L&T Technology Services (LTTS) was established through a group restructuring exercise by the L&T Group, wherein, integrated engineering services of L&T and product engineering services business of L&T Infotech were transferred to LTTS. As a result, LTTS has emerged as one of the leading global pure-play ER&D services, providing services to manufacturing, technology and process engineering companies to help develop and build products, processes and infrastructure required to deliver products and services to end customers. The company leverages on the strengths of parent company, L&T, a leading Indian conglomerate in technology, engineering, construction, manufacturing and finance. The company derives 58.9% from North America, 16.0% from Europe, 13.9% from India and 11.2% from Rest of the World (RoW). It has operations spread across five industry segments, viz., transportation, industrial products, telecom and hi-tech, process industry and medical devices. Their customer base includes 69 Fortune 500 companies and 51 of the world’s top ER&D companies, across industrial products, medical devices, transportation, telecom & hi-tech, and the process industries. Headquartered in India, they have over 15,100 employees spread across 17 global design centers, 28 global sales offices and 49 innovation labs as of March 31, 2019.
Double Digit Growth helped to expand margins:
LTTS posted steady 3.0% QoQ USD revenue growth. Growth in all other verticals such as medical devices (up 7.1% QoQ) and transportation (up 6.9% QoQ); process industry (up 5.1%) also reported robust revenue growth. Telecom and Hi-Tech (flat QoQ) was impacted by client-specific issues. For FY19, all its industry verticals delivered double-digit YoY growth. Digital revenue jumped 58% YoY in FY19 and now contributes 33% to total revenue. LTTS EBITDA margins for FY 19 expanded by 10bps which is above the street estimates. Management has guided that for FY20 the USD revenue growth would be 14%-16%.
Focused and continuing to be leader in ER&D services:
LTTS is been market leader a niche provider in ER & D services. Company is been providing complete ER & D services since inception. Company has developed itself as a huge brand globally into this segment with more than 250 patents. The company covers phases from conceptualization to implementation within the product and manufacturing engineering life cycles, including consulting, design, development, testing, maintenance, go-to-market and after-market services.
Good Client retention rate:
L&T Technology services has good retention rate in terms of clients, Companies 90% revenues are repeat business. Company’s top 30 clients of LTTS have a client relationship of more than 6 years. Company is completely engaged in providing complete solutions to their clients. Company has long standing relations with its clients, and it includes around 50 leading fortune 500 companies such as Calsonic Kansai, Rockwell automation, P& G, Danaher and Eaton.
L&T Technology services are backed by strong parent i.e. L&T limited. LTTS completely leverages strong engineering capabilities as well as its relationships. L&T technology services, incorporated in the year 2013, were a part of L&T group. The association with the L&T brand provides the company with a competitive advantage in attracting talent, benefiting from Promoter's global network, exploring potential business opportunities, corporate governance practices and acquiring direct access to senior decision makers in potential end customers. End-to-end engineering expertise backed by parent's engineering heritage of over 75 years provides the company with a competitive edge over other ER&D players.
Wide geographical reach & diversified business:
L&T Technology services has a wide global presence, It is present in all the major continent’s such as America, Europe, Australia, South Africa, middle east etc. It has multi-vertical industry expertise such as, Transportation, Industrial products, telecom, process industry and medical devices. It cross leverages and its capabilities and delivers ER& D services to its customers in different verticals. LTTS has also achieved market leader positions in some of these verticals.
Larsen & Toubro Technology services
Price: Larsen & Toubro Technology services has given a fresh breakout from an important resistance range of around the 1775-1780 levels which was tested several times in the previous months of trading sessions. The stock is now comfortably moving above the 50- & 200-day moving average supported by good volumes which this suggest us that there is very high probability of the stock heading higher towards new targets in the coming few days of trading session. Even when the broader markets corrected Larsen & Toubro Technology services did not correct and has performed very well in the markets recently and we expect this outperformance to continue further.
Volume: Price and volume analysis plays an important part in determining overall strength or weakness in the stock. Price & volume pattern are moving in the same direction which reflects the true movement in the stock, Larsen & Toubro Technology services volume has been gradually increasing along with the price and after the breakout levels this confirms the overall strength and bullishness in the stock.
Relative Strength Index: RSI is a momentum indicator that shows whether stock is in overbought or oversold territory. It reflects the strength of the stock as compared to the past. Daily, weekly & Intraday RSI of Larsen & Toubro Technology services has been moving near the bullish zone this confirms that price and indicator are moving in the same direction and there is no divergence.
MACD: Moving Average Convergence Divergence is most effective momentum indicator of the trend. Crossover in MACD line with signal line shows buy signal in the stock. Daily, weekly and intraday MACD of Larsen & Toubro Technology services has been smoothly moving in the positive territory which indicates that the upside has just began.
Conclusion: Strong short-term uptrend in stock, increase in volumes along with the price, Long term and short-term moving averages sloping upward, sheer outperformance of the stock compared to its peers and overall broader markets recently suggests us that the stock may go higher towards new targets. Momentum Indicators like MACD and RSI are also indicating strength in the short to medium term trend, we recommend buying this stock at the current levels by keeping a stop below 1640 for a target of 2250.