ICICI Securities has maintained its HOLD rating on Tech Mahindra with a target price of ₹1,600, following what the brokerage termed as the first quarter of comprehensive strong performance in the company's turnaround journey.

Strong Q3FY26 Performance Under New Leadership

Q3FY26 marked a significant milestone for Tech Mahindra as the first quarter demonstrating all-round strong performance since Mohit Joshi took over as CEO in December 2023. The quarter's results have reinforced confidence in the company's strategic direction and operational improvements under the new leadership.

Management's Growth Strategy and Targets

Tech Mahindra's management has reiterated its ambitious target of outpacing large-cap peers in FY27. The company's growth strategy is built on three key pillars:

The company expects its communication vertical to be a key driver of market share wins, which should enable revenue acceleration compared to FY26. Additionally, accounts with USD 20 million revenue-run-rate are growing faster than the company's average, driven by higher cross-sell and up-sell potential.

Margin Improvement Outlook

Tech Mahindra has maintained its target of reaching 15% EBIT margin by the end of FY27. This margin expansion is expected to be largely driven by improvements in gross margins, reflecting the company's focus on operational efficiency and higher-value service offerings.

Revised Financial Estimates

Based on the improving growth trajectory, ICICI Securities has updated its financial projections for Tech Mahindra:

The upward revision in earnings per share estimates reflects the brokerage's confidence in the company's ability to execute its turnaround strategy effectively.

Valuation and Investment Recommendation

ICICI Securities continues to value Tech Mahindra at 19x P/E on December 2027 estimated EPS of ₹84.00, arriving at a target price of ₹1,600. Despite the positive operational developments and improved financial outlook, the brokerage maintains its HOLD recommendation, noting that the stock has already re-rated to price in the anticipated turnaround in earnings.

The HOLD rating suggests that while the company's fundamentals are improving, the current stock price adequately reflects the expected improvements, limiting significant upside potential in the near term.

Motilal Oswal has maintained its BUY rating on Tech Mahindra with a target price of ₹2,350, offering a potential upside of 41%. The recommendation comes after the IT services company delivered a strong Q3FY26 performance that exceeded several key estimates.

Strong Revenue Performance Across Segments

Tech Mahindra reported Q3FY26 revenue of USD 1.6 billion, registering growth of 1.7% quarter-on-quarter in constant currency terms. This performance significantly outpaced Motilal Oswal's estimate of 0.5% constant currency growth.

While most segments showed positive momentum, the Banking, Financial Services and Insurance (BFSI) vertical experienced a decline of 6.2% quarter-on-quarter in USD terms.

Margin Expansion Beats Estimates

The company's operational efficiency showed marked improvement during the quarter. EBIT margin expanded by 100 basis points quarter-on-quarter to reach 13.1%, surpassing Motilal Oswal's estimate of 12.7%.

The adjusted profit after tax of ₹13.00 billion came in below the brokerage's estimate of ₹15.00 billion, primarily due to a one-time impact of ₹2,724 million related to changes in labor codes.

Deal Wins Show Strong Momentum

Tech Mahindra's new deal wins demonstrated robust growth momentum during the quarter. The company secured new deals with a total contract value (TCV) of USD 1,096 million, representing substantial growth of 34% quarter-on-quarter and 47% year-on-year.

Valuation and Investment Outlook

Motilal Oswal continues to express confidence in Tech Mahindra's bottom-up turnaround story. The brokerage has valued the stock at 26 times FY28E earnings per share, leading to the target price of ₹2,350. This valuation reflects the firm's positive outlook on the company's operational improvements and growth prospects in the IT services sector.