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4 May 2017
4 May 2017
India | IT Services | Company Update
India | IT Services | Company Update
L&T Tech Services | HOLD
L&T Tech Services | HOLD
4 May 2017 India | IT Services | Company Update L&T Tech Services | HOLD An
An imbalanced equation
An imbalanced equation

L&T Technology Services (LTTS) reported 4QFY17 a tad weaker than our estimates due to an

the soft 3.4% USD revenue growth reported in FY17, the high back-fill nature of engineering

 

Pankaj Kapoor

 
 

pankaj.kapoor@jmfl.com | Tel: (91 22) 66303089

unexpectedly sharp decline in margin, likely due to costs associated with large deals won during the quarter. While the healthy order backlog + pipeline should help LTTS improve on

 

services business could keep the organic revenue growth in FY18 below the management’s

double-digit target, in our view. Margins management pose a greater challenge given the headwinds from INR appreciation + higher onsite delivery. Thus, the 10%/15% cut in our FY18/FY19 EPS estimates. While we like the relatively benign growth outlook for engineering services (vs. IT services) as a theme, LTTS’ rich valuations (19x FY18F PER; 10% premium to

Tier-1 IT players) + low float (10%) constrain us from turning constructive on the stock. We

 

Recommendation and Price Target

   

maintain HOLD; our price target is lowered to INR 690 (INR 780 earlier) on earning revisions.

Current Reco.

 

HOLD

Previous Reco.

HOLD

  • 4QFY17 margins disappoint: Consolidated revenues grew 0.9% QoQ to USD 121.3bn

Current Price Target (12M)

690

(on convenience translation at quarter average INR/USD rate) in-line with our estimates.

Upside/(Downside)

-12.3%

EBIT margin declined to 16.5% (-151bps QoQ) due to INR appreciation (-70bps impact);

Previous Price Target

780

costs related to deal perusal/acquisition (-40bps, largely one-time); and higher headcount/

Change

-11.5%

 

subcontractor costs (20bps each). Among business segments, process engineering stayed

 

Key Data LTTS IN

   

weak (-8% QoQ); telecom recovered (+11% QoQ) after the weak 3Q; transportation,

Current Market Price

 

Rs787

industrial products and medical devices were broadly stable. Consolidated PAT at INR

Market cap (bn)

 

Rs80.0/US$1.2

 

970mn (-11% QoQ), was below estimates (INR 1,009mn), also on lower FX income.

Free Float

 

10%

Shares in issue (mn)

107.2

  • FY18 deal flows could bring back the momentum: LTTS exuded confidence for a

Diluted share (mn)

107.2

double-digit growth in FY18 on the back of strong deal wins; it reported a USD 300mn+

3-mon avg daily val (mn)

 

Rs37.6/US$0.0

 

52-week range

 

931/729

order backlog executable over FY18, excluding a large deal it expects to close during

Sensex/Nifty

 

30,054/9,338

 

1QFY18. Overall, it has USD 350mn+ TCV of deals in the pipeline. LTTS sees positive

Rs/US$

 

64.2

momentum in all verticals transportation, telecom/hi-tech and industrial products

 

except process engineering where while it believes the client-specific issues (that affected

 

Price Performance

   

growth in FY17) have bottomed out, the visibility on recovery is still low. That said,

%

1M

6M

12M

Absolute

0.2

2.6

0.0

Relative*

-0.3

-6.8

0.0

engineering services have higher project/revenue attrition and slower deal ramp-ups than IT services that could constrain the reported growth. Our forecasts build in 8%/8.5% organic USD revenue growth 12.4%/9.2% with the Esencia acquisition - for FY18/FY19.

  • But margin management could be tough. LTTS expects to manage the INR appreciation impact through a tighter bench + operating leverage. However, it did not provide an EBITDA margin band adjusted for current INR levels vs 18-19% guided earlier. We believe margin management also faces challenges from initial costs of recent large deal wins + integration costs of Esencia acquisition. We expect reported FY18/FY19 EBIT margin at 16.8%/17.3% (vs. 18% in FY17). Thus, our revised EPS estimates for FY18/FY19 are lower by 10%/15% respectively despite building in modest FX hedge gains.

* To the BSE Sensex

 
  • Rich valuations are a dampener. LTTS trades at 35% premium to Cyient (CYNT IN; NR), the closest peer, and a 1030% premium to tier-1 IT players. Our revised INR 690 TP is at 15x target PER and implies a 1.9x PEG (based on FY1720E EPS).

 
   

Financial Summary

(Rs mn)

Y/E March

FY15A

FY16A

FY17A

FY18E

FY19E

Net Sales

26,187

30,662

32,483

35,677

39,242

Sales Growth (%)

0.0

17.1

5.9

9.8

10.0

EBITDA

3,988

5,194

5,847

5,982

6,778

 

JM Financial Research is also available on:

 

EBITDA Margin (%)

15.2

16.9

18.0

16.8

17.3

Adjusted Net Profit

3,110

4,186

4,251

4,436

4,756

Bloomberg - JMFR <GO>,

 

Diluted EPS (Rs.)

