Hold Tech Mahindra: target of Rs 1350: ICICI Securities

ICICI Securities's research report on Tech Mahindra

Tech Mahindra (TechM) has reported slightly better-than-estimated revenue performance with 0.8% QoQ CC decline, led by traction in BFSI vertical in Q4FY24. It reported TCV growth of 31% QoQ with EBIT margin at 7.4%. However, its largest vertical communications continues to be a no-show with 2.7% QoQ decline. The Q4 highlight was the 3-year plan laid out by the CEO (Mohit Joshi) with granular steps to execute its 3-pronged strategy of 1) accelerated growth, 2) margin improvement and 3) aligning organisation. All this is likely to dampen growth and margin volatility that currently weighs on TechM. The EBIT margin target of exceeding 15% by FY27 was built in our model. We tweak FY25E EPS by 3.8% based on strategy update stating FY25 may be the key turnaround year. Henceforth, we expect steadiness and predictability in margin and growth, steady uptick in TCV and no more one-offs.

Outlook

We continue to value the stock at 20x on FY26E EPS of INR 65 to arrive at our TP of INR 1,350. We upgrade to ADD from HOLD before.