours) from University of Calcutta.
Management structure
Source: Company, PhillipCapital India Research
Page | 10 | PHILLIPCAPITAL INDIA RESEARCH
L&T TECHNOLOGY IPO NOTE
Comparison with fraternal twin – Cyient
Amongst the listed IT Services companies, Cyient has a similar profile as LTTS, with 65% of
its revenues from ERD. It has slightly inferior margins (13% vs 17% for LTTS) and ROEs
(18% vs 38% for LTTS) – but superior clientele (Boeing, P&W, Airbus, IBM etc). Yet, Cyient
currently trades at 13x FY18 P/E (consensus estimates) as compared to asking valuation of
16x for LTTS. Essentially, LTTS, with the same revenue base in the same industry segment,
is seeking 1.5x market-cap, as that of Cyient.
Financials and valuation comparison
Comparison of revenue break-up – geography and vertical
Top clients concentration No. of clients Employee metrics
Source: Company, PhillipCapital India Research
80 468 17 38 16 54 472 14 18 13 0
20
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100
Mkt Cap (Rs bn) Revenue ($ mn) EBITDA Margins (%) ROE (%) FY18 P/E (x)
LTTS Cyient
60%
28%
12%
30%
20%
6%
44%
63%
24%
13%
49%
23%
2%
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US EU, India RoW Transport Telecom & Hi-Tech
Medical Others
Geographies Verticals
LTTS Cyient
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Top-5 Top-10 Top-20
LTTS Cyient
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LTTS Cyient
LTTS market cap and P/E multiple – assuming upper end of the IPO price band – Rs 860/share
Page | 11 | PHILLIPCAPITAL INDIA RESEARCH
L&T TECHNOLOGY IPO NOTE
Valuations expensive; recommend Avoid
We expect the growth of Indian IT Services companies to be under pressure over the next few years, on the inefficient capital allocation policy of the last decade (detailed report here) and increasing uncertainty in the business environment across the world (detailed report here). However, we expect ERD segment to buck this trend and companies like LTTS and Cyient to be beneficiaries of the same. While we expect single-digit USD revenue growth for most IT Services companies over the next three years, we expect pure/part ERD companies to fare better – on expectations of incremental outsourcing of ERD work. However, we find it difficult for LTTS to report more than 10% USD revenue growth in FY16 – given the dismal 7% yoy growth in 1QFY17. Hereafter, the company will need to deliver CQGR of 5%/7.5% over the next three quarters, to report FY17 USD revenue growth of 10%/12% respectively.
Difficult road to growth in FY17 FY17 USD Revenue growth assumption 10% 12% 15%
Required CQGR over 2Q-4Q FY17 4.7 6.0 7.7
Source: Company, PhillipCapital India Research
Accordingly, we bake in 10%/12% US$ revenue growth over next two years and flat margins for LTTS – leading us to an EPS of Rs52 for FY18. At the upper band of the IPO price, that would value the company 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’, primarily due to expensive valuations.
Key financial projections
USD Rev Growth EBITDA EBITDA EBIT PBT PAT EPS
$mn % Rs mn Margin % Margin % Rs mn Rs mn Rs
FY16 468 9.4% 5,204 17.0 15.0 5,352 4,166 41.0
FY17E 515 10.0% 6,214 18.0 16.1 6,043 4,714 46.4
FY18E 577 12.0% 6,959 18.0 16.2 6,772 5,282 51.9
Source: Company, PhillipCapital India Research