22.6

32.3

39.6

41.4

44.4

Thomson Publisher & Reuters

Diluted EPS Growth (%)

0.0

42.6

22.8

4.3

7.2

S&P Capital IQ and FactSet

ROIC (%)

50.4

31.0

31.2

27.6

28.6

 

ROE (%)

59.1

39.5

33.3

27.8

25.5

P/E (x)

34.8

24.4

19.9

19.0

17.7

 

Please see Appendix

I

at

the end

of this

P/B (x)

10.3

9.6

5.7

5.0

4.2

report

for

Important

Disclosures

and

EV/EBITDA (x)

21.4

16.3

14.1

13.7

11.8

Disclaimers and

Research

Analyst

 

Dividend Yield (%)

1.5

2.3

0.8

1.2

1.4

Certification.

Source: Company data, JM Financial. Note: Valuations as of 04/May/2017

   

JM Financial Institutional Securities Limited

L&T Tech Services

4 May 2017

L&T Tech Services 4 May 2017 Exhibit 1. Key Financials 4Q16 FY16 1Q17 2Q17 3Q17 4Q17

Exhibit 1. Key Financials

L&T Tech Services 4 May 2017 Exhibit 1. Key Financials 4Q16 FY16 1Q17 2Q17 3Q17 4Q17

4Q16

FY16

1Q17

2Q17

3Q17

4Q17

FY17

Comments

Cons. revenues (USD m)

Change (YoY/QoQ)

Cons. revenues (INR m)

Change (YoY/QoQ)

Cost of revenues

Gross profit

Gross margin

Total operating expense

Operating profit (EBITDA)

Operating margin

Depreciation & amortization

EBIT

EBIT margin

Other income Profit before tax Income tax expense

Net income from operations

Share of minority interest

PAT

Change (YoY/QoQ)

Adjusted diluted EPS

Change (YoY/QoQ)

118.8

0.3%

8,014

2.7%

468.3

9.3%

30,662

17.1%

5,044

2,970

37.1%

19,681

10,981

35.8%

1,516

1,454

18.1%

5,787

5,194

16.9%

179

1,275

15.9%

105

1,380

289

1,091

-1

1,090

-16.5%

8.55

-19.4%

589

4,605

15.0%

820

5,425

1,239

4,186

0

4,186

34.6%

32.29

42.6%

120.0

1.0%

8,029

0.2%

5,208

2,821

35.1%

1,331

1,490

18.6%

178

1,312

16.3%

226

1,538

458

1,080

-3

1,077

-1.2%

9.51

11.2%

122.9

2.4%

8,227

2.5%

5,228

2,999

36.5%

1,437

1,562

19.0%

151

1,411

17.2%

144

1,555

436

1,119

0

1,119

3.9%

10.73

12.8%

120.2

-2.2%

8,104

-1.5%

5,250

2,854

35.2%

1,397

1,457

18.0%

121.3

0.9%

8,123

0.2%

5,272

2,851

35.1%

1,513

1,338

16.5%

149

1,308

16.1%

147

1,191

14.7%

165

1,473

387

1,086

-1

1,085

-3.0%

10.26

-4.4%

35

1,226

261

965

5

970

-10.6%

9.13

-11.0%

484.3

3.4%

32,483

5.9%

20,958

11,525

35.5%

Revenue for the quarter increased by 0.9% QoQ in USD terms (JMFe +0.8%); Reported constant currency growth was 3.1% QoQ; however, we believe that is not comparable to CC growth reported by other companies due to differences in calculation methodologies

5,678

5,847

18.0%

FY17 revenue grew 3.4% YoY in USD terms; cc growth, as reported, was 4.6%

625

5,222

16.1%

570

5,792

1,542

4,250

1

4,251

1.6%

39.64

22.8%

EBITDA margin for 4QFY17 declined by 151bps QoQ to 16.5% due to increase in: delivery headcount (- 20bps), sub-contractor costs (-20bps), SG&A expenses (-40bps) and INR appreciation (-70 bps).

EBITDA margin for FY 17 expanded by 110bps YoY to 18%

4QFY17 FX gain was nil, vs a gain of INR 140mn in

3QFY17

Source: Company, JM Financial

Management commentary: Key takeaways

  • FY18 growth outlook: LTTS expects a double-digit USD organic revenue growth in FY18, helped by the recent large deal wins. It announced 3 such wins in 4QFY17 - a USD c24mn TCV/3-years deal win with a US based technology firm; a multi-million dollar joint deal with Microsoft and a large deal that is in final stages of closure (revenue to flow from 2QFY18). LTTS reported an order backlog of USD 300mn+ for FY18 and a strong deal pipeline of USD 350+mn.

