L&T Technology shares jump nearly 11% as Q2 margins beat forecasts

L&T Technology Services shares climbed nearly 11% to cross ₹4,000 following its September-quarter results, with stronger operating margins, AI-linked contract wins and expectations of faster second-half growth driving investor interest, Economic Times Markets reported on October 21.

The engineering research and development company reported sequential revenue growth of 3.4% to ₹3,040 crore in Q2 FY27. Its earnings before interest and tax margin increased 60 basis points to 16.3%, comfortably exceeding the 15.6% forecast by both Motilal Oswal Financial Services and Nomura. Adjusted profit after tax reached ₹380 crore, up 7.9% from the preceding quarter and 19.7% from a year earlier.

The share-price move is a reported market snapshot, not a live quotation. Despite the rally, Motilal Oswal, Nuvama and Nomura retained Neutral or Hold recommendations, with their revised targets all below ₹4,000.

AI-linked wins strengthen the order pipeline

LTTS secured approximately $203 million in large-deal total contract value during the quarter. More than half of those wins were AI-related, while nearly half were associated with sustainability. These categories can overlap; contract value also represents business secured rather than revenue already recognised.

Management is aiming for roughly $200 million in large deals each quarter. The deal pipeline increased more than 25% year-on-year, and a major AI-led engagement with a global telecom equipment provider began scaling up during the September quarter.

AI-led revenue reached an annualised run rate of about $120 million. More than 16,000 engineers—approximately 67% of the workforce—had received AI training. LTTS also launched an engineering intelligence laboratory with Nvidia and expanded partnerships with Cognite, Anthropic, Nvidia and Databricks.

Sustainability leads; technology remains uneven

Sustainability, which contributes about 38% of LTTS revenue, grew approximately 4.9% sequentially. Data centres, energy transition, robotics, automation and plant engineering supported the expansion. With an EBIT margin of around 29.5%, it remained the company’s most profitable vertical.

Mobility revenue rose 2.3% from the previous quarter, supported by North American automotive work, aerospace, rail, and trucks and off-highway businesses. European automotive demand remained weak as original equipment manufacturers restructured; management expects recovery over nine to 12 months.

Technology revenue declined 0.9% sequentially. Strength in technology infrastructure and semiconductors was offset by a MedTech programme winding down and delays in follow-on work. Management expects subdued growth in the vertical during Q3, followed by recovery from Q4.

Wage increases will test margin resilience

Management expects the second half of FY27 to outperform the first, supported by previously secured contracts moving into execution, an improving order backlog and existing engagements expanding. That remains an outlook rather than an achieved result.

Scheduled Q3 wage increases are expected to weigh on margins by 50–80 basis points. Management nevertheless expects margins to remain around the mid-16% level, supported by business mix, AI-related productivity improvements and control of selling, general and administrative expenses.

LTTS reiterated its longer-term aspiration for revenue growth of 13%–15% over the next three to five years, alongside EBIT margins of 16%–17%.

Higher brokerage targets, but no rating upgrades

Motilal Oswal retained Neutral while lifting its target to ₹3,850 from ₹3,400. It viewed the company’s fundamentals favourably but cautioned that weak macroeconomic conditions and pressure in automotive and technology would delay the broader engineering R&D industry’s recovery.

Nuvama maintained Hold and raised its target to ₹3,450 from ₹3,400, citing a valuation of about 22 times estimated FY28 earnings. Nomura retained Neutral and increased its target to ₹3,500 from ₹3,290.

The results therefore presented two distinct signals: improving margins and substantial AI-linked orders, but continued caution among these brokerages about valuation and the pace of demand recovery.