5 Undervalued IT Stocks to Add to your Watchlist
top Indian IT companies. Despite the challenges, there are some undervalued IT stocks worth considering. These stocks are currently trading below their historical averages.
#1 L&T Technology Services At the top of our list, we have L&T Technology Services (LTTS). LTTS is a mid-sized niche Indian IT firm with a primary focus towards exclusive outsourced engineering and R&D Services. Unlike its larger peers, LTTS undertakes complex design and engineering projects that require deep domain expertise.
It operates higher up the value chain, which allows the company to attain higher margins on the services it offers. But none of this has shielded the stock's valutaion. The stock's valuation has declined significantly from its peak of 70x PE in January 2022 to 36x PE at present.
This is a drop of 50%! The current valuation (36x) is still 9% higher than the 5-year median PE of 33x. LTTS caters to industrial products (19% of revenues), transportation (38%), telecom & hi-tech (19%), and process industries (24%). It enjoys a well-balanced and diversified presence across industries in tandem with a strong reputation due to its heavy engineering-focused parent Larsen & Toubro Ltd.
Around 63% of the business comes from North America, 16% from Europe, 13% from India and balance 8% from the rest of the world. The rising demand for digitization, in the post-pandemic era, has driven LTTS' revenue growth in the past few years. While the revenue has grown at a 5-year CAGR of 15.8%, the net profit has grown at 18.3%.
The margins have been robust, allowing returns to expand. The 5-year average return of capital employed (RoCE) and return on equity (RoE) stand at 38.5% and 28%, respectively. Next on our list is Affle India.
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