Following the results announcement, Tech Mahindra shares traded at ₹1,469 on 14 October 2025, registering a modest gain of 1.25% from the previous close of ₹1,450.90. However, the stock remains under pressure on a longer-term basis, down 13.87% year-to-date and 13.22% over the past twelve months, significantly underperforming the broader market indices. The company's current valuation stands at a price-to-earnings ratio of 31.69 times trailing twelve-month earnings, whilst the price-to-book value ratio of 5.26 times reflects investor concerns about near-term growth momentum.
The quarter's revenue growth of 4.82% sequentially and 5.12% year-on-year to ₹13,994.90 crores marks a positive inflection point after several quarters of subdued performance. However, the improvement in profitability was primarily driven by operational efficiency gains rather than top-line acceleration, raising questions about the sustainability of margin expansion in an increasingly competitive environment characterised by pricing pressures and wage inflation.
Financial Performance: Margin Expansion Takes Centre Stage
Tech Mahindra's Q2 FY2026 financial performance reveals a company successfully executing on operational efficiency initiatives whilst navigating a challenging demand environment. Net sales of ₹13,994.90 crores represented sequential growth of 4.82% and year-on-year growth of 5.12%, marking the strongest quarterly revenue performance in recent quarters. On a half-yearly basis for H1 FY2026, the company generated revenues of ₹27,346.10 crores, up 5.33% from ₹25,970.20 crores in H1 FY2025.
The most impressive aspect of the quarter was the substantial margin expansion. Operating profit (PBDIT) excluding other income surged to ₹2,168.00 crores, up 12.03% sequentially from ₹1,935.20 crores in Q1 FY2026 and 23.87% higher year-on-year from ₹1,750.20 crores in Q2 FY2025. This translated into an operating margin of 15.49%, marking a 100 basis point sequential improvement and a 234 basis point year-on-year expansion—the highest margin level since December 2022.
Employee costs, the largest expense category for IT services firms, totalled ₹7,629.10 crores in Q2 FY2026, representing 54.52% of revenues. Whilst this increased 1.74% sequentially from ₹7,498.90 crores, the employee cost-to-revenue ratio improved from 56.17% in Q1 FY2026, reflecting better workforce utilisation and productivity gains. Year-on-year, employee costs rose just 1.65% despite revenue growth of 5.12%, demonstrating effective cost management.
Net profit margin for Q2 FY2026 stood at 8.61%, a modest 16 basis point sequential improvement from 8.45% in Q1 FY2026, though still below the 9.44% achieved in Q2 FY2025. The year-on-year margin compression of 83 basis points was primarily attributable to a higher effective tax rate of 27.58% in Q2 FY2026 compared to 26.61% in Q2 FY2025, partially offsetting the operational margin gains.
| Quarter | Revenue (₹ Cr) | QoQ Growth | Net Profit (₹ Cr) | QoQ Growth | Op. Margin | PAT Margin |
|---|---|---|---|---|---|---|
| Sep'25 | 13,994.90 | 4.82% | 1,197.30 | 5.02% | 15.49% | 8.61% |
| Jun'25 | 13,351.20 | -0.25% | 1,140.10 | -2.38% | 14.49% | 8.45% |
| Mar'25 | 13,384.00 | 0.74% | 1,167.90 | 19.59% | 13.75% | 8.54% |
| Dec'24 | 13,285.60 | -0.21% | 976.60 | -21.84% | 13.62% | 7.39% |
| Sep'24 | 13,313.20 | 2.37% | 1,249.50 | 47.19% | 13.15% | 9.44% |
| Jun'24 | 13,005.50 | 1.04% | 848.90 | 29.68% | 12.03% | 6.63% |
| Mar'24 | 12,871.30 | -1.76% | 654.60 | 29.47% | 8.54% | 5.11% |
| Dec'23 | 13,101.30 | 1.85% | 505.60 | 0.64% | 8.75% | 3.96% |
For the full financial year FY2025, Tech Mahindra reported revenues of ₹52,988.00 crores, representing modest growth of 1.9% from ₹51,995.00 crores in FY2024. Net profit for FY2025 stood at ₹4,244.00 crores, a substantial 77.88% increase from ₹2,386.00 crores in FY2024, driven primarily by the recovery in operating margins from the depressed levels of the previous year.
