L&T Technology Services (LTTS IN) – Q3FY26 Result Update – Strategic restructuring weighs on growth but supports long-term margins – HOLD

The revenue performance (-2.8% QoQ CC) was below our estimates, although it is not comparable on QoQ basis, as the company has re-calibrated some of its business units in Q3 that are operationally low-margin and non-strategic. The carved-out units were majorly a part of Hi-Tech segment, ex-Hi-Tech growth stood at ~1.1% QoQ in USD. The management has laid out 5-year strategy (“Lakshya”) to doubling down on high growth areas and focus on quality revenues, while eliminating commoditized play. We believe the strategy is margin accretive from the quarter itself, but plugging the topline gaps would be challenging in the near-term, where Sustainability remains the only growth engine. After having delivered negative growth over the last 4 quarters, Mobility turned slightly positive (+0.5 QoQ) in Q3. The ramp up of earlier wins within Automotive show signs of recovery, even 50% of Q3 large deal wins ($200m+) fall under Transportation segment, which gives early signs of turnaround. Margins recovered slightly in Q3 due to recalibrating low-margin business. It anticipates Hi-Tech margins to rejoin 12-13% trajectory (currently at 10.6%) due to shifting focus to high margin business and progressing Intelliswift integration. Despite the strategic move, the milestone to achieve ~16% margin remains intact. We are building in 5.0%/3.5/9.0% CC revenue growth, while estimating margins at 13.9%/15.2%/15.7% for FY26E/FY27E/FY28E. With this strategic exercise, our EPS revised downward by ~7% each in FY27E/FY28E. We assign 25x to FY28E EPS that translates a TP of 4,070. Retain HOLD.