Tech Mahindra: Navigating Towards a Promising Turnaround
Tech Mahindra is on the cusp of a promising transformation under the leadership of its new CEO, Mr. Mohit Joshi, who has embarked on an ambitious journey to enhance the company’s performance. ICICI Securities recommends a “BUY” rating with a target price of Rs 1,552, based on a structural re-rating of the stock. Here are the key insights from the latest analysis:
Key Highlights of Tech Mahindra:
- EBIT Margin Improvement: The focus of Tech Mahindra’s new CEO, Mr. Mohit Joshi, is on improving EBIT (Earnings Before Interest and Taxes) margins, and this is expected to be a relatively achievable goal in the short term. Mr. Joshi has initiated key changes, including the appointment of Mr. Atul Soneja as COO and an internal reshuffle, to drive this improvement.
- Top-Line Revival: While EBIT margin enhancement is seen as a low-hanging fruit, the revival of the company’s top-line growth may take some time. Mr. Joshi’s strategic initiatives are anticipated to strengthen Tech Mahindra’s capabilities and fill gaps in non-communication verticals, ultimately reflecting in increased deal wins and market share expansion.
- Valuation Rethink: Tech Mahindra’s valuation appears stretched based on consensus estimates, with P/E (Price-to-Earnings) ratios of 19x/17x for FY25/26 EPS. However, the potential for a structural re-rating is on the horizon if Mr. Joshi’s strategies yield positive results.
Outlook:
- Tech Mahindra’s valuation currently stands at 19x/17x for FY25/26 EPS, which might seem stretched according to consensus estimates. However, the stock has the potential for a structural re-rating if the new management’s initiatives come to fruition.
- ICICI Securities is ahead of the street with estimates that are 7%/16% higher than consensus on FY25/26 EPS. The target price for Tech Mahindra is set at INR 1,552, implying approximately 20% potential upside. This marks an upgrade from the previous “SELL” rating to a “BUY.”
Summary:
Tech Mahindra is poised for a significant turnaround under the guidance of its new CEO, Mr. Mohit Joshi. While the immediate focus is on improving EBIT margins, the company’s long-term strategy includes enhancing capabilities and expanding market share in non-communication verticals. This strategic shift has the potential to lead to a structural re-rating of the stock, making it an attractive opportunity for investors.
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