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L&T Technology Services is an Engineering Research & Development services and digitalization solutions providing company, incorporated in 2012. It focuses its business on five areas: Transportation, Telecom & Hi-tech, Industrial products, Plant Engineering, and Medical Devices. It offers consultancy, design, development, and testing services across the product and process development life cycle.
It serves 318 clients spread across the globe in these areas, including 57 of the world’s top 100 R&D companies. LTTS’s excellence in customer satisfaction is directly reflected in the fact that 90% of its clientele are repeat customers.
Global spending in the industry stood at $1.5 trillion in 2020, which is expected to increase to $2.6 trillion by the year 2026. The addressable market looks set on increasing from $86 billion to $128 billion in the same time frame.
Within India, the Engineering R&D market has also doubled in this period from $35 billion to $71 billion due to an increase in digital engineering spending which is expected to increase further at a CAGR of 19%
To build new-age digital products and services, enterprises across verticals will spend on digital engineering which will boost R&D spending. 5G, and sustainable engineering.
LTTS benefits from its strong partnerships. Amazon selected LTTS as consulting and professional service partner to support Alexa integration in various connected devices spanning multiple domains and industries. Airbus selected LTTS to provide technology and digital engineering solutions for its Skywise platform and the company has set up a dedicated engineering hub for Airbus.
Its Experienced management team is a key advantage over competitors. The current CEO joined in 2009 and has grown through the ranks over the last 12 years. The company has been recognized by industry experts such as Zinnov as one of the industry leaders across various categories.
So, what is our view on company valuation?
Even though the stock has moved up 4 times since March 2020, but lower compared to other players like Tata Elxsi and Persistent Systems. Company trades at Price to Earnings (TTM) multiple of 50 times, higher than its 5-year average Price to Earnings multiple of 21 times.
Capgemini acquired Altran Technologies, a major ER&D player, in April 2021 at an implied P/E multiple of ~15x. LTTS could be an interesting target for an IT player looking to expand in the ER&D space.
As for the risks to this analysis, any acquisition interest can keep the price high for the short or medium term. Moreover, the ER&D space is getting increasingly competitive which can lead to high attrition levels similar to IT companies.
So, would you invest in L&T Technology Services? Share your views in the comments section and like the video if you liked our analysis.
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