L&T Tech has outlined an ambitious growth plan. But it's off to a slow start.
Motilal Oswal Financial Services, L&T Tech’s new strategy may not alter its growth path in the short term, but it could open up new avenues for growth, especially in hitherto weak areas such as mobility—a fast-growing segment for its peers. Against this backdrop, the company’s renewed strategy is a step in the right direction. However, the targets seem ambitious.
L&T Tech’s management is gung-ho on ER&D services and expects the onset of a rate-cut cycle in the US to boost demand in this space. India-based sourcing of global ER&D spending grew at a 16% compound annual growth rate over 2014-23 and would likely grow at a 17-22% CAGR over 2023-30, the management said. But the company has some catching up to do before it can benefit from the potential rise in ER&D services demand.
“LTTS’ progress in scaling accounts in the $20-30 million range has been middling despite a broad set of capabilities. In comparison, Indian pure-play ERD peers have at least one $75 million+ account," Kotak Institutional Equities said in a report. The broking firm stated that while L&T Tech’s strategy has the key tenets to scale the business at a healthy rate, the extent of these aspirations might be aggressive.
Also, given the ongoing slowdown in the US and the European Union on discretionary spending, it is better to temper expectations of a sharp revival in the ER&D budgets of clients, according to analysts. L&T Tech’s management said that while the company’s near-term large deal pipeline is double that of last year’s, deal conversions were taking longer than usual to become confirmed orders. L&T Tech expects to exit 2024-25 with revenue of $1.5 billion, up from $1.16 billion in FY24.
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