Key Takeaways
- Tech Mahindra’s revenue jumped 8% YoY, but net profit slipped 1% in FY2025.
- The stock slipped 2.09% to ₹1,502.40, making it a top Nifty‑50 loser.
- Margin compression is echoing a sector‑wide pricing squeeze in Indian IT services.
- Peers Tata Consultancy Services (TCS) and Infosys are showing steadier earnings, widening the gap.
- Bearish sentiment on Moneycontrol could amplify short‑term volatility, but a longer‑term upside remains if cost discipline improves.
You missed the warning signs on Tech Mahindra, and the market just reminded you.
Why Tech Mahindra’s Revenue Growth Masks Profit Pressure
The headline figure looks attractive: revenue climbed from ₹13,285.6 cr in Dec‑2024 to ₹14,393.2 cr in Dec‑2025, an 8.3% increase. Yet net profit rose only from ₹982.2 cr to ₹1,117.7 cr, a 13.8% jump that translates into a flat‑to‑slightly‑lower operating margin when you factor in higher staffing costs and rising SG&A expenses.
Operating margin is the ratio of operating profit to revenue and is a key gauge of profitability for service‑oriented firms. When margins compress, the top‑line growth is often a “growth‑at‑any‑cost” story that can’t sustain investor confidence.
Tech Mahindra’s earnings per share (EPS) followed a similar pattern – incremental gains that barely offset the dilution from its 1:1 bonus issue and recent stock split. The cash‑flow statement shows operating cash still healthy, but free cash conversion has slipped, hinting at capital‑intensive projects that may not yet be cash‑generative.
Sector Trends: Pricing Pressure and the Move to Cloud‑First Models
The Indian IT services sector is undergoing a structural shift. Global clients are accelerating cloud migrations, AI adoption, and digital transformation, but they’re also demanding more outcome‑based pricing. This compresses traditional labor‑heavy margins.
According to a recent industry survey, average gross margins for Indian IT firms fell from 41% in FY2022 to 38% in FY2025. Companies that have successfully re‑skilled their workforce toward high‑value cloud and AI services (e.g., TCS, Infosys) have mitigated the hit, whereas firms still reliant on legacy telecom and BPO contracts see sharper declines.
Tech Mahindra’s strategic focus on telecom, especially 5G rollout, is a double‑edged sword. While 5G promises multi‑billion‑rupee contracts, the rollout timeline is still uncertain, and the initial phases are capital‑intensive, dragging short‑term profitability.
Competitor Landscape: How Tata and Infosys Are Outpacing Mahindra
TCS reported a 9% YoY revenue rise with a stable 23% operating margin, driven by cloud services and digital consulting. Infosys posted a 10% revenue gain and improved margins by tightening delivery models.
Both peers have announced aggressive up‑skilling programs and have begun to monetize AI‑driven offerings, translating into higher billable rates. In contrast, Tech Mahindra’s margin fell to 12.2% in FY2025, widening the gap and prompting analysts to downgrade the stock to “bearish”.
From a valuation perspective, TCS trades at a forward P/E of 22x, Infosys at 20x, while Tech Mahindra lingers near 18x but with a lower earnings growth outlook, making the discount less about price and more about risk.
Historical Context: Past Revenue‑Growth‑Only Episodes
Tech Mahindra isn’t the first Indian IT firm to see revenue surge while profits stagnate. In FY2018, the company posted a 12% revenue rise but saw margins dip due to a surge in low‑margin BPO contracts. The stock fell 4% over the quarter, and it took two years of strategic refocusing on digital services to recover the earnings multiple.
History suggests that if the firm can pivot quickly toward higher‑margin services, the market may reward it. However, the transition often requires sizable cap‑ex and talent acquisition, both of which can suppress short‑term earnings.
Technical Snapshot: What the Charts Are Whispering
On the daily chart, the stock broke below its 20‑day simple moving average (SMA) and is now testing the 50‑day SMA at ₹1,515. The Relative Strength Index (RSI) sits at 38, edging into oversold territory, which could set the stage for a short‑term bounce if buying interest returns.
Volume during the decline was above average, indicating conviction among sellers. A clean retest of the 20‑day SMA with bullish volume could be a signal for a technical reversal, but the broader sector trend remains sideways.
Investor Playbook: Bull vs. Bear Cases
Bull Case: If Tech Mahindra successfully monetizes its 5G and digital transformation contracts, margins could rebound by 150‑200 basis points within 12‑18 months. A turnaround in free cash flow conversion would also support a higher dividend payout, appealing to yield‑seeking investors. In this scenario, the stock could regain 8‑10% upside, aligning with sector peers.
Bear Case: Continued margin compression, delayed 5G contracts, and competitive pressure from TCS/Infosys could keep earnings flat. A further dip below the 50‑day SMA would likely trigger stop‑loss orders, pushing the stock toward ₹1,400. In such a case, a defensive posture—either by reducing exposure or by hedging with options—might be prudent.
Given the current bearish sentiment on Moneycontrol and the stock’s position near key technical support, a balanced approach is advisable: consider a modest add‑on on any pull‑back to test the 20‑day SMA, while keeping a stop‑loss around the 50‑day SMA to protect against a deeper correction.