  • Margin outlook: LTTS did not provided a target EBITDA margin band for FY18 adjusted for the recent INR appreciation (versus 18-19% band mentioned earlier). That said, it exuded confidence in managing the recent INR appreciation through a tighter bench management LTTS expects to minimal net headcount addition over FY18 and operating leverage as revenue growth picks-up.

  • Esencia Technologies acquisition: LTTS announced acquisition of US based Esencia Technologies Inc, a provider of design services in digital signal processing. Acquisition cost is USD 27mn: USD 15mn to be paid upfront and balance 12mn to be paid over the course of 4 years based on its performance. Management indicated Esencia’s current revenue run-rate at USD 20mn with margins comparable to LTTSorganic margins and a total headcount of c100 employees based out of the US. The acquisition is expected to be integrated with effect from the first week of June 2017.

  • IP revenues: IP revenues were nil in 4QFY17; USD 4mn in FY17. The total no of patents stood at 254 with 57 owned by LTTS. It plans to monetize 4 of the self-owned patents by developing industrial applications around them. It reported the share of total digital engineering revenues, including the IP based revenues, at 12.5% in FY17 with a 25% YoY growth.

  • Others: LTTS declared a final dividend of INR 4 per share which translates to total dividend of INR 7 for FY17 (c20% pay-out ratio). It reiterated a policy of paying out up to 35% of profit as dividends.

L&T Tech Services

4 May 2017

Exhibit 2. Costs related to recent large deal wins/perusals pushed affeced 4QFY17 EBITDA margin by 40bps

Exhibit 2. Costs related to recent large deal wins/perusals pushed affeced 4QFY17 EBITDA margin by 40bps

Employee expenses as % of sales

62.9% 63.5% 61.5% 64.5% 63.0% 65.5% 65.0% 64.0% 63.5% 62.5% 62.0% 4Q16 4Q17 3Q17 2Q17 1Q17
62.9%
63.5%
61.5%
64.5%
63.0%
65.5%
65.0%
64.0%
63.5%
62.5%
62.0%
4Q16
4Q17
3Q17
2Q17
1Q17
Other operating expenses as % of sales 18.9% 16.6% 17.5% 17.2% 15.0% 15.5% 17.5% 19.5% 19.0%

Other operating expenses as % of sales

18.9% 16.6% 17.5% 17.2% 15.0% 15.5% 17.5% 19.5% 19.0% 18.0% 18.5% 17.0% 16.5% 16.0% 4Q16 4Q17
18.9%
16.6%
17.5%
17.2%
15.0%
15.5%
17.5%
19.5%
19.0%
18.0%
18.5%
17.0%
16.5%
16.0%
4Q16
4Q17
3Q17
2Q17
1Q17

Source: Company, JM Financial

Exhibit 3. Verticles portfolio

 

4Q16

1Q17

2Q17

3Q17

4Q17

Comments

Distribution

  • Telecom revenue grew 11%+% in USD terms QoQ;

Transportation

31.6%

32.2%

32.9%

34.0%

33.4%

process engineering declined 8% while Medical

Process Engineering

17.7%

16.3%

15.2%

15.5%

14.1%

Industrial Products

26.4%

25.9%

25.5%

26.6%

26.9%

devices (-1% QoQ), Transportation (-1%) and

Medical devices

6.3%

7.0%

6.7%

6.7%

6.6%

Industrial products (+2%) were broadly stable

Telecom

18.0%

18.6%

19.6%

17.2%

19.0%

Revenue (INR mn and QoQ growth)

  • Management indicted a positive momentum/deal

Transportation

2,537

2,584

2,710

2,737

2,709

pipeline in Transportation, Industrial products, and

Change

10.6%

1.9%

4.9%

1.0%

-1.0%

Process Engineering

1,420

1,307

1,250

1,258

1,147

Telecom/ Hi-Tech verticals

Change

-1.8%

-8.0%

-4.4%

0.6%

-8.8%

Industrial Products

2,114

2,080

2,102

2,153

2,189

  • Process engineering segment had a soft FY17 due to

Change

5.6%

-1.6%

1.1%

2.4%

1.7%

specific issues in 3 large clients; LTTS indicated those

Medical devices

502

561

554

543

538

Change

5.9%

11.8%

-1.2%

-2.0%

-0.9%

issues have bottomed out though visibility on growth

Telecom

1,441

1,497

1,611

1,413

1,540

is still low

Change

-9.2%

3.9%

7.6%

-12.3%

9.0%

Source: Company, JM Financial

Exhibit 4. Key client metrics

 

