Tech Mahindra (TECHM IN) – Q3FY26 Result Update – Steady growth, Strong margins, Improving visibility – Upgrade to ‘ACC’

The revenue growth (+1.7% CC QoQ) exceeded our estimates (+0.5% CC QoQ), aided by Communications (+2.8 QoQ) and seasonal ramp up within Europe automotive. The growth was broad-based across verticals, except BFSI (down 6.3%) on account of passing productivity benefits. Although Comviva seasonality contributed notably in Q3, the growth beyond Comms was encouraging (+1.2% QoQ), reported third consecutive quarter of growth. Management was confident of sustaining momentum within Comms in FY27, backed by NN 5-year strategic win (USD500m) with a European Telco that itself will contribute ~1% to the topline. The 9MFY26 deal TCV looks encouraging at USD2.7b (+44% YoY), which is coming over and above 42% YoY TCV growth delivered in FY25. The quarterly TCV run-rate of USD800m-USD1b is likely to be sustained, which is sufficient to achieve its aspiration of outpacing the peer average topline growth. We believe the restructuring exercise has largely calibrated margins to a comfort band, now it requires paddling more on the orchestrated large wins. On margins, we believe the cost optimization efforts would continue (leveraging project Fortius), while growth acceleration would also provide operating leverage to scale another ~200bps YoY in FY27. We are baking in revenue growth of +1.0/+5.5%/5.9% CC YoY with margin improvement of 270bps/200bps/50bps YoY in FY26E/FY27E/FY28E. We assign 21x (earlier 19x) to arrive at a TP of Rs. 1,860, upgrade to ACCUMULATE (HOLD Earlier).