IT · investment research
Tech Mahindra
TECHM
Verdict
ACCUMULATE
medium confidence · 3-5 years
Composite score
68/100
Weighted across all eight pillars
Business quality
74/100
Moat, returns, balance sheet, cash, management
Valuation score
44/100
At 36.6x against a sector median of 43.8x, the price embeds roughly 22% earnings growth. Anything less has to come out of the multiple.
Decision intelligence
Every conclusion states what would make it wrong
WHAT
Accumulate gradually as part of a diversified long-term allocation.
WHY
- • Profitability & returns scores 100/100 (improving) — ROCE was 30% a year ago. Sustained ROCE above the cost of capital is what compounds value.
- • Cash conversion scores 92/100 (stable) — Reported profit is backed by operating cash.
- • Business & moat scores 78/100 (deteriorating) — Deeply embedded systems make customer churn slow and expensive.
- • Industry & macro scores 60/100 (improving) — IT (India) demand is improving.
WHERE
IT · Mid cap · position sized to at most 3-5% of an equity portfolio.
WHEN
Staggered over 3-4 tranches across the next two quarterly results rather than in one go.
WHAT IF WRONG
- • The thesis is wrong if ROCE falls below 30% or cash conversion stays under 70% for two straight quarters.
- • Valuation support fails below ₹2,236 of fair value — a drawdown to that level is a re-underwrite, not automatically a buy.
- • Watched risk: Cyclicality — IT (India) earnings swing with the cycle, so trailing numbers flatter the peak.
WHAT NEXT
- • Read the latest quarterly cash-flow statement alongside the P&L.
- • Check US/EU tech spend — it moves the earnings base independently of execution.
- • Compare against the sector peers listed below before sizing anything.
Tech Mahindra is a moat-protected it business compounding revenue at 9.0% and profit at 13.7%, earning 33.8% on capital. Quality scores 74/100 and valuation 44/100 at 36.6x. The decision is therefore accumulate with medium confidence — this is analysis for learning, not investment advice.
What does this business actually do?
Business understanding before ratios
Tech Mahindra operates in the Indian it sector with a mid-cap footprint and a listed market value of about ₹153k Cr.
Revenue is earned across 4 reported segments; profitability is driven by realisations, mix and operating leverage rather than one-off items.
Revenue drivers
- • Volume growth in the core segment
- • Realisation / pricing power
- • Mix shift toward higher-margin lines
- • Capacity utilisation
Cost drivers
- • Raw material and input costs
- • Employee cost inflation
- • Interest cost on borrowings
- • Distribution and marketing spend
Moat · 74/100
Switching costs
Deeply embedded systems make customer churn slow and expensive.
Segment mix
Growth 8.6% · margin 8.9% — Growing broadly in line with the overall business.
Growth -0.8% · margin 32.5% — Flat to declining; drags the consolidated growth rate.
Growth 36% · margin 23.2% — Fastest growing part of the mix — watch whether margins hold as it scales.
Growth 18.6% · margin 8.2% — Fastest growing part of the mix — watch whether margins hold as it scales.
Analysis pillars
Score, trend and the drivers behind each — no bare numbers
Business & moat
78/100Trend: deteriorating · weight 14%
- MoatSwitching costs
Deeply embedded systems make customer churn slow and expensive.
- Segment concentrationDigital & cloud services is 29.1% of revenue
Revenue is spread across segments, which softens single-market shocks.
- EBITDA margin28.0%
Margin moved from 29.0% to 28.0% year on year.
Profitability & returns
100/100Trend: improving · weight 16%
- ROCE33.8%
ROCE was 30% a year ago. Sustained ROCE above the cost of capital is what compounds value.
- ROE28.2%
Return on equity after leverage — read alongside debt levels.
- Net margin14.8%
Share of every rupee of revenue that reaches reported profit.
Growth quality
55/100Trend: improving · weight 15%
- Revenue CAGR (4y)9.0%
Top-line compounding over the reported history.
- Profit CAGR (4y)13.7%
Profit is compounding faster than revenue — operating leverage is working.
- Growth sourceCapex-led (organic)
Capex is 9.0% of revenue this year.
Balance sheet
49/100Trend: deteriorating · weight 12%
- Debt / EBITDA1.64x
Leverage is serviceable from current cash generation.
- Debt / equity0.97x
Capital structure relative to shareholder funds.
- Working capital12 days
Cycle is tight, so growth is largely self-funding.
Cash conversion
92/100Trend: stable · weight 13%
- OCF / PAT121%
Reported profit is backed by operating cash.
- Free cash flow₹3,251 Cr
Cash left after maintaining and expanding the asset base.
