LTTS gains 9% on Q1 beat; analysts see limited upside despite margin gains

While analysts acknowledged healthy margin expansion and improving management commentary, they said sustained deal wins and stronger execution remain key to a meaningful re-rating

LTTS shares jump 9% after Q1 beat; brokerages stay cautious despite margin-led surprise

 

Shares of L&T Technology Services (LTTS) surged over 9 per cent in intra-day trade on Wednesday, July 15, after the engineering services company reported a better-than-expected performance for the June quarter, aided by robust margin expansion and healthy growth in its sustainability business.

 

The stock climbed as much as 9.04 per cent to an intra-day high of ₹3,591 on the NSE. It later pared some gains and was trading at ₹3,583 apiece at 10:57 AM, up 8.80 per cent from its previous close.

LTTS Q1 results

L&T Technology Services reported a 17.4 per cent year-on-year (Y-o-Y) rise in net profit to ₹352 crore for the first quarter, while revenue increased 11.5 per cent to ₹2,940 crore, driven by growth in its mobility and sustainability businesses.

 

 

In constant currency terms, however, revenue growth stood at 1.9 per cent, compared with 12.8 per cent in the corresponding quarter last year.

 

The mobility business, which has remained under pressure due to tariffs and lower discretionary spending, returned to growth with a 0.8 per cent increase, while the sustainability business grew 11.3 per cent. The technology segment continued to lag, reporting a decline of around 11 per cent.

 

Geographically, North America remained the key growth driver, supported by the auto, trucks and off-highway segments. However, this was partly offset by continued weakness in Europe amid an uncertain business environment and pressure from Chinese automakers.

 

The company's earnings before interest, tax, depreciation and amortisation (Ebitda) margin expanded 200 basis points to 18.7 per cent. Chief Financial Officer Rajeev Gupta said around 80 basis points of the improvement came from cost optimisation, while the balance was driven by the two business segments.

Management commentary

"Our diversified portfolio continues to demonstrate resilience, with the Sustainability segment maintaining double-digit annual growth and the Mobility segment returning to growth during the quarter despite a dynamic market environment. Our Engineering Intelligence solutions are driving larger deal opportunities and deeper client engagements by embedding AI across products, workflows, systems and manufacturing processes," Amit Chadha, chief executive officer and managing director, said in a statement.  Check - TOP GAINERS NSE | TOP LOSERS NSE

Brokerages stay cautious

Brokerages largely remained cautious on LTTS despite the better-than-expected June quarter performance. While they acknowledged healthy margin expansion and improving management commentary, they said sustained deal wins, stronger execution and better revenue visibility over the coming quarters would be key triggers for a meaningful re-rating. Most retained their 'Neutral' ratings, with only marginal changes to earnings estimates and target prices.

Motilal Oswal Financial Services: Neutral

Motilal Oswal Financial Services maintained its 'Neutral' rating on the stock with a target price of ₹3,400, based on 20x FY28E EPS.

 

"We model a USD revenue CAGR of around 7 per cent over FY26-28E, with around 5 per cent Y-o-Y USD growth in FY27E, as Sustainability remains the key growth driver, Mobility improves gradually and Hi-Tech recovers as delayed deals ramp up. While management commentary has turned more constructive, we believe a few more quarters of consistent deal conversion and execution will be needed before building in a stronger growth trajectory," the brokerage said.

 

The brokerage expects EBIT margins to improve to around 15.8 per cent by FY27E, supported by a better business mix and improved execution.

Nomura: Neutral

Analysts Abhishek Bhandari and Karan Nain of Nomura retained their 'Neutral' rating on LTTS. They marginally revised their FY27-FY28 earnings estimates by around 1-2 per cent and raised the target price to ₹3,180 from ₹3,150, valuing the stock at 20x FY28F EPS.

 

"Management expects sequential growth in both revenues and margins in the coming quarters. LTTS remains committed to delivering a 13-15 per cent revenue CAGR over the next five years while maintaining EBIT margins of 16-17 per cent. The company is on track to achieve a mid-16 per cent EBIT margin on or before 4QFY27E, driven by continued growth in the higher-margin Sustainability and Mobility businesses, improving Hi-Tech margins, and enhanced productivity through Engineering Intelligence solutions," Nomura said.

 

The brokerage added that the key upside risks include stronger-than-expected revenue growth and a faster recovery in margins.  ========================================= 

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