Margin expansion likely to drive earnings upgrades for Tech Mahindra

Tech Mahindra could get an earnings upgrade on margin gains after India’s fifth-largest information technology (IT) services company beat expectations in the second quarter of 2025-26 (Q2FY26).

 

The company’s operating profit margin expanded by 110 basis points to 12.1 per cent in Q2, the eighth consecutive quarter of such expansion. It was led by higher productivity in fixed price projects, volume growth, savings from sales, general and administration optimisation, and currency benefits. 

 

Tech Mahindra expects to hit the 15 per cent margin, led by better integration of group companies, lower subcontracting costs, a higher mix of fixed-price projects, and improving operational efficiencies in utilisation and offshore delivery.

 

The company had an exit margin of about 7.5 per cent in FY24 and has expanded it in the past six quarters to achieve the 15 per cent target by FY27, according to HDFC Securities. Margin expansion was achieved through disciplined pricing, focus on higher-margin service lines, and productivity gains, said brokerage analysts led by Amit Chandra. HDFC Securities has increased Tech Mahindra’s earnings estimate by 3 per cent and upgraded its rating while adding a target price of ₹1,700 per share. 

 

Tech Mahindra reported a constant currency revenue growth of 1.6 per cent on a sequential basis in Q2, comfortably beating estimates. It was the highest sequential growth in the past ten quarters and led by improved performance across all company verticals. The retail, manufacturing, and BFSI or banking, financial services, and insurance segments grew 9 per cent, 5.3 per cent and 3.8 per cent, respectively. The communications segment saw a fall of 2 per cent in dollar terms.

 

Deal wins were at $816 million, up 35 per cent from the previous year. Trailing twelve-month wins are at $3.2 billion, up 57 per cent. Given the deal pipeline, the company expects Q2 FY26 to be better than the first half. 

 

Tech Mahindra’s guidance for FY27 suggests its growth will be better than that of the IT sector. Such performance will depend on deal wins nearing the $1 billion mark or discretionary demand picking up.

 

Market expectations for FY27 already factor in that Tech Mahindra’s revenue growth will be slightly above the Top-4 peer average. Karan Uppal and Krunal Khandzode, analysts at PhillipCapital Research, say there is potential for upside surprise on margins (consensus at 14 per cent versus the 15 per cent target), which could support earnings upgrades in the coming quarters. The brokerage has a neutral rating with a target price of ₹1,470.

 

Antique Stock Broking has maintained a hold rating, given that a sustained improvement in large-deal wins is key to delivering FY27 growth acceleration.

 

Motilal Oswal Research has a buy rating for Tech Mahindra. Brokerage analysts led by Abhishek Pathak believe that the company’s restructuring under a new leadership is going well, and Q2 was another step in the right direction.