Tech Mahindra Q4FY25 Earnings Signal Turnaround; Brokerages Optimistic​

Tech Mahindra, one of India’s leading information technology (IT) services companies, announced its fourth-quarter results for the financial year 2024–25 (Q4FY25) on April 24, 2025, marking a significant milestone in its ongoing turnaround journey. Under the leadership of CEO Mohit Joshi, the company reported a robust 76.5% year-on-year (YoY) increase in net profit to ₹1,167 crore and a 4% YoY revenue growth to ₹13,384 crore, signalling a recovery from previous quarters’ challenges. The results, coupled with strong deal wins and margin improvements, have sparked optimism among brokerages, with firms like Nomura and CLSA expressing confidence in Tech Mahindra’s three-year transformation plan, Vision 2027. This article delves into the details of Tech Mahindra’s Q4FY25 performance, the factors driving its turnaround, brokerage perspectives, and the broader implications for the company and the IT sector.

Q4FY25 Financial Performance: A Strong Rebound

Tech Mahindra’s Q4FY25 results, as reported in its filing with the Bombay Stock Exchange (BSE), showcased a significant improvement in profitability and operational efficiency. Key financial highlights include:

• Net Profit: The company reported a consolidated net profit of ₹1,167 crore, up 76.5% YoY from ₹661 crore in Q4FY24 and 18.7% quarter-on-quarter (Qoq) from ₹983 crore in Q3FY25. The profit growth was driven by margin expansion and a lower effective tax rate due to one-off benefits.
• Revenue: Revenue from operations rose 4% YoY to ₹13,384 crore from ₹12,871 crore in Q4FY24, with a modest 0.7% Qoq increase from ₹13,285 crore. In US dollar terms, revenue was flat YoY and down 1.2% Qoq, reflecting currency headwinds.
• EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortisation (EBITDA) grew 2% Qoq to ₹1,378 crore, with an EBITDA margin of 10.3%, slightly up from 10.2% in Q3FY25. The EBIT margin improved by 320 basis points (bps) YoY to 10.5%, driven by cost-saving initiatives under Project Fortius.
• Deal Wins: Tech Mahindra signed a total contract value (TCV) of $798 million in Q4FY25, up from $745 million in Q3FY25. For the full year, TCV reached $2.7 billion, a 42% YoY increase, signalling a robust deal pipeline.
• Dividend: The board declared a dividend of ₹30 per share, reflecting confidence in cash flow generation and a commitment to shareholder returns.

The company’s headcount stood at 148,731, down 1,757 from Q3FY25, with attrition at 11.8%. Tech Mahindra did not provide specific hiring targets for FY26, focusing instead on operational excellence and cost optimisation.

Segment-Wise Performance

Tech Mahindra’s growth was driven by strong performances in key verticals:

• Banking, Financial Services, and Insurance (BFSI): This segment grew 6% YoY and 2.4% Qoq, benefiting from deal ramp-ups and increased client spending.
• Retail, Transport, and Logistics: This vertical saw a 10.3% YoY increase, reflecting strong demand for digital transformation services.
• Manufacturing: Despite a 5.5% YoY decline, the segment showed resilience with only a 0.2% Qoq drop, indicating stabilisation.
• Communications, Media, and Entertainment (CME): The CME vertical, which accounts for ~36% of revenue, remained subdued due to weak discretionary spending but showed signs of stabilisation with three large deal wins.

Geographically, Europe and the rest of the world drove growth, while the US market faced volatility, particularly in manufacturing.

Factors Driving the Turnaround

Tech Mahindra’s Q4FY25 performance reflects the early success of its three-year turnaround plan, Vision 2027, unveiled by CEO Mohit Joshi in April 2024. The plan aims to achieve a 15% EBIT margin, revenue growth above the peer average, and a return on capital employed (ROCE) exceeding 30% by FY27. Several factors contributed to the Q4 results:

