Aditya Shah, Founder of Hercules Advisors, maintained his buy rating on the stock despite the measured performance. “We will need to see how the management is guiding for FY27, basis that I will take a call,” he told ET Now, indicating he would revisit his view after management commentary.
The Orange deal: A silver lining
One standout development was Tech Mahindra’s deal signing with Orange in Europe, which analysts believe could be a significant revenue driver. Deal wins for the quarter came in at $370 million, described as a steady and encouraging figure. Shah noted that the Orange deal, combined with the broader deal pipeline, should start converting into meaningful revenue in FY27 and FY28.
“The guidance will also be better than what other companies are really giving,” Shah said, adding a note of optimism for the company’s near-term outlook.
AI revenue: Services, not innovation
When asked about actual booked revenue from artificial intelligence — not pilots or pipeline — Shah offered a grounded assessment. Tech Mahindra is currently supporting AI companies through cloud execution and related services rather than developing AI products itself.
“Indian IT sector will be the enabler to AI companies with respect to services. Unfortunately, none of them will be the innovators there,” Shah said bluntly. He stressed that the next leg of AI-driven growth for Indian IT firms will depend heavily on the quality of partnerships they forge with AI companies.
Tech Mahindra’s own earnings presentation highlighted strong order flow from the AI sector, pointing to growing demand for infrastructure and support services as AI adoption scales globally.
Headcount decline raises demand questions
A quietly concerning data point was the drop in headcount by 817 employees quarter-on-quarter. Shah flagged this as a signal worth watching across the sector. He pointed out that HCL Tech, which actually grew its headcount in its recent results, stood apart in this regard.
“Growth is not anticipated, that is why these companies are not adding headcount very aggressively,” Shah explained. He clarified that hiring capacity itself is not a constraint for IT companies — the real issue is subdued demand expectations over the next 12 months.
Dividend yield becomes a key attraction
With stock prices across the IT sector having corrected between 30% and 50% over the past year, Shah said he is increasingly viewing these companies through a dividend yield lens. Tech Mahindra’s dividend payout exceeding 100% of its profit after tax is one of the factors supporting investor interest even during a slower growth phase.
“Valuations are not too expensive,” he noted, but urged investors to look carefully at how each company is positioning itself for the AI transition — which he compared to the transformation the electric vehicle brought to the automobile industry.
Sector pecking order
On the broader IT sector, Shah placed TCS at the top of his picks from a business fundamentals standpoint. HCL Tech earned a mention for its attractive valuation after recent price corrections. The market is now awaiting Infosys results before a fuller picture of the sector emerges.
For Tech Mahindra specifically, FY27 management guidance will be the key trigger to watch — both for the stock and for understanding how quickly its deal wins translate into actual growth.