Why L&T Technology shares jumped 11% to hit the Rs 4,000 level afterQ2 results
LTTS’ revenue rose 3.4% sequentially to ₹3,040 crore in the quarter ended September, while dollar revenue increased 2.7% sequentially in constant currency terms to $317 million. EBIT margin expanded 60 basis points to 16.3%, reaching the company’s mid-16% target earlier than expected.
The margin performance was the biggest positive surprise for analysts. Motilal Oswal Financial Services had estimated an EBIT margin of 15.6%, while Nomura had forecast 15.6%. Adjusted profit after tax rose 7.9% sequentially and 19.7% year-on-year to ₹380 crore.
The company also secured a large deal total contract value of about $203 million in the quarter. More than half of the wins were AI-related, while nearly half were linked to the sustainability business. Management is targeting a quarterly large-deal run rate of about $200 million, with the company’s pipeline rising more than 25% from a year earlier.
AI is increasingly becoming a commercial driver rather than merely a technology theme for LTTS. AI-led revenue has reached about $120 million on an annualised basis, or roughly 9.5% of quarterly revenue. More than 16,000 engineers, equivalent to about 67% of the workforce, have been trained in AI, while the company’s AI patent filings during the quarter took its total patent count to 1,808.
Also Read | LTTS reports 67% net profit surge to Rs 548.2 crore, driven by SWC business
The company’s Engineering Intelligence platform, which includes more than 100 solutions, is also gaining traction. LTTS has launched a new engineering intelligence lab with Nvidia and expanded partnerships with Cognite, Anthropic, Nvidia and Databricks.Management believes it is nine to 12 months ahead of peers in Engineering Intelligence. A large AI-led engagement with a global telecom equipment provider began ramping up during the quarter, while technology spending is shifting towards AI infrastructure, silicon, cloud platforms and data centres.
The sustainability vertical was the main growth engine. It accounts for about 38% of revenue and grew roughly 4.9% sequentially. Growth was led by data centres, energy transition, robotics, automation and plant engineering. The segment also remains LTTS’s most profitable business, with an EBIT margin of about 29.5%.
Mobility revenue increased 2.3% sequentially, supported by North American automotive, aerospace, rail and trucks and off-highway businesses. European automotive remained weak amid original equipment manufacturers’ restructuring, with recovery expected over the next nine to 12 months.
The technology vertical declined 0.9% sequentially. Tech infrastructure and semiconductors performed strongly, helped by an AI-led telecom infrastructure deal, but the segment was affected by a MedTech programme ramp-down and delayed follow-on work. Management expects technology growth to remain muted in the third quarter, with recovery from Q4.
Investors also responded positively to management’s expectation that the second half of FY27 will be stronger than the first half. The outlook is supported by the conversion of previously won large deals, an improving order backlog and the ramp-up of ongoing engagements.
LTTS reiterated its long-term aspiration of delivering 13%-15% revenue growth over the next three to five years, with EBIT margins in the 16%-17% range.
The margin target, however, will be tested by wage hikes scheduled for the third quarter, which are expected to have a 50-80 basis-point impact. Management said it expects to maintain margins at mid-16% levels, supported by a favourable business mix, AI-led productivity gains and disciplined selling, general and administrative expenses.
Motilal Oswal retained its Neutral rating while raising its target price to Rs 3,850 from Rs 3,400. It said the company’s fundamentals remained attractive but that the engineering, research and development industry would take more time to recover from weak macroeconomic conditions and pressure in sectors such as auto and technology.
Nuvama retained its Hold rating and raised its target price to Rs 3,450 from Rs 3,400, saying the stock was trading at about 22 times estimated FY28 earnings. Nomura also maintained a Neutral rating and raised its target price to Rs 3,500 from Rs 3,290.
The gap between the stock’s rally and the brokerages’ target prices underscores the market’s willingness to price in a faster conversion of AI-led deal wins into revenue. The next test will be whether LTTS can sustain its $200 million quarterly deal-win run rate, protect margins after the wage increase and deliver the expected second-half acceleration.
(Disclaimer: This article has been written by Nikhil Agarwal, who is not a SEBI-registered Research Analyst or an Investment Adviser. Nikhil Agarwal and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here)
