L&T Technology Services Ltd: Company Analysis

As a recognised "Great Place to Work in India", L&T Technology Services Ltd. (LTTS) stands tall as a global leader in Engineering and R&D services across different sectors. Known for its focus on innovation and technology, LTTS has earned a significant presence in the market. 

In this analysis, we'll explore various aspects of LTTS, from its financial performance and balance sheet to annual reports, stock trends and ownership structure. 

Let's take a straightforward journey into understanding what makes LTTS a notable player in the world of engineering and research.

About the Company

Established through a restructuring effort that combined L&T's engineering services and L&T Infotech's product engineering services, LTTS is the largest Indian Engineering and Research & Development (ERD) Services Company in terms of revenues.

Established in 2012, LTTS joined forces with L&T Infotech's Product Engineering Services (PES) and L&T's integrated engineering services businesses in January and April 2014, respectively. 

The company offers a variety of ERD services to clients in different areas like medical devices, industrial products, transportation, process industries, and telecom.

With a footprint spanning North America, Europe, Asia Pacific, and India, LTTS boasts a significant global presence. 

The company's most valuable asset lies in its impressive portfolio of 1,249 patents. Operating in over 20 countries, LTTS serves 364 clients worldwide.

What's New With L&T?

Larsen & Toubro (L&T) has announced that its power transmission and distribution (PT&D) business has secured a series of significant orders in India and overseas. These projects highlight L&T's contribution to India's renewable energy goals and grid modernization efforts.

The breakdown of the contracts includes:

a. Floating Solar Plants in India: L&T will establish two floating solar power plants, a sustainable alternative that avoids land acquisition and reduces water evaporation.

b. Strengthening India's Grid Infrastructure: The PT&D vertical has received orders for transmission lines and a gas-insulated substation to integrate solar energy zones in Rajasthan and Karnataka, facilitating renewable energy transmission across the country.

c. Expanding Oman's National Grid: L&T will contribute to Oman's national grid development by building a 400 kV overhead transmission line and two grid stations.

d. Substation Construction in UAE: The company secured contracts to construct two substations with associated works in the United Arab Emirates.

These projects showcase L&T's expertise in engineering, procurement, and construction (EPC) across the power sector, including renewable energy and grid infrastructure development, both domestically and internationally.

Geography-wise Revenue Breakup

The primary source of revenue for LTTS predominantly hails from North America, constituting approximately 62.2%. Meanwhile, contributions from India and Europe stand at 13.8% and 16.2%, respectively.

Business-wise Revenue Breakup

Let's explore the revenue breakdown through this pie chart. Notably, Transportation takes the lead, contributing 34.6%, while the Telecom & Hi-tech sector follows closely with a 19.4% contribution. As technology continues to evolve, these sectors are poised for future growth. Additionally, Industrial products, Plant Engineering, and Medical Devices collectively account for around 19%, 16%, and 11% of the revenue, showcasing a diverse portfolio in LTTS's income streams.

About the Industry

Refer to the following points for insights into the industry in which the company operates:

1. The global Engineering, Research, and Development (ER&D) industry is currently valued at approximately ₹1,24,50,000 crore and is expected to reach around ₹2,15,80,000 crore by 2026.
    
2. In India, the ER&D market is projected to grow from ₹2,90,500 crore in 2020 to ₹5,89,300 crore by 2026.
    
3. L&T Technology Services (LTTS) focuses on six main industries, with a specific emphasis on electric vehicles (EVs). Experts predict that 25% of cars sold will be EVs by 2025.
    
4. The medical technology (Medtech) sector is anticipated to reach ₹16,60,000 crore by 2025, reflecting ongoing advancements in healthcare technology.
    
5. With the global shift towards 5G technology in the telecom sector, the 5G industry is estimated to reach ₹12,86,500 crore by 2025.
    
6. The Artificial Intelligence (AI) and Digital Product Sector is poised for substantial growth, projected to be around ₹8,30,000 crore by 2025.
    
7. Digital Manufacturing and Sustainability industries are also expected to see significant expansion, reaching ₹39,42,500 crore and ₹33,20,000 crore, respectively, by 2025.

Financial Performance Analysis

Assessing a company's financial health and stability is vital for long-term investors. 

Balance Sheet Evaluation:

The company's borrowings remained at 0% of the total assets over the past 5 years. Meanwhile, investments have shown a positive trend, increasing from nothing to 2.54% of the total assets. This uptick in investments contributes to a stronger balance sheet for the company.

Profit and Loss Statement Evaluation:

The operating profit margin has seen a growth from 18% to 21.16% over the past 5 years. Operating margin for the year ended 31 March 2023 increased by 20 bps to 18.5% from 18.3% for the year ended 2022.

The Profit After Tax (PAT) has surged from ₹768.40 crore in 2019 to ₹1,174.10 crore in 2023. This robust financial performance, driven by strong revenue growth and operational efficiency, resulted in a notable 22% increase in PAT.

In the last 5 years, the PAT has consistently expanded at an impressive 18% Compound Annual Growth Rate (CAGR), reflecting a successful blend of steady expansions and a continuous uptrend in operating margins.

Revenue from Operations

Revenue from operations for the year ended 31 March 2023 increased 22.0% YoY to ₹801.36 crore from ₹656.97 crore for the year ended 31 March 2022, while CAGR growth over the past 4 years is 12.1%.

The Competitive Advantage of LTTS

The company leverages its deep domain expertise across various industries, giving it a competitive edge and enabling the successful acquisition of crucial projects in each sector. 

Its significant size and scale, diverse industry presence, specialised services, commitment to innovation and intellectual property, coupled with its adeptness in handling intricate projects, contribute to a distinctive competitive advantage. 

The company holds several advantages over its peers:

1. Comprehensive Service Offerings: Providing a wide array of services covering the entire product life cycle journey for clients.
2. Multi-Vertical Industry Expertise: The company's expertise across multiple industries acts as a safeguard, helping absorb shocks in one segment.
3. Rich Client Base: Boasting a substantial client base that includes 57 of the top 100 global spenders on Engineering, Research, and Development (ERD).
4. Proactive Deal Shaping: Demonstrating proactivity in shaping large deals, with a consistent track record of announcing significant deals in the past few quarters.

Shareholding Pattern

Evaluating the ownership structure of LTTS is crucial for understanding the company's strength, growth potential, and long-term viability.

The majority of shares, accounting for 73.85%, are held by the promoters. Following them are Domestic Institutional Investors, holding 11.33%, while the public holds 9.28%, and Foreign Institutional Investors (FIIs) hold 5.63%.

If you are interested in reading this- When L&T was owned by Reliance Industries, then click on the link.

The Bottom Line

In the end, looking closely at LTTS, we see a company that's really good at coming up with new ideas and doing important engineering work. 

LTTS is strong financially, and it cares about the environment and the community. Their expertise in different areas and the way they smartly grab big projects make them stand out. 

LTTS seems ready for more growth and making a big impact, making it a company worth keeping an eye on for investors and anyone interested in cool engineering solutions.

*Disclaimer: The stocks and companies discussed above aren't a recommendation from Insider by Finology and shall not be construed as a replacement for professional advice. Consult a professional or conduct the necessary research before making investment decisions.