Operational Excellence: Return on Equity Remains Healthy Despite Headwinds
Tech Mahindra's operational metrics paint a picture of a fundamentally sound business navigating through a transitional phase. The company's return on equity (ROE) of 15.54% for Q2 FY2026, whilst representing strong capital efficiency by absolute standards, has moderated from the five-year average of 16.04%. This slight compression reflects the challenging demand environment and competitive pressures facing the broader IT services sector, though the ROE remains comfortably in double digits—a testament to the company's ability to generate attractive returns on shareholder capital.
The company's return on capital employed (ROCE) of 23.28% demonstrates efficient deployment of total capital, though this too has declined from the five-year average of 25.52%. The deterioration in ROCE, whilst modest, signals that incremental capital is generating slightly lower returns than historical levels, a concern that warrants monitoring as the company seeks to reaccelerate growth.
Balance Sheet Fortress: Zero Net Debt Position
Tech Mahindra's balance sheet remains a significant competitive advantage. As of March 2025, the company carried total debt of just ₹471 crores against cash and equivalents of ₹7,435 crores, resulting in a net cash position of ₹6,964 crores. This debt-free status, reflected in a debt-to-equity ratio of effectively zero, provides substantial financial flexibility to invest in growth initiatives, pursue strategic acquisitions, or return capital to shareholders through dividends and buybacks. The interest coverage ratio of 22.75 times further underscores the minimal financial risk profile.
Shareholder funds as of March 2025 totalled ₹27,361.50 crores, comprising share capital of ₹442.40 crores and reserves of ₹26,701.40 crores. The book value per share stood at ₹309.24, implying the current market price of ₹1,469 trades at 4.75 times book value—a premium that reflects market expectations for future profitability but also leaves limited room for disappointment.
Cash flow generation remained robust in FY2025, with operating cash flow of ₹5,785.00 crores, though this represented a decline from ₹6,376.00 crores in FY2024. The company deployed ₹5,834.00 crores in financing activities during FY2025, primarily for dividend payments and share buybacks, demonstrating a commitment to shareholder returns despite the challenging operating environment. The dividend payout ratio of 93.65% over the past five years highlights the company's capital-light business model and strong cash generation capabilities.
Demand Environment: Stabilisation Amidst Sector Headwinds
The Indian IT services sector has faced persistent headwinds over the past two years, driven by macroeconomic uncertainty in key markets, particularly North America and Europe, which together account for the lion's share of industry revenues. Clients across sectors—from banking and financial services to telecommunications and manufacturing—have curtailed discretionary spending, delayed project decisions, and sought greater value from existing contracts through pricing renegotiations.
Sector Challenges Persist
Tech Mahindra's year-on-year profit decline of 4.18% in Q2 FY2026, despite strong sequential momentum, underscores the ongoing difficulties. The company's exposure to the telecommunications vertical—historically a strength—has become a double-edged sword as telecom operators worldwide face their own revenue pressures and reduce IT spending. Whilst the company has made efforts to diversify its revenue base into faster-growing areas such as digital transformation and cloud services, the transition remains incomplete.
Market consensus estimates suggest the IT services sector will witness gradual demand recovery through FY2026 and FY2027, supported by pent-up demand for digital transformation projects, the ongoing migration to cloud platforms, and the adoption of artificial intelligence and automation technologies. However, the pace and magnitude of this recovery remain uncertain, with geopolitical tensions, inflation concerns, and potential recession risks in developed markets posing downside risks to growth forecasts.
