Tech Mahindra’s stock price has surged to a new 52-week high of ₹1,310.80 per share on the BSE, gaining over 27% year-to-date and outperforming the Nifty IT index, despite the company’s recent weak financial performance.
In a notable shift in sentiment, ICICI Securities has upgraded its rating on Tech Mahindra from ‘Sell’ to ‘Buy’ and increased the target price to ₹1,552 per share, up from ₹910.
According to ICICI Securities analysts Sumeet Jain and Aditi Patil, Tech Mahindra, under the leadership of new CEO Mohit Joshi, has substantial potential for margin improvement, with EBIT margins expected to rise to around 15-16% by FY26, compared to the Street’s estimate of 13.2%.
While margin improvement appears promising, the analysts acknowledge that the revival of top-line growth may take time due to soft demand in the telecom sector and challenges in other verticals.
ICICI Securities anticipates 10% and 13.3% year-on-year CC revenue growth for FY25 and FY26, contributing to a significant boost in EPS estimates, largely driven by an EBIT margin increase.
The analysts believe that the initial steps taken by Joshi, including the appointment of COO Atul Soneja and internal restructuring, instill confidence in the company’s turnaround efforts.
However, they also highlight the importance of addressing capability gaps in non-communication verticals and improving the incentive structure for sales, marketing, and delivery teams, which are decisions yet to be made by the board. These measures are expected to translate into increased deal wins and market share gains for Tech Mahindra relative to its competitors.
On the valuation front, ICICI Securities considers Tech Mahindra’s current valuation at 19x/17x, based on consensus FY25/26 EPS estimates, to be stretched. Nevertheless, they believe that if the management successfully implements the outlined strategies, the stock could experience a structural re-rating.
As of 10:30 am, Tech Mahindra’s share price was trading 1.28% higher at ₹1,309.45 apiece on the BSE.
