Tech Mahindra Q1: Profit jumps, revenue stalls. What's next for investors?

Mint

a day ago

Tech Mahindra is a leading Indian multinational information technology services and consulting company. It is part of the Mahindra Group. The company operates worldwide, with a presence in over 90 countries and 148,517 employees. It serves clients in various sectors including banking, telecommunications, healthcare, manufacturing, retail, media and public services.
In recent years, Tech Mahindra has expanded through strategic acquisitions and enhanced its focus on emerging technologies such as artificial intelligence, internet of things, and blockchain.
Tech Mahindra announced its results for the first quarter of FY26 after hours on 16 July. The stock was down slightly the next day.
Revenue flat, profit surges
Tech Mahindra reported Q1 2026 revenue that was slightly behind estimates, beat on net profit. Let's take a look at what the company achieved in dollar terms.
Revenue came in at $1.56 billion, up about 0.4% year-on-year. Earnings before interest and taxes (Ebit) increased 30.2% year-on-year to $172 million. Net profit kept pace with Ebita, also increasing 30.2% year-on-year to $133 million. Free cash flow came in at $86 million.
Tech Mahindra's total expenditure fell during the quarter, boosting the bottom line. Revenue from the Americas, which account for the bulk of revenues, fell 5.9% compared to last year. The manufacturing and healthcare & lifesciences verticals shrunk, while BFSI, retail, and logistics & transport grew. New deal wins surged to $809 million from $534 million in the same quarter last year.
What did management say?
Mohit Joshi, CEO and managing director, said: "Our performance is steadily strengthening, reflecting disciplined execution and a focused strategy. Deal wins have increased by 44% on a last twelve months (LTM) basis, supported by broad-based momentum across verticals and geographies."
Rohit Anand, chief financial officer, said, 'We have delivered seven consecutive quarters of margin expansion - a clear reflection of the discipline and focus across our organisation. Even in an uncertain environment, our Project Fortius program continues to generate meaningful results and drive operational improvements."
AI-related services to lead revenue growth
Tech Mahindra has forged key partnerships and is focussing on AI, which should drive growth going forward.
It announced a partnership with Nuix, a global leader in AI-powered investigative analytics and intelligence software to provide innovative, scalable solutions for cyber and fraud detection. The partnership will leverage TechM's extensive expertise in AI, digital engineering and cyber risk management to integrate Nuix's advanced investigative and data analytics solutions into its services, unlocking significant global sales opportunities with the Nuix Neo Solutions.
Tech Mahindra and KOGO AI, a category-defining provider of agentic AI infrastructure, announced a strategic collaboration to jointly build and deliver next-gen enterprise AI solutions and agents designed for autonomy, scale and compliance.
Did the results disappoint?
There were no major disappointments, but the 1% decline in constant-currency revenue was a negative. Weakness in the Americas and in key verticals were other areas of concern. Strong profit growth, deal wins and steady margin were the big positives.
Some investors expect Tech Mahindra to start its growth trajectory next quarter based on deal ramp-ups. They anticipate that FY26 revenue growth will outpace FY25's, supported by a strong pipeline and large deal execution.
Should investors worry?
Some of the issues facing the company are industry-specific and not company-specific. Investors worry that though spending on AI-related infrastructure such as data centers is surging, software and IT services growth rates are expected to slow as businesses delay purchase decisions and reduce discretionary IT budgets.
For Tech Mahindra specifically, margin expansion this quarter was seen as a positive. Solid growth in profits and strong deal wins were the other big highlights. However, investors remain wary about revenue growth challenges in certain verticals and the Americas. If IT spending by companies remains weak, particularly in the US and Europe, most Indian IT companies will face a challenging year.
As always, you should carefully evaluate a company's fundamentals, corporate governance and valuation before making an investment decision.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com