L&T Tech - Volatility To Persist: HDFC Securities

HDFC Securities Institutional Equities

L&T Technology Services Ltd. has strong credentials as a leading pure-play engineering services provider with low churn. Still, it faces challenges of scale, longer deal conversion cycle and business cyclicality. The upside seems capped as current growth numbers for L&T Tech already factor in the incremental revenue addition of two times its historical organic average.

We recently visited the company’s Mysore facility (~3,000 employees) and several customer offshore development centres in medical devices, industrial products and transportation.

The company has a sticky (lower vendor churn) revenue pool from marquee customer base and demand for digital engineering and offshore services is driving growth across industry verticals. We have also analysed the annual report and some key highlights include-

1. strong partnership in the chip ecosystem supporting growth across verticals (Transportation, Medical),

2. change in business mix with SWC acquisition and higher increase in median remuneration that impacted margins, and

3. parent (related party) contributing to ~20% of organic growth and steady operating cash flow conversion despite high DSO.

Maintain Reduce on L&T Tech with target price of Rs 4,270, based on 27 times FY26E earnings per share.

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