Tech Mahindra (TECHM IN) – Q2FY27 Result Update – Strong execution, reaching its committed milestone – BUY

TECHM reported a strong Q2FY27 performance, with rev. growth of 2.4% QoQ CC, ahead of our est. of 1.2%, while EBIT margin expanded 40bps QoQ to 14.8%, beating our est. of 14.4%. The margin improvement was driven by strong volume growth and Project Fortius savings, which more than offset wage-hike impact. Revenue growth was led by Comm (5.8% QoQ), supported by the ramp-up of large deals, while Retail & Logistics grew 9.5% QoQ. Manufacturing declined 3.8% QoQ following by accelerated execution of a large European automotive program in Q1. Deal momentum remained robust, with quarterly TCV of USD 1.02bn, taking LTM deal wins to US$4.27bn (+34.8% YoY), further strengthening its revenue visibility. Management reiterated confidence in delivering revenue growth above peers’ average in FY27E, supported by a healthy order book and timely deal ramp-ups. While continued normalization of the automotive program is expected to weigh on Manufacturing revenue in Q3 (to a small extent), which should balance against Comviva seasonality. On margins, with wage hikes impact behind, Project Fortius and operating leverage should support further expansion in H2, partly offset by continued investments in AI capabilities and talent. Given the Q2 beat on rev. and margins, robust deal momentum and improving growth visibility, we revise our FY27E/FY28E CC rev. growth est. upward to 7.0%/5.8% from 6.0%/5.4%, respectively, while keeping our FY29E growth est. unchanged. We also raise our EBIT margin estimates to 15.0% (earlier 14.8%) for FY27E. We maintain PE multiple at 20x to arrive at a TP of INR 1,910 (INR 1,900). Retain BUY.