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LTTS: CMP: 4966: LONG TERM GR: 15% Q2_FY_25: Gr: 8% Result Update
(Muted growth of last year still continue this year, improvements expected Post US Elections)
### *Company Overview:*
L&T Technology Services Limited (LTTS) is a subsidiary of Larsen & Toubro Limited, focused on Engineering and R&D (ER&D) services. It offers consultancy, design, development, and testing services across the product and process development life cycle. L&T Technology Services was founded in 2006 as L&T Integrated Engineering Services. Initially, it only operated as the engineering arm of the L&T and in 2013, as a result of the L&T's strategy, the parent company was split into "nine verticals and six subsidiaries' ', of which this was one. It began to expand its engineering services as a developer of new technology solutions for other companies under a new brand name L&T Technology Services (LTTS). The customer base includes 69 Fortune 500 companies and 57 of the world’s top ER&D companies, across industrial products, medical devices, transportation, telecom & hi-tech, and the process industries. As of June 30, 2024, LTTS employs over 23,577 people globally. The Major contribution to Revenue is Transportation (34%). North America Responsible for 55% of the Sales. The deal conversions and pipeline in six big bets - Electric Autonomous & Connected Vehicle (EACV), 5G, Med-tech, AI & Digital Products, Digital Manufacturing and Sustainability – continues to see healthy improvement as customers make steady progress on their long-term transformative journeys.
### *Industry Outlook:*
The Engineering and R&D (ER&D) services industry is expected to grow due to increased demand for digital transformation, automation, and sustainability solutions. LTTS's investments in AI, digital transformation, and sustainability positions it well to capitalize on these trends.
### *Historical Performance:*
- **Fy_2015**: Sales & Profits of 2600 Cr and 300 Cr respectively.
- **Fy_2017**: Came with the IPO at the price of 860, Sales & Profits were 3300 Cr and 400 Cr respectively. We have assumed a wealth creator due to good sales growth and consistent profits in the past. LTTS was at a discounted price of IPO for 15 Months.
- **Fy_2024**: 7 years of IPO & the price is 5116 which is around 6X + Consistent dividends, Sales & Profits reached 9700 Cr and 1300 Cr respectively. We saw the growth in sales and Profits by 3X during the last 9 Years.
### *Current Trend:*
- **Sales**: For the last full year the growth was muted due to the weak global economy. Last year Ended with the CC Growth 0f 7% and Sales growth of 9% v/s 18% of historical growth.
- **Margins**: Weak demand lowered the profit margin by 30 basis points and hence the profit growth of just 7% was seen.
- **Valuations**: Valuations were high 44 due to lowered growth and strong recovery in Price previous year.
### Q2_fy25 Key Highlights and Insights:
1. **Latest Results:**
- **Revenue:**
- Q2 FY25 revenue stands at ₹25,729 million, reflecting a **4.5% QoQ growth** and **8% YoY growth**.
- **Profitability:**
- EBIT: ₹3,877 million with an EBIT margin of 15.1%, showing a **1.1% QoQ increase**.
- Net Profit: ₹3,196 million, up **1.3% YoY**.
- **Net income margin:** 12.4%.
- **Interim Dividend:** ₹17 per share.
2. **Revenue and Profit Growth for H1 FY25 vs H1 FY24:**
- **Revenue Growth for H1 FY25:** ₹50,348 million compared to ₹46,879 million in H1 FY24, representing an increase of **7.4% YoY**.
- **Segmental Results:**
- **Mobility:** ₹17,783 million, up **15.0%** from H1 FY24.
- **Sustainability:** ₹15,324 million, up **3.9% YoY**.
- **Hi-Tech:** ₹17,241 million, reflecting an increase of **3.4% YoY**.
3. **Consolidated Sales Growth for H1 FY25 vs H1 FY24:**
- Total sales for **H1 FY25 increased by 7.4%** YoY to ₹50,348 million from ₹46,879 million.
4. **Employee Addition and Attrition:**
- **Total Headcount:** 23,698 as of Q2 FY25.
- **Voluntary Attrition:** Decreased to **14.3%** in Q2 FY25 from **16.7%** in Q2 FY24.
5. **Segmental Contribution to Revenue:**
- **Mobility:** 35.5% of revenue in Q2 FY25, with **4.8% QoQ growth**.
- **Sustainability:** 30.8% of revenue, showing **6.5% QoQ growth**.
- **Hi-Tech:** 33.7% of revenue, reflecting **0.8% QoQ growth**.
6. **Profitability Ratios for H1 FY25 vs H1 FY24:**
- **EBIT Margin:** H1 FY25 at **15.1%** vs H1 FY24 at **17.1%**.
- **Net Income Margin:** H1 FY25 at **12.4%** vs H1 FY24 at **13.2%**.
7. **Leverage Ratios:**
- **Debt to Equity Ratio:** No significant debt concerns as the company has stable **lease liabilities** and **low non-current financial liabilities**.
- **Free Cash Flow:** ₹3,278 million for H1 FY25 vs ₹12,509 million in FY24, indicating a decrease.
8. **Near-term and Long-term Expectations:**
- **Short-term (H2 FY25):** LTTS has reaffirmed its revenue growth guidance of **8-10% in constant currency** for FY25, with an aspiration to achieve an EBIT margin of **17-18%**.
- **Long-term Outlook:** LTTS is aiming for **$2 billion in revenue** with continued growth in the segments of **Mobility, Sustainability, and Tech**, each potentially becoming standalone billion-dollar units.
9. **Peer Group Analysis:**
- LTTS is a top player among engineering and technology services companies. It competes with companies like **Tata Technology**, **Cyient**, and **HCL Technologies**, focusing on segments like Mobility, Sustainability, and Hi-Tech.
10. **Future Outlook:**
- With multiple high-value deals and a focus on **AI, digital twins, and sustainability**, LTTS is well-positioned to maintain broad-based growth. The company has also won **two $20 million** and **four $10 million deals** in Q2 FY25, showcasing strong deal momentum.
### *Near term Outlook:*
We may see 10% sales growth and 3% Profit growth this year. This year could be a landmark year for LTTS as 1st time company would cross 10000 Cr Revenue. But, Valuations are currently at 41 PE with growth near to single digit which is not strong. New buying again can be done during any fall near 3333 while target for next year could be 7731 when once strong growth again is visible.
### Conclusion:
Its strategic initiatives in AI and digital transformation, combined with a strong pipeline of multi-million-dollar deals, position it well for future growth. The company's focus on innovation and sustainability further strengthens its market position.
Strong 75% parent LT holding while 4% with MF & Insurance Companies as well as 9% FPI. Mr. Naik Also holds around 13 Lakh shares. LIC hold around 52.9 Lakh shares which is 5% of total stake.
Disclosure: Do Not Buy or sell before consulting your advisor as the writer may have the position in the above-given stocks or indices
