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Good Q2: Strong Deal Wins & Sustainability Segment to Drive H2 Recovery

LTTS is well-positioned for a H2FY26 recovery, driven by sustained large-deal momentum, margin tailwinds from operational efficiencies and continued traction in the high-growth Sustainability and AI-led engineering segments. Integration synergies from Intelliswift and sharper focus on value-accretive portfolios are expected to strengthen profitability. While near-term execution remains key, robust deal pipelines and improving demand outlook underpin confidence in medium-term growth. We maintain our PE multiple at 28x, arriving at a TP of INR 4,850 and upgrade our rating from ADD to BUY, reflecting the recent stock correction.

LTTS Reported Q2FY26 Performance In Line with our Estimates

* Revenue for Q2FY26 was INR 29.8Bn, up 1.3% QoQ and 10.4% YoY in CC. (vs CIE est. at INR 29.7Bn).

* EBIT for Q2FY26 came in at INR 4.0Bn, up 4.4% QoQ and 2.7% YoY (vs CIE est. at INR 4.0Bn). EBIT margin was up 10bps QoQ but down 170bps YoY to 13.4% (vs CIE est. at 13.4%).

* PAT for Q2FY26 stood at INR 3.3Bn, up 4.1% QoQ and 2.8% YoY (vs CIE est. at INR 3.0Bn).

Strong Deal Wins Offset Auto Softness; LTTS Poised for H2 Acceleration:

LTTS reported revenue of INR 29,795Mn in Q2FY26, up 4% QoQ and 15.8% YoY, driven by continued momentum in Sustainability and Tech segments. Deal wins remained strong with record large-deal TCV of USD 292Mn (80% new business), reflecting a healthy demand visibility.

* Sustainability grew 12.6% YoY, led by ramp-ups in Industrial & Plant Engineering.

* Mobility remained subdued amid continued auto program pauses.

* Tech segment rose 28.6% YoY, supported by Intelliswift integration and data engineering traction.

The company is executing structural changes to focus on value-accretive areas, revamping sales, prioritising multi-year high-value contracts. Further, the company is scaling up its AI-first delivery model with strategic partnerships, aiming to drive margin expansion and achieve USD 2Bn revenue target. We expect steady double-digit growth of 11.7% over FY25–28E, supported by a strong deal momentum, rising AI-led demand and broad-based execution, though near-term growth may remain modest amid automotive softness and ramp-up lags.

Margin Expands; Mid-16% EBITM Target by Q4FY27E Remains Intact:

EBITM rose 10bps QoQ to 13.4% in Q2FY26, aided by operational efficiencies and improving mix from high-margin Sustainability deals. Management expects further improvement in H2FY26, driven by higher offshoring and AI-led delivery automation while Intelliswift integration should add incremental gains. LTTS reiterated its mid-16% margin target by Q4FY27E. We remain conservative, factoring EBITM expansion to 15.7% by FY27E, as execution discipline and revenue mix improvement offset near-term wage and mobility headwinds.

Management Call – Highlights

* Growth Outlook (H2FY26): Management expects both, Revenue and EBITM, to see improvement in H2FY26, with growth anticipated to be better than H1.

* Working Capital: The combined Days Sales Outstanding (DSO) stood at 114, a reduction of 2 days as compared to Q1, remaining within the target range of 110–115 days.

* Record Deal Wins: LTTS achieved a record high large-deal TCV of USD 292Mn in Q2, including 2 significant deals worth USD 100Mn and USD 60Mn.

* Net New Business: Approximately 80% of the recent deal wins represent net new business, with remaining 20% being renewals.

* Order Backlog and Duration: The order book and backlog have grown. Management noted that the average duration for large deals (USD 10Mn plus TCV) is typically around 4 years.

* Sustainability Segment Strength: It delivered 3% sequential growth and 12.6% annual growth, reflecting steady demand and execution strength. This segment recorded the company's largest-ever deal win of USD 100Mn in the industrial sub-segment, with the work being largely offshore and having high margin (28.1% in Q2).

* Mobility Segment Challenges and Recovery: It remained subdued due to continued program pauses and muted decision-making. It is expected to be muted in Q3 due to cyclical impacts from furloughs but is anticipated to return to growth and better margins in Q4FY26.

* Tech Segment: It remained resilient, growing 28.6% annually, benefiting from the inclusion of Intelliswift revenue over the previous year. Large deals currently in advanced stages of negotiation are expected to help continue Tech's growth trajectory in H2.

* End of Client Support: The strategic support provided to certain strategic customers through price or volume discounts has concluded as of the end of Q2FY26. This event is expected to contribute significantly to margin improvement in H2.

* AI Integration: The launch of the internal AI platform (leveraging AI across delivery, HR, finance, marketing and IT functions) is intended to deliver efficiencies and aid in margin improvement.

* Intelliswift Integration: The integration plan for the Intelliswift acquisition continues to show results with sequential improvement in margin. Management expects Intelliswift margin to eventually align with the overall tech segment margin.

* Innovation Investment: LTTS has filed 216 patents in AI and Gen AI alone and its overall patent count has exceeded 1,600 as of Q2FY26. The proprietary AI framework PLxAI is deployed across 36 use cases.

* AI Monetisation: Revenue from licensed products, including AI platforms, currently accounts for about 1% of trailing 12-month revenue, with the goal to expand to 5% in the medium term.

* Market Positioning: The shift of clients in the automotive sector (80– 85% of LTTS's automotive work) now comes from OEMs, whereas previously, LTTS worked predominantly with Tier 1 suppliers.

* Macro Opportunities: Management believes the company is wellpositioned to capitalise on opportunities arising from AI spending, softwareisation of products and the ongoing re-industrialisation in the US.

* Talent and Compensation: A wage hike is under consideration, which would be implemented either in Q3 or Q4FY26. Management expects to absorb the potential headwinds from wage hike while still achieving H2 margin improvement.

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