Tech Mahindra's five-year compound annual growth rate (CAGR) of 7.40% for sales and 6.59% for EBIT reflects the challenges of sustaining high growth rates in a maturing industry. The company's ability to reaccelerate growth will depend critically on its success in winning large transformational deals, expanding wallet share with existing clients, and penetrating emerging technology areas where demand remains robust.
Industry Leadership: How Tech Mahindra Compares to Peers
Within the Indian IT services sector, Tech Mahindra occupies a distinctive position as the seventh-largest company by market capitalisation at ₹144,000 crores. The company's competitive positioning becomes clearer when examined against key peers across valuation metrics, profitability indicators, and shareholder returns.
| Company | P/E Ratio (TTM) | P/BV Ratio | ROE (%) | Dividend Yield (%) |
|---|---|---|---|---|
| Tech Mahindra | 31.30 | 5.19 | 15.54% | 3.10% |
| LTIMindtree | 34.45 | 7.16 | 20.26% | 1.18% |
| Persistent Systems | 54.79 | 13.17 | 22.16% | 0.66% |
| Wipro | 19.08 | 3.12 | 15.95% | 4.49% |
| Coforge | 59.69 | 9.02 | 12.97% | 0.67% |
Tech Mahindra's valuation multiple of 31.30 times trailing earnings positions it in the middle of the peer group, trading at a discount to high-growth specialists like Persistent Systems (54.79x) and Coforge (59.69x), but at a premium to Wipro (19.08x). This valuation appears broadly justified by the company's ROE of 15.54%, which whilst respectable, lags behind peers such as LTIMindtree (20.26%) and Persistent Systems (22.16%).
The price-to-book value ratio of 5.19 times reflects a moderate premium to book value, significantly lower than Persistent Systems' 13.17 times but higher than Wipro's 3.12 times. This valuation metric suggests the market assigns Tech Mahindra an average quality rating relative to peers, recognising its solid fundamentals but remaining cautious about near-term growth prospects.
Tech Mahindra's dividend yield of 3.10% stands out as a relative strength, higher than most peers except Wipro (4.49%). The company's latest dividend of ₹30 per share, with an ex-dividend date of 4 July 2025, reflects a generous payout policy supported by strong cash generation. The dividend payout ratio of 93.65% over the past five years, whilst high, is sustainable given the capital-light nature of the business and the company's net cash position.
Valuation Analysis: Limited Upside at Current Levels
At the current market price of ₹1,469, Tech Mahindra's valuation presents a mixed picture. The stock trades at a price-to-earnings ratio of 31.69 times trailing twelve-month earnings, representing a premium to the company's historical average and suggesting limited margin of safety for investors. The price-to-book value ratio of 5.26 times, whilst justified by the company's double-digit ROE, leaves little room for multiple expansion.
The enterprise value-to-EBITDA multiple of 18.88 times places Tech Mahindra in expensive territory relative to historical norms and peer averages. This metric, which adjusts for the company's net cash position, suggests that even after accounting for the strong balance sheet, the valuation appears stretched given the current growth trajectory and margin profile.
The PEG ratio of 0.40, calculated by dividing the P/E ratio by the earnings growth rate, might appear attractive at first glance. However, this metric requires careful interpretation given the volatility in earnings growth over recent quarters and the uncertainty surrounding future growth rates. A PEG ratio below 1.0 typically suggests undervaluation, but in Tech Mahindra's case, the low reading reflects more the denominator effect of recent earnings recovery from depressed levels rather than sustained high growth potential.
The stock's 52-week trading range of ₹1,209.70 to ₹1,807.40 provides context for current valuation. At ₹1,469, the stock trades 21.44% above its 52-week low but 18.72% below its 52-week high, suggesting it has found a middle ground that reflects both the operational improvements achieved and the lingering concerns about top-line momentum.
Tech Mahindra's valuation grade has oscillated between "Expensive" and "Very Expensive" in recent months, with the most recent classification as "Expensive" since 1 October 2025. This assessment reflects the premium valuation multiples relative to earnings growth potential and peer comparisons, suggesting investors are pricing in optimistic assumptions about future performance that may prove challenging to meet.
