- EBIT margin jumped to 13.1%, a 100bps QoQ rise that lifts valuation multiples.
- TCV crossed $1 bn this quarter, with LTM TCV now $3.5 bn – a 48% YoY surge.
- 5‑year, $500 m European telco modernisation deal anchors growth from FY27 onward.
- IT services and BPO segments both posted double‑digit QoQ gains.
- Buy rating retained with a target price of ₹1,964, implying a FY28 P/E of 23.6x.
Most investors missed the margin upgrade; that oversight could cost you big gains.
What a 13% EBIT Margin Means for Tech Mahindra’s Valuation
EBIT (Earnings Before Interest and Taxes) margin is a clean measure of operational efficiency. A 100‑basis‑point lift to 13.1% signals that Tech Mahindra is converting more revenue into profit without relying on cost cuts alone. In the Indian IT services space, peers typically hover around 11‑12% EBIT margins. Crossing the 13% threshold nudges Tech Mahindra into a premium valuation tier, justifying a higher price‑to‑earnings multiple. The analyst’s FY28 implied P/E of 23.6x is already below the historical premium for high‑margin IT peers, leaving upside potential if the market re‑prices the stock to reflect the new profit baseline.
Telecom Modernisation Deal: A $500 M Catalyst
The five‑year contract with a European telecom operator is more than a revenue line item; it’s a strategic foothold in a market undergoing massive 5G and network‑softening transformations. The deal will ramp up from Q1 FY27, meaning the bulk of its $500 m value will flow into Tech Mahindra’s books over the next three years. This steady cash stream bolsters the company’s long‑term growth trajectory, diversifies geographic exposure, and deepens its expertise across the telco value chain – from network infrastructure to software (via Comviva) and business process services. Investors should view this contract as a multi‑year earnings engine that underpins the FY28 earnings outlook.
Sector Ripple Effects: How Peers Like Tata and Adani Are Positioned
Tech Mahindra’s margin breakout reverberates across the Indian IT sector. Tata Consultancy Services (TCS) and Infosys have already reported margin compression due to higher payroll and inflationary pressures. In contrast, Tech Mahindra’s mix shift toward higher‑margin telecom and BFSI projects allows it to outpace peers. Adani Enterprises, while not an IT player, is aggressively expanding its telecom subsidiary, Adani Telecom, and may become a future client for Tech Mahindra’s network‑software suite. The emerging “telco‑software” niche is set to attract capital, and firms that can demonstrate both execution and margin resilience stand to win market share.
Historical Parallel: Past Margin Turns and Stock Runs
Looking back, a similar margin expansion occurred at Wipro in FY20 when it shifted focus to digital and cloud services. Wipro’s EBIT margin rose from 10.2% to 12.8% within a year, and its share price rallied over 45% as analysts upgraded earnings forecasts. The pattern suggests that a clear margin upgrade, especially when coupled with a sizable TCV pipeline, often triggers a re‑rating by sell‑side houses and a subsequent price appreciation. Tech Mahindra’s current trajectory mirrors that catalyst‑driven rally, giving investors a historical template to gauge upside.
Technical Indicators You Should Watch
From a chart perspective, Tech Mahindra is trading just above its 200‑day moving average, a bullish signal of sustained momentum. The Relative Strength Index (RSI) sits at 58, indicating room for upside before hitting overbought territory. Volume has been steadily increasing, confirming buyer interest. On the downside, the stock’s support level lies near ₹1,700; a break below could trigger a short‑term correction, but the fundamental tailwinds remain strong.
Investor Playbook: Bull vs. Bear Cases
Bull Case: Margin expansion persists, TCV pipeline grows to $5 bn by FY29, and the European telecom deal delivers on schedule. FY28 earnings beat expectations, prompting analysts to lift price targets. Stock trades at a FY28 P/E of 20x, delivering a 30% upside to the current target of ₹1,964.
Bear Case: Execution delays on the European contract, margin pressure from rising staff costs, or a macro slowdown in telecom capex could stall growth. If EBIT margin reverts to 12% and TCV growth stalls, the stock could retest the ₹1,600 support zone, limiting upside to below 10%.
Overall, the balance of probabilities tilts toward the bull scenario, especially given the clear margin trajectory and the multi‑year contract that anchors future cash flows.