Kotak Institutional Equities has maintained its “BUY” rating on Tech Mahindra, with a revised fair value target of Rs 1,830. The July 16, 2025, research note forecasts a sustained turnaround backed by better operating metrics, margin improvements, and healthy deal momentum. However, the road ahead will require strong execution in a challenging demand environment. Here’s an incisive, point-wise breakdown tailored for discerning investors and market watchers.

Steady Progress Amid Market Adversity

Tech Mahindra is charting a measured recovery, evidenced by incremental operational gains and strategic wins. While its revenue trajectory recently faced headwinds due to weak discretionary demand and portfolio rationalization, margin levers—especially in cost control—have begun to kick in. The firm remains confident of achieving a 15% EBIT margin by FY2027. The stock’s current market price is Rs 1,608, with a target of Rs 1,830. Investors are advised to watch for accelerated growth in FY2027, as foundational changes start yielding results.

Kotak Institutional Equities Reiterates “BUY” on Tech Mahindra

Kotak Institutional Equities rates Tech Mahindra a BUY with a fair value of Rs 1,830, based on 22X June 2027E earnings. The recommendation is predicated on improving operational metrics and robust margin prospects. While the IT sector faces macro pressure, Kotak’s conviction stems from Tech Mahindra’s progress on multiple fronts—deal wins, cost management, and portfolio restructuring.

Headline Stock Levels and Financial Targets

Current Market Price (CMP): Rs 1,608
Fair Value Target: Rs 1,830
52-Week Range: Rs 1,809 (high) – Rs 1,209 (low)
Market Capitalization: Rs 1,423 billion (approx. US$16.6 billion)

Revenue and Margin Dynamics: Navigating a Complex Market

Sequential revenue declined 1.4% in constant currency and 1% year-over-year in dollar terms, underscoring industry-wide macro challenges. However, the EBIT margin expanded by 60 basis points quarter-on-quarter to 11.1%, driven by higher offshoring and reduced subcontractor usage. Net profit fell 4% sequentially, but jumped a remarkable 34% on a year-over-year basis.

Key sectors show divergent trends:

Telecom vertical grew 2.8% QoQ, thanks to Comviva ramp-up and broad-based deal wins.

Enterprise revenue was flat, dragged by ongoing manufacturing and hi-tech sluggishness.

Americas led with 2.7% growth QoQ, while Europe and RoW declined.

Turnaround Story: Building for Sustainable Momentum

Tech Mahindra’s turnaround journey is measured and multi-dimensional:

Healthy new deal wins, with TCV of US$809 million (up 1.4% QoQ, 51.5% YoY), primarily margin accretive and well-diversified.

Progress in optimizing operational levers, including a 70 bps rise in offshore mix and a 30 bps dip in subcontractor costs.

Winning “must-have” logos, with 15 new clients (mainly F-2000 or G-2000 companies) added in the past quarter.

Steady increase in large clients (US$50mn+), now at 26.

Management is unwavering in its pursuit of a 15% EBIT margin by FY2027. This will require acceleration in cost control, the winding down of legacy low-margin contracts, and full integration of acquired entities, such as Comviva. Investments are ongoing in internal fulfillment and strengthening the hiring engine for fresher absorption.

Risks & Sectoral Pressures: The Challenge of Adverse Externalities

Headwinds include tepid discretionary spend, margin compression industry-wide, and tougher contract negotiations. Manufacturing and hi-tech verticals remain under pressure due to macroeconomic and tariff concerns, especially in the U.S. auto sector. Notably, Tech Mahindra’s BPO business—15.6% of revenues—is especially exposed to generative AI disruption, both as a headwind (revenue compression) and opportunity (cost savings, automation gains).

Management Commentary and Outlook

The leadership remains confident of delivering growth better than the industry average in FY2027, with margin normalization to 15% or higher. Key expectations:

Telecom and retail in the Americas to lead growth, with BFSI also showing promise.

Wage hikes in 4QFY27 contingent on market conditions.

Margins will be bolstered by continued offshoring, reduced subcontractor reliance, integration synergies, and greater billability of new hires.

Operating Indicators: Nuanced Progress Across Metrics

Key performance takeaways from the latest quarter:

Offshore headcount hit 78.6%, up 320 bps YoY.

Subcontractor expenses eased to 9.8% of revenue, a 180 bps YoY decline.

IT services attrition ticked up to 12.6%, still below peers.

Total net headcount shrank marginally, while the sales and support division was rationalized as part of acquired entity cost optimization.

15 new “must-have” accounts, mostly G-2000 firms, were added.

Pipeline of over 200 AI agents rolled out to client environments.

Investor Takeaways: Levels to Watch and Actionable Insights

The stock’s current level is Rs 1,608, with upside potential to the Kotak target of Rs 1,830. Downside risk could test Rs 1,209 (52-week low), but the entrenched margin levers and visible improvement in core metrics provide a cushion. Swing traders might see Rs 1,808 (recent high) as key resistance.

Buy for the Medium-Term, as Turnaround Gathers Steam

For investors seeking disciplined, medium-term IT exposure, Tech Mahindra is a compelling play at current levels. The margin narrative is back on track, deal wins are outpacing peers, and cost controls are solidifying the turnaround. Patience is warranted in the face of macro gyrations, but the blueprint for sustained outperformance is being executed with precision.

Disclaimer for Investors and Traders: This analysis is based on Kotak Institutional Equities’ July 16, 2025, research and reflects prevailing market conditions as on report date. Professional advice is essential before making investment decisions.