Tech Mahindra deal ramps and margin recovery support FY27 growth visibility

Investment View and Recommendation

JM Financial Institutional Securities’ October 15, 2026 report maintains its ADD recommendation on Tech Mahindra and identifies the company as its preferred large-tier IT services stock. The positive view reflects better-than-expected Q2FY27 execution, broad-based deal wins, account mining, healthy order-book indicators and continued improvement in margins.

JM Financial believes large-deal ramp-ups provide near-term growth visibility, while BPS performance in Q3FY27 and Comviva seasonality in Q4FY27 could help offset the European automotive revenue drag.

Q2FY27 Financial Performance

Tech Mahindra reported Q2FY27 revenue of USD 1,693 million, up 2.0 per cent quarter-on-quarter and 6.8 per cent year-on-year. Constant-currency revenue growth was 2.4 per cent quarter-on-quarter, ahead of JM Financial and consensus expectations of 1.5 per cent, supported by large-deal ramp-ups. Reported consolidated revenue was Rs 1,61,802 million, up 3.0 per cent quarter-on-quarter.

EBIT margin was ahead of JM Financial’s 14.6 per cent estimate. Volume growth and Project Fortius savings supported profitability, partly offset by wage hikes. Reported Q2FY27 PAT was below JM Financial’s Rs 17,976 million estimate but slightly ahead of consensus of Rs 15,746 million, as other income included an approximately USD 17 million foreign-exchange loss.

Deal Wins and Operating Indicators

Key operational indicators remained constructive. New deal TCV was USD 1,023 million, up around 25 per cent year-on-year, while LTM new TCV reached USD 4,270 million, up 34.8 per cent year-on-year. Tech Mahindra continued to deliver more than USD 1 billion of new-deal TCV each quarter.

Headcount increased 3.7 per cent quarter-on-quarter, partly due to employee transfers for the Orange engagement, and utilisation improved to 88.9 per cent from 87.0 per cent in Q1FY27. LTM operating cash flow to EBITDA was 62 per cent.

Geographic and Vertical Performance

Growth was broad-based geographically, with Europe up 2.5 per cent quarter-on-quarter in US dollar terms, the Americas up 1.9 per cent and Rest of World up 1.6 per cent.

Retail, transport and logistics grew 9.6 per cent and communications grew 6.0 per cent, driven by deal ramp-ups. Manufacturing declined 3.9 per cent against a high base created by accelerated European automotive programme execution in Q1FY27. Tech Mahindra’s top five and sixth-to-tenth clients grew 6.2 per cent and 5.3 per cent quarter-on-quarter, respectively.

Management Commentary and Growth Drivers

Management reiterated its FY27 EBIT margin ambition of 15 per cent and stated that demand is being supported by cost optimisation, vendor consolidation, platform modernisation and AI-led transformation.

• Management sees pricing compression as primarily competition-driven rather than caused by client budgets shifting to AI.
• AI toolchains are expected to improve productivity in fixed-price and managed-services work.
• Management identified an initial 300 to 400 basis point margin opportunity from employee-pyramid rationalisation.
• TechM Helix is moving towards scaled execution, while TechM Orion provides a model-agnostic enterprise AI platform.

Outlook, Risks and Estimates

Near-term concerns include normal Q3FY27 furloughs, competitive pricing pressure and a further sequential revenue headwind of about 0.5 per cent in Q3FY27 from the European automotive programme before normalisation.

JM Financial revised its FY27 to FY29 constant-currency growth forecasts to 6.5 per cent, 6.0 per cent and 5.9 per cent, respectively. The broker marginally raised FY27 margin estimates while leaving FY28 and FY29 margin assumptions broadly unchanged.

Valuation and Target Price

JM Financial raised the valuation multiple to 20 times from 19 times because of sector re-rating and the healthy order book. This increased the target price to Rs 1,800 from Rs 1,705, while the broker retained its ADD recommendation.