Emerging Digital, AI And 5G Trends Will Unlock New Opportunities

Key Takeaways

• Project Fortius, operational centralization, and major AI upskilling initiatives support lasting margin growth and a durable advantage across digital transformation sectors.
  
• Strong momentum in high-value enterprise contracts and leadership in 5G and managed services drive outperformance and market share gains versus competitors.
  
• Structural industry and company-specific challenges, demand volatility, market share losses, and technology shifts threaten revenue growth, margins, and the relevance of core offerings over time.

Catalysts

Provides information technology services and solutions in the Americas, Europe, India, and internationally.

• Analysts broadly agree that operational efficiencies and Project Fortius will improve margins, but the ongoing functional integration and centralization of support functions can unlock much larger, longer-lasting margin expansion than anticipated, directly impacting net margins and sustainable earnings growth over the next several years.
  
• Analyst consensus highlights deal win momentum and strategic focus on large clients, but the accelerating win-rate for high-value, multi-year contracts with Global 2000 customers is likely to drive not just steady revenue, but potentially outsized, compounding top-line growth as Tech Mahindra benefits disproportionately from industry consolidation and enterprise digital transformation waves.
  
• The company's deep investments in generative AI, automation, agentic AI, and the large-scale upskilling and certification of 77,000+ staff position it to disproportionately capture the rapid rise in AI, cloud, and digital transformation spending globally-fueling new, higher-value revenue streams and maintaining a durable competitive edge.
  
• Tech Mahindra's entrenched position and renewed traction in the communications and 5G vertical, evidenced by breakthroughs with the Comviva suite and future-ready partnerships, position the company as a frontrunner to capture the multi-year enterprise spend on 5G, IoT, and next-gen telecom projects, which is likely to create a new, recurring annuity revenue stream and enhance earnings quality.
  
• As enterprise IT spending refocuses on managed services, cyber resilience, and next-generation connectivity, Tech Mahindra's robust managed service pipeline, ecosystem of strategic tech partnerships, and strong new leadership in key markets are set to accelerate market share gains and propel both top-line and bottom-line outperformance versus peers, ahead of current buy-side expectations.

Tech Mahindra Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Tech Mahindra compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Tech Mahindra's revenue will grow by 8.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 8.5% today to 12.7% in 3 years time.
• The bullish analysts expect earnings to reach ₹86.2 billion (and earnings per share of ₹96.34) by about July 2028, up from ₹45.4 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 32.0x on those 2028 earnings, up from 30.1x today. This future PE is greater than the current PE for the IN IT industry at 30.1x.
• Analysts expect the number of shares outstanding to grow by 0.13% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 15.41%, as per the Simply Wall St company report.

Tech Mahindra Future Earnings Per Share Growth

Risks

• Prolonged underperformance in growth despite large deal wins and management optimism, as evidenced by persistent flat or negative constant currency revenue growth over the last several quarters, may indicate structural challenges that could depress long-term revenue trajectory.
  
• Exposure to ongoing volatility in major verticals such as manufacturing and telecom, with management citing weak demand, client spend reductions, and uncertainty regarding tariffs, raises the risk of revenue instability and heightens earnings volatility.
  
• Failure to sufficiently close the gap with industry peers in organic revenue growth, coupled with reliance on executing a multi-year turnaround, could result in continued market share loss and constrain both the top line and net profit growth.
  
• Rising labor costs and intensifying talent competition in digital and AI capabilities could erode operating leverage and compress margins, especially as the company remains in the midst of workforce restructuring and lacks clear evidence of full digital transformation.
  
• Rapid adoption of automation, AI, cloud-native platforms, and low-code/no-code solutions across clients may reduce demand for traditional IT services, putting sustained downward pressure on pricing and profitability, and threatening the relevance of Tech Mahindra's legacy offerings and thus its long-term earnings power.

Valuation

• The assumed bullish price target for Tech Mahindra is ₹2020.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Tech Mahindra's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹2020.0, and the most bearish reporting a price target of just ₹1110.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be ₹679.5 billion, earnings will come to ₹86.2 billion, and it would be trading on a PE ratio of 32.0x, assuming you use a discount rate of 15.4%.
  
• Given the current share price of ₹1546.6, the bullish analyst price target of ₹2020.0 is 23.4% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.