Shareholding: Institutional Confidence Remains Steady
Tech Mahindra's shareholding pattern reveals a stable ownership structure with minimal volatility, reflecting institutional investors' long-term conviction in the company's fundamentals despite near-term headwinds. Promoter holding, led by Mahindra & Mahindra Limited with 25.33%, has remained virtually unchanged at 35.00% as of June 2025, declining marginally by just 0.05 percentage points over the past year.
| Quarter | Promoter | FII | Mutual Funds | Insurance | Other DII |
|---|---|---|---|---|---|
| Jun'25 | 35.00% | 23.28% | 16.51% | 13.59% | 2.20% |
| Mar'25 | 35.01% | 22.95% | 17.19% | 13.06% | 2.04% |
| Dec'24 | 35.01% | 24.20% | 16.02% | 13.06% | 1.83% |
| Sep'24 | 35.03% | 23.66% | 15.81% | 13.76% | 1.60% |
| Jun'24 | 35.05% | 23.28% | 15.27% | 13.98% | 1.67% |
Foreign institutional investors (FIIs) held 23.28% as of June 2025, increasing their stake by 0.33 percentage points during the quarter. This uptick, following a reduction in the March 2025 quarter, suggests renewed interest from global investors, though the overall FII holding has remained range-bound between 23% and 24% over the past year. The number of FII holders increased to 970 from 954, indicating broadening participation.
Mutual fund holdings declined to 16.51% in June 2025 from 17.19% in March 2025, representing a reduction of 0.68 percentage points. This decrease, whilst modest, bears watching as domestic institutional investors often serve as bellwethers for sentiment on Indian equities. However, the number of mutual funds holding the stock increased to 42 from 41, suggesting the decline reflects portfolio rebalancing by existing holders rather than wholesale exits.
Insurance company holdings rose to 13.59% in June 2025 from 13.06% in March 2025, an increase of 0.53 percentage points. This accumulation by long-term institutional investors provides a positive signal about confidence in the company's medium-term prospects. The number of insurance companies holding the stock decreased marginally to 34 from 35, indicating concentrated buying by existing holders.
Total institutional holdings (FII, mutual funds, insurance, and other domestic institutional investors) stood at 55.58% as of June 2025, demonstrating strong institutional ownership that typically provides price stability and reduces volatility. Importantly, promoter pledging remains at zero, eliminating any concerns about financial distress or governance issues at the promoter level.
Stock Performance: Underperformance Reflects Sector Headwinds
Tech Mahindra's stock price performance over the past year tells a story of investor disappointment and sector-wide challenges. The stock has declined 13.22% over the trailing twelve months, significantly underperforming the BSE Sensex, which posted a marginal gain of 0.07% during the same period. This negative alpha of 13.29 percentage points reflects both company-specific concerns and broader IT sector weakness.
| Period | Tech Mahindra Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | 2.12% | 0.13% | +1.99% |
| 1 Month | -3.70% | 0.15% | -3.85% |
| 3 Months | -6.92% | -0.27% | -6.65% |
| 6 Months | 14.48% | 9.14% | +5.34% |
| YTD | -13.87% | 4.98% | -18.85% |
| 1 Year | -13.22% | 0.07% | -13.29% |
| 2 Years | 23.02% | 23.76% | -0.74% |
| 3 Years | 44.08% | 41.63% | +2.45% |
The year-to-date decline of 13.87% contrasts sharply with the Sensex's gain of 4.98%, resulting in a negative alpha of 18.85 percentage points. This substantial underperformance has eroded investor confidence and raised questions about the company's ability to capitalise on the eventual demand recovery in the IT services sector.
However, the six-month return of 14.48%, outperforming the Sensex by 5.34 percentage points, suggests some stabilisation and recovery from earlier lows. This recent improvement coincides with the operational margin expansion visible in quarterly results, indicating that investors are beginning to recognise the company's execution on cost optimisation initiatives.
