KPIT Tech, Tata Elxsi, LTTS: Choice Broking picks top ER&D stock ahead of Q3 results
Choice Broking said near-term demand visibility stayed weak in Q3, with automotive and aerospace segments showing early signs of stabilisation.
- Jan 2, 2026,
- Updated Jan 2, 2026 5:45 PM IST
Choice Broking in a fresh note on Indian engineering research and development (ER&D) services companies said it sees another subdued quarter in Q3FY26, as demand conditions stabilised but remained constrained by prolonged decision-making cycles at global clients, particularly in the US and Europe.
Among its coverage universe, Choice Broking said it preferred KPIT Technologies, citing better earnings visibility and stronger positioning in automotive digital engineering. It suggested target prices of Rs 4,850 for L&T Technology Services, Rs 4,120 for Tata Elxsi, Rs 1,190 for Cyient and Rs 1,400 for KPIT Technologies.
Choice Broking said near-term demand visibility stayed weak in Q3, with automotive and aerospace segments showing early signs of stabilisation, while broader industrial and discretionary spending continued to lag. The brokerage said uncertainty around product roadmaps, budget realignments and cost-optimisation programmes continued to delay large ER and D contracts.
Choice Broking said revenue growth across the sector is likely to remain muted, with mid-single digit sequential growth of around two to three per cent in dollar terms, as OEMs remained cautious in committing to large discretionary engineering programmes. The brokerage added that while non-auto verticals such as aerospace and defence showed relative resilience, overall demand recovery remained slower than earlier expectations.
On margins, Choice Broking said ER&D are expected to report modest sequential expansion, aided by favourable foreign exchange movement, depreciation benefits, utilisation optimisation and tight cost controls. However, it cautioned that structural margin improvement remained elusive due to weak operating leverage. The brokerage said headcount trends were likely to stay flat to negative, reflecting near-term demand uncertainty and delayed capacity ramp-ups.
Looking ahead, Choice Broking said a meaningful recovery is now contingent on FY27, supported by expectations of gradual improvement in CY26 client budgets, easing macro uncertainty and better visibility on large deal conversions. The brokerage added that management commentary around medium-term demand drivers such as software-defined vehicles, electric vehicle electrification, industrial automation, artificial intelligence-led engineering and a recovering semiconductor cycle would be key for investor sentiment.
Choice Broking also warned of downside risks from valuation correction, noting that ER and D stocks had already corrected sharply from their FY24 highs. While near-term earnings risk remained elevated due to muted revenue prints and margin uncertainty, the brokerage said medium-term risk-reward was improving selectively for companies with strong execution track records and balance sheet resilience.
The brokerage maintained a neutral view on the sector, stating that while demand appeared to have bottomed out, the pace of recovery is slower than previously anticipated.
Choice Broking in a fresh note on Indian engineering research and development (ER&D) services companies said it sees another subdued quarter in Q3FY26, as demand conditions stabilised but remained constrained by prolonged decision-making cycles at global clients, particularly in the US and Europe.
Among its coverage universe, Choice Broking said it preferred KPIT Technologies, citing better earnings visibility and stronger positioning in automotive digital engineering. It suggested target prices of Rs 4,850 for L&T Technology Services, Rs 4,120 for Tata Elxsi, Rs 1,190 for Cyient and Rs 1,400 for KPIT Technologies.
Choice Broking said near-term demand visibility stayed weak in Q3, with automotive and aerospace segments showing early signs of stabilisation, while broader industrial and discretionary spending continued to lag. The brokerage said uncertainty around product roadmaps, budget realignments and cost-optimisation programmes continued to delay large ER and D contracts.
Choice Broking said revenue growth across the sector is likely to remain muted, with mid-single digit sequential growth of around two to three per cent in dollar terms, as OEMs remained cautious in committing to large discretionary engineering programmes. The brokerage added that while non-auto verticals such as aerospace and defence showed relative resilience, overall demand recovery remained slower than earlier expectations.
On margins, Choice Broking said ER&D are expected to report modest sequential expansion, aided by favourable foreign exchange movement, depreciation benefits, utilisation optimisation and tight cost controls. However, it cautioned that structural margin improvement remained elusive due to weak operating leverage. The brokerage said headcount trends were likely to stay flat to negative, reflecting near-term demand uncertainty and delayed capacity ramp-ups.
Looking ahead, Choice Broking said a meaningful recovery is now contingent on FY27, supported by expectations of gradual improvement in CY26 client budgets, easing macro uncertainty and better visibility on large deal conversions. The brokerage added that management commentary around medium-term demand drivers such as software-defined vehicles, electric vehicle electrification, industrial automation, artificial intelligence-led engineering and a recovering semiconductor cycle would be key for investor sentiment.
Choice Broking also warned of downside risks from valuation correction, noting that ER and D stocks had already corrected sharply from their FY24 highs. While near-term earnings risk remained elevated due to muted revenue prints and margin uncertainty, the brokerage said medium-term risk-reward was improving selectively for companies with strong execution track records and balance sheet resilience.
The brokerage maintained a neutral view on the sector, stating that while demand appeared to have bottomed out, the pace of recovery is slower than previously anticipated.