L&T Technology Services Stock Research Report

Fading profitability, margin target rolls ahead….

LTTS reported strong revenue growth of 3.1% QoQ CC as steady growth momentum in its non-auto portfolio and seasonal strength in SWC helped offset the decline in auto. Management commentary noting healthy growth momentum in Hi-Tech and Sustainability, strong large-deal pipeline, eight large deal wins in Q3 (highest-ever quarterly TCV) and entry into the high-growth software ER&D segment via the Intelliswift acquisition, provides comfort on FY26E revenue growth likely being better than FY25. However, Intelliswift’s weak margin profile (~7–8%) may drag down margins to ~15% with a slow recovery thereafter to 16.5% over FY26–28. We cut our EPS by 2.9%/5.3%/4.6% for FY25/26/27E baking in the acquisition and slowdown in auto sector. We continue to value the stock at 28x on Q3FY26E–Q2FY27E EPS of INR 147 and arrive at a TP of INR 4,110. Retain REDUCE.

Decline in Mobility offset by seasonal strength in Hi-Tech

LTTS reported revenue growth of 3.1% QoQ CC/1.7% QoQ USD (I-Sec: 2.2%/Cons.: 3% QoQ USD) in Q3FY25. Mobility declined 5.2% QoQ CC led by an industry-wide slowing. Sustainability grew 4% QoQ CC. Hi-Tech grew 11.1% QoQ CC led by ramp ups in MedTech, hyper-scalers and communication leveraging SWC capabilities.

Downgrade in FY25 organic growth guidance

LTTS revised its FY25 revenue guidance to ~10% YoY CC, including Intelliswift (3- month contribution in Q4). We estimate 2.1% contribution from Intelliswift in FY25, implying organic growth of sub-8% YoY CC (vs. 8–10% YoY CC earlier). This also implies a high organic ask rate of ~7% QoQ CC in Q4FY25, which is achievable on the back of recently-won large deals ramping up, as per management.

FY26 revenue growth to be better than FY25

Management expects FY26 revenue growth to be better than FY25 led by: 1) steady growth momentum in Sustainability, Hi-Tech and Mobility (ex-auto); and 2) entry into software ER&D through the Intelliswift acquisition. LTTS reported eight large deal wins in Q3FY25 with its highest-ever quarterly TCV. Broad based large-deal pipeline provides comfort on growth momentum ahead.

Intelliswift acquisition drag down margins

EBIT margin at 15.9%, +83bps QoQ in Q3FY25 was impressive given headwinds from two months of wage hike impact (~100bps QoQ) and furloughs. However, going ahead, management expects margins to be ~15% in Q4FY25 with a slow gradual improvement to ~16.5% over FY26–28 due to Intelliswift’s (contributing ~7% to FY26 revenue) weak margin profile of ~7–8%.

Financial Summary