Tag - Engineering solutions

    • Tag -
  • Engineering solutions
21 Oct

4QFY21 Revenue run rate to be same as 4QFY20 – LT Technology Services

Update on the Indian Equity market:
On Tuesday, Nifty 50 ended 0.2% higher at 11,897. The gainers were led by HCLTECH (+4.3%), TECHM (+3.2%), and ASIANPAINT (+2.9%), while BRITANNIA (-5.8%), ONGC (-2.6%), and GAIL (-2.3%) led the losers. Among the sectoral indices, REALTY (+3.9%), MEDIA (+2.0%), and IT (+1.4%) led the gainers. PSU BANK (-1.4%), FMCG (-0.4%), and METAL (-0.2%) were the only losers.

LTTS recently released its earnings for 2QFY21. Mr. Keshab Panda, MD, and CEO of L&T Technology Services (LTTS) discussed the result and outlook for FY21 with CNBC TV-18 on 20th October 2020:

• At the beginning of the outbreak of Covid-19, the company took some measures: investment required in new technology, the business model required for each segment, and different geography. These have helped achieve sequential growth in each segment.
• All 5 segments will grow sequentially going forward. The company will offer the new technology demanded by customers quickly in the post-Covid era.
• There are two reasons for ~160 bps improvement in margins sequentially. First, revenue increased 4.1% QoQ and there has been a 4.5% increase in utilization in Q2. There is some room for improvement in the coming quarters as well.
• LTTS has learned that solution selling. To give an example, their medical devices segment which is doing well, they are thinking of taking it to the pharmaceutical and provider space.
• There are multiple levels- operational lever, solution offering lever, and business mix for margin growth going ahead.
• Margin growth depends on the business mix. Some of the segments they have are highly profitable and some segments are not as profitable. Telecom, industrial, and plant engineering have higher segmental margins compared to hi-tech, and part of the transportation subsegment.
• Another parameter is the offsite-onshore ratio. LTTS did well in Q2 and moving forward if customers believe the work can be done from home, the work will be done from India. Higher engineering offshoring will also add to margin improvement going ahead.
• Revenue and margins are expected to be better in Q3 and Q4. The management has guided for a revenue decline of ~7-8% for FY21.
• They intend is to come back to growth as soon as possible. Q1 suffered a drop in revenue and cash flow issue and realigning will take some time.
• Goal is that the 4QFY21 revenue run rate should be the same as 4QFY20.
• The impact of furlough coming in 3Q for LTTS is not clear yet. The positive side is the pipeline and orders in hand and how soon the proposals are accepted by customers.
• Sizeable deals got pushed to Q3 as the decision-making circle is a little longer today than in pre-Covid. Some analysis which was not done by customers in pre-covid is been done today. Cost-saving, analysis of cash flow, business model, credentials -all these are analyzed extensively post Covid.
Consensus Estimate: (Source: market screener website)
• The closing price of LTTS was ₹ 1748/- as of 20-October-2020. It traded at 27.7x/ 21.9x/ 18.8x the consensus earnings estimate of ₹ 63.2/ 79.7/ 93.0 per share for FY21E/FY22E/FY23E respectively.
• The consensus target price of ₹ 1537 implies a PE multiple of 16x on FY23E EPS of ₹ 93.0/-.
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.”

By IT, LTTS , , 0 Comments Read more...
25 Feb

Selective improvement visible, total market turnaround still far away: Mr Unnikrishnan, Themax

Update on the Indian Equity Market:

The weakness witnessed in global equity markets on Friday got reflected in the Indian Equity market at start of the week on Monday. Concerns mounted about the ability of authorities to keep the coronavirus from spreading further beyond China. NIFTY50 closed 2.0% lower at 11,839 level. All NIFTY50 stocks closed in the red. The worst performers were JSWSTEEL (-7.4%), VEDL (-6.5%) and TATASTEEL (-6.3%). METAL (-5.4%), AUTO (-3.5%) and PHARMA (-3.1%) were among the worst hit. No sectoral index closed positively.

Selective improvement visible, total market turnaround still far away: Mr Unnikrishnan, Themax

Excerpts from an interview with Mr Unnikrishnan, MD – Thermax published in Mint dated 24th February 2020.

  • Orders in January were better than the past couple of months. Selective improvement is visible towards the end of 1HFY20 and at the start of 2HFY20E. A total turnaround is far away.
  • There is a lot of traction and capacity build-up in the oil and gas industry. Mr. Unnikrishnan expects a lot more orders coming from the sector in 2HFY21E.
  • The cement sector is seeing positive movement. Most cement companies in India are not overleveraged and there are some greenfield and brownfield expansions expected.
  • Mr. Unnikrishnan thinks Oil & gas, and cement are the only 2 sectors where there could be investments in FY21E.
  • The consumer facing industry is seeing improvement in the utilization levels from December. The negativity in consumer-facing industry, FMCG and durables for the last 6-7 months should start reversing in 1HFY21E. This means that some companies will start ordering from 2HFY20E, which will benefit Thermax.
  • Thermax was facing some issues in terms of slower payments coming in from both the private sector and government orders. Mr Unnikrishnan says private sector payments are improving due to improved performance. There is no improvement in the pace of public sector payments despite the issue being taken up to the highest levels. Including the contracting fraternity, Rs 1,750 bn is stuck with PSUs and government departments, some of which are on account of project completions getting delayed.
  • Mr. Unnikrishnan sees a positive movement in India related to the environment, both in air pollution control and in wastewater and effluent treatment. Many ‘A’ category industries are moving into ESG (Environmental, social, and governance) mode as they understand that without ESG, investments will not come to them. So a higher level of voluntary compliance is seen from the industry.
  • CLSA put out a note saying that this will be a year to focus on emission reduction for companies like NTPC. As per Mr. Unnikrishnan, NTPC has already completed this in half of their plants and they have/ will already initiate action on the rest. Pre dominant part of Indian power generation is with state electricity boards and none of them have placed orders for the Flue-gas-desulfurisation (FGD). That means about 100,000 mega-watts worth of coal-fired power plants are yet to initiate action. When it happens, it will be a huge market opportunity. However, most of these state electricity boards, except 2 are financially stranded.
  • Thermax is in negotiations with multiple private Indian cement companies for pollution control and carbon footprint reduction. Thermax has done multiple plants and is in negotiations with multiple Indian cement companies for generating electricity from their waste heat. There could be some orders in this area in 4QFY20E itself and also a few in 1HFY21E.

Consensus Estimate: (Source: market screener website)

The closing price of Thermax Ltd. was ₹ 970/- as of 24-February-2020. It traded at 35x/ 26x/ 22x the consensus earnings estimate of ₹ 28/ 37/ 45 for FY20E/ FY21E/ FY22E respectively.
The consensus target price for Thermax Ltd. is Rs 1,063 implying a P/E of 24x over the FY22E EPS of Rs 45/-

By Engineering, Thermax , , , , 0 Comments Read more...