TECHM - Fundamental Analysis: Financial Health & Valuation

Last Updated Time : 20 Dec 25, 11:16 pm

Fundamental Rating: 3.7

📊 Financials: Tech Mahindra (TECHM) shows stable profitability with ROCE at 18.2% and ROE at 14%. Debt-to-equity is very low at 0.05, indicating strong balance sheet health. Quarterly PAT is steady (₹1,176 Cr vs ₹1,178 Cr), though profit variation is negative (-8.18%).

💰 Valuation: Current P/E of 40.3 is significantly above the industry average of 26.4, suggesting overvaluation. Book value is ₹221, giving a P/B ratio of ~7.3, also high. PEG ratio is negative (-2.85), reflecting weak earnings growth relative to valuation. Dividend yield at 2.81% provides some cushion.

🏢 Business Model & Advantage: Tech Mahindra is a leading IT services and consulting firm with diversified offerings in telecom, BFSI, manufacturing, and digital transformation. Competitive advantage lies in strong client relationships, global delivery capabilities, and low debt structure.

📈 Entry Zone: Considering overvaluation, an attractive entry zone would be closer to ₹1,350–₹1,420 (near support levels and below DMA 200). Current RSI at 71.2 indicates overbought conditions, suggesting caution for fresh entries.

🕰️ Long-Term Holding: Suitable for long-term investors due to strong fundamentals, low debt, and consistent dividend payouts. However, valuation risks mean staggered buying is advisable during corrections.

Positive

• ✅ Strong ROCE (18.2%) and ROE (14%)
• ✅ Very low debt-to-equity (0.05)
• ✅ Consistent dividend yield (2.81%)
• ✅ Diversified IT services portfolio

Limitation

• ⚠️ High P/E (40.3) vs industry average (26.4)
• ⚠️ Negative PEG ratio (-2.85)
• ⚠️ Quarterly profit variation (-8.18%)
• ⚠️ RSI indicates overbought zone (71.2)

Company Negative News

• 📉 Decline in quarterly profit growth (-8.18%)
• 📉 Reduction in FII holdings (-2.68%)

Company Positive News

• 📈 Increase in DII holdings (+2.51%)
• 📈 Stable PAT despite industry headwinds

Industry

• 🌐 IT services sector remains resilient with digital transformation demand
• 🌐 Industry PE at 26.4, showing TechM trades at premium valuation

Conclusion

🔎 Tech Mahindra is fundamentally strong with low debt, healthy returns, and consistent dividends. However, current valuations are stretched, making it less attractive for immediate entry. Long-term investors may consider accumulating during corrections around ₹1,350–₹1,420 for margin of safety.

Would you like me to also prepare a peer benchmarking overlay comparing Tech Mahindra with Infosys, TCS, and Wipro, or a sector rotation basket scan to identify undervalued IT peers for compounding?