4Q16

1Q17

2Q17

3Q17

4Q17

Comments

Active clients

215

203

216

217

223

Revenue concentration

Top 5 clients

22.8%

24.2%

23.6%

23.4%

23.2%

Top 10 clients

36.2%

37.8%

36.3%

35.5%

35.6%

Top 20 clients

53.8%

53.8%

52.1%

51.7%

51.5%

Revenue growth

  • LTTS added 14 new clients (gross) in 4QFY17 vs 13

Top 5 clients

-0.2%

7.2%

-0.1%

-3.1%

0.0%

Top 6 to 10 clients

-0.5%

2.5%

-4.4%

-6.8%

3.4%

in 3QFY17

Top 10 clients

-0.3%

5.5%

-1.6%

-4.4%

1.2%

Top 10-20 clients

-0.3%

-8.2%

1.1%

0.3%

-1.0%

  • Revenue from top 5 clients remained flat in 4QFY17

Top 20 clients

-0.3%

1.0%

-0.8%

-3.0%

0.5%

on QoQ basis while revenue from top 10 and top 20

Relationship distribution

clients increased by 1.2% and 0.5% respectively

US$1mn+

44

50

53

53

49

Change

-2%

14%

6%

0%

-8%

  • LTTS ramped up one of the existing client into USD

US$5mn+

17

18

18

18

21

Change

-6%

6%

0%

0%

17%

30mn+ revenue bucket

US$10mn+

8

7

7

7

6

Change

0%

-13%

0%

0%

-14%

US$20mn+

3

2

2

3

2

Change

0%

-33%

0%

50%

-33%

US$30mn+

0

1

1

0

1

Change

0%

100%

0%

-100%

100%

Source: Company, JM Financial

L&T Tech Services

4 May 2017

Exhibit 5. Key manpower and execution metrics

   
 

4Q16

1Q17

2Q17

3Q17

4Q17

Comments

 

Manpower Base

 

Net addition in 4QFY 17 was 423 employees - 377

 

Total headcount

9,406

9,419

9,599

10,040

10,463

Delivery headcount

8,578

8,587

8,739

9,160

9,537

for delivery and 46 for sales and support

Sales and support

828

832

860

880

926

 

Gross additions for FY17 was 824 - 629 lateral hires

 

Net additions

 

-38

13

180

441

423

and 195 freshers

- As % of opening base

-0.4%

0.1%

1.9%

4.6%

4.2%

 

Operating metrics

 

Utilization - IT services (inc. trainees)

74.9%

76.1%

78.4%

75.1%

74.2%

FY18 wage hike will be effective from October2017

 

Attrition - quarterly annualized

12.1%

13.2%

14.6%

14.0%

14.0%

 

Source: Company, JM Financial

 

Exhibit 6. Geogrpahy portfolio

   
 

4Q16

1Q17

2Q17

3Q17

4Q17

 

Comments

 

Distribution

 

North America

61.0%

63.5%

62.3%

62.5%

63.3%

 
 

Europe

20.1%

20.2%

19.5%

19.2%

17.3%

India

9.3%

6.8%

7.4%

8.1%

9.2%

Revenue from India /North America/Europe grew by

 

RoW

9.6%

9.4%

10.7%

10.2%

10.2%

Revenue (USD mn and QoQ growth)

 

14.6%/ 2.2%/ -9.1% respectively in USD terms QoQ

North America

 

72

76

77

75

77

 

Change

0.1%

5.1%

0.5%

-1.9%

2.2%

Revenue % earned in USD/EUR/INR and GBP stood at

 

Europe

24

24

24

23

21

77%/12%/6.5% and 2% respectively for 4QFY17

Change

3.3%

1.5%

-1.1%

-3.7%

-9.1%

 

India

11

8

9

10

11

 

Change

18.0%

-26.1%

11.5%

7.0%

14.6%

 

RoW

11

11

13

12

12

 

Change

-16.3%

-1.1%

16.6%

-6.8%

0.9%

 

Source: Company, JM Financial

 

Exhibit 7. What has changed in our forecasts and assumptions?

   
 

Old

New

Change

 

FY18F

FY19F

 

FY20F

 

FY18F

FY19F

   

FY20F

 

FY18F

FY19F

FY20F

 

Exchange rate (INR/USD)

68.00

68.00

 

-

 

65.51

66.00

   

67.00

 

-3.7%

-2.9%

 

-

A.

OPERATIONAL ASSUMPTIONS

   

Total employees

11,016

11,990

 

-

10,542

11,462

 

12,501

-4.3%

-4.4%

-

Utilization - Inc. trainees

76.5%

77.0%

-

75.4%

76.0%

75.5%

-106bp

-100bp

-

Change in total billed effort (YoY)

10.0%

9.4%

-

8.1%

8.3%

8.1%

-190bp

-109bp

-

Billed effort share - onsite

26.0%

25.8%

-

28.1%

28.0%

27.5%

206bp

225bp

-

Change in blended realization (YoY)

0.5%

1.1%

-

0.1%

0.2%

0.6%

-48bp

-90bp

-

B.

