Tech Mahindra witnessed the highest number of brokerage analyst upgrades among Nifty 50 stocks in the past month after the IT company unveiled a strategic vision for a business turnaround over the next three years. 'Buy' calls on Tech Mahindra stock increased from 14 to 21, while 'hold' calls dropped to 10 from 13 and ‘sell’ calls dropped to 14 from 18.
In its Q4 earnings, Tech Mahindra spelt out a three-year plan to achieve over 15 percent growth in operating profit and higher revenues by 2026-27, focusing on client accounts, restructuring, and new investments.
Brokerages noted Tech Mahindra's efforts to address client-specific engagement issues and maintain a solid deal pipeline. However, uncertainty in demand could impact revenue growth momentum in the near term.
Medium-term outlook positive
Morgan Stanley double upgraded Tech Mahindra's rating from ‘underweight’ to ‘overweight’, and increased its price target to Rs 1,490 from Rs 1,190. The brokerage sees Tech Mahindra's medium-term outlook as positive, with growth, margins, and capital allocation supporting the floor at Rs 1,150.
Describing it as a ‘self-help story’, Morgan Stanley highlighted the management's clear vision till fiscal year 2027. Key catalysts include margin improvement, revenue growth, and diversification away from the Telecom vertical.
Domestic brokerage Prabhudas Lilladher too highlighted the growth strategy that aims to diversify the portfolio away from communication business towards high-growth service lines and scaling up major accounts.
But execution challenges linger
HSBC viewed Tech Mahindra's new turnaround plan as sensible but added that the challenge lies in its execution amid the current macroeconomic conditions. The brokerage said that margin expansion depends on pyramid improvement and maintaining average pricing, considering the lacklustre sector outlook. HSBC kept its 'hold' rating on the stock with a price target of Rs 1,300.
Similarly, Nuvama expressed caution regarding Tech Mahindra's ambitious targets, foreseeing significant near-term challenges in achieving them. The brokerage said that the steps required will entail substantial short-term pain. As a result, Nuvama has reduced its FY25/26 target by 2 percent/1.5 percent, and assigned a 'reduce' rating with a price target of Rs 1,000.
Tech Mahindra Q4 net profit declined 40.9 percent year-on-year to Rs 661 crore due to a slowdown in key verticals, although it saw a 29.5 percent sequential increase. Consolidated revenue for Q4FY24 fell 6.2 percent year-on-year to Rs 12,871 crore.
Emkay noted the company's emphasis on its 'Speed at scale' strategy, focusing on scaling large accounts, leveraging synergies from past acquisitions, upgrading cost structures significantly, and enhancing organisational predictability.
The company management views FY25 as a turnaround year, followed by a stable performance in FY26, with full benefits realised by FY27. The company is eyeing an operating margin of 15 percent by FY27, expecting average benefits of $250 million annually.
Meanwhile, major IT stocks like Infosys, TCS, HCL Tech, Wipro, and LTI Mindtree witnessed minimal changes in brokerage calls post-earnings. Infosys currently has 33 buy calls, 8 holds, and 7 sells, slightly up from 31 buys, 8 holds and 7 sells a month ago.
Similarly, TCS saw its buy calls increase from 26 to 28, while hold and sell calls remained unchanged at 10 each from last month. Wipro's current figures stand at 9 buys, 13 holds, and 24 sells, compared to 9 buys, 13 holds, and 22 sells earlier.
HCL Tech's current numbers are 21 buys, 15 holds, and 7 sells, compared to 20 buys, 15 holds, and 9 sells previously. LTI Mindtree's current statistics show 16 buys, 10 holds, and 15 sells, slightly changed from 13 buys, 13 holds, and 16 sells previously.
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