As Tech Mahindra bets big on organic growth via large deals, key triggers that could drive the IT stock
The announcement about leadership change and higher certainty on margin trajectory can be positive catalysts, say analysts on Tech Mahindra shares
At its Investor Day, Tech Mahindra highlighted its plans of focusing on driving organic growth through large deals, account expansion, focus on P&P and co-creating industry-specific solutions, as per analysts.
"Tech Mahindra aims to improve margins by reducing subcontracting and onshore mix, automation and optimