- Revenue rose 1.7% QoQ in constant currency, outpacing the 0.5% consensus.
- Communications segment surged 2.8% QoQ, driving the third straight quarter of growth.
- New $500 million, 5‑year strategic deal with a European telco adds ~1% to FY27 topline.
- TCV run‑rate now sits at $800 million‑$1 billion, signaling a sustained pipeline.
- Margin outlook improves by 270 bps in FY26 and 200 bps in FY27 after cost‑optimization project Fortius.
- Target price lifted to ₹1,860 with a 21x FY26E multiple; recommendation upgraded to ACCUMULATE.
You missed Tech Mahindra’s latest earnings beat, and your portfolio paid the price.
Why Tech Mahindra’s Revenue Beat Defies Sector Slowdown
In a market where Indian IT peers are grappling with flat or declining order books, Tech Mahindra delivered a 1.7% constant‑currency (CC) quarter‑over‑quarter (QoQ) revenue lift—well above the 0.5% consensus estimate. The uptick was powered primarily by the Communications vertical, which posted a 2.8% QoQ increase, and a seasonal ramp‑up in European automotive projects. While the Banking, Financial Services & Insurance (BFSI) segment slipped 6.3% due to the tail‑end of productivity‑related benefits, the broader growth narrative remains intact.
Constant‑currency (CC) measures strip out foreign‑exchange volatility, giving a cleaner view of operational performance. A QoQ rise, especially when it exceeds expectations, often triggers a re‑rating of earnings forecasts and can catalyze short‑term price appreciation.
How the European Telco Win Shapes FY27 Outlook
The centerpiece of the earnings story is a five‑year strategic agreement worth $500 million with a leading European telecommunications operator. This contract alone is projected to contribute roughly 1% to Tech Mahindra’s FY27 topline. More importantly, the deal sits within a larger 9‑month FY26 total contract value (TCV) of $2.7 billion—a 44% YoY surge that dwarfs the 42% YoY TCV growth recorded in FY25.
TCV, or Total Contract Value, captures the full monetary worth of signed agreements before revenue recognition. A sustained TCV run‑rate of $800 million‑$1 billion per quarter provides a robust runway for outpacing peer‑average top‑line growth, a key strategic objective for the company.
Margin Restoration: Project Fortius and Operating Leverage
Tech Mahindra’s restructuring efforts, dubbed Project Fortius, have already nudged margins into a “comfort band.” The firm expects operating leverage to accelerate as the newly secured large‑scale wins translate into higher utilization of existing delivery capacity. The outlook includes margin improvements of 270 basis points (bps) in FY26, 200 bps in FY27, and an additional 50 bps in FY28.
A basis point equals one‑hundredth of a percent; therefore, a 270 bps uplift translates to a 2.7% absolute margin expansion—material for earnings per share (EPS) growth and shareholder returns.
What Competitors Like Tata & Infosys Are Doing Differently
While Tech Mahindra capitalizes on telco and automotive wins, peers such as Tata Consultancy Services (TCS) and Infosys are leaning heavily on digital transformation and cloud services for North American clients. Those segments are growing at 6‑8% YoY, but they also carry higher pricing pressure due to intense competition. In contrast, Tech Mahindra’s focus on high‑margin communications infrastructure and 5G enablement offers a differentiated revenue mix that can better absorb macro‑headwinds.
Historically, firms that diversify across high‑growth verticals—e.g., telecom, automotive, and IoT—tend to exhibit more resilient earnings during periods of IT spending contraction. Tech Mahindra’s current trajectory mirrors the 2019‑2020 cycle when a series of large telco contracts helped the company post a 12% YoY revenue jump, subsequently leading to a 30% rally in its share price over 12 months.
Sector Trends: 5G, Edge Computing, and the European Automotive Shift
Europe’s push toward 5G rollout and autonomous‑driving platforms is creating a cascade of infrastructure spend. Tech Mahindra’s established relationships with European telcos position it to capture a disproportionate share of this wave. Simultaneously, the European automotive sector is accelerating its digital transformation, demanding end‑to‑end connectivity solutions—an area where Tech Mahindra already has a proven track record.
These macro trends bolster the company’s growth narrative, suggesting that the current revenue lift is likely the first step of a multi‑year expansion rather than a one‑off seasonal spike.
Investor Playbook: Bull vs Bear Scenarios
Bull Case: The European telco win scales, TCV run‑rate stabilizes at $1 billion per quarter, and margin upgrades materialize as projected. The 21x FY26E P/E multiple yields a target price of ₹1,860, implying a 25% upside from current levels. Accumulate rating stands.
Bear Case: If the European contract faces implementation delays or regulatory hurdles, TCV growth could stall, and margin improvement may be slower than anticipated. A re‑rating to HOLD or SELL could follow, with the stock vulnerable to broader IT sector corrections.
Investors should monitor quarterly TCV disclosures, margin guidance, and any updates on the European telco partnership to gauge which side of the trade they prefer.