Valuation Table: Large-cap IT Services CMP M-Cap _____ROE (%)____ _____P/E (x)_____ _____P/BV (x)_____ ___EV/EBITDA (x)__ Companies Rs Rs bn FY17E FY18E FY17E FY18E FY17E FY18E FY17E FY18E
TCS 2,452 4,831 31.2 28.6 17.6 16.4 5.5 4.7 14.0 13.0 Infosys 1,050 2,400 23.2 23.1 15.9 14.2 3.7 3.3 10.6 9.2 Wipro 481 1,184 16.6 16.6 13.6 12.1 2.3 2.0 9.6 8.4 HCL Tech 785 1,109 25.1 24.7 13.8 12.6 3.5 3.1 10.0 9.2 Tech Mahindra 471 407 16.9 16.3 13.5 12.5 2.3 2.0 8.4 7.6 L&T Technology 860 87 39.2 40.3 18.6 16.6 7.3 6.7 10.4 9.3
Valuation Table: Mid-cap IT Services CMP M-Cap _____ROE (%)____ _____P/E (x)_____ _____P/BV (x)_____ ___EV/EBITDA (x)__ Companies Rs Rs bn FY17E FY18E FY17E FY18E FY17E FY18E FY17E FY18E
MindTree 519 87 19.2 20.2 16.0 12.9 3.1 2.6 9.5 7.9 Persistent 613 49 16.5 16.2 15.7 14.1 2.6 2.3 10.3 9.3 KPIT 130 24 13.9 13.9 11.1 9.7 1.5 1.3 5.8 5.1 NIIT Tech 400 24 16.0 15.9 8.7 7.8 1.4 1.2 4.0 3.5 Hexaware 204 62 26.9 27.4 15.5 13.6 3.9 3.3 10.8 8.6 Cyient 482 54 17.5 18.1 14.6 12.4 2.4 2.1 10.2 8.0 L&T Technology 860 87 39.2 40.3 18.6 16.6 7.3 6.7 10.4 9.3
Source: Company, PhillipCapital India Research
Page | 12 | PHILLIPCAPITAL INDIA RESEARCH
L&T TECHNOLOGY IPO NOTE
Business profile
Source: Company, PhillipCapital India Research
Transportation, 30%
Industrial Products, 25%
Telecom and Hi-Tech, 20%
Process Industry, 19%
Medical Devices, 6%
US, 60% Europe, 20%
India, 8%
RoW, 12%
Verticals
Geographies
Onsite, 52.9 Offshore, 47.1
T&M, 68% FPP, 32%
Top 5, 23%
Top 6-10, 13%
Top 11-20, 18%
Non Top 20, 46%
Revenue mix
Business mix
Client mix
Page | 13 | PHILLIPCAPITAL INDIA RESEARCH
L&T TECHNOLOGY IPO NOTE
Financials
Profit & Loss
Y/E Mar, Rs mn FY15 FY16
Net sales 26,186 30,665 Growth, % NA 17 Other Operating Income 0 0 Total income 26,186 30,665 Employee expenses -14,866 -17,231 Other Operating expenses -7,333 -8,230 EBITDA (Core) 3,987 5,204 Growth, %
30.5
Margin, % 15.2 17.0 Depreciation -485 -589 EBIT 3,503 4,615 Growth, % NA 31.8 Margin, % 13.4 15.0 Interest paid -34 -25 Other Income 253 762 Non-recurring Items 0 0 Pre-tax profit 3,721 5,352 Tax provided -610 -1,186 Profit after tax 3,111 4,166 Others (Minorities, Associates) -2 0 Net Profit 3,109 4,166 Growth, % NA 34.0 Net Profit (adjusted) 3,109 4,166 Adjusted EPS (Rs) 30.6 41.0 Wtd avg shares (m) 102 102
Source: Company, PhillipCapital India Research
FY15 FY16
US$ Revenue ($ mn) 428 468
Growth, % NA 9.4
Re / US$ (rate) 61.1 65.5
Balance Sheet
Y/E Mar, Rs mn FY15 FY16
Cash & bank 1,153 864 Marketable securities at cost 0 0 Debtors 6,853 7,271 Inventory 0 0 Loans & advances 2,320 2,343 Other current assets 1,753 1,470 Total current assets 12,080 11,948 Investments 0 555 Net fixed assets 5,692 6,209 Less: Depreciation 0 0 Add: Capital WIP 4 143 Net fixed assets 5,696 6,352 Non-current assets 0 0 Total assets 18,143 19,214 Current liabilities 4,601 4,736 Provisions 2,971 3,493 Total current liabilities 7,573 8,228 Non-current liabilities 50 60 Total liabilities 7,622 8,288 Paid-up capital 10,500 10,500 Reserves & surplus 21 425 Shareholders’ equity 10,521 10,925 Total equity & liabilities 18,143 19,214
Source: Company, PhillipCapital India Research
Page | 14 | PHILLIPCAPITAL INDIA RESEARCH
L&T TECHNOLOGY IPO NOTE
Rating Methodology We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one year.
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%.
Contact Information (Regional Member Companies)
SINGAPORE: Phillip Securities Pte Ltd
250 North Bridge Road, #06-00 RafflesCityTower,
Singapore 179101
Tel : (65) 6533 6001 Fax: (65) 6535 3834
www.phillip.com.sg
MALAYSIA: Phillip Capital Management Sdn Bhd
B-3-6 Block B Level 3, Megan Avenue II,
No. 12, Jalan Yap Kwan Seng, 50450 Kuala Lumpur
Tel (60) 3 2162 8841 Fax (60) 3 2166 5099
www.poems.com.my
HONG KONG: Phillip Securities (HK) Ltd
11/F United Centre 95 Queensway Hong Kong
Tel (852) 2277 6600 Fax: (852) 2868 5307
www.phillip.com.hk
JAPAN: Phillip Securities Japan, Ltd
4-2 Nihonbashi Kabutocho, Chuo-ku
Tokyo 103-0026
Tel: (81) 3 3666 2101 Fax: (81) 3 3664 0141
www.phillip.co.jp
INDONESIA: PT Phillip Securities Indonesia
ANZTower Level 23B, Jl Jend Sudirman Kav 33A,
Jakarta 10220, Indonesia
Tel (62) 21 5790 0800 Fax: (62) 21 5790 0809
www.phillip.co.id
CHINA: Phillip Financial Advisory (Shanghai) Co. Ltd.
No 550 Yan An East Road, OceanTower Unit 2318
Shanghai 200 001
Tel (86) 21 5169 9200 Fax: (86) 21 6351 2940
www.phillip.com.cn
THAILAND: Phillip Securities (Thailand) Public Co. Ltd.
15th Floor, VorawatBuilding, 849 Silom Road,
Silom, Bangrak, Bangkok 10500 Thailand
Tel (66) 2 2268 0999 Fax: (66) 2 2268 0921
www.phillip.co.th
FRANCE: King & Shaxson Capital Ltd.
3rd Floor, 35 Rue de la Bienfaisance
75008 Paris France
Tel (33) 1 4563 3100 Fax : (33) 1 4563 6017
www.kingandshaxson.com
UNITED KINGDOM: King & Shaxson Ltd.
6th Floor, Candlewick House, 120 Cannon Street
London, EC4N 6AS
Tel (44) 20 7929 5300 Fax: (44) 20 7283 6835
www.kingandshaxson.com
UNITED STATES: Phillip Futures Inc.
141 W Jackson Blvd Ste 3050
The Chicago Board of TradeBuilding
Chicago, IL 60604 USA
Tel (1) 312 356 9000 Fax: (1) 312 356 9005
AUSTRALIA: PhillipCapital Australia
Level 10, 330 Collins Street
Melbourne, VIC 3000, Australia
Tel: (61) 3 8633 9800 Fax: (61) 3 8633 9899
www.phillipcapital.com.au
SRI LANKA: Asha Phillip Securities Limited
Level 4, Millennium House, 46/58 Navam Mawatha,
Colombo 2, Sri Lanka
Tel: (94) 11 2429 100 Fax: (94) 11 2429 199
www.ashaphillip.net/home.htm
INDIA
PhillipCapital (India) Private Limited
No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013
Tel: (9122) 2300 2999 Fax: (9122) 6667 9955 www.phillipcapital.in
Management(91 22) 2483 1919
Kinshuk Bharti Tiwari (Head – Institutional Equity) (91 22) 6667 9946
(91 22) 6667 9735
Research IT Services Pharma & Speciality Chem
Dhawal Doshi (9122) 6667 9769 Vibhor Singhal (9122) 6667 9949 Surya Patra (9122) 6667 9768
Nitesh Sharma, CFA (9122) 6667 9965 Shyamal Dhruve (9122) 6667 9992 Mehul Sheth (9122) 6667 9996
Banking, NBFCs Infrastructure Strategy
Manish Agarwalla (9122) 6667 9962 Vibhor Singhal (9122) 6667 9949 Naveen Kulkarni, CFA, FRM (9122) 6667 9947
Pradeep Agrawal (9122) 6667 9953 Deepak Agarwal (9122) 6667 9944 Anindya Bhowmik (9122) 6667 9764
Paresh Jain (9122) 6667 9948 Logistics, Transportation & Midcap Telecom
Consumer & Retail Vikram Suryavanshi (9122) 6667 9951 Naveen Kulkarni, CFA, FRM (9122) 6667 9947
Naveen Kulkarni, CFA, FRM (9122) 6667 9947 Media Manoj Behera (9122) 6667 9973
Jubil Jain (9122) 6667 9766 Manoj Behera (9122) 6667 9973 Technicals
Preeyam Tolia (9122) 6667 9950 Metals Subodh Gupta, CMT (9122) 6667 9762
Cement Dhawal Doshi (9122) 6667 9769 Production Manager
Vaibhav Agarwal (9122) 6667 9967 Yash Doshi (9122) 6667 9987 Ganesh Deorukhkar (9122) 6667 9966
Economics Mid-Caps & Database Manager Editor
Anjali Verma (9122) 6667 9969 Deepak Agarwal (9122) 6667 9944 Roshan Sony 98199 72726
Engineering, Capital Goods Oil & Gas Sr. Manager – Equities Support
Jonas Bhutta (9122) 6667 9759 Sabri Hazarika (9122) 6667 9756 Rosie Ferns (9122) 6667 9971
Vikram Rawat (9122) 6667 9986
Sales & Distribution Ashvin Patil (9122) 6667 9991 Sales Trader Zarine Damania (9122) 6667 9976
