Tech Mahindra share price drops 2% after Q2 results amid growth outlook woes. Should you buy, sell or hold?

Shares of information technology (IT) firm Tech Mahindra declined 2% in the early trading session on Wednesday, October 15, following the announcement of its September quarter (Q2) results for the ongoing financial year.

While the company posted modest revenue growth, the cautious growth outlook from management tempered investor sentiment.

Tech Mahindra share price hit the day's low of ₹1440.90 on the BSE, as against its last close of ₹1468.15. As of 9.55 am, the IT company's stock was at ₹1460, down 0.56%.

The revenue from operations in Q2 rose 5.12% year-over-year (YoY) to ₹13,995 crore, primarily due to the ramp-up of deal wins in BFSI, retail, and manufacturing. The figure was higher than analysts' estimates.

However, profit after tax (PAT) at ₹ ₹1,195 crore not just missed estimates but was also lower 5% YoY.

Tech Mahindra stock: How to trade?

JM Financial said that Tech Mahindra posted the highest sequential growth over the last three years on the back of improved deal wins in the past few quarters, stability in its top telco account, limited client-specific challenges (barring one EU telco) and its focused efforts on mining USD 20mn+ accounts.

These, along with seasonality – holiday season in 3Q and Comviva in 4Q – likely inform its better 2H outlook as well. That said, by management’s own admission, growth acceleration in FY26 and possibly FY27 is tracking below what they had assumed at FY25-beginning.

Besides, their commentary that in the absence of discretionary pick-up, TCV run-rate needs to step up to $1 billion (from c.USD 800mn currently) for them to achieve their growth target suggests FY27 growth visibility is limited at this stage, said the brokerage.

“We therefore cut our FY27E USD revenue growth to 4.6% cc (from 5%), aligned with that of larger peers. Tech Mahindra's consistent progress towards its stated goals is impressive, though well discounted in the price. Incremental re-rating/EPS upgrades should therefore track improvement in growth visibility, in our view," JM Financial said, while retaining an ‘ADD’ rating with a target price of ₹1,560.

TechM has successfully managed to take margins closer to its 15% target. However, Nuvama Research noted that at 12% margin levels, it is still below its 5Y/10Y average margins of 13.4%/13.8%, before Mohit Joshi joined as the CEO. All along, its revenue growth has remained below peers. Thus, in an absolute sense, TechM has only come back to where it started, opined the brokerage.

“While we like the progress it is making under Mohit's leadership in making its business fundamentally strong and sustainable, we believe it would be a much longer road to that destination than the Street expects,” Nuvama said.

It added that given valuations are comparable with TCS/Infosys, it finds risk-reward unfavourable and retained its ‘REDUCE’ rating with a Tech Mahindra share price target of ₹1,350.

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