Whalesbook
Analyst Upgrade Fuels Tech Mahindra Outlook
Prabhudas Lilladher has upgraded its rating on Tech Mahindra to "Accumulate," establishing a new price target of Rs 1860. The firm's latest research report highlights better-than-expected revenue growth, a crucial indicator for investor sentiment in the technology sector.
Revenue Exceeds Expectations
The company reported a revenue increase of 1.7% in constant currency quarter-on-quarter, surpassing Prabhudas Lilladher's estimate of 0.5%. This growth was primarily propelled by the Communications vertical, which saw a 2.8% rise, and a seasonal ramp-up within the European automotive segment. While the BFSI vertical experienced a 6.3% decline due to productivity benefit realization, growth across other segments remained encouraging, marking the third consecutive quarter of positive expansion beyond core communications.
Deal Pipeline Strengthens
Management expressed confidence in sustaining momentum within the Communications segment in fiscal year 2027. This outlook is bolstered by a significant five-year strategic win worth USD500 million with a European telecommunications provider, which is projected to contribute approximately 1% to the company's topline. The deal TCV (Total Contract Value) for the first nine months of fiscal year 2026 reached an encouraging USD2.7 billion, a substantial 44% year-on-year increase. This follows a robust 42% TCV growth in fiscal year 2025. The sustained quarterly TCV run-rate of USD800 million to USD1 billion is deemed sufficient for Tech Mahindra to outpace its peer average topline growth.
Margin Outlook and Target Revision
Prabhudas Lilladher believes Tech Mahindra's restructuring efforts have largely stabilized margins. Future improvements are expected from continued cost optimization, leveraging initiatives like Project Fortius, and operating leverage as growth accelerates. The brokerage forecasts margin improvements of 270 basis points in FY26E, 200 basis points in FY27E, and 50 basis points in FY28E. The target price was revised upwards to Rs 1860 by applying a 21x price-to-earnings multiple, an increase from the previous 19x valuation.