- New CEO Mohit Joshi is steering a clear‑cut turnaround after Dec 2023.
- Management targets a 15% EBIT margin by FY27, driven by higher gross margins.
- Deal‑win momentum and a $20 mn run‑rate account pipeline could accelerate revenue growth.
- Research values Tech Mahindra at 19× FY27E P/E, implying a target of INR 1,600.
- Hold rating persists as the stock has already re‑rated for the earnings recovery.
You missed the early signals of Tech Mahindra's revival, and that cost you potential upside.
Tech Mahindra's FY27 EBIT Margin Goal and What It Means
When a large‑cap IT player announces a 15% EBIT margin target, the market takes notice. EBIT (earnings before interest and taxes) is a direct proxy for operating profitability, stripping out financing and tax nuances. For Tech Mahindra, the current FY26 EBIT margin sits near 11%, meaning the company must lift operating profit by roughly four percentage points over the next twelve months.
That lift hinges on two levers: gross margin expansion and cost discipline. Gross margins have been buoyed by higher‑value services—cloud, digital, and engineering solutions—where pricing power is stronger. Simultaneously, the firm is trimming non‑core headcount and rationalising legacy legacy delivery centers. The combination of better pricing and a leaner cost base creates a credible path to the 15% goal.
Tech Mahindra's Deal‑Win Momentum: The Engine Driving Revenue Acceleration
Since Mohit Joshi took the helm, the sales funnel has shown a noticeable thickening. Management cites “improving deal‑win momentum” as a core pillar. In practical terms, that translates into a higher win‑rate on large transformation contracts, especially in telecom and communications services where Tech Mahindra has deep legacy relationships.
Quarter‑over‑quarter, the company reported a 12% increase in won deals worth over $500 mn, a clear signal that the sales organization is executing on a refreshed go‑to‑market strategy. The pipeline now contains roughly $3 bn of signed letters of intent, a 25% jump from FY25. If even half of those convert, revenue could climb 8‑10% YoY in FY27, comfortably outpacing peers such as Tata Consultancy and HCLTech.
Tech Mahindra's Cross‑Sell Power: USD 20 Million Run‑Rate Accounts Explained
The research report highlights a $20 mn run‑rate account segment that is growing faster than the company average. These are accounts that have moved beyond a single project to a multi‑year, multi‑service relationship. The importance lies in the cross‑sell and up‑sell potential: once a client trusts Tech Mahindra for network services, the next logical step is cloud migration, cybersecurity, or AI‑driven analytics.
Historically, such accounts deliver 30‑40% higher gross margins than one‑off projects because they involve higher‑value services and lower delivery risk. For Tech Mahindra, the average gross margin on these run‑rate accounts sits at 38%, versus 33% on the broader portfolio. Scaling this segment could therefore add a meaningful cushion to the EBIT margin target.
Sector Landscape: How Peer Titans Are Responding
India’s IT sector is entering a consolidation phase, with the top three players—Tata Consultancy Services, Infosys, and Wipro—focusing on high‑margin digital services. Tata Consultancy, for example, has set a FY27 EBIT margin goal of 22% and is aggressively acquiring niche AI firms. Infosys is banking on a 20% margin, leveraging its strong presence in banking and financial services.
Tech Mahindra’s 15% target is modest in comparison, but the company’s niche in communications and its growing foothold in telecom‑grade 5G infrastructure give it a differentiated runway. While peers chase the same digital wave, Tech Mahindra’s deep telecom DNA may allow it to capture a larger share of the $30 bn global 5G services market, a segment projected to grow at 18% CAGR through 2030.
Valuation Perspective: 19× P/E and the Hold Stance
The research team values Tech Mahindra at a forward P/E of 19x based on a projected FY27 EPS of INR 84. At a current share price of INR 1,340, that translates to a target price of INR 1,600, roughly a 19% upside from today’s level.
Why a Hold, not a Buy? The stock has already re‑rated as earnings have improved. The incremental upside is now priced in, leaving limited headroom for a dramatic price jump unless the company dramatically outperforms the 15% margin target or delivers a surprise earnings beat. In essence, the market has already rewarded the turnaround narrative; investors seeking pure upside may need to wait for a catalyst beyond the FY27 forecast.
Investor Playbook: Bull vs. Bear Cases
Bull Case:
- Deal‑win rate accelerates beyond consensus, pushing revenue growth to >12% YoY.
- Cross‑sell success drives gross margin to 39% on run‑rate accounts.
- EBIT margin hits 16% by FY27, triggering a re‑rating to 22× P/E.
- Share price climbs to INR 1,800, delivering ~34% upside.
Bear Case:
- Deal pipeline stalls due to macro‑economic slowdown, revenue growth stalls at 4%.
- Cost‑cutting initiatives under‑deliver, gross margins stay flat.
- EBIT margin falls short at 12%, prompting a downgrade to 15× P/E.
- Share price slides below INR 1,200, erasing recent gains.
For most portfolios, the prudent stance remains a Hold—monitor the FY27 margin trajectory and the pace of deal wins. If the company consistently beats the 15% EBIT target, consider scaling up exposure; if the momentum wanes, trimming exposure may preserve capital.