KPIT Tech, Tata Elxsi, LTTS, Tata Tech: Share price targets for ER&D stocks, top pick
JM Financial has initiated coverage on L&T Technology Services Ltd (LTTS) with 'ADD' rating and a target of Rs 3,575, valuing it at 22 times FY28 EPS.
- Oct 7, 2026,
- Updated Oct 7, 2026 11:57 AM IST
JM Financial, while initiating coverage on two Engineering Research and Development (ER&D) stocks, said the addressable ER&D market is structurally growing faster, but valuations should ultimately reflect the growth differential at the company level.
A higher-growth ER&D company can command a premium over IT services companies, but this premium can compress if revenue growth slows or converges with that of traditional IT services companies, JM Financial warned.
In other words, the sector’s structural growth opportunity may support a premium valuation, while near-term growth delivery could determine the extent of that premium, JM said.
"The combination of these two factors helps explain the recent correction in ER&D valuations. The long-term structural opportunity remains intact, but slower near-term growth across several ER&D companies has led to a moderation in the valuation premium. Hence, we argue the appropriate valuation framework for ER&D companies is a function of both the structural growth premium of the sector and the company-specific growth differential versus IT Services," the domestic brokerage said.
JM said ER&D outsourcing penetration remained relatively low at 5.3 per cent, leaving significant headroom for further outsourcing and sees outsourced ER&D spend to compound at 9 per cent annually through 2030.
India, it said, remains structurally well-positioned to capture this opportunity, supported by a deep engineering talent pool, a 50–65 per cent cost advantage versus developed markets and mature global delivery infrastructure, the domestic brokerage said.
JM Financial has initiated coverage on L&T Technology Services Ltd (LTTS) with 'ADD' rating and a target of Rs 3,575, valuing it at 22 times estimated FY28 EPS. "While we remain constructive on the medium-term opportunity and vertical diversification, near-term execution needs to be monitored," it said.
JM also initiated coverage on Tata Elxsi Ltd with 'Reduce' call and a target of Rs 3,200, valuing it at 25 times estimated FY28 EPS, in-line with its target Indian ER&D sector valuation.
"While the medium-term opportunity for the company and its strong track record of execution are inspiring, near-term growth visibility remains weak," it said.
JM Financial maintained 'Reduce' on Tata Technologies with a target of Rs 730. The target for KPIT Tech has been retained at Rs 505 apiece. The targets suggested 3-10 per cent potential upside for the four stocks.
JM said its ER&D basket, comprising KPIT, LTTS, Tata Elxsi and Tata Tech, trades at 25 times one-year forward consensus EPS, representing a 56 per cent premium to NSEIT index at 16 times.
"This premium has narrowed from 105 per cent to 50 per cent as the basket’s growth has moderated from 14 per cent to 2 per cent over FY24–26. In addition, the current ER&D basket multiple of 25x 1-year forward consensus EPS, is also 1.7x SD below its 5-year mean, suggesting that a meaningful part of the near-term growth moderation is already reflected in valuations," it said.
JM said it remained selective within the ER&D sector and prefer LTTS.
"In our view, LTTS offers a combination of structural ER&D exposure, strengthening large-deal momentum and a potential margin recovery, not to mention its current valuation provides a reasonable entry point despite near-term execution being a key variable to monitor," it said.
JM Financial, while initiating coverage on two Engineering Research and Development (ER&D) stocks, said the addressable ER&D market is structurally growing faster, but valuations should ultimately reflect the growth differential at the company level.
A higher-growth ER&D company can command a premium over IT services companies, but this premium can compress if revenue growth slows or converges with that of traditional IT services companies, JM Financial warned.
In other words, the sector’s structural growth opportunity may support a premium valuation, while near-term growth delivery could determine the extent of that premium, JM said.
"The combination of these two factors helps explain the recent correction in ER&D valuations. The long-term structural opportunity remains intact, but slower near-term growth across several ER&D companies has led to a moderation in the valuation premium. Hence, we argue the appropriate valuation framework for ER&D companies is a function of both the structural growth premium of the sector and the company-specific growth differential versus IT Services," the domestic brokerage said.
JM said ER&D outsourcing penetration remained relatively low at 5.3 per cent, leaving significant headroom for further outsourcing and sees outsourced ER&D spend to compound at 9 per cent annually through 2030.
India, it said, remains structurally well-positioned to capture this opportunity, supported by a deep engineering talent pool, a 50–65 per cent cost advantage versus developed markets and mature global delivery infrastructure, the domestic brokerage said.
JM Financial has initiated coverage on L&T Technology Services Ltd (LTTS) with 'ADD' rating and a target of Rs 3,575, valuing it at 22 times estimated FY28 EPS. "While we remain constructive on the medium-term opportunity and vertical diversification, near-term execution needs to be monitored," it said.
JM also initiated coverage on Tata Elxsi Ltd with 'Reduce' call and a target of Rs 3,200, valuing it at 25 times estimated FY28 EPS, in-line with its target Indian ER&D sector valuation.
"While the medium-term opportunity for the company and its strong track record of execution are inspiring, near-term growth visibility remains weak," it said.
JM Financial maintained 'Reduce' on Tata Technologies with a target of Rs 730. The target for KPIT Tech has been retained at Rs 505 apiece. The targets suggested 3-10 per cent potential upside for the four stocks.
JM said its ER&D basket, comprising KPIT, LTTS, Tata Elxsi and Tata Tech, trades at 25 times one-year forward consensus EPS, representing a 56 per cent premium to NSEIT index at 16 times.
"This premium has narrowed from 105 per cent to 50 per cent as the basket’s growth has moderated from 14 per cent to 2 per cent over FY24–26. In addition, the current ER&D basket multiple of 25x 1-year forward consensus EPS, is also 1.7x SD below its 5-year mean, suggesting that a meaningful part of the near-term growth moderation is already reflected in valuations," it said.
JM said it remained selective within the ER&D sector and prefer LTTS.
"In our view, LTTS offers a combination of structural ER&D exposure, strengthening large-deal momentum and a potential margin recovery, not to mention its current valuation provides a reasonable entry point despite near-term execution being a key variable to monitor," it said.