FINANCIAL FORECASTS

   

Revenue (US m)

538

595

 

-

545

595

 

650

1.2%

-0.1%

-

Growth in USD revenues (YoY)

10.6%

10.6%

-

12.4%

9.2%

9.3%

187bp

-145bp

-

Revenue (INR m)

36,589

40,481

-

35,677

39,242

43,529

-2.5%

-3.1%

-

SG&A as % of revenue

17.7%

17.0%

-

18.2%

17.5%

16.9%

46bp

45bp

-

EBITDA

6,849

7,670

-

5,982

6,778

7,712

-12.7%

-11.6%

-

EBITDA margin

18.7%

18.9%

-

16.8%

17.3%

17.7%

-195bp

-167bp

 

-

EPS

45.9

52.0

-

41.4

44.4

49.9

-9.9%

-14.7%

 

-

Capex (USD m)

13

13

-

13

13

15

0.5%

2.8%

-

Source: JM Financial

 

Exhibit 8. How we differ from consensus

   
 

Consensus

JMFe

Difference

 

FY18E

FY19E

 

FY20E

 

FY18E

FY19E

   

FY20E

 

FY18E

FY19E

FY20E

 

Sales (INR m)

36,332

41,167

 

49,551

 

35,677

39,242

   

43,529

 

-2%

-5%

-12%

 

EBITDA

6,880

7,859

9,491

5,982

6,778

7,712

-13%

-14%

-19%

EBITDA margin

18.9%

19.1%

19.2%

16.8%

17.3%

17.7%

Net Income (INR m)

5,139

5,782

6,785

4,436

4,756

5,355

-14%

-18%

-21%

EPS (INR)

49.3

55.4

64.1

41.4

44.4

49.9

-11%

-15%

-17%

Source: JM Financial, Bloomberg

L&T Tech Services

4 May 2017

Exhibit 9. LTTS 12 month forward PER band

1000.0 950.0 900.0 850.0 800.0 750.0 700.0 650.0 600.0 Sep 16 Oct 16 Nov 16 Dec
1000.0
950.0
900.0
850.0
800.0
750.0
700.0
650.0
600.0
Sep 16
Oct 16
Nov 16
Dec 16
Jan 17
Feb 17
Mar 17
Apr 17
Price
16X
18X
20X

LTTS

currently

trades

at

18.5

12M

forward EPS

 

Source: Company, JM Financial, Bloomberg

Key Risks

  • Key downside risks to our price target are: (1) rupee appreciation beyond our assumed levels and/or adverse cross-currency movements; (2) a strong regulatory action against outsourcing in the US; and (3) slower decision making on deal awards. Risks specific to LTTS include: 1) lower R&D budgets; 2) increased use of captives versus third-party firms; and 3) client concentration risks.

  • Key upside risks could come from: (1) rupee depreciation at a pace faster than our assumption; (2) a faster-than-expected recovery in project awards/ramp-up; (3) large deal wins ahead of numbers or the contract value in our estimates; and (4) acquisitions/large deal wins that are not built into our model.

