Motilal Oswal Asset Management Company Ltd. (MOAMC) is a public limited company incorporated under the Companies Act, 1956 on November 14, 2008, having its Registered Office at 10th Floor, Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai - 400025.
Motilal Oswal Asset Management Company Ltd. has been appointed as the Investment Manager to Motilal Oswal Mutual Fund by the Trustee vide Investment Management Agreement (IMA) dated May 21, 2009, executed between Motilal Oswal Trustee Company Ltd. and Motilal Oswal Asset Management Company Ltd.

L T Technology Services Ltd LTTS

Blog Blog Details
  • May 20, 2021
  • Manish Sonthalia|
  • Fund Manager
LTTS is one of the few pure plays in Engineering Services with global scale. It has more than USD730mn in revenue as of CY20 with over 16,000 employees across 17 global design centres, 28 global sales offices and 52 innovation labs. LTTS is unique among Indian engineering services in the breadth of vertical expertise that makes its portfolio comparable. 

However, unlike European majors in Engineering Services, LTTS’ portfolio is more new age and its service portfolio more relevant and likely to be faster growing. For instance, its bid management and asset management services includes service offerings such as Virtual Reality enabled Product Catalogues and Augmented Reality based Machine Inspection. Similarly, LTTS’ expertise in plant engineering along with its skills in embedded systems and semiconductor design is a potential huge positive in the coming IoT revolution in manufacturing. Such services place its portfolio closer to that of Global Logic We note that GlobalLogic had just 19,000 employees and its service portfolio seems to have substantial overlap with that of LTTS in verticals such as Energy & Utilities and Manufacturing & Industrial where GlobalLogic has offerings such as IoT and Digital Twin that LTTS also offers. Hitachi acquired GlobalLogic in March 2021 at 29.4x CY22 EV/EBITDA. If we use a similar multiple, we arrive at a valuation of USD5.7bn for LTTS vs the current EV of USD3.7bn – an upside of 50%. If we use the EV/Sales multiple on CY20 revenue of USD770mn for GlobalLogic and use the same multiple on LTTS’ CY20 revenue of USD734mn, we arrive at an EV of USD9.0bn for LTTS – vs the current EV of USD3.7bn (as LTTS has ~USD200mn net cash as of December 31st 2020).

LTTS has 49% of its revenue coming from Digital Engineering and newer technologies such as IoT, AI and Digital Thread as of 3QFY21. In its report, ‘PEAK Matrix for Industry 4.0 Service Provider 2020,’ Everest Group has identified LTTS among the leaders based on various parameters such as market adoption, portfolio mix, value delivered, innovation & investments, delivery footprint, and vision and strategy. 
Apart from the industry analyst validation from Everest and Zinnov, we have seen some evidence of LTTS’ digital engineering services portfolio in its deal wins. One example is a recent USD100mn+ 5-year deal win in the Oil & Gas vertical in the US where LTTS is providing multi-discipline plant engineering activities ranging from site sustenance to control automation for two downstream sites that are among the ten largest downstream sites in the US. 

Another recent win that validates the relevance of LTTS’ service portfolio is the multi-year engagement with Schindler (the Switzerland-based global leading provider of elevators, escalators, moving walks and related services) to help Schindler to accelerate its digitization and connectivity initiatives. LTTS is expected to provide Schindler with services such as creating digital twins and enhancing wireless connectivity of its products.

LTTS is building digital engineering credentials in Aerospace with its partnership with Airbus for Airbus’ ambitious Skywise program. The Sky wise platform is an open data platform developed by Airbus for the aviation industry. We think that investing in developing such a capability during an industry downturn is an important strategic step that will position LTTS to take advantage of the industry recovery when it happens a few years down the line. 

LTTS keeps expanding its service portfolio with investments in new partnerships such as its recent certification as a Consulting and Professional Services Partner for Amazon Alexa Voice Service (AVS) Integration in various connected devices across multiple industries. Where LTTS probably lags behind GlobalLogic is the UI/UX skills and design labs and scaled up specialist software practices such as GlobalLogic’s Atlassian practice. This is understandable as such close competition in skills with its sister firms On the other hand, LTTS has developed some successful IP such as its smart building solutions management suite iBEMS (intelligent building experience management system) that is available on the Azure cloud or its predictive maintenance solution Avertle which uses Machine Learning and AI. LTTS has deployed over 150 instances of Avertle for over 35 equipment types (like Electric Motors, Chillers, Diesel generators, HVAC) for 15+ global customers. LTTS has also developed its own Narrow Band IoT solution called nB-oN which is a 3GPP Release 14 compliant Cat NB1 reference protocol stack (L1/L2/L3) for IoT low data rate devices. This IoT solution has use cases ranging from Smart metering, Smart Lighting, Asset Tracking, Smart Parking and Smart Agriculture.  

The breadth of its clientele is another reason why LTTS deserves to trade at a substantial premium to other pure play engineering services firms that are centred around a single industry (like KPIT) or have an outsized exposure to a couple of clients (like Cyient). 

Even within individual industry segments such as Transportation, LTTS has a broader portfolio vs its India peer group and has a minimum critical size as well for its practices. This is evident from its broad-based revenue addition over FY15-20 (pre-Covid).

LTTS is not as dependent on a single geography. While US has been a steady driver of revenue growth, its Europe operations have scope for improvement. We expect a tuck-in acquisition could probably help improve the rhythm of the business in Europe.

LTTS’ top-5 client bucket has been a bit volatile with its Cisco rebadging deal having to be unwound due to Cisco selling the division to a Private Equity firm that decided to in-source and rebadge LTTS employees. But its client mining strategy of focusing on its top-25 clients and then trying to add the adjacent 3 clients for each of these top-25 clients seems to provide it a robust funnel of deals. Despite a significant decline in its top-5 clients over FY20, LTTS still managed to clock 8.7% growth overall. LTTS’ clientele includes 69 Fortune 500 clients and 53 of the top-100 ER&D companies globally. We see plenty of headroom for LTTS to scale up these relationships.

We expect that FY22 will be another year of 20%+ growth for LTTS given its strong deal momentum and FY23 could also see mid to high teens revenue growth or better as transportation vertical continues its revival and large Aerospace clients like Collins Aerospace and Airbus start ramping up again.

(Source Company Data & MOAMC research)

Disclaimer:  Investors are requested to note that as a manager to the products of various business segments offered by Motilal Oswal Asset Management Company (MOAMC) or its associates has financial interest in the stocks mentioned herein. MOAMC or its associates did not receive any compensation from or other benefits from the subject company/ies whose stocks are mentioned herein or from a third party in connection with the same.

The views expressed above are the views of Fund Manager. It should not be construed as investment advice. Investment in securities are subject to market risks and there can be no assurance or guarantee that the objective of the product will be achieved. Past performance may or may not be sustained in future.

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