Tech Mahindra Rises 10% On CEO's 3-Year Plan To Turn Around Business; Should You Invest?

Shares of Tech Mahindra witnessed a sharp surge in early trade on Friday after the company reported its Q4 results. The scrip rallied 10 per cent in Friday’s trade despite the IT major’s weak set of March quarter results. The stock gained as the new CEO Mohit Joshi announced his vision for FY27, with goals to outgrow peers in revenue growth and achieve EBIT margin of 15 per cent by FY27.

The company’s shares surged despite a 41% year-on-year (YoY) decline in net profit to Rs 661 crore. Additionally, the revenue from operations during the quarter also fell 6.2% YoY to Rs 12,871.30 crore.

This is because Tech Mahindra’s CEO and MD Mohit Joshi unveiled a three-year turnaround plan to tackle slow business growth. The aim is to deliver better revenue growth compared with peers and optimize margin improvement by FY27.

It may be noted that Tech Mahindra shares have been down marginally since the beginning of the year and up over 3 per cent in a month.

Joshi outlined a phased approach to the turnaround, aligning with the fiscal year.

In FY25, Tech Mahindra will enter a ‘turnaround phase’, prioritising the establishment of the new organisation. He said there will be added focus on investment in key accounts, markets, and service lines. Integration of front-end portfolio companies and a turbocharged program for key account growth will also be focal points. Additionally, the initiation of Project Fortius will aim at cost optimization during this stage.

Joshi also shared his ‘Vision 2027’, highlighting priorities such as organizational restructuring, phased business enhancements, and strategic investments.

Moreover, leveraging synergies with other Mahindra Group businesses will be emphasized. Additionally, the company launched Project Fortius, a three-year program aimed at enhancing margins through the implementation of various strategies by management.

In FY26, Tech Mahindra will enter the ‘Stabilisation Phase’, maintaining its investment momentum while advancing Project Fortius to realize cost efficiencies.

By FY27, the company anticipates entering the ‘Reaping Returns’ phase, benefiting from enhanced long-term structural alignment and ongoing pyramid improvement.

Furthermore, Tech Mahindra will intensify efforts in developing its telco, manufacturing, BFSI, and AI verticals.

By FY27, the company aims to achieve an EBIT margin expansion to 15% and surpass peer average topline growth among the top six and seven IT services players.

What Should Investors Do?

TechM is also aiming for a 30 per cent-plus ROCE profile and expects to return over 85 per cent of free cash flow (FCF) by FY27. The focus, Motilal Oswal noted, will be on scaling large accounts, winning multi-tower deals, driving synergies from past acquisitions, improving the cost structure, and achieving profitable and predictable growth.

The results of new strategy would be keenly watched before any re-rating, Motilal Oswal said as it remains on the sidelines saying the he current TechM valuations fairly factors in the uncertainties around growth and margin. This brokerage sees the stock at Rs 1,210.

Nuvama said while these targets are achievable, the steps needed to achieve them will incur significant near-term pain. This brokerage has trimmed its FY25 and FY26 earnings estimates by 1.5-2 per cent. It continues to rate TechM as ‘REDUCE’, with an unchanged target of Rs 1,000, valuing the stock at 16 times FY26E PE.

Nirmal Bang said the reversion to the 15 per cent EBIT margin has been indicated to be in FY27 rather than in FY26 that it was pencilling in. “We were 200 bps higher than the consensus. However, this margin number is higher than the 13.9 per cent that the consensus is currently working with in FY27. Hence there could be EPS upgrades for FY27,” it said.

For FY25, the management looks forward to improvement in clients spending, which fuels optimism for a better revenue performance ahead, said Choice Broking.

“It is confident that their actions will lead to steady earnings growth in the coming years. As a result, we upgrade our rating to BUY while arriving at a target price of Rs 1,273 implying a P/E of 21x (modified) on FY26E EPS of Rs 61,” the brokerage said.