Management & governance
50/100Trend: improving · weight 14%
- Guidance delivery77% of last 8 quarters
Whether management historically delivered what it promised.
- Promoter holding21.4% (+0.58 y/y)
Promoter ownership is stable or rising.
- PledgeNo pledge
No pledge disclosed in the sample data.
- Institutional flowFII +1.65 · DII +1.69
Direction of institutional ownership over the last year.
- Capital allocationMost operating cash is reinvested into the core …
Most operating cash is reinvested into the core business.
Industry & macro
60/100Trend: improving · weight 8%
- Demand trendimproving
IT (India) demand is improving.
- StructureFragmented
Fragmented — share shifts are possible but price competition is real.
- Competitive intensityhigh
How hard it is to keep pricing and share.
- Macro driversUS/EU tech spend, USD/INR, Wage inflation
Variables that move the earnings base regardless of company execution.
Valuation
44/100Trend: stable · weight 8%
- P/E vs sector36.6x vs 43.8x
At 36.6x against a sector median of 43.8x, the price embeds roughly 22% earnings growth. Anything less has to come out of the multiple.
- Growth-adjusted2.68 (PE/growth)
Below ~1.5 the multiple is supported by growth; above ~2.5 it depends on the market staying optimistic.
- FCF yield2.12%
Cash return on the current market value, before any growth.
Financial history
Profit, cash and returns over five reported years
| Year | Revenue | EBITDA | PAT | OCF | FCF | ROCE |
|---|---|---|---|---|---|---|
| FY2022 | ₹25,671 Cr | ₹4,364 Cr | ₹3,229 Cr | ₹3,649 Cr | ₹1,852 Cr | 30% |
| FY2023 | ₹28,328 Cr | ₹4,816 Cr | ₹3,419 Cr | ₹3,932 Cr | ₹1,949 Cr | 36.3% |
| FY2024 | ₹30,985 Cr | ₹3,718 Cr | ₹2,268 Cr | ₹2,654 Cr | ₹485 Cr | 27.2% |
| FY2025 | ₹33,642 Cr | ₹9,756 Cr | ₹4,488 Cr | ₹5,341 Cr | ₹1,977 Cr | 30% |
| FY2026 | ₹36,299 Cr | ₹10,164 Cr | ₹5,387 Cr | ₹6,518 Cr | ₹3,251 Cr | 33.8% |
No accounting-quality flags in the sample data.
Ownership & management
Who owns it, and have they delivered?
Promoter
21.4%
+0.58 y/y
Pledge
None
No disclosed pledge
FII
13.9%
+1.65 y/y
DII
20.6%
+1.69 y/y
Guidance delivered in 77% of the last eight quarters; average leadership tenure 8 years.
Most operating cash is reinvested into the core business.
- ⚠ Related-party transactions at 8.7% of revenue
Industry & macro context
IT (India)
Demand trend
improving
Cyclicality
high
Competition
high
Regulatory pressure
low
Fragmented — share shifts are possible but price competition is real.
Macro drivers: US/EU tech spend · USD/INR · Wage inflation
Valuation
fair versus the sector
P/E
36.6x
Sector median P/E
43.8x
P/B
13.43x
Earnings yield
2.73%
FCF yield
2.12%
PE / growth
2.68
Estimated fair-value band ₹2,236 – ₹2,857 , built on FY2026 EPS of ₹55.2. Gap to the current price: +62.4%. Ranges are a modelling output, not a target price.
At 36.6x against a sector median of 43.8x, the price embeds roughly 22% earnings growth. Anything less has to come out of the multiple.
Risk register
What can break the thesis, and how it is monitored
- Cyclicalitymedium
IT (India) earnings swing with the cycle, so trailing numbers flatter the peak.
Monitor: US/EU tech spend
- Governancehigh
Related-party transactions at 8.7% of revenue
Monitor: Annual report disclosures and auditor commentary.
Ongoing thesis monitoring
The thesis is a living position, not a one-time verdict
| Metric | Currently | Thesis holds if | Thesis breaks if |
|---|---|---|---|
| ROCE | 33.8% | stays above 31% | falls for two consecutive years |
| Cash conversion | 121% | stays above 80% | drops below 70% while revenue grows |
| Revenue growth | 9.0% CAGR | tracks the 22% priced in | slows for two quarters with no margin offset |
| Promoter holding | 21.4% | stable or rising | falls sharply or fresh pledge appears |
Peers in the same sector
Compare before sizing anything
Data quality 72/100
Stated openly, as required by the product principles
- • Fundamentals in this build come from a deterministic sample dataset, not licensed exchange filings.
- • Segment, ownership and management figures are illustrative and must be verified against annual reports.
- • Educational analysis only — not a recommendation to buy or sell any security.