L&T Technology Services leads ER&D pack as Tata Elxsi stumbles in Q1

Healthy growth and margin gains contrast with rising cost pressures and weaker profitability

Even as the software engineering research and development (ER&D) space saw an earnings warning from KPIT Technologies and margin compression at Tata Elxsi in the first quarter (April-June/Q1) of 2026-27 (FY27), L&T Technology Services (LTTS) reported a healthy performance during the quarter.

 

KPIT projected a 1 per cent year-on-year decline in dollar revenue and a sharp sequential drop in operating and net profit margins. Elxsi’s earnings before interest and tax (Ebit) margin slid 346 basis points (bps) sequentially. LTTS, however, reported healthy revenue growth, while its margins also expanded on a sequential basis.

 

While Elxsi’s stock is down 4.5 per cent and KPIT has lost 22 per cent since its profit warning two weeks ago, LTTS gained 6.7 per cent in trade on Wednesday. Led by the sustainability business and a recovery in the mobility segment, LTTS reported strong constant currency revenue growth of 1.5 per cent sequentially. While the sustainability business grew 4.3 per cent, extending the momentum seen over the past seven quarters, the mobility segment rose 2.3 per cent, helping offset weakness in the technology segment. Ebit margin improved 47 bps quarter-on-quarter (Q-o-Q) to 15.7 per cent, aided by a better business mix and operational discipline.

 

Analysts Vinesh Vala and Amit Chandra of HDFC Securities said LTTS’ transition from a traditional ER&D player to an engineering intelligence solutions company is gaining meaningful traction, reflected in stronger client engagement and a healthy large-deal pipeline, with $100 million in large-deal wins.

 

The company is positioning itself as a strategic transformation partner, enabling customers to redesign engineering workflows, reduce development timelines, and improve project outcomes. LTTS has reiterated its confidence in achieving its Lakshya 31 targets of 13-15 per cent annual dollar revenue growth and 16-17 per cent Ebit margins over the next five years. While retaining its ‘add’ rating, HDFC Securities has raised its FY27 and 2027-28 (FY28) earnings estimates by up to 2.9 per cent and increased its target price to ₹3,410.

 

In contrast, Elxsi’s Q1FY27 results were a mixed bag. Revenue grew 1.3 per cent Q-o-Q, driven by the rampup of earlier wins in the media and communications vertical, which expanded 2.9 per cent sequentially, compared with 5.6 per cent in the fourth quarter (January-March/Q4) of 2025-26. The transportation business remained sluggish, particularly in the European and German markets, due to slower decision-making and weaker original equipment manufacturer spending.

 

The disappointment came on the margin front. One-off costs included elevated upfront investments for higher onsite presence, rising subcontractor costs, and transition expenses, which together impacted margins by 150 bps. The remaining impact (220 bps) stemmed from investments in sales and delivery personnel, artificial intelligence initiatives, bad debt provisions, and visa-related costs. These were partly offset by a 40-50-bp tailwind from favourable foreign exchange movements.

 

Factoring in the weak margin performance and continued investments, Prabhudas Lilladher Research has reduced its FY27 and FY28 Ebit margin estimates by 130 bps and 110 bps, respectively. While it has maintained its FY27 revenue growth estimate, it has lowered its FY28 growth forecast to 8.8 per cent from 10 per cent earlier, reflecting a slower recovery in the European automotive market. Given the growth uncertainty and incremental margin pressure, analysts led by Pritesh Thakkar have downgraded the stock from ‘hold’ to ‘reduce’ and set a target price of ₹3,350.