L&T Tech Services

4 May 2017

Financial Tables (Consolidated) Income Statement (Rs mn) Y/E March FY15A FY16A FY17A FY18E FY19E Net Sales
Financial Tables (Consolidated)
Income Statement
(Rs mn)
Y/E March
FY15A
FY16A
FY17A
FY18E
FY19E
Net Sales
26,187
30,662
32,483
35,677
39,242
Sales Growth
0.0%
17.1%
5.9%
9.8%
10.0%
Other Operating Income
0
0
0
0
0
Total Revenue
26,187
30,662
32,483
35,677
39,242
Cost of Goods Sold/Op. Exp
Personnel Cost
Other Expenses
17,167
19,681
20,958
23,207
25,601
0
0
0
0
0
5,032
5,787
5,678
6,487
6,864
EBITDA
3,988
5,194
5,847
5,982
6,778
EBITDA Margin
15.2%
16.9%
18.0%
16.8%
17.3%
EBITDA Growth
0.0%
30.2%
12.6%
2.3%
13.3%
Depn. & Amort.
EBIT
Other Income
Finance Cost
485
589
625
646
746
3,504
4,605
5,222
5,336
6,033
219
820
570
741
483
0
0
0
0
0
PBT before Excep. & Forex
3,722
5,425
5,792
6,076
6,515
Excep. & Forex Inc./Loss(-)
PBT
Taxes
Extraordinary Inc./Loss(-)
Assoc. Profit/Min. Int.(-)
Reported Net Profit
0
0
0
0
0
3,722
5,425
5,792
6,076
6,515
610
1,239
1,542
1,641
1,759
0
0
0
0
0
2
0
-1
0
0
3,110
4,186
4,251
4,436
4,756
Adjusted Net Profit
3,110
4,186
4,251
4,436
4,756
Net Margin
11.9%
13.7%
13.1%
12.4%
12.1%
Diluted Share Cap. (mn)
137.4
129.6
107.2
107.2
107.2
Diluted EPS (Rs.)
22.6
32.3
39.6
41.4
44.4
Diluted EPS Growth
0.0%
42.6%
22.8%
4.3%
7.2%
Total Dividend + Tax
Dividend Per Share (Rs)
1,858
2,732
851
1,216
1,459
11.6
18.0
6.6
9.4
11.3
Source: Company, JM Financial
Cash Flow Statement
(Rs mn)
Y/E March
FY15A
FY16A
FY17A
FY18E
FY19E
Profit before Tax
Depn. & Amort.
Net Interest Exp. / Inc. (-)
Inc (-) / Dec in WCap.
Others
Taxes Paid
3,722
5,425
5,792
6,076
6,515
485
589
625
646
746
-219
-820
-570
-741
-483
-4,841
1,334
-2,937
-551
-699
0
0
0
0
0
-978
-1,933
-804
-1,641
-1,759
Operating Cash Flow
-1,831
4,596
2,106
3,791
4,320
Capex
-6,181
-1,245
-434
-1,801
-883
Free Cash Flow
-8,011
3,351
1,672
1,990
3,437
Inc (-) / Dec in Investments
Others
0
0
0
0
0
-501
1,178
609
709
447
Investing Cash Flow
-6,682
-67
175
-1,092
-435
Inc / Dec (-) in Capital
Dividend + Tax thereon
10,500
-7,500
-2,797
0
0
-3,089
3,449
2,742
-2,254
-1,459
Inc / Dec (-) in Loans
2,257
-242
-996
0
-100
Others
-2
0
1
0
0
Financing Cash Flow
9,666
-4,293
-1,050
-2,254
-1,559
Inc / Dec (-) in Cash
1,153
236
1,231
445
2,326
Opening Cash Balance
Closing Cash Balance
0
1,153
1,389
2,620
3,065
1,153
1,389
2,620
3,065
5,391
Source: Company, JM Financial
Balance Sheet (Rs mn) Y/E March FY15A FY16A FY17A FY18E FY19E Shareholders’ Fund 10,521 10,656 14,852
Balance Sheet
(Rs mn)
Y/E March
FY15A
FY16A
FY17A
FY18E
FY19E
Shareholders’ Fund
10,521
10,656
14,852
17,034
20,331
Share Capital
Reserves & Surplus
Preference Share Capital
10,500
3,000
203
203
203
21
7,656
14,649
16,831
20,128
0
0
0
0
0
Minority Interest
0
0
0
0
0
Total Loans
Def. Tax Liab. / Assets (-)
2,257
2,015
1,019
1,019
919
-367
-1,061
-323
-323
-323
Total - Equity & Liab.
12,411
11,610
15,548
17,730
20,927
Net Fixed Assets
Gross Fixed Assets
Intangible Assets
Less: Depn. & Amort.
Capital WIP
Investments
Current Assets
Inventories
Sundry Debtors
Cash & Bank Balances
Loans & Advances
Other Current Assets
Current Liab. & Prov.
Current Liabilities
Provisions & Others
Net Current Assets
Total – Assets
5,696
6,352
6,161
7,315
7,452
832
1,071
1,190
1,372
1,509
4,860
5,138
4,948
5,920
5,920
0
0
0
0
0
4
143
23
23
23
0
0
0
0
0
12,080
12,075
15,041
16,625
20,305
0
0
0
0
0
6,853
7,259
7,106
7,722
8,494
1,153
1,389
2,620
3,065
5,391
0
0
0
0
0
4,074
3,427
5,315
5,838
6,421
5,365
6,817
5,654
6,210
6,831
1,689
2,202
1,847
2,029
2,231
3,676
4,615
3,807
4,181
4,599
6,715
5,258
9,387
10,415
13,475
12,411
11,610
15,548
17,730
20,927
Source: Company, JM Financial
Dupont Analysis
Y/E March
FY15A
FY16A
FY17A
FY18E
FY19E
Net Margin
Asset Turnover (x)
Leverage Factor (x)
RoE
11.9%
13.7%
13.1%
12.4%
12.1%
4.1
2.4
2.3
2.1
2.0
1.2
1.2
1.1
1.1
1.1
59.1%
39.5%
33.3%
27.8%
25.5%
Key Ratios
Y/E March
FY15A
FY16A
FY17A
FY18E
FY19E
BV/Share (Rs.)
76.6
82.2
138.5
158.8
189.6
ROIC
50.4%
31.0%
31.2%
27.6%
28.6%
ROE
Net Debt/Equity (x)
P/E (x)
P/B (x)
EV/EBITDA (x)
59.1%
39.5%
33.3%
27.8%
25.5%
0.1
0.1
-0.1
-0.1
-0.2
34.8
24.4
19.9
19.0
17.7
10.3
9.6
5.7
5.0
4.2
21.4
16.3
14.1
13.7
11.8
EV/Sales (x)
3.3
2.8
2.5
2.3
2.0
Debtor days
96
86
80
79
79
Inventory days
0
0
0
0
0
Creditor days
28
32
25
25
25
Source: Company, JM Financial

L&T Tech Services

4 May 2017

History of Earnings Estimate and Target Price

Date

FY18E

EPS

(Rs)

% Chg.

