Tech Mahindra shares surge 8% as Q2 margins beat estimates; check brokerage targets

Tech Mahindra Ltd shares surged 8% on Friday after the IT services company reported its September-quarter results, with revenue growth, margin expansion and strong deal wins supporting investor sentiment. The company reported revenue growth of 7.2% year-on-year (YoY) in constant-currency terms in Q2FY27, while its earnings before interest and tax (EBIT) margin expanded to 14.8%. Total contract value (TCV) of new deal wins rose 25.4% YoY to $1.02 billion, marking the fourth consecutive quarter in which deal wins exceeded $1 billion.

The results drew differing views from brokerages. Systematix maintained its Buy rating and set a target price of Rs 1,900, while Choice Institutional Equities maintained its Add recommendation with a target price of Rs 1,775. Nirmal Bang Institutional Equities, however, retained its Sell rating and target price of Rs 1,222, flagging challenges in sustaining revenue growth and margin expansion amid evolving AI-led industry dynamics.

At the day's high of Rs 1,776, Tech Mahindra shares were up around 7.72% from their previous close of Rs 1,648.70. The stock opened at Rs 1,714.95 and touched a low of Rs 1,690.05 during the session.

What drove Tech Mahindra's Q2 performance?

Tech Mahindra reported revenue of $1.693 billion, up 2.4% quarter-on-quarter and 7.2% YoY in constant-currency terms. Revenue growth was supported by communications, retail, travel and logistics, while manufacturing recorded a sequential decline.

The company's EBIT margin rose 40 basis points quarter-on-quarter and 260 basis points YoY to 14.8%, beating Nirmal Bang's and consensus estimates by 35 basis points and 24 basis points, respectively. Volume growth and savings under Project Fortius supported the improvement, partly offset by wage hikes. Management reiterated its FY27 EBIT margin target of 15%.

However, adjusted profit after tax (PAT) came in at Rs 1,609.7 crore, 6.9% below Nirmal Bang's estimate and 2.4% below consensus, despite the operating margin beat. The brokerage noted that the effective tax rate stood at 29.9% due to a one-time adjustment related to prior-period tax matters; excluding this item, the rate would have been 26.6%.

Tech Mahindra recommends 1:1 bonus issue, first since 2015

The board of Tech Mahindra Ltd has recommended a 1:1 bonus issue, subject to shareholders' approval. Under the proposal, eligible shareholders will receive one fully paid-up equity share of Rs 5 each for every existing fully paid-up equity share of Rs 5 held by them. The bonus shares will be issued by capitalising the company's securities premium account, general reserves, retained earnings or other permitted reserves. This would be Tech Mahindra's first bonus issue since March 2015.