Tech Mahindra's Q2 beats estimates, but FY27 growth hinges on big deals

Tech Mahindra’s (TechM’s) July-September quarter (Q2) of 2025-26 (FY26) came in better than Street estimates on both revenue and margin fronts. Deal wins with a total contract value of $815 million were also strong, and the country’s fifth-largest information technology services company is now eyeing the $1 billion mark to meet its growth targets.

 

Despite the solid quarterly performance, some brokerages have trimmed their revenue and earnings estimates for the coming quarters, citing a moderation in growth. The stock, which was marginally down in Wednesday’s trade, has shed over 7.5 per cent in the past three months.

 

TechM reported constant currency growth of 1.6 per cent sequentially in Q2, comfortably beating estimates. This was the highest sequential growth in the past 10 quarters, driven by broad-based gains across verticals. The retail, manufacturing, and banking, financial services and insurance (BFSI) segments grew 9 per cent, 5.3 per cent, and 3.8 per cent, respectively, while the communications segment declined 2 per cent in dollar terms.

 

The operating profit margin expanded by 110 basis points (bps) to 12.1 per cent — the eighth consecutive quarter of improvement. This was supported by higher productivity in fixed-price projects, volume growth, savings from sales, general and administrative optimisation, and currency benefits. The company has reiterated its target of achieving a 15 per cent margin by 2026-27 (FY27), with a continued focus on profitable growth and operational efficiency.

 

According to analysts Sameer Pardikar and Yash Kudale of Elara Securities, future margin gains may come from improved gross margins, better fixed-price execution, and ongoing portfolio integration.

 

Deal wins remained robust at $816 million, up 35 per cent year-on-year (Y-o-Y), while trailing 12-month wins stood at $3.2 billion — a 57 per cent Y-o-Y increase. Given the strong pipeline, the company expects the second half of FY26 to outperform the first.

 

HDFC Securities maintains a positive outlook on deal momentum and execution strength, but cautions about the limited upside from current levels. Analysts led by Amit Chandra said the deal flow and execution indicate acceleration, though much of the recovery is already priced in, prompting the brokerage to retain its rating on the stock.

 

While FY27 growth is expected to improve over this year, the company remains cautious compared to earlier projections amid ongoing macroeconomic uncertainty. Achieving above-industry growth in FY27 will depend on either deal wins approaching the $1 billion mark or a pickup in discretionary demand.

 

Elara Securities has cut its FY26 and FY27 estimates by 3–5 per cent to reflect slower growth. The brokerage has also factored in a 50-bp lower margin for FY27 compared to company guidance, trimming its target price while maintaining an ‘accumulate’ rating.

 

Antique Stock Broking has kept a ‘hold’ rating, observing that sustained improvement in large deal wins will be critical for FY27 growth acceleration.

 

Motilal Oswal, however, has a ‘buy’ rating on TechM stock. Analysts led by Abhishek Pathak said the ongoing restructuring under new leadership is progressing well, and the latest quarter marks another positive step forward.