FY19E

EPS

(Rs)

% Chg.

Target

Price

% Chg.

Recommendation History

L&T Tech Services 4 May 2017 History of Earnings Estimate and Target Price Date FY18E EPS

L&T Tech Services

4 May 2017

APPENDIX I

JM Financial Institutional Securities Limited

Corporate Identity Number: U65192MH1995PLC092522 Member of BSE Ltd. and National Stock Exchange of India Ltd. and Metropolitan Stock Exchange of India Ltd. SEBI Registration Nos.: BSE - INZ010012532, NSE - INZ230012536 and MSEI - INZ260012539, Research Analyst INH000000610 Registered Office: 7th Floor, Cnergy, Appasaheb Marathe Marg, Prabhadevi, Mumbai 400 025, India. Board: +9122 6630 3030 | Fax: +91 22 6630 3488 | Email: jmfinancial.research@jmfl.com | www.jmfl.com Compliance Officer: Mr. Sunny Shah | Tel: +91 22 6630 3383 | Email: sunny.shah@jmfl.com

Definition of ratings

Rating

Meaning

Buy

Total expected returns of more than 15%. Total expected return includes dividend yields.

Hold

Price expected to move in the range of 10% downside to 15% upside from the current market price.

Sell

Price expected to move downwards by more than 10%

Research Analyst(s) Certification

The Research Analyst(s), with respect to each issuer and its securities covered by them in this research report, certify that:

All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and

No part of his or her or their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this research report.

Important Disclosures

This research report has been prepared by JM Financial Institutional Securities Limited (JM Financial Institutional Securities) to provide information about the company(ies) and sector(s), if any, covered in the report and may be distributed by it and/or its associates solely for the purpose of information of the select recipient of this report. This report and/or any part thereof, may not be duplicated in any form and/or reproduced or redistributed without the prior written consent of JM Financial Institutional Securities. This report has been prepared independent of the companies covered herein.

JM Financial Institutional Securities is registered with the Securities and Exchange Board of India (SEBI) as a Research Analyst, Merchant Banker and a Stock Broker having trading memberships of the BSE Ltd. (BSE), National Stock Exchange of India Ltd. (NSE) and Metropolitan Stock Exchange of India Ltd. (MSEI). No material disciplinary action has been taken by SEBI against JM Financial Institutional Securities in the past two financial years which may impact the investment decision making of the investor.

JM Financial Institutional Securities provides a wide range of investment banking services to a diversified client base of corporates in the domestic and international markets. It also renders stock broking services primarily to institutional investors and provides the research services to its institutional clients/investors. JM Financial Institutional Securities and its associates are part of a multi-service, integrated investment banking, investment management, brokerage and financing group. JM Financial Institutional Securities and/or its associates might have provided or may provide services in respect of managing offerings of securities, corporate finance, investment banking, mergers & acquisitions, broking, financing or any other advisory services to the company(ies) covered herein. JM Financial Institutional Securities and/or its associates might have received during the past twelve months or may receive compensation from the company(ies) mentioned in this report for rendering any of the above services.

JM Financial Institutional Securities and/or its associates, their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) covered under this report or (c) act as an advisor or lender/borrower to, or may have any financial interest in, such company(ies) or (d) considering the nature of business/activities that JM Financial Institutional Securities is engaged in, it may have potential conflict of interest at the time of publication of this report on the subject company(ies).

Neither JM Financial Institutional Securities nor its associates or the Research Analyst(s) named in this report or his/her relatives individually own one per cent or more securities of the company(ies) covered under this report, at the relevant date as specified in the SEBI (Research Analysts) Regulations, 2014.

The Research Analyst(s) principally responsible for the preparation of this research report and members of their household are prohibited from buying or selling debt or equity securities, including but not limited to any option, right, warrant, future, long or short position issued by company(ies) covered under this report. The Research Analyst(s) principally responsible for the preparation of this research report or their relatives (as defined under SEBI (Research Analysts) Regulations, 2014); (a) do not have any financial interest in the company(ies) covered under this report or (b) did not receive any compensation from the company(ies) covered under this report, or from any third party, in connection with this report or (c) do not have any other material conflict of interest at the time of publication of this report. Research Analyst(s) are not serving as an officer, director or employee of the company(ies) covered under this report.

