- Revenue grew 1.7% QoQ, outpacing consensus of 0.5%.
- EBIT margin jumped 100 bps to 13.1%, beating estimates.
- Adj. PAT missed the forecast, partly due to a one‑off labor‑code charge.
- New NN deal worth $1.1 bn boosts FY outlook.
- Motilal Oswal targets 41% upside at INR 2,350.
Most investors skimmed the headline numbers and missed the catalyst hidden in the details.
Tech Mahindra’s Revenue Beat: What the Numbers Reveal
Tech Mahindra posted third‑quarter FY26 revenue of $1.6 bn, a 1.7% quarter‑over‑quarter increase on a constant‑currency basis. Analysts had penciled in only 0.5% growth, making the beat more than three times the expectation. The uplift was driven by three core verticals:
- Retail rose 4.0% – reflecting stronger digital commerce contracts.
- Technology services grew 3.0% – buoyed by cloud migration projects.
- Healthcare added 3.0% – a sign that pharma‑tech collaborations are gaining traction.
Conversely, the BFSI segment slipped 6.2% in USD terms, a reminder that banking and insurance clients are still cautious amid tightening credit conditions. The mixed segment performance mirrors a broader industry pattern where high‑margin digital services outpace legacy system maintenance.
Tech Mahindra’s Margin Expansion vs. Peer Benchmarks
The company’s EBIT margin climbed 100 basis points to 13.1%, eclipsing the consensus forecast of 12.7%. This improvement stems from two levers:
- Higher‑margin digital deals that carry better cost structures.
- Operational efficiencies realized after the 2023 cost‑optimization program.
When stacked against peers like Tata Consultancy Services (TCS) and Infosys, Tech Mahindra’s margin still lags (TCS sits near 23% and Infosys around 21%). However, the upward trajectory is noteworthy because the company has historically trailed the sector’s median by roughly 4‑5 percentage points. If the margin trend continues, the gap could narrow, unlocking valuation upside.
Sector Pulse: IT Services Growth Amid BFSI Slowdown
The Indian IT services sector is navigating a pivot. While BFSI demand wanes due to regulatory headwinds, retail, healthcare, and technology verticals are accelerating digital transformation budgets. This reallocation is evident in Tech Mahindra’s segment mix, with non‑BFSI revenue now contributing over 70% of total sales.
Analysts estimate the sector will expand 6‑7% YoY through FY28, driven by AI, cloud, and cybersecurity spend. Companies that can capture cross‑industry projects stand to benefit from higher utilization rates and better pricing power.
Historical Turnaround Patterns and What They Teach
Tech Mahindra’s last major turnaround occurred in FY2022‑23 when it shifted focus from low‑margin legacy services to high‑value digital engagements. The stock rallied roughly 35% over the following 12 months, driven by margin expansion and a series of large‑ticket deals similar to the recent $1.1 bn NN contract.
History suggests that once the margin trajectory turns positive and the deal pipeline solidifies, the market rewards the stock with a multi‑digit premium. The key difference this time is the scale of the new deal—up 34% QoQ and 47% YoY—providing a clearer runway to FY28 targets.
Valuation Lens: 26x FY28E EPS Explained
Motilal Oswal values Tech Mahindra at 26 times its FY28 estimated earnings per share, translating to a price target of INR 2,350. This multiple is derived from:
- A projected EPS CAGR of roughly 15% from FY26 to FY28, underpinned by margin improvement and revenue diversification.
- A sector‑adjusted discount rate that reflects the company’s higher risk profile relative to peers.
- An upside potential of about 41% from the current market price.
In absolute terms, the valuation sits below the sector median of 30‑32x FY28E EPS, making Tech Mahindra appear relatively cheap on a forward basis.
Investor Playbook: Bull and Bear Scenarios for Tech Mahindra
Bull Case: Continued margin expansion beyond 13.5%, further diversification away from BFSI, and successful execution of the NN contract could push EPS growth to 18% YoY. In this environment, the stock could trade at 30x FY28E EPS, delivering a 70% upside.
Bear Case: If BFSI weakness deepens and the company fails to replace that revenue with high‑margin digital wins, EBIT margin may regress below 12%. Combined with the one‑off labor‑code charge, earnings could miss forecasts, dragging the valuation multiple down to 20x and eroding up to 15% of the current price.
Investors should monitor three leading indicators: margin trends in the next two quarters, the realization timeline of the NN deal, and BFSI revenue recovery. Align position sizing with your risk tolerance, and consider a phased entry to capture upside while limiting downside exposure.