On a longer-term basis, Tech Mahindra has delivered respectable returns, with three-year gains of 44.08% marginally ahead of the Sensex's 41.63% return. The five-year return of 73.05%, however, lags the Sensex's 101.08%, highlighting the challenges the company has faced in sustaining growth momentum through multiple business cycles.
Relative to the IT software sector, Tech Mahindra has outperformed, with its one-year decline of 13.22% comparing favourably to the sector's 20.62% fall. This 7.40 percentage point outperformance suggests the company has navigated sector headwinds better than many peers, though absolute returns remain disappointing for shareholders.
The stock's volatility of 25.62% over the past year, double the Sensex's 12.51%, reflects the heightened uncertainty surrounding the company's near-term prospects. The negative risk-adjusted return of -0.52 and the classification as "Medium Risk Low Return" underscore the challenging risk-reward profile at current levels.
Technical Outlook: Bearish Trend Intact Despite Tactical Bounce
From a technical perspective, Tech Mahindra remains entrenched in a bearish trend that commenced on 22 September 2025 at ₹1,505.40. Since the trend change, the stock has declined 2.42% to the current level of ₹1,469, reflecting persistent selling pressure and lack of sustained buying interest.
The stock trades below all major moving averages beyond the 20-day mark, a classic bearish configuration. Whilst the price currently sits above the 5-day moving average of ₹1,453.60 and the 20-day moving average of ₹1,465.91, it remains below the critical 50-day (₹1,482.91), 100-day (₹1,543.82), and 200-day (₹1,550.13) moving averages. This positioning suggests any rallies are likely to encounter resistance at these technical levels.
Key technical indicators paint a uniformly negative picture. The MACD (Moving Average Convergence Divergence) shows a bearish signal on both weekly and monthly timeframes, whilst Bollinger Bands indicate a mildly bearish setup. The KST (Know Sure Thing) oscillator, a momentum indicator, displays bearish readings weekly and mildly bearish readings monthly, confirming the lack of positive momentum.
The stock's immediate support lies at the 52-week low of ₹1,210, approximately 17.6% below current levels, whilst resistance is expected at ₹1,466 (20-day moving average area), followed by stronger resistance at ₹1,544 (100-day moving average) and ₹1,550 (200-day moving average). A sustained move above ₹1,550 would be required to signal a meaningful trend reversal.
Investment Thesis: Quality Company in Transition
Tech Mahindra presents a nuanced investment case characterised by solid fundamental quality offset by near-term growth challenges and unfavourable technical momentum. The company's quality grade of "Good"—maintained consistently for nine consecutive quarters since June 2023—reflects the underlying strength of the business model, strong balance sheet, and operational track record.
The financial trend classification of "Positive" for five consecutive quarters signals improving operational performance, with the recent margin expansion providing tangible evidence of management's ability to enhance profitability even in a challenging revenue environment. This positive momentum in financial metrics offers some comfort to existing shareholders and suggests the worst may be behind the company.
However, the bearish technical trend and expensive valuation grade create headwinds for new investment at current levels. The stock's proprietary Mojo score of 44 out of 100, resulting in a "Sell" rating, reflects these conflicting signals. The score deteriorated from 55 (Hold rating) in July 2025, primarily due to continued stock price weakness and sustained underperformance relative to broader market indices.
"Tech Mahindra's margin recovery demonstrates operational resilience, but revenue growth acceleration remains the missing piece of the investment puzzle."
