Pick of The Week: Top Analyst of HDFC Sec Reveals Why Tech Mahindra Could Hit Rs 1,815 Sooner Than Expected?

The brokerage firm HDFC Securities has selected the IT giant Tech Mahindra as its pick of the week. The fundamental research analyst - Abdul Karim of HDFC Securities has recommended buying the shares of Tech Mahindra in Rs 1555-1590 band and adding on dips in Rs 1420-1450 band for a base case fair value of Rs 1710 and a bull case fair value of Rs 1815. The analyst has recommended that the stock could hit its target price in the next 2-3 quarters.

"Despite macro headwinds, Tech Mahindra's deal TCV reached US$ 815mn, up 35% YoY and the company expects to see this number closer to US$1bn to meet growth targets. The company added 57 key accounts in FY25 and 21 in H1FY26, 17 of these have generated USD 1mn+ revenue (annual run-rate). The deal pipeline remains healthy and well-diversified across verticals. If the current environment remains steady, TCV could rise further, and if the environment improves, the existing run rate will remain strong," the analyst commented.

"The company's profitability performance has been remarkable over the past six consecutive quarters, delivering improvement in EBIT margins from 8.5% in Q1FY25 to 12.1% in Q2FY26. This was driven by initiatives such as Project Fortius, aimed at cost savings, productivity gains, and a focus on high-margin service lines. The target is to achieve an exit EBIT margin of 15% by FY27E. Key margin drivers ahead include fixed price project productivity, portfolio integration, SG&A optimisation, and value-based pricing," Abdul Karim of HDFC Securities said.

Tech Mahindra Target Price

"Tech Mahindra's leadership in the communication vertical could make it a key beneficiary of vendor consolidation in the segment. It could also benefit from 5G, AI, digital, Cloud and Network Operation opportunities. Efficient operations, cost optimisation and delivery automation will be the key focus areas in the future. The company expects the leadership transition in the near term as it is a planned succession. Tech Mahindra is benefiting from the higher and faster adoption of AI, cloud, and digital," the analyst commented.

"Tech Mahindra is focusing on driving organic growth through account mining, large deals, more revenue from alliance partnerships and realising better synergies from earlier acquired entities. Given strong Q2FY26 performance across verticals, geographies, and services, strong deal wins, a healthy deal pipeline, and broad-based growth across verticals, management believes there is upside potential to its earlier double-digit revenue growth guidance. Recent weakness in the Rupee could also act as a tailwind, unless it is reversed quickly. The company's focus on large deals, client mining, strong relationship with clients, healthy order book and timely acquisitions to support its product solutions profile to a healthy revenue trajectory in the coming quarters," he stated.

"We believe investors can buy the stock in Rs 1555-1590 band and add on dips in Rs 1420-1450 (17x Sept'27E EPS) band for a base case fair value of Rs 1710 (20.25x Sept'27E EPS) and bull case fair value of Rs 1815 (21.5x Sept'27E EPS) over the next 2-3 quarters. At the current price, the stock is trading at (18.6x Sept'27E EPS)," Abdul Karim of HDFC Securities recommended.

Concall Takeaways

As per Abdul Karim of HDFC Securities, here are the most important insights from Tech Mahindra's latest earnings concall, highlighting management's outlook, strategy, and growth triggers.'

• Tech Mahindra is committed to increasing margins every quarter and expects a larger share of improvement from gross margin versus SG&A.
• Tech Mahindra is optimistic and expects that the second half of the year will be better than the first half, subject to seasonality (Q3 furloughs) and macro. The company also expects FY27E for the industry and for Tech Mahindra to be better than FY26.
• Europe faced a localized challenge; expected to revert to stability and growth in H2 (with Q3 furloughs caveat). Comviva "continues to do very well" and expects to deliver a second record growth year.
• The company collaborated with a US-based telecom operator to enhance its network testing and certification through automation and optimisation, and leveraging the expertise to increase efficiency, scalability and innovation.

What could go wrong?

According to Abdul Karim of HDFC Securities, while the outlook appears strong, several risks could disrupt the growth trajectory-here's what investors should watch out for.

• Indian rupee appreciation against the USD, pricing pressure, retention of the skilled headcounts, strict immigration norms and rise in visa costs are key concerns.
• The company has high exposure to the Communications vertical, which offers a potential opportunity; however, any headwinds in the Communications vertical could impact its revenue generation.
• Tech Mahindra has to constantly compete with Indian IT majors such as TCS, Infosys, HCL Tech, Cognizant, and Wipro; and also global players such as IBM, Accenture, and Computer Sciences Corporation.
• Tech Mahindra's presence in a highly competitive industry leads to pricing pressure, deal re-negotiations and deferrals and hence can impact the company's growth and profitability.
• Unsustainable high utilisation rates are reasons for worry.
• Any change in the contract nitty-gritty from large clients, like non-renewal of contracts or higher discounts due to aggressive competition intensity, can impact the sustainability and scalability of such clients.
• Delays in decision-making due to higher uncertainty could create a challenge for TCV/ACV growth.
• Higher than expected debt-funded capex or acquisition leading to deterioration in profitability and could impact cash generation.

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