My notes from various annual reports for 2020 – IT Sector (L&T Technology Services)

After going through few annual reports in pharma sector, now is time for IT sector. Will be posting and updating IT sector annual reports here. To start with, below are notes for L&T Technology Services

 

L&T Technology Services:

Notes from AR 2020

Key business updates:

  • Technology company present in 5 verticals
    • Transportation (35% of revenue, operating margin up from 17% to 18%)
    • Industrial Products (19% of revenue, operating margin up from 25% to 26%
    • Telecom and Hi Tech (20% of revenue, operating margin up from 15.6% to 16.4%)
    • Medical Devices (9% of revenue, operating margin up from 25% to 27%)
    • Plant Engineering (16% of revenue, operating margin up from 23% to 25.4%)
  • Total 168843 employees and 270 global clients across 25+ countries
  • 51 innovation labs and 502 patents (103 last year)
  • Industrial, Plant engineering and medical devices are high margin business
  • Ability to leverage parent engineering experience and know how
  • Clients include 67 fortune 500 companies and 53 of world’s top ER&D companies
  • Rated as leader in IoT engineering and managed services by IDC in 2020
  • Leader in automotive engineering services by Everest
  • Opened design center in Illinois for aviation
  • IoT based smart building system i-BEMS deployed in Telaviv for a global technology giant

Financial Performance:

  • Rs 5690 crore of revenue and Rs 819 of profit in FY 20 with a revenue growth of 11% YoY and PAT growth of 7% YoY. Resulted in 75-rupee EPS from Rs 66.7
  • Export incentive is up from Rs 27 crore to Rs 91 crore
  • 40% revenue from fixed price contracts and 60% is time and material basis
  • 5% EBIT margin
  • Medical devices showing very good growth
  • 61% revenue from North America vs 55% last year, 15% from Europe vs 18% last year, 13% from India and remaining from rest of the world
  • Only North America showed revenue growth YoY
  • No client is more than 10% of revenue and group contributes to less than 2% of revenue or outsources service expenses (to L&T infotech and others)
  • 3 of above verticals – transport, plant engineering and medical equipment have shown more than 20% growth. Telecom has de-grown and industrial products had single digit growth
  • Share of digital revenue is up from 33% to 40% in last 1 year

 

Other Important Points:

  • Rs 800 Crore + cash on books
  • Total Rs 21 dividend for FY20 which is approximately. 20% of profit
  • 75% shares held by promoter, 15% by institutional investors (FII is up from 5% to 8.3%) and 7% by retail
  • Company has not given much hike to management and employees this year. 1.9% increase in median remuneration. India employees’ hike is 5.91%, outside India 1.85% and average decrease in management hike is 9% due to lower payout of variables and commissions

 

Risks and Open Questions

  • There is 50% increase in computers but not much increase in headcount
  • Rs 389 crores of goodwill on balance sheet
  • Rs 100 crore plus investment in 2 subsidiaries which are not generating enough profit
  • Rs 26 crore of doubtful debt expensed, this was negligible last year
  • Some loans and corporate guarantees have been given to holding company and subsidiaries though on interest rate basis
  • Holding company charges Rs 8 crore of trademark fees

 

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