Key Strengths & Risk Factors
KEY STRENGTHS ✓
- Fortress Balance Sheet: Net cash position of ₹6,964 crores provides financial flexibility for growth investments and shareholder returns
- Margin Expansion: Operating margin of 15.49% in Q2 FY26 marks nine-quarter high, demonstrating effective cost management
- Strong ROE: Return on equity of 15.54% reflects efficient capital deployment and healthy profitability despite sector headwinds
- Generous Dividends: Dividend yield of 3.06% with payout ratio of 93.65% provides income cushion for shareholders
- Zero Promoter Pledging: Clean governance structure with no pledged shares eliminates key risk factor
- Institutional Support: Total institutional holdings of 55.58% provide stability and long-term investor base
- Sequential Momentum: Five consecutive quarters of positive financial trend indicate operational turnaround gaining traction
KEY CONCERNS ⚠
- Revenue Growth Anaemic: Five-year sales CAGR of just 7.40% lags sector growth and raises questions about market share trajectory
- YoY Profit Decline: Net profit down 4.18% year-on-year in Q2 FY26 despite margin gains highlights top-line pressure
- Expensive Valuation: P/E of 31.69x and EV/EBITDA of 18.88x leave limited margin of safety at current levels
- Persistent Underperformance: Stock down 13.22% over one year and 13.87% year-to-date significantly trails market indices
- Bearish Technical Setup: Trading below 50-day, 100-day, and 200-day moving averages with negative momentum indicators
- Telecom Vertical Exposure: Concentration in challenged telecommunications sector limits growth optionality
- Sector Headwinds: Broader IT services demand weakness persists with uncertain recovery timeline
Outlook: What to Watch
POSITIVE CATALYSTS
- Sustained Margin Expansion: Further improvement beyond 15.49% would demonstrate pricing power and operational efficiency
- Revenue Acceleration: Sequential growth rates exceeding 5% would signal demand recovery and market share gains
- Large Deal Wins: Announcement of transformational deals would boost growth visibility and investor confidence
- Digital Revenue Mix: Increasing contribution from high-growth digital services would improve growth profile
- Technical Breakout: Sustained move above ₹1,550 (200-DMA) would signal trend reversal and attract momentum buyers
RED FLAGS
- Margin Compression: Any reversal in operating margins below 14% would signal intensifying competitive pressures
- Revenue Decline: Sequential revenue contraction would raise concerns about market share loss
- Institutional Selling: Continued reduction in mutual fund or FII holdings would indicate waning confidence
- Guidance Cuts: Any downward revision to management guidance would trigger negative sentiment
- Technical Breakdown: Break below ₹1,400 support would open path to 52-week low of ₹1,210
The forward outlook for Tech Mahindra hinges critically on the company's ability to translate margin gains into sustainable revenue growth. Management's focus on operational efficiency has yielded tangible results, but the true test lies ahead—can the company reaccelerate top-line momentum without sacrificing the hard-won margin improvements?
The broader IT services sector recovery timeline remains uncertain, with market consensus estimates suggesting gradual improvement through FY2026 and FY2027. Tech Mahindra's success in capturing this recovery will depend on its ability to win large transformational deals, expand its presence in faster-growing digital services, and reduce dependence on the challenged telecommunications vertical.
The Verdict: Wait for Better Entry Point
Score: 44/100
For Fresh Investors: Avoid initiating positions at current levels. Whilst the company demonstrates solid fundamental quality with improving margins and a fortress balance sheet, the expensive valuation (P/E 31.69x), bearish technical setup, and persistent underperformance create an unfavourable risk-reward profile. Wait for either a meaningful price correction towards ₹1,300-1,350 levels or clear evidence of sustained revenue acceleration before considering entry.
For Existing Holders: Consider reducing positions on any rallies towards ₹1,500-1,550 resistance zone. Whilst the five-quarter positive financial trend and margin expansion provide some comfort, the stock's inability to outperform the broader market and the challenging sector backdrop suggest better opportunities exist elsewhere. Long-term holders with high conviction may maintain core positions but should avoid averaging up at current valuations.
Fair Value Estimate: ₹1,350 (8.1% downside from current levels)
Tech Mahindra remains a quality business navigating through a transitional phase, but the current valuation appears to discount an optimistic scenario that may prove difficult to achieve. The margin recovery story is well-recognised by the market, whilst the revenue growth story remains unproven. Patient investors would be better served waiting for a more attractive entry point or clearer evidence of top-line momentum before deploying capital.
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions.
