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L&T Technology Services IPO Review



L&T Technology Services is a fully owned subsidiary of engineering major Larsen & Toubro (L&T) and offers engineering research and development services. Established in 2012, L&T Technology Services provides its services to clients in manufacturing, technology and process engineering industries. Most of these clients are based in North America and Europe. L&T Technology Services generated around 80.2% of its revenues in FY 2016 from customers in these two regions.

The company operates in five industry segments: telecom and hi-tech, transportation, industrial products, process industry and medical devices. Three segments, namely process industry, medical devices and industrial products together accounted for 50.3 per cent of the company's revenue in FY16 
Strengths 

► Niche segment: The company is a pure-play ER&D player. It has some advantage over general IT services companies which provides similar services.
P&G, Rockwell among clients: The company's clients include P&G, Rockwell Automation, UTC, Calsonic Kansei, Eaton and Danaher. Some customers have been with it for the past 10 years.  

► Investment in new technologies: The company is venturing into engineering analytics, IoT power electronics and M2M in a bid to capitalise on key growth areas and trends. 

► Strong Brand: With engineering major L&T as parent, the company enjoys some competitive advantages. It benefits from the promoter's global network and its potential business opportunities 

Weaknesses 

► Limited operating history. 
► The ER& segment is competitive and could affect the way the company prices its products. 
► A total of 2000 of 9,406 employees of the company are stationed abroad. Any restrictive immigration measures or violation in visa norms could trouble the company. 
► The company receives dollars and euros given it focus on overseas market. Revenues denominated in dollar and in Euro amounted to 76.2 per cent and 11.3 per cent of our revenues from operations in FY 2016. A fluctuation in exchange rate may thus hit the company's revenues. 
► Company revenue depends to a large extent on a limited number of customers, and its revenue could decline if they lose a major customer.. The company's top 20 customers contributed 53.8 per cent of its revenues in FY 2016. 
► Cut in R&D budgets by existing and prospective customers may hurt pricing. Set up of captive research and development centres by clients may reduce orders. 
► North America and Europe accounts for a major chunk of revenues. Weakness in these geographies may dent the company's growth prospects. 
Company financial details as below:-


Conclusion:- L&T Technology Services being a very new company has a good brand value coming from L&T parent company but that doesn't mean that this IPO is going to make any money for you. You must remember L&T Infotech IPO which came recently is still trading at 10% discount to its offer price. 

Link to L&T Technology Services IPO Prospectus 

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Location: Mumbai, Maharashtra, India

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