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Gaining some traction Sustainability supports performance; broader growth recovery awaits

* L&T Technology (LTTS)’s 2QFY27 revenue grew 2.7% QoQ in CC terms, above our estimate of 2.2% QoQ CC. Sustainability/Mobility grew 4.9%/ 2.3% QoQ, while Tech was down 0.9% QoQ.

* EBIT margin stood at 16.3%, up 60bp QoQ and above our est. of 15.6%. Adj. PAT rose 7.9% QoQ/19.7% YoY to INR3.8b, vs. our estimate of 3.7b.

* For 1HFY27, LTTS’s revenue/EBIT/adj. PAT grew 11.8%/29%/18.6% YoY in INR terms. In 2HFY27, we expect its revenue/EBIT/adj. PAT to grow 13.2%/21.2%/ 19.8% YoY. We reiterate our Neutral rating on the stock with a revised TP of INR3,850, implying 7% upside.

Our view: 2H likely to be better than 1H

* Growth momentum to strengthen in 2H; long-term aspirations reiterated: LTTS expects stronger revenue growth in 2H than 1H, supported by conversion of previously won large deals, improving order backlog and pipeline, and ramp-up of ongoing engagements. Management reiterated its 13-15% revenue CAGR aspiration over the next 3-5 years, with EBIT margins of 16-17%. We build in 5.9% YoY CC growth for FY27.

* Mid-16% EBIT margins to be sustained despite wage hikes: EBIT margin expanded 60bp QoQ to 16.3%, ahead of management’s earlier timeline of 4Q, with improvement across all three segments. Margin performance was boosted by a favorable segment mix, an offshore mix improvement to 55.9%, and a better fixed-price mix. Wage hikes are scheduled for 3Q, with an estimated 50-80bp impact. Management expects margins to remain around mid-16% levels after absorbing the impact. We build in EBIT margins of 16.0%/16.3% for FY27/FY28, at the lower end of the management aspiration band.

* Strong deal wins and AI-led spending underpin growth visibility: Large deal TCV stood at USD203m in 2Q, with over 50% of wins being AI-led. Management intends to sustain a USD200m quarterly deal-win run rate, with the pipeline up over 25% YoY. Previously won deals are increasingly translating into revenue, although a significant portion of recent AI-led wins is yet to ramp up.

* Sustainability remains the key growth and margin driver: Revenue grew 4.9% QoQ and 13.4% YoY, with the segment contributing ~38% of total revenue and delivering a 29.5% EBIT margin, up 40bp QoQ. Growth was supported by industrial products, data-center infrastructure, energy transition, automation, and plant engineering. Nearly half of the 2Q largedeal wins were in Sustainability, while earlier wins are increasingly moving into execution.

* Tech recovery likely to be back-ended, while Europe remains a headwind for Mobility: Mobility grew 2.3% QoQ, led by North American automotive, aerospace, rail, and trucks/off-highway, while European automotive remained muted amid OEM restructuring. Tech is expected to remain muted in 3Q, affected by a MedTech program ramp-down and delayed follow-on work, before recovering from 4Q, supported by tech infrastructure, semiconductors, and AI-driven engagements.

Valuation and revisions to our estimates

* We model a USD revenue CAGR of ~7% over FY26-28E, with ~5% YoY USD growth in FY27E, as Sustainability remains the key growth driver. Mobility improved in 2Q but the European auto overhang remains, and Hi-Tech is expected to remain muted in 2H. While management commentary has turned more constructive, we believe 2H deal conversion and execution will be needed before building in a stronger growth trajectory.

* We expect EBIT margins to improve 20bp/50bp in FY27/FY28, led by a better mix and execution. We largely retain our estimates. We reiterate our Neutral rating with a revised TP of INR3,850, based on 23x (vs. 20x) FY28E EPS, as we see a better margin trajectory and growth outlook for FY28 with consistency in execution.

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