Result Analysis : LTTS - Q2FY21

Result Analysis : LTTS - Q2FY21

CMP: 1,746 (As on 20-10-2020)

Total Income 1,313 Cr 

1,402 Cr (-7.06%) YoY | 1,294 Cr (1.41%) QoQ 

Six months ended: 2,608 Cr Vs. 2,750 Cr (-5.16%) 

Net Profit of 166.3 Cr 

206.2 Cr (-19.41%) YoY 118 Cr (40.64%) QoQ 

Six months ended: 284.3 Cr Vs. 351.5 Cr (-19.08%) 

EPS (in Rs.) 15.69 

19.49 YoY | 11.10 QoQ 

Six months ended EPS: 26.83 Vs. 38.79 

View: Result is in line with the expectation. YoY revenue down and profit also declined. Although company has shown good performance as compare with QoQ.

Business Updates & Highlights: 

Q2FY21 Revenue of $178 Mn Vs. $171 Mn in Q1FY21 Vs. $197.7 Mn up by 4.1% QoQ and down 9.9% YoY; in constant currency up 2.9% QoQ and down 10.6% YoY. 

EBIT of INR 1,801 million for the quarter, EBIT margin in Q2FY21 at 13.7% Vs. 14.7% in Q2FY20 Vs. 9.1% Q1FY21 in YoY and QoQ.

EBITDA in Q2FY21 was around INR 232.8 Cr Vs. 283.2 Cr in Q2FY20 Vs. 205.9 Cr in Q1FY21 therefore declined by 17.8% in YoY and up by 13% in QoQ. EBITDA margin in Q2FY21 stood 17.7% Vs. 20.2% in Q2FY20 Vs. 15.9% in Q1FY21.

Segment wise business contributed for topline in this quarter: Transportation – 31.5%, Industrial Products – 19.5%, Telecom – 21.4%, Plant engineering – 14.4% and Medical device – 13.2%.

YoY and QoQ topline growth for Transportation: (19%) & 4.1%, Industrial products – (9.4%) & 4.6%, Telecom – (6.5%) & (0.6%), Plant engineering – (19.8%) & 8.1% and Medical device – 34.8% and 7.4% respectively. Except for medical device segment topline growth all business growth corrected in YoY however improved in QoQ. 

YoY and QoQ bottom line growth for Transportation: (28%) & 55.1%, Industrial product – (8.2%) & 3.4%, Telecom – (41.1%) & (21.6%), Plant engineering – (40.3%) & 23.9% and Medical device – 59.5% & 7.5%. Except for the medical device all business bottom line significantly impacted in YoY however improved in QoQ.

Geography wise segment: North America – 60% YoY down by 12.4% and up by 2.1% in QoQ. Europe – 16% Flat in YoY and up by 4.1% in QoQ, India – 13.6% down by 6.8% in YoY and up by 8.5% in QoQ, rest of the world – 10.4% down by 12.9% in YoY and up by 10.8%.

During the quarter, LTTS won 8 multi-million dollar deals across all major industry segments which includes three deal with TCV of USD15mn plus and . Another 3 deals with TCV of USD10mn plus. Revenues from digital and leading-edge technologies stood at 49% during the quarter. Number of active client stood at 283 in Q2FY21 Vs. 270 in Q1FY21 Vs. 259 in Q2FY20. Top 5 clients contributed 17% in Q2FY21 Vs. 22.9% in Q2FY20. 

Total headcounts as of Q2FY21 was around 15,902 as against 16,641 in Q1FY21. Therefore workforce reduced by almost 4.5% in QoQ.

Gross Margin in Q2FY21 is around 30.1% Vs. 32.3% in Q2FY20 Vs. 26.8% in Q1FY20. Gross Margin in FY20 was around 32.9% Vs. 30.8% in FY19. 

The Board of Directors has declared an Interim Dividend of Rs. 7.50/- per equity share. October 27, 2020 which is the Record Date fixed for the aforesaid purpose

Financial

ROE and ROCE is around INR 31% and 42% respectively and book value per share is around INR 264 and share is currently trading at 6.6 of its book value. Company is currently trading at annualized PE (forward) of around 32 which is slightly high as per industry benchmark. Promoter holding is around 74.4% in the company which is very strong. FIIs and mutual fund hold around 8.95% and 3.66% in the company. Net Operating cash flow as of Sep 2020 was INR 680 Cr Vs. 638 Cr in March 2020 (**Strong**). The good thing is company is virtually debt free. 

Share View 

Share price high 1,879 (52 week) and now 1,750. L&T Technology Services Limited (LTTS) is a global leader in Engineering and R&D (ER&D) services. With 502 patents filed for 53 of the Global Top 100 ER&D spenders. LTTS’ expertise in engineering design, product development, smart manufacturing, and digitalization touches every area of human lives - from the moment one wakes up till the time one goes to bed. With 45 Innovation and R&D design centres globally, specialize in disruptive technology spaces such as 5G, Artificial Intelligence, Collaborative Robots, Digital Factory, and Autonomous Transport. LTTS is a publicly listed subsidiary of Larsen & Toubro Limited, the $18 billion Indian conglomerate operating in over 30 countries. 

Position: Share support price is INR 1,575. Investor should continue with the company and any correction will give good opportunity to add for long term. 

Opportunities 

On account of continuous focus on R&D and building new platforms solutions, the company has been able to expand the revenue share from existing clients as well as increasing their client base on every quarter and maintain steady acquisition of new clients. Similar growth and profitability is expected to be maintained over the medium term, thereby supporting the overall business risk profile, further highly diversified business module and dependence on top 5 customers is continuously reducing on every quarter. Also, being an L&T group company, LTTS also benefits from the strong brand and domain expertise available within the group, resulting in better penetration and acceptability in the market. 

At the end of the second quarter, the patents portfolio of L&T Technology Services stood at 550, out of which 404 are co-authored with its customers and the remaining 146 are filed by LTTS. LTTS set-up and virtually launched a state-of-the-art Electric Vehicle (EV) Lab at the Bengaluru design centre. The EV lab encompasses motors, inverters, DC-DC converters, all on-board vehicle electrical systems and complete electric vehicle testing. This advanced lab set up is dedicated to help customers across the globe to evaluate and verify the performance, endurance and electromagnetic compatibility of EVs.

As per the management steady order bookings and a healthy pipeline across all segments gives us confidence that the growth momentum will continue. We are upgrading our FY21 revenue guidance, and the new guidance is for a revenue decline of 7%-8% in USD terms.

Risk 

Although company is fairly well in this quarter as compare with Q1 but YoY performance was down. Dependence on the US market is still high which is visible on every quarter in this quarter also around 60% and down by 12% in YoY and up by marginally 2.1% in QoQ. 

Sources: Various publications

Disclaimer: The information provided herein is based on publicly available information and other sources believed to be reliable, but involve uncertainties that could cause actual events to differ materially from those expressed or implied in such statements. The document is given for general and information purpose and is neither an investment advice nor an offer to sell nor a solicitation. While due care has been exercised while preparing this document, we do not warrant the completeness or accuracy of the information. We will not accept any liability arising from the use of this material. The recipient of this material should rely on their investigations and take their own professional advice.

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