1. Project Fortius: This cost-optimisation initiative, targeting $250 million in annual savings, has driven margin expansion through operational efficiencies, reduced subcontracting costs, and improved workforce utilisation. The 60 bps sequential EBIT margin increase in Q3FY25 and 320 bps YoY improvement in Q4FY25 underscore its impact.
2. Strong Deal Pipeline: The $2.7 billion TCV for FY25, including $798 million in Q4, reflects Tech Mahindra’s focus on large, multi-tower deals in BFSI, retail, and communications. Strategic partnerships with companies like Etihad Etisalat (Mobily) and Pegatron bolstered the pipeline.
3. Portfolio Restructuring: The company is reducing its reliance on the CME vertical by diversifying into high-growth areas like BFSI and retail. Investments in generative AI (Genai) and 5G solutions, including the launch of ‘Techm Consulting’ and an advanced Manufacturing Xperience Centre in Chennai, position Tech Mahindra for future growth.
4. Operational Excellence: Tech Mahindra’s focus on client-specific engagement, deal stabilisation, and organisational predictability has improved execution. The company’s 60% rise in operating profit for FY25 highlights its operational discipline.
5. Leadership Under Mohit Joshi: Since joining as CEO in March 2023, Joshi has restructured the organisation to enhance agility, service line innovation, and delivery quality. His emphasis on ‘Speed at Scale’ and Genai offerings has resonated with clients and analysts.

Brokerage Reactions: Optimism with Caution

Brokerages have responded positively to Tech Mahindra’s Q4FY25 results, with several upgrading their ratings and target prices, though some remain cautious due to macroeconomic uncertainties. Key perspectives include:

• Nomura: Retaining its ‘Buy’ rating with a target price of ₹1,900, Nomura highlighted Tech Mahindra’s steady progress toward its FY27 goals. The brokerage forecasts revenue growth of 0.4–9.2% in dollar terms and margin expansion of 9.3–13.2% over FY25–27, driven by a strong deal pipeline and business recovery.
• CLSA: Maintaining a ‘Buy’ call with a target of ₹1,589, CLSA noted the company’s focus on large deals and cost controls but cautioned about near-term pressures in the CME vertical.
• Morgan Stanley: Previously upgrading Tech Mahindra from ‘Underweight’ to ‘Overweight’ post-Q4FY24, Morgan Stanley raised its target to ₹1,490, citing the company’s turnaround potential. The Q4FY25 results reinforce this view, though the bank acknowledges demand uncertainties.
• Nuvama Institutional Equities: While optimistic about Tech Mahindra’s steady improvement, Nuvama maintained a ‘Reduce’ rating with a target of ₹1,200, citing a tougher recovery path ahead. The brokerage noted that superior execution and a favourable demand cycle are critical for achieving FY27 targets.
• Citi: Citi reiterated its ‘Sell’ rating with a target of ₹1,265, arguing that Q4 revenues (-1.5% Qoq in constant currency) were below expectations and consensus EPS estimates have been cut by 7% since May 2024. The brokerage sees high expectations as a risk.
• JM Financial: The brokerage views Tech Mahindra’s 1.0% constant currency revenue compound quarterly growth rate (CQGR) over Q4FY24–Q3FY25 as a positive sign, compared to a 1.6% decline in the prior four quarters. It expects growth in top accounts and high-growth service areas to drive future performance.

Despite the optimism, brokerages like HSBC and Prabhudas Lilladher caution that achieving the 15% EBIT margin by FY27 is challenging, given the current 10.5% margin and cyclicality in the CME segment. The stock’s FY26 price-to-earnings (P/E) ratio of 27x, per Bloomberg data, is close to tier-1 peers like Infosys and HCL Technologies, reducing the margin of safety.

Market and Investor Sentiment

Tech Mahindra’s shares experienced volatility post-results, falling 5% on April 25, 2025, to ₹1,512.40 on the National Stock Exchange (NSE), as reported by Business Standard. The decline followed a 34% rally in FY25, outperforming the Nifty IT index, driven by optimism around the turnaround.

The stock’s one-year return of ~45% (as of April 25, 2025) and market capitalisation of ₹1.42 trillion underscore investor confidence. However, its high valuation and exposure to the volatile CME vertical warrant caution.

