India Equity Institutional Research | IT

Initial Public Offer

L&T Technology Services Ltd.

INR 850-860
SUBSCRIBE FOR
LONG TERM

Incorporated in 2012, L&T Technology Services Ltd is Mumbai based third-party

ER&D (Engineering, Research and Development) service provider. L&T Tech provide
services to manufacturing, technology and process engineering companies to help
them develop and build products, processes and infrastructure required to deliver
products and services to their end customers.
Key Rational:
Leading global pure-play ER&D services company
LTTS is the leading global pure-play ER&D services company. (Source: Zinnov report)
It has been recognised by Zinnov, in the leadership zone, Zinnov's highest-ranking
category in eight industry verticals (industrial automation, construction andheavy
machinery, medical devices, aerospace, automotive, rail and marine, telecom, energy
and utilities), and two horizontal service offerings (embedded systems and
mechanical). As a pure-play ER&D player, we believe LTTS has an advantage over
general IT services companies because of its focus on engineering services and endto-end service offering, which the management believes appeals to ER&D spend
decision makers. The companys size and scale, multi-domain presence, specialisation,
practice maturity, and focus on innovation and IP, combined with ability to handle
innovative and complex projects, provides it with a competitive advantage over other
players in the ER&D space. LTTS end-to-end services and delivery through delivery
centres in India also differentiate it from competitors in key markets where its
competitors are either staffing companies with higher costs or are not pure-play and
end-to-end service providers.
Focused on driving innovation through in-house R&D, IP and strategic
alliances
LTTS is focused on driving innovation and adopting solutions in line with technological
trends. The companys culture of innovation since its establishment has enabled it to
expand the range of offerings to customers and improve the delivery of solutions and
products. The company has initiated Proofs of Concepts (POCs), which are to
demonstrate the viability of a design concept, set up labs and developed new centres
of excellence, where the company has invested in new technologies such as
engineering analytics, power electronics, IoT and M2M, which has allowed it to
capitalise on key growth areas and trends. We have a proven track record of product
innovation to meet the needs of customers, changing industry trends, evolving
technology and emerging competition. For example, in 2015 the company codeveloped a new innovative product, Gyro, a motion activated screwdriver, and also
built an end-to-end software platform for dual-touch screen smartphones, which
includes an E-ink display, with its customers. The company has filed 34 proprietary
patents, and 134 patents have been filed by its customers along with LTTS employees.
The company also has one published trademark and 11 pending trademark
applications.

IPO Date: Sept 12, 2016

Market Info:
29045

SENSEX

8952

NIFTY

IPO Price Band: INR 705 - 710

Date of Opening

Sep 12, 2016

Date of Closing

Sep 15, 2016

OFS size

INR 8,890 Mn

Bid Lot

16 shares

Source: RHP

Mayank Babla
mayank.babla@krchoksey.com
91-22-6696 5429

Strong L&T parentage and long history of engineering expertise

The company benefits from the engineering expertise of L&T, which was recognised as
the eighth most valuable brand in India in 2015 (Source: Brand Finance) and is a
brand associated with strong global engineering capabilities, quality of service and
reliability. Association with the L&T brand provides it 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.
Well-diversified player with multi-vertical industry expertise and longstanding customer relationships
LTTS possesses multi-vertical industry expertise and targets a broad spectrum of
services in all the segments of its business. It has achieved a market leadership
position in eight industry verticals and has developed capabilities in areas such as plant
engineering. LTTS cross-leverages its experience across segments to deliver ER&D
services and solutions to its customers. LTTS actively pursues cross-selling
opportunities across verticals to derive value for existing and prospective customers.
The company has long-standing relationships with its customers, which include more
than 50 leading Fortune 500 companies and technology leaders in their industry
including P&G, UTC, Danaher, Eaton, Rockwell Automation and Calsonic Kansei.

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91-22-6696 5555
91-22-6691 9569

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Sep 09, 2016

L&T Infotech.
Key Operational Matrix:
Geographical presence
Sales
Offices

Delivery
Centres

FY2014

FY2015

FY2016

North America

10

54%

56%

59%

Europe

12

4%

20%

21%

India

12%

10%

9%

Rest of World

27

12

30%
100%

14%
100%

12%
100%

Geographic Segments

Total

Source: RHP

*Middle Eost-4 Centre, Australia-3 Centre and South Africa-1 Centre, A Delivery centers act as Sales office

COMPANY'S CLIENT RELATIONSHIPS

FY2015

FY2016

>USD 1 Million

41

44

>USD 5 Million

16

17

>USD 10 Million

>USD 20 Million

3
Source: RHP

For additional information & risk factors please rc fel to the Red Herring Prospectus

Business Verticals
Business Verticals

% of revenue from Cont.

Ops.
FY2015
FY2016

Transportation

27.3%

29.9%

Industrial Products

27.8%

25.3%

Telecom and Hi-tech

21.3%

19.8%

Process Industry

18.3%

18.7%

Medical Devices

5.3%

6.3%

100.0%

100.0%

Total
Source: RHP

KRChoksey - Institutional Research

L&T Infotech.
Concerns:
Failure to develop new services or solutions: Our failure to address the demands of our customers and the rapidly
evolving technology environment, particularly with respect to emerging technologies and technological obsolescence,
could have a material adverse effect on our business, results of operations and financial condition.
Valuations & Recommendation: We like L&T Technology Services as a long term story and advise investors to
SUBSCRIBE the IPO of the company. We are positive on company due to strong parentage, market growth opportunities,
market penetration opportunities and likely higher share of new technologies going forward which will improve margins
and drive future growth for the company. At the price band of Rs850-Rs860 per share, the LTTS offer comes at a PE of
20.7x-20.9x its FY16 EPS, which is at ~20% discount to peers group average (~25x). We believe the promoters have
rightly priced the IPO which would have been as even a higher valuation would be alright given the premium it can
demand due to the reputation of the parentage.
Key Financial Details
Particulars (INR Mn)
Share capital
Reserves
Net worth
Revenue from Operations
Revenue Growth (%)
Operating Profit
Operating Profit Margin (%)
Profit Before Tax
Net Profit
PAT as % to revenue
EPS~
RoNW(%)
NAV per Equity Share

Mar-16

Mar-15

10,500
425.2
10,925.3
30,665.0
17%

10,500
21.1
10,521.1
26,186.2
-

5,966.4
41%
5,352.3
4,166.4
14%
43.5
38.8%
5.2

4,239.9
3,721.4
3,108.9
12%
46.8
29.5%
3.9

Source: RHP

Objects of the Issue:

The objects of the offer are to:

To achieve the benefits of listing the Equity Shares on the Stock Exchanges

To carry out the sale of up to 10,400,000 Equity Shares by the Selling Shareholder.

Issue Detail:
Issue Open

Sep 12, 2016 - Sep 15, 2016

Issue Type

Book Built Issue IPO

Issue Size

Offer for Sale of 10,400,000 Equity Shares of Rs 2 aggregating up to Rs 884 Cr to 894 Cr

Face Value

Rs 2 Per Equity Share

Issue Price

Rs. 850 - Rs. 860 Per Equity Share

Market Lot

16 Shares

KRChoksey - Institutional Research

L&T Infotech.
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