L&T Technology Services (LTTS IN) – Q2FY27 Result Update – Gaining vertical strength; conservative on margins – HOLD

LTTS delivered a healthy Q2FY27 performance, with revenue growth of 2.7% QoQ CC beating our estimate of 1.9%, while EBIT margin expanded 60bps QoQ to 16.3%, above our estimate of 16.0%. Growth was led by Sustainability (+4.9% QoQ), while Mobility sustained its momentum (+2.3% QoQ), driven by Aerospace, Rail and North American auto, despite continued weakness in European auto. Tech declined 0.9% QoQ, reflecting a scheduled Medtech ramp-down and softness in pure-play software. Large-deal TCV remained strong at US$203mn, with over 50% AI-led, while annualised revenue from Engineering Intelligence (EI)-led solutions reached US$120mn (~9.5% of revenue), highlighting growing traction in AI-led engineering services. Improving deal conversion and a healthy pipeline drive management’s confidence to continue its revenue growth momentum in H2FY27. With strong H1 performance and healthy deal wins, we raise our FY27E/FY28E revenue CC growth estimates to 3.0%/8.0% (2.7%/7.6% earlier). Broad-based margin expansion enabled LTTS to achieve its mid-16% EBIT margin aspiration ahead of schedule on account of growing contribution from high-margin business. Despite H1 EBIT margin reported at 16.0%, the management’s commentary on medium-term margin improvement remained conservative, with wage hikes expected to weigh on H2 profitability. We are passing on Q2 beat and revising our EBIT margin estimates to 15.7%/15.9% FY27E/FY28E (from 15.5%/15.8% earlier). We value the stock at 20x Sep. 28E earnings to arrive at TP of INR 3,390. The current valuations capture all positives, providing limited upside. We maintain our HOLD rating.