Tech Mahindra is entering a decisive phase of recovery after posting its strongest operational quarter in nearly three years. ICICI Direct Research has reaffirmed a BUY rating on the stock, raising its target price to Rs 2,000 from Rs 1,680, implying a potential upside of about 16% over the next 12 months. The optimism stems from a sharp improvement in execution, margin discipline under Project Fortius, and a landmark telecom mega deal that has materially improved medium-term revenue visibility. With EBIT margins expanding and large-deal momentum at a five-year high, Tech Mahindra appears positioned for structurally stronger growth through FY28.

Q3FY26 Marks a Clear Break from the Past

Tech Mahindra delivered its strongest quarterly operating performance in three years, signaling that the prolonged phase of inconsistent execution may finally be ending. For Q3FY26, the company reported revenue of US$1,610 million, reflecting 1.5% quarter-on-quarter and 2.7% year-on-year growth. In rupee terms, revenue stood at Rs 14,393 crore, up 2.8% QoQ and 8.3% YoY.

What stood out was profitability. EBIT margin expanded sharply to 13.1%, improving by nearly 100 basis points sequentially and 300 basis points year-on-year, driven by operational efficiencies rather than one-off cost levers. Adjusted profit after tax came in at Rs 1,394 crore, rising 17% QoQ and 42% YoY, excluding the one-time impact of the new labour code.

Growth Returns Across Core Verticals, BFSI Remains a Temporary Drag

Revenue recovery was broad-based across most verticals and geographies, underscoring improving demand conditions. Communications, Tech Mahindra’s largest segment, grew 2.8% QoQ, aided by stabilizing demand in the US and vendor consolidation opportunities in Europe. Manufacturing posted 2.2% QoQ growth, supported by the ramp-up of a large European automotive client, while Retail and Healthcare grew 4% and 3% QoQ, respectively.

The only weak spot was BFSI, which declined 6.2% QoQ due to elevated furloughs and productivity pass-throughs linked to a large India-based infrastructure contract renewal. Management, however, indicated that underlying BFSI deal momentum remains intact, suggesting the softness is temporary rather than structural.

Project Fortius Delivers Margin Discipline, Not Financial Engineering

Margin expansion was driven by execution quality, not cost deferrals. Under Project Fortius, Tech Mahindra improved utilization, tightened pricing discipline, enhanced automation, and raised productivity in fixed-price contracts. SG&A optimization further supported operating leverage.

Crucially, ICICI Direct notes that margin gains are being achieved alongside revenue growth, reinforcing their durability. The brokerage now models EBIT margins of 12.5% in FY26E, 14.4% in FY27E, and 14.9% in FY28E, aligning with management’s guidance of reaching mid-teens margins by FY27.

Landmark Telecom Mega Deal Resets Growth Visibility

The most decisive positive trigger is a US$500 million-plus telecom mega deal signed with a leading European telecommunications operator. The multi-year engagement spans application modernization across CIO and CTO domains and represents the largest quarterly deal win for Tech Mahindra in five years.

Total contract value (TCV) for Q3FY26 stood at US$1,096 million, up 34% QoQ and 47% YoY, well above the recent quarterly average. Delivery for the mega deal is expected to begin in H1FY27, providing strong medium-term revenue visibility and reinforcing Tech Mahindra’s leadership in the communications vertical.

AI Monetization Shifts from Pilots to Scaled Programs

AI is evolving from experimentation to embedded revenue streams. Management highlighted that client AI engagements are increasingly moving from pilot projects to scaled, multi-year programs integrated into operating models. In partnership with Forrester, Tech Mahindra has also introduced a new pricing framework that separates human effort from AI agents—a model currently being piloted with select clients.

While AI-led revenues are not yet material, ICICI Direct believes this transition improves the quality and longevity of Tech Mahindra’s growth profile over the medium term.

Financial Trajectory Points to Sustained Earnings Expansion

ICICI Direct expects earnings to compound strongly over the next three years, supported by operating leverage and large-deal ramp-ups.

Return ratios are also expected to improve meaningfully, with RoCE projected to rise to 26.5% by FY28E, reflecting better capital efficiency and higher profitability.

Valuation: BUY Maintained with Revised Target of Rs 2,000

ICICI Direct values Tech Mahindra at 23x FY28E earnings, arriving at a revised target price of Rs 2,000. At current levels, the stock trades at a discount to its long-term average despite improving growth visibility and margin trajectory.

The brokerage maintains its BUY rating, citing superior deal momentum, improving execution consistency, and a credible path to mid-teens margins.

Key Risks Investors Should Monitor

Downside risks remain execution-linked rather than balance-sheet driven. Slower-than-expected conversion of large deal TCV into revenues, or a reversal in margin discipline, could temper earnings momentum. Prolonged weakness in BFSI or macro-driven delays in enterprise spending also warrant monitoring.