Ambit Capital Initiates Coverage on L&T Technology Services Ltd. with a Sell Rating - Analysis and Forecast
Ambit Capital, a renowned financial firm, recently initiated coverage on L&T Technology Services Ltd. (LTTS:IN) with a sell rating and a price target of INR4,990.00. In their analysis, Ambit Capital expressed caution about the company's medium-term outlook, citing various areas of concern.
L&T Technology Services, known as the largest pure-play Engineering Research and Development (ER&D) service provider in India, is currently facing challenges as highlighted by Ambit Capital. The firm pointed out LTTS's significant exposure to lower growth and margin sectors like vehicle engineering and telecom, especially after the Smart World & Communication (SWC) acquisition.
Furthermore, Ambit Capital raised concerns about LTTS's slow growth with its top-5 clients, showing a compound annual growth rate (CAGR) of only 0.6% from fiscal year 2020 to 2024. The firm also highlighted worries about LTTS's continuous investments in capability-building, which could potentially impact both growth and profit margins.
Ambit Capital's forecast for LTTS includes a 10% U.S. dollar revenue CAGR from fiscal year 2024 to 2027, slightly lower than the 12% CAGR observed from fiscal year 2015 to 2024. The expected average EBIT margin is projected at 16.4%, a slight decrease from the previous period.
The current market price (CMP) of LTTS is based on the expectation of a 10.6% U.S. dollar revenue CAGR from fiscal year 2024 to 2041. However, Ambit Capital's discounted cash flow (DCF)-based target price of INR4,990 is grounded on more realistic assumptions: a 9% U.S. dollar revenue growth over the same period with an average EBIT margin of 17.9%.
In conclusion, investors should take note of Ambit Capital's sell rating on L&T Technology Services Ltd. and its cautious medium-term outlook. The concerns raised about the company's growth, margin sectors, and client relationships should be carefully considered before making any investment decisions. It is vital to conduct further research and analysis to fully understand the implications of Ambit Capital's assessment on LTTS's future performance and stock valuation.