India's largest engineering, research, and development (ER&D) companies experienced their slowest growth in years as global automakers tightened spending on new vehicle platforms. According to reports from Kotak Institutional Equities, three of India's four largest ER&D companies—L&T Technology Services Ltd (LTTS), KPIT Technologies Ltd, and Tata Elxsi Ltd—reported their slowest annual revenue growth in at least five years during FY26. LTTS ended the year with $1.23 billion in revenue, up 8.35% year-on-year, while KPIT's revenue rose 4.8% to $724.8 million and Tata Elxsi's increased just 0.8% to $437 million. Tata Technologies Ltd was the only exception, reversing a revenue decline to post 1.5% growth with $619.8 million in revenue, though much of this increase came from its largest client Jaguar Land Rover, which contributes roughly a quarter of its business.
The slowdown reflects a fundamental shift in automaker spending priorities, as reported by Kotak Institutional Equities analysts. Global auto OEMs are reprioritizing R&D spends, shifting focus away from new EV and software-defined vehicles platform development toward sustaining existing model portfolios and extending platform lifecycle. This change is expected to result in smaller deal sizes and higher pricing scrutiny as part of cost-optimization efforts. Each of these companies receives at least a fourth of their revenue from car companies, making them particularly vulnerable to this market shift. LTTS does not disclose automotive customer revenue separately, instead reporting it under its 'mobility segment' which accounts for nearly one-third of total revenue, while KPIT benefited from cloud-related services accounting for about a fifth of its business.
Profitability deteriorated significantly across the sector during FY26. According to reports from Kotak Institutional Equities, LTTS's operating margins fell 90 basis points to 14.5%, KPIT's margins dropped 100 basis points to 16.2%, Tata Technologies' margins declined 220 basis points to 13.9%, and Tata Elxsi's margins fell 330 basis points to 20%. Tata Elxsi CEO Manoj Raghavan acknowledged during the company's post-earnings conference call on 21 April that "given the current geopolitical and all the war and all that, while we have the deals in hand and we will definitely look at ramping up and so on, there could be some amount of uncertainty." He indicated the company may look at high-single digit exit, may not get into a double-digit for automotive.
The current performance represents a stark contrast to five years ago, when each of these companies reported double-digit growth. In FY22, LTTS, KPIT, Tata Technologies, and Tata Elxsi grew by 20%, 19.5%, 47% and 35.3% respectively. As reported by Motilal Oswal Financial Services, KPIT remains well-positioned to benefit from the long-term shift toward software-defined vehicles, supported by its capabilities and end-to-end automotive software stack. The slowdown marks a reversal for a segment that had been one of the brightest spots in India's technology industry, with HCL Technologies' engineering services arm being the company's fastest-growing business in four of the past five years and now contributing nearly a fifth of its $14.66 billion revenue.
The ER&D sector is beginning to resemble larger IT services peers, which have struggled with weak technology spending, AI-led revenue deflation and geopolitical uncertainty. According to reports from Kotak Institutional Equities, three of India's five largest IT services companies reported revenue growth of just 1-6% last fiscal year, while two posted revenue declines. The sector retains one advantage over traditional IT services firms: lower coding-led revenue in their mix, as reported by Mint. Despite current challenges, analysts believe automotive ER&D spending is nearing a bottom, with medium-term software demand remaining structurally intact.
