IGI Logo

Gaining vertical strength; conservative on margins

LTTS delivered a healthy Q2FY27 performance, with revenue growth of 2.7% QoQ CC beating our estimate of 1.9%, while EBIT margin expanded 60bps QoQ to 16.3%, above our estimate of 16.0%. Growth was led by Sustainability (+4.9% QoQ), while Mobility sustained its momentum (+2.3% QoQ), driven by Aerospace, Rail and North American auto, despite continued weakness in European auto. Tech declined 0.9% QoQ, reflecting a scheduled Medtech ramp-down and softness in pure-play software. Largedeal TCV remained strong at US$203mn, with over 50% AI-led, while annualised revenue from Engineering Intelligence (EI)-led solutions reached US$120mn (~9.5% of revenue), highlighting growing traction in AI-led engineering services. Improving deal conversion and a healthy pipeline drive management’s confidence to continue its revenue growth momentum in H2FY27. With strong H1 performance and healthy deal wins, we raise our FY27E/FY28E revenue CC growth estimates to 3.0%/8.0% (2.7%/7.6% earlier). Broad-based margin expansion enabled LTTS to achieve its mid16% EBIT margin aspiration ahead of schedule on account of growing contribution from high-margin business. Despite H1 EBIT margin reported at 16.0%, the management’s commentary on medium-term margin improvement remained conservative, with wage hikes expected to weigh on H2 profitability. We are passing on Q2 beat and revising our EBIT margin estimates to 15.7%/15.9% FY27E/FY28E (from 15.5%/15.8% earlier). We value the stock at 20x Sep. 28E earnings to arrive at TP of INR 3,390. The current valuations capture all positives, providing limited upside. We maintain our HOLD rating.

Revenue: LTTS in Q2 reported revenue of US$317mn, up 2.7% QoQ CC in the continuing business, above our estimate of 1.9% QoQ CC growth. Segment-wise, Sustainability & Mobility grew by 4.8% & 2.3% QoQ respectively while Tech declined by 0.7% QoQ. Sustainability growth was driven by large deal ramp-ups in Industrial Products, while Mobility growth was driven by Auto North America, Aero and Rail, and trucks & off highway

Operating Margin: LTTS reported Q2 EBIT margin of 16.3%, up 60 bps QoQ above our and consensus estimates of 16.0%, driven largely by growth & operational efficiencies, coupled with deal ramp ups. Segment-wise, Sustainability, Mobility & Tech margins improved by 40 bps, 130 bps & 50 bps QoQ respectively.

Deal Wins: Q2 large deal wins came in at USD 203mn, with over 50% being AI related. Nearly half of the total Q2 large deals were in the Sustainability vertical.

Please refer disclaimer at Report
SEBI Registration number is INH000000933