Shubhangi Agrawal (9122) 6667 9964 Dilesh Doshi (9122) 6667 9747 Bharati Ponda (9122) 6667 9943
Kishor Binwal (9122) 6667 9989 Suniil Pandit (9122) 6667 9745
Bhavin Shah (9122) 6667 9974
Ashka Mehta Gulati (9122) 6667 9934 Execution
Archan Vyas (9122) 6667 9785 Mayur Shah (9122) 6667 9945
Corporate Communications
Vineet Bhatnagar (Managing Director)
Jignesh Shah (Head – Equity Derivatives)
Automobiles
Page | 15 | PHILLIPCAPITAL INDIA RESEARCH
L&T TECHNOLOGY IPO NOTE
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.
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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
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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
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connection with the research report. 7. The Research Analyst has not served as an Officer, Director, or employee of the company (ies) covered in the Research report. 8. The Research Analyst and PCIL has not been engaged in market making activity for the company(ies) covered in the Research report. 9. Details of PCIL, Research Analyst and its associates pertaining to the companies covered in the Research report:
Sr. no. Particulars Yes/No
1 Whether compensation has been received from the company(ies) covered in the Research report in the past 12 months for investment banking transaction by PCIL
No
2 Whether Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively hold more than 1% of the company(ies) covered in the Research report
No
3 Whether compensation has been received by PCIL or its associates from the company(ies) covered in the Research report No
4 PCIL or its affiliates have managed or co-managed in the previous twelve months a private or public offering of securities for the company(ies) covered in the Research report
No
5 Research Analyst, his associate, PCIL or its associates have received compensation for investment banking or merchant banking or brokerage services or for any other products or services from the company(ies) covered in the Research report, in the last twelve months
No
Independence: PhillipCapital (India) Pvt. Ltd. has not had an investment banking relationship with, and has not received any compensation for investment banking services from, the subject issuers in the past twelve (12) months, and PhillipCapital (India) Pvt. Ltd does not anticipate receiving or intend to seek compensation for investment banking services from the subject issuers in the next three (3) months. PhillipCapital (India) Pvt. Ltd is not a market maker in the securities mentioned in this research report, although it, or its affiliates/employees, may have positions in, purchase or sell, or be materially interested in any of the securities covered in the report.
Suitability and Risks: This research report is for informational purposes only and is not tailored to the specific investment objectives, financial situation or particular requirements of any individual recipient hereof. Certain securities may give rise to substantial risks and may not be suitable for certain investors. Each investor must make its own determination as to the appropriateness of any securities referred to in this research report based upon the legal, tax and accounting considerations applicable to such investor and its own investment objectives or strategy, its financial situation and its investing experience. The value of any security may be positively or adversely affected by changes in foreign exchange or interest rates, as well as by other financial, economic, or political factors. Past performance is not necessarily indicative of future performance or results.
Page | 16 | PHILLIPCAPITAL INDIA RESEARCH
L&T TECHNOLOGY IPO NOTE
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