Strategic Initiatives and Future Outlook

Tech Mahindra’s Q4FY25 results align with its Vision 2027 goals, which include:

• Margin Expansion: Achieving a 15% EBIT margin by FY27 through Project Fortius, pyramid improvement, and pricing stability.
• Revenue Growth: Surpassing peer-average growth by focusing on BFSI, retail, and emerging technologies like Genai and 5 G.
• Portfolio Diversification: Reducing dependence on CME (36% of revenue) by scaling enterprise verticals.
• Innovation: Launching Techm Consulting and Genai offerings, such as agentx and partnerships for large language models (LLMS) like Garuda with Indosat Ooredoo Hutchison.

CEO Mohit Joshi expressed cautious optimism, noting, “This year, we laid a strong foundation for our transformation journey. The environment has changed materially, especially since January, but we are witnessing an upsurge of excitement from clients in the US.” He acknowledged challenges in manufacturing and market volatility but emphasised growth in Europe and BFSI for FY26.

CFO Rohit Anand highlighted robust cash generation, enabling a 12.5% increase in dividend per share and an 85% return of free cash flow to shareholders. The company’s focus on operational excellence and cost savings is expected to drive steady earnings growth.

Challenges and Risks

Despite the positive results, Tech Mahindra faces several challenges:

1. CME Vertical Weakness: The communications segment remains subdued, with discretionary demand unlikely to recover significantly in 2025.
2. Macroeconomic Uncertainty: Global economic volatility, particularly in the US manufacturing sector, could impact client spending.
3. Execution Risks: Achieving the 15% EBIT margin requires sustained cost controls and favourable demand conditions, which are uncertain.
4. High Valuation: The stock’s 27x FY26 P/E, near tier-1 peers, limits upside potential, as noted by Prabhudas Lilladher.
5. Currency Headwinds: A stronger Indian rupee could pressure dollar-denominated revenues, as seen in Q4’s flat YoY US dollar growth.

Brokerages like Citi and Nuvama emphasise that expectations are high, and any execution missteps could lead to EPS downgrades.

Broader IT Sector Context

Tech Mahindra’s Q4FY25 performance contrasts with mixed results in the Indian IT sector. Peers like Tata Consultancy Services (TCS) and Infosys reported stable growth, driven by BFSI and digital transformation deals, while Wipro faced challenges due to weak discretionary spending. HCLTech outperformed with strong deal wins, but the sector faces headwinds from potential US rate cuts and geopolitical uncertainties impacting 9mfy26 margins.

The IT industry is undergoing a structural shift toward AI-driven solutions and cloud services, with Genai emerging as a key growth driver. Tech Mahindra’s investments in agentx and LLMS position it to capitalise on this trend, but competition from global players like Accenture and Indian peers remains intense.

Implications for Investors

Tech Mahindra’s Q4FY25 results offer several takeaways for investors:

1. Turnaround Potential: The 76.5% profit growth and $2.7 billion TCV signal a credible recovery, making the stock attractive for long-term investors.
2. Dividend Appeal: The ₹30 dividend and 85% free cash flow return enhance shareholder value, appealing to income-focused investors.
3. Valuation Risks: The 27x FY26 P/E suggests limited upside unless execution exceeds expectations. Investors should monitor deal wins and margin trends.
4. Sector Dynamics: The IT sector’s volatility requires a balanced portfolio approach, with Tech Mahindra offering growth potential but higher risk due to CME exposure.

Analysts recommend consulting certified financial advisors, as noted by Moneycontrol, given the stock’s volatility and macroeconomic risks.

Conclusion

Tech Mahindra’s Q4FY25 earnings, with a 76.5% YoY profit surge, 4% revenue growth, and $798 million in deal wins, mark a pivotal moment in its transformation journey. The company’s focus on cost optimisation, portfolio diversification, and emerging technologies like Genai has bolstered investor and brokerage confidence, with Nomura and CLSA expressing optimism about its Vision 2027 goals. However, challenges in the CME vertical, macroeconomic uncertainties, and a high valuation temper expectations, as cautioned by Citi and Nuvama.

As Tech Mahindra progresses through its three-year plan, its ability to execute on large deals, sustain margin expansion, and navigate a competitive IT landscape will be critical. For now, the Q4 results signal a promising turnaround, positioning Tech Mahindra as a stock to watch in FY26. Investors should weigh the growth potential against near-term risks, keeping an eye on demand trends and strategic execution.