While reasonable care has been taken in the preparation of this report, it does not purport to be a complete description of the securities, markets or developments referred to herein, and JM Financial Institutional Securities does not warrant its accuracy or completeness. JM Financial Institutional Securities may not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This report is provided for information only and is not an investment advice and must not alone be taken as the basis for an investment decision. The investment discussed or views expressed or recommendations/opinions given herein may not be suitable for all investors. The user assumes the entire risk of any use made of this information. The information contained herein may be changed without notice and JM Financial Institutional Securities reserves the right to make modifications and alterations to this statement as they may deem fit from time to time.

L&T Tech Services

4 May 2017

This

report is

neither an offer nor solicitation of an offer to buy and/or sell any securities mentioned herein and/or not an official confirmation of any

transaction.

This report is not directed or intended for distribution to, or use by any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject JM Financial Institutional Securities and/or its affiliated company(ies) to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to a certain category of investors. Persons in whose possession this report may come, are required to inform themselves of and to observe such restrictions.

Persons who receive this report from JM Financial Singapore Pte Ltd may contact Mr. Ruchir Jhunjhunwala (ruchir.jhunjhunwala@jmfl.com) on +65 6422 1888 in respect of any matters arising from, or in connection with, this report.

Additional disclosure only for U.S. persons: JM Financial Institutional Securities has entered into an agreement with JM Financial Securities, Inc. ("JM Financial Securities"), a U.S. registered broker-dealer and member of the Financial Industry Regulatory Authority ("FINRA") in order to conduct certain business in the United States in reliance on the exemption from U.S. broker-dealer registration provided by Rule 15a-6, promulgated under the U.S. Securities Exchange Act of 1934 (the "Exchange Act"), as amended, and as interpreted by the staff of the U.S. Securities and Exchange Commission ("SEC") (together "Rule 15a-6").

This research report is distributed in the United States by JM Financial Securities in compliance with Rule 15a-6, and as a "third party research report" for purposes of FINRA Rule 2241. In compliance with Rule 15a-6(a)(3) this research report is distributed only to "major U.S. institutional investors" as defined in Rule 15a-6 and is not intended for use by any person or entity that is not a major U.S. institutional investor. If you have received a copy of this research report and are not a major U.S. institutional investor, you are instructed not to read, rely on, or reproduce the contents hereof, and to destroy this research or return it to JM Financial Institutional Securities or to JM Financial Securities.

This research report is a product of JM Financial Institutional Securities, which is the employer of the research analyst(s) solely responsible for its content. The research analyst(s) preparing this research report is/are resident outside the United States and are not associated persons or employees of any U.S. registered broker-dealer. Therefore, the analyst(s) are not subject to supervision by a U.S. broker-dealer, or otherwise required to satisfy the regulatory licensing requirements of FINRA and may not be subject to the Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

JM Financial Institutional Securities only accepts orders from major U.S. institutional investors. Pursuant to its agreement with JM Financial Institutional Securities, JM Financial Securities effects the transactions for major U.S. institutional investors. Major U.S. institutional investors may place orders with JM Financial Institutional Securities directly, or through JM Financial Securities, in the securities discussed in this research report.

Additional disclosure only for U.K. persons: Neither JM Financial Institutional Securities nor any of its affiliates is authorised in the United Kingdom (U.K.) by the Financial Conduct Authority. As a result, this report is for distribution only to persons who (i) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the "Financial Promotion Order"), (ii) are persons falling within Article 49(2)(a) to (d) ("high net worth companies, unincorporated associations etc.") of the Financial Promotion Order, (iii) are outside the United Kingdom, or (iv) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000) in connection with the matters to which this report relates may otherwise lawfully be communicated or caused to be communicated (all such persons together being referred to as "relevant persons"). This report is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this report relates is available only to relevant persons and will be engaged in only with relevant persons.

Additional disclosure only for Canadian persons: This report is not, and under no circumstances is to be construed as, an advertisement or a public offering of the securities described herein in Canada or any province or territory thereof. Under no circumstances is this report to be construed as an offer to sell securities or as a solicitation of an offer to buy securities in any jurisdiction of Canada. Any offer or sale of the securities described herein in Canada will be made only under an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable securities laws or, alternatively, pursuant to an exemption from the registration requirement in the relevant province or territory of Canada in which such offer or sale is made. This report is not, and under no circumstances is it to be construed as, a prospectus or an offering memorandum. No securities commission or similar regulatory authority in Canada has reviewed or in any way passed upon these materials, the information contained herein or the merits of the securities described herein and any representation to the contrary is an offence. If you are located in Canada, this report has been made available to you based on your representation that you are an “accredited investor” as such term is defined in National Instrument 45-106 Prospectus Exemptions and a “permitted client” as such term is defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Under no circumstances is the information contained herein to be construed as investment advice in any province or territory of Canada nor should it be construed as being tailored to the needs of the recipient. Canadian recipients are advised that JM Financial Securities, Inc., JM Financial Institutional Securities Limited, their affiliates and authorized agents are not responsible for, nor do they accept, any liability whatsoever for any direct or consequential loss arising from any use of this research report or the information contained herein.