Expansion Into AI And Software Will Unlock New Opportunities In Retail, Fintech, And Healthcare

Key Takeaways

• Strategic acquisitions and expansion in AI and digital markets are set to enhance L&T's capabilities and drive future revenue growth.
  
• Growth in mobility and sustainability segments, along with strong deal pipelines, is expected to boost revenue and maintain earnings stability.
  
• Challenges in key sectors and market uncertainties may impede LTTS's revenue growth and impact profitability through weaker margins and earnings variability.

Catalysts

Operates as an engineering research and development services company in India, the United States, Europe, and internationally.

• The Intelliswift acquisition is expected to enhance L&T Technology Services’ capabilities in AI, digital, and software product engineering, potentially driving higher future revenue growth in new markets such as retail, fintech, and healthcare. This will likely impact revenue positively.
  
• The company is focused on executing its Go Deeper to Scale strategy, which is boosting deal wins and improving margins through strategic investments in technology and leadership. This is expected to sustain margin improvements and positively impact net margins.
  
• L&T Technology Services is seeing a strong pipeline in the mobility segment, including advancements in software-defined vehicles (SDV) and hybridization, with anticipated growth in this segment from Q1 FY'26. This expansion in projects is anticipated to contribute positively to future revenues.
  
• Strong growth in the sustainability segment, driven by large deals in process and industrial domains, is expected with rising demand for plant modernization and digitization. This is expected to bolster revenue growth and maintain earnings stability.
  
• The introduction of new business segments leveraging cross-capabilities in software and platforms is opening up additional revenue streams, particularly with three new $20 million-plus accounts in hyperscalers. This expansion is expected to elevate future earnings and revenue growth.

L&T Technology Services Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming L&T Technology Services's revenue will grow by 13.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.7% today to 13.2% in 3 years time.
• Analysts expect earnings to reach ₹19.8 billion (and earnings per share of ₹186.34) by about January 2028, up from ₹13.0 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 39.6x on those 2028 earnings, down from 43.6x today. This future PE is greater than the current PE for the IN Professional Services industry at 34.0x.
• Analysts expect the number of shares outstanding to grow by 0.08% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.77%, as per the Simply Wall St company report.

L&T Technology Services Future Earnings Per Share Growth

Risks

• Select OEMs and Tier 1 suppliers are experiencing challenges, leading to pauses in some projects and spending, potentially impacting LTTS's revenue growth in the mobility segment.
  
• Weak demand in the agriculture and construction sectors due to uncertainty around potential changes in tariffs could negatively affect LTTS's revenue within those markets.
  
• Exposure to fluctuations in foreign exchange rates, as indicated by losses on hedge contracts, could impact LTTS's earnings unpredictably.
  
• The consolidation of Intelliswift, with a current EBITDA margin between 7% to 8%, might dilute overall EBIT margins, affecting profitability.
  
• Delays in ramp-ups and project deployments in the automotive vertical due to market stress could hinder LTTS's revenue and growth targets.

Valuation

• The analysts have a consensus price target of ₹5154.21 for L&T Technology Services based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹6500.0, and the most bearish reporting a price target of just ₹3570.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹149.4 billion, earnings will come to ₹19.8 billion, and it would be trading on a PE ratio of 39.6x, assuming you use a discount rate of 12.8%.
• Given the current share price of ₹5341.0, the analyst's price target of ₹5154.21 is 3.6% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.