Add L&T Technology Services Ltd For Target Rs 3,800 By Emkay Global Financial Services Ltd
LTTS reported a soft quarter, with its underlying growth and margin trajectory clouded by multiple reporting adjustments—including the reclassification of the SWC business as discontinued operations and the completion of portfolio realignment and restructuring under its Lakshya 31-plan—making like-for-like comparisons difficult. Revenue from continuing operations declined 1.7% QoQ to USD305.9mn (-1.1% CC) due to portfolio rebalancing action. EBITM from the continuing business expanded 40bps QoQ to 15.2%, reflecting early benefits of portfolio rationalization and alignment with its five-year ‘Lakshya’ strategy. LTTS sustained strong deal momentum in Q4, recording a deal TCV of USD182mn, led by Sustainability (~50% of wins) and Mobility (~40% of wins) segments. In the near term, Mobility is expected to return to sequential growth from Q1, Sustainability is likely to maintain its double-digit momentum, and Tech is projected to resume growth from the next quarter. LTTS has guided to outpace the engineering and IT services industry in FY27 and reach mid-16% margin levels on or before Q4FY27. The management aspires to deliver 13-15% USD revenue CAGR (largely organic with some tuck-in acquisitions) and EBIT margins of 16-17% over the Lakshya 31 period (FY26–31). We cut FY27E/28E EPS by 3.6%/5.3% factoring in Q4 performance and SWC divestment. We believe consistent delivery on management’s medium-term growth ambitions would be key for a stock rerating. We retain ADD with TP of Rs3,800 at 22x Mar28E EPS
Results summary
Revenue from continuing operations declined 1.7% QoQ to USD305.9mn (-1.1% CC), reflecting conscious exit from low-margin and non-strategic portfolio (~USD19mn annualized run rate impact). The company has classified the SWC business as discontinued operations from Q4. Revenue performance, including discontinued operations, missed our expectations by ~1%. EBITM from continued operations expanded 40bps QoQ to 15.2%, led by strategic portfolio rationalization. Net profit came in at Rs3.3bn, below our estimates of Rs3.4bn. Adjusted for one-off restructuring expenses, net profit stood at Rs3.7bn. Across segments, the revenue decline was led by Tech (-6.3% QoQ) and Mobility (-0.4%), partially offset by Sustainability (1.6%). Large deal TCV stood at USD182mn in Q4 and USD855mn for FY26 (up 40% YoY), with average large deal wins of USD200mn sustained for the sixth consecutive quarter. Headcount stood at 23,830, up 2.2% QoQ. What we liked: Strong deal intake, SWC divestment aiding EBITM and cash conversion, and a revival in Mobility’s growth. What we did not like: Weakness in Tech, revenue guidance miss.
A refreshed 5-year ‘Lakshya’ plan sounds ambitious
Under its five-year Lakshya 31 plan, LTTS is doubling down on six big bets—softwaredefined mobility, plant build-out, manufacturing and industrial automation, next-gen compute and AI infra, software platforms and AI, and MedTech—which currently contribute under 50% of revenue and are targeted to cross 70% over five years. The plan aspires to deliver 13–15% USD revenue CAGR (largely organic with some tuck-in acquisitions) and EBIT margins of 16–17%, with mid-16% margin levels targeted by Q4FY27 or earlier.
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