Tech Mahindra Jumps 4% on Q3 Earnings Beat and Strong Deal Wins

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AuthorAnanya Iyer|Published at:
Tech Mahindra Jumps 4% on Q3 Earnings Beat and Strong Deal Wins
Overview

Tech Mahindra shares surged nearly 4% after the IT major reported a Q3 earnings 'all-around beat' and robust deal wins of $1.1 billion, marking an impressive 47% year-on-year jump. Net profit climbed 14% to ₹1,122 crore. While margins expanded and the company beat expectations across key parameters, analysts are divided on future outlook, citing rich valuations against positive growth trajectories. The stock significantly outperformed the benchmark Nifty 50.

Strong Financial Performance

The impressive outperformance followed the company's strong financial disclosures for the third quarter of FY26. Tech Mahindra announced a net profit of ₹1,122 crore, a robust 14% increase year-on-year. However, this profit figure saw a 6% sequential dip, primarily attributed to the impact of new labour codes, which accounted for a ₹272.4 crore charge during the quarter. Revenue for the period showcased healthy growth, climbing 8.3% year-on-year to ₹14,393 crore, with a 2.8% uptick on a quarter-on-quarter basis.

Growth in the third quarter was bolstered by key sectors including manufacturing, retail, logistics, transport, and communications, which registered year-on-year increases of 11.7%, 11.7%, and 4.7% respectively. These segment performances contributed to the company's overall upward trajectory, demonstrating broad-based demand for its services.

Robust Deal Pipeline

New deal wins for the quarter were a significant highlight, reaching $1.1 billion. This represents a substantial 47% surge compared to the $745 million secured in the same period last year. On a sequential basis, the total contract value (TCV) also saw a strong increase of 34%, signaling a healthy pipeline and future revenue potential.

Analyst Divergence

Analysts at Emkay Global noted the 'all-round beat' driven by services growth and strong execution, particularly on a large European auto deal. They observed operating margins expand by approximately 100 basis points quarter-on-quarter to 13.1%, marking the ninth consecutive quarter of improvement, attributed to Project Fortius efficiencies. Despite this, Emkay reduced FY26 earnings per share estimates by 5.4% and maintained a 'Reduce' rating with a target price of ₹1,600, citing rich valuations.

Antique Stock Broking provided a more optimistic view, recognizing Tech Mahindra's strong performance across all parameters and a continuously improving margin trajectory. They believe the company is on track to achieve its 15% Ebit margin target by FY27 and expects its growth to surpass peer averages. Factoring in these strengths, Antique raised its FY27 and FY28 earnings per share estimates by 3% and 2%, respectively.

Nomura echoed positive sentiment, stating Tech Mahindra has made considerable progress midway through its three-year turnaround plan, supported by significant deal wins and a healthy backlog. The firm forecasts better-than-peer growth for FY27. Adjusting for Q3 performance and higher revenue/margin assumptions, Nomura marginally increased its target price to ₹1,810 from ₹1,750, while tweaking EPS estimates by approximately 3%. The company holds a market capitalization of ₹1.7 trillion.

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