Tech Mahindra’s turnaround in the offing; ICICI Securities upgrades stock to Buy, raises target price
Tech Mahindra share price gained over a percent to hite a fresh 52-high of ₹1,310.80 apiece on the BSE Friday. The stock has rallied more than 27% on a year-to-date (YTD) basis and has sharply outperformed the Nifty IT index that has gained over 14% during the period. The outperformance in Tech Mahindra shares comes despise the company delivering weak results over the past three quarters.
However, analysts believe that the technology major has a huge scope for margin improvement and is likely to see a turnover going ahead. Brokerage firm ICICI Securities has upgraded its rating on Tech Mahindra to ‘Buy’ from ‘Sell’ and has increased its target price on the stock to ₹1,552 per share from ₹910 earlier. “We believe, EBIT margin improvement is a low hanging fruit for Tech Mahindra’s new CEO Mohit Joshi; however, top line revival may take some time.
That said, Joshi’s opening gambit (appointment of COO Atul Soneja and an internal reshuffle) bolsters our conviction for a successful turnaround," ICICI Securities’ analysts Sumeet Jain and Aditi Patil wrote in a report. The analysts believe that Tech Mahindra’s EBIT margin can improve to ~15 - 16%, i.e. by ~500 – 600 basis points (bps) over FY24-26 as compared to Street’s estimate of 13.2% in FY26.
Also Read: Glenmark Life Sciences share price falls 2% as Nirma readies to buy 75% stake in it However, mired by soft demand in the telecom vertical and weaker capabilities in other verticals, top line revival will take some time. The brokerage firm assumes 10% and 13.3% YoY CC revenue growth for FY25 and FY26. “Our EPS estimate increase of 10%/24% rides largely on the back of stronger ~200/300 bps FY25/26 EBIT margin boost," the report said.
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