Netweb, Tata Tech, Cyient, Tata Elxsi, LTTS, Sagility, KPIT Tech: Fresh target prices

The engineering, research and development (ER&D) segment has witnessed select signs of recovery in the third quarter of FY26, according to ICICI Securities, with management commentaries suggesting further improvement from the fourth quarter of FY26 through the first quarter of FY27.

Despite this, the sector as a whole has remained under pressure, recording an average decline of 11 per cent since the introduction of Anthropic plugins in February 2026, the brokerage noted. The latest developments have prompted a reassessment of growth drivers and risks for ER&D companies.

ICICI Securities observes that adjacent industries such as off-highway, aerospace, and semiconductors, in combination with a robust deal pipeline, are expected to sustain demand for ER&D players in the medium term. Several industry themes are currently shaping the landscape, including greater focus on solutions and outcome-based pricing, fixed price projects, adoption of agentic AI, muted hiring, and the pursuit of margin expansion through human-AI hybrid operating models.

The brokerage said that ER&D companies are comparatively better positioned to withstand AI-led disruption due to their deeper competitive moats. This resilience is attributed to the high stakes associated with their offerings, as well as a lower reliance on repetitive coding tasks, which are more susceptible to automation. A higher mix of mechanical engineering revenue—which was earlier considered a disadvantage—could now serve as a protective moat against automation by AI.

ICICI Securities identifies Cyient Ltd and Tata Technologies Ltd as the preferred picks within the ER&D universe, citing their substantial mechanical engineering components and sectoral expertise. For Cyient, specialisation in plant engineering, aerospace, and semiconductors, and for Tata Tech, strengths in vehicle engineering and aerospace, as well as traction from recent deal wins, underpin their favourable outlook.

The brokerage also highlights that ER&D companies with a strategic pivot towards data centre engineering and AI-driven infrastructure, such as LTTS, are positioned to emerge as long-term survivors in the evolving AI landscape. These firms benefit from the complexities inherent in their project delivery, which are less affected by advances in general-purpose AI tools.

Despite the perceived resilience, ICICI Securities has downgraded the one-year forward price-to-earnings (PE) multiples for the ER&D sector, citing reduced pricing power as a result of AI-driven reductions in coding effort and shorter project timelines. This adjustment reflects evolving market realities and the need for sector participants to differentiate through project complexity and domain expertise.

The work performed by ER&D firms is understood to be more complex than that of pure-play IT services, said to ICICI Securities. The brokerage notes that ER&D engagements often require a deep understanding of the client's environment and products, significant human intervention, and are influenced by limited availability of training data for large language models, which constrains the impact of AI automation.

In the health technology domain, ICICI Securities has expressed a positive view on Inventurus Knowledge Solutions Ltd (IKS Health), referring to its platform-led and FTE-light business model. It has reported an industry-leading and rising Ebitda per employee of Rs 9.1 lakh as of Q3FY26, along with a strong return on equity of 33 per cent. The successful adoption of AI has contributed to platform-oriented growth.

ICICI Securities reiterates that the deflationary impact from AI-led tools is likely to be less pronounced for ER&D companies than for IT services, which could result in ER&D firms commanding higher valuation multiples relative to their IT counterparts.

The firm draws parallels with the gradual adoption of driverless technologies, noting the persistence of human oversight and the complexity of real-world environments as enduring factors in ER&D project delivery. Netweb Technologies India Ltd also remains among top picks from this space.

ICICI Securities has a 'buy' rating on IKS Health (Target Price: Rs 2,120), Sagility India Ltd (Target Price: Rs 66), Indegene Ltd (Target Price: 492) and Netweb Tech (Target Price: Rs 4,110), while it has given 'add' rating to Tata Technologies (Target Price: Rs 700) and Cyient (Target Price: Rs 1,130).

It has a 'hold' rating on L&T Technology Services Ltd (Target Price: Rs 3,550) and KPIT Technologies Ltd (Target Price: Rs 880), while it has suggested to 'sell' Tata Elxsi (Target Price: Rs 4,400). Despite trimmed target prices, these stocks suggest up to 47 per cent upside potential.