These 2 IT stocks get 'Buy' rating from IIFL
Premium- The brokerage house has also upgraded Cyient's (CYL) rating to Buy from Add
Brokerage house IIFL believes India’s Engineering services (ER&D services) industry is structurally well-placed to grow faster for longer, driven by accelerated global digital ER&D spend, rising outsourcing penetration, availability of talent and moving up the value chain.
“ER&D services companies have historically traded at a premium to those of IT services, given their specialized offerings and longer runway for growth given low outsourcing penetration," it said in a note.
The brokerage believes the best way to play the tailwinds for industry is through Buy-rated L&T Technology Services (LTTS) with target price of ₹5,800 per share on initiating coverage on the IT stock, given its diversified exposure and marquee client-base and also the stock is currently trading at a 40%/15% discount to peers TELX/KPIT, despite having the most diversified vertical exposure.
“We believe LTTS’ diversified vertical (>$100 m annualised revenues from each of its five verticals) and client exposures provide leverage to the structural growth story of India’s ER&D market, and at the same time protect against vertical specific cyclicality," it said.
It has also upgraded Cyient (CYL) to Buy from Add with price target of ₹1,280, as it believes it is taking the right steps to revive growth and is currently trading at an attractive valuation.
“Post the organizational restructuring exercise in FY21, we believe CYL is taking the right steps towards reviving consistent & profitable growth, driven by its focus on five key pillars, large deals and mining of existing clients. This, combined with recovery in its largest vertical (Aerospace) and easing of supply constraints in DLM, should lead to US$ revenue Cagr of 13% over FY22-25ii, in our view," IIFL added in the note.
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The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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