L&T Technology services 2020 Annual Report Takeaways!

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  • Over the last decade, Transformed from being a traditional engineering service provider to becoming a digital engineering expert service provider with core engineering expertise: 
    • Proven Scaling up skills by now being India’s #1 pure-play ER&D services company.
    • from executing piecemeal projects to winning large multi-million dollar deals.
  • 69 of the Fortune 500 companies are customers.
    • The % of rev from top 5 customers down from 26% to 19%.
  • Sectors with expertise:
  • Transportation (grew by 23%): Automotive, Aerospace, Rail Trucks & Off-Highway
    • OEMs & Tier 1 suppliers are customers.
    •  Steadily transitioning towards autonomous driving, electric cars and sustainable mobility. 
  • Industrial Products: Industrial Machinery, Power Equipment, Lighting Engineering, etc.
  • Telecom and Hi-Tech: Semiconductors, Consumer Electronics, Media & Entertainment, etc.
    • Latest technologies such as 5G, LTE, SDN/ NFV, Multimedia, Connectivity, Cloud, Microservices, DevOps, Big Data/ Analytics, Data Center, OTT, RDK (Video, Broadband, Camera).
  • Medical Devices (grew by 51%): Surgical & diagnostic, Therapeutic & Life Science, Musculoskeletal, etc.
    • Accelerating the development cycle, reducing the time to market by value engineering & multi-geography launch by following country-specific regulatory requirements.
  • Plant Engineering (grew by 26%): Consumer packaged, speciality chemicals, Oil & Gas etc.
    • As an engineering, procurement, and construction management (EPCM) specialist, LTTS supports every phase of a plant’s life cycle from concept to commissioning.
Also Read on FinMedium:  Understanding Cyclical vs Defensive Sectors Strategy
  • Fx risk: Hedged, 85% of international revenue: Majorly from US.
  • LTTS’ share of business from Digital & leading-edge technologies has been steadily rising over the years: 40% of the business.
  • 502 patents ( out of which 352 have been in collaboration with our customers) & 51 Innovation labs- strong focus over IP protected products. Two major focus points:
    • To modernize and refine the product development process through technologies like digital twinning, cloud engineering and plant automation.
    • new/connected products: for end enterprises across exciting new fields like telematics, preventive healthcare and wearables for monitoring. 
  • Financials: Stable revenue growth & cash flows with healthy amount of growth in margins. High ROE business.
  • 16429 employees: Median remuneration: 8.7lakhs, up 2%. (A lot less efficiency compared to global peers even though esops are provided)
    • Incentive structure for the MD & CEO, Dr. Keshab Panda & deputy CEO has sufficient ESOPs. 
    • Overall average managerial pay reduced by 11%.
    • Engineers are the biggest asset, as a lot more investment goes in the training when compared to other IT peers. 
  • Capital expenditure: Rs 135 crs (PY: Rs 87 crs)
  • A bouquet of acquisitions for the year to acquire semiconductor capabilities:
Also Read on FinMedium:  The Union Budget 2020
  • Rs 21 dividend (1.6% yield)
  • Experienced set of board members: (Note: Mr. A.M. Naik is known to be a one man army)
  • 74.62% promoter holding (L&T)
    • 5 out of the top 14 shareholders increased their stake in the company.
  • Macro trends:
    • According to NASSCOM, India’s ER&D services sector is the fastest growing sector within the Indian technology space, 11% YoY worth $33B by FY20.
    • Zinnov reiterates this fact by observing that global ER&D spend is resilient and has witnessed growth despite slowdown and geo-political factors.
    • The global spend of Digital Engineering is expected to grow at a CAGR of 19 percent from $403B in 2019 to $1153B by 2025.
    •  Customers today look for personalization in nearly every product and service, hence customization on a large scale is the key for success.
  • Strong Liquidity position: (Need to be on the lookout for future capital allocation & recovery of receivables)

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JST Investments

JST Investments is a Mumbai-based investment firm that believes in long-term wealth creation. It's a brainchild of Aditya Kondawar, Aditya Shah, and Anish Moonka.
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