Update on the Indian Equity Market:
Indian indices ended in the red for the 3rd consecutive day after profit booking by investors. The Nifty 50 ended at 15,722 (-0.2%), dragged by the MEDIA (-0.8%), BANK (-0.7%), and FINANCIAL SERVICES (-0.6%). IT (+0.6%) was the only sector which ended with gains. Among the Nifty 50 stocks, COALINDIA (+1.3%), RELIANCE (+1.2%), and DIVISLAB (+1.1%) ended with gains while SHREECEM (-1.9%), BAJAJFINSV (-1.8%), and POWERGRID (-1.5%) ended with losses.
Excerpts of an interview with Mr. Amit Chadha, CEO & MD, L&T Technology Services (LTTS) published in the Financial Express on 30th June 2021:
- LTTS’s domestic market comprises plant engineering and product design related business, both for Indian conglomerates and MNCs. On the product design side, LTTS works with various global engineering centres or captive centres in the transportation, industrial products, medical and telecom segments. In the plant engineering segment, they help FMCG and chemical companies with the engineering support domain.
- Over the past one year, LTTS has pushed the boundaries of virtual development by securing remote access to its labs and developing a Home Lab environment for select clients where engineers have high computer equipment replicated at their homes.
- Engineering and the R&D (ER&D) services involve a suite of services- from ideation, conceptualisation, design, product development, testing and after-market launch, to support and enhance existing products.
- In the current scenario, a lot of the work has evolved from physical to the secured virtual space- through simulation, high-end systems, and servers. This work can be done anywhere and can be accessed from anywhere.
- Unlike other industries, the ER&D segment necessitates a part of the work to be executed and experienced upon in labs and requires the physical presence of the workforce in design centres.
- A major trend LTTS is observing is the pace at which change is taking place. The acceleration of technological change and disruption that has been affecting processes, products, robotic automation in business functioning in the past few quarters has been different from that in the last 10 years.
- The second megatrend observed is that companies are partnering with start-ups who have point solutions and are creating a technology ecosystem along with them. Enterprises are relying on bringing all the specialised capabilities and integrating them from start to finish. With the travel disruptions under the new normal, customers are comfortable with this nature of work being done out of offshore delivery centres.
- The biggest change in technology trends is seen in the areas of electric autonomous connected vehicles, 5G technology, digital healthcare and digital manufacturing.
- As an ER&D destination, India has gained prominence as a strategic R&D hub focused on innovation and disruptive technology. Clients seeking technology partners or India captive centres are no longer offshoring just for cost benefits, but to achieve flexibility and availability of talent, time to market, and localised products for developing and developed markets. This is where LTTS’ engineering domain expertise will help it stay ahead of its competition.
- In the plant engineering segment, there has been a push from the Government with its ‘Invest in India’ initiative and promotion on setting up manufacturing facilities in India.
Asset Multiplier Comments
- LTTS is a key beneficiary of the increasing tech adoption in ER&D. With 50% of its revenues coming from digital, LTTS will likely witness revenue growth from a growth in ER&D spends by Companies.
Consensus Estimate: (Source: market screener website)
- The closing price of LTTS was ₹ 2,886/- as of 30-June-2021. It traded at 34x/ 29x/ 26x the consensus earnings estimate of ₹ 85.1/ 101/ 110 for FY22E/FY23E/FY24E respectively.
- The consensus target price of ₹ 2,573/- implies a PE multiple of 23x on FY24E EPS of ₹ 110/-.
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”