L&T Technology Services (LTTS IN) – Q1FY27 Result Update – Solid performance, but valuations capped – HOLD

LTTS delivered a healthy Q1FY27 performance with 1.5% QoQ CC revenue growth and 50bps QoQ EBIT margin expansion to 15.7%, reflecting the benefits of its portfolio restructuring and steady execution. Growth was led by continued strength in the Sustainability segment, supported by deal ramp-ups in Plant Engineering and Industrial Products, while Mobility showed encouraging recovery driven by Aerospace & Rail and Trucks & Off-highway despite continued weakness in Europe. The Tech segment remained soft due to deal closure activities, management expects growth to resume from Q2, aided by the ramp-up of a large telecom deal and other strategic wins in Q1. Large deal momentum remained healthy with ~US$100mn TCV booked during the quarter, while a few delayed deal closures are expected to materialize in Q2, supporting management's confidence of sequential revenue and margin improvement through the year. Management also reiterated its expectation of double-digit growth in Sustainability, while Mobility sees active client conversation on Embedded, SDV and Connectivity areas, which should translate into growth opportunities. While we remain constructive on LTTS' medium-term positioning, we marginally revise our FY27E CC revenue growth estimate to 4.0% (from 4.3%) to reflect the gradual recovery in the Tech segment and slowdown in Europe, while maintaining our FY28E CC growth estimate of 8.9%. Factoring in Q1 margin beat and management's confidence of sustained profitability improvement, we raise our FY27E/FY28E EBIT margin estimates to 15.5%/15.8% (from 15.3%/15.5%). Consequently, we increase our target multiple to 21x FY28E EPS (from 20x), resulting in a revised target price of INR 3,350 (from INR 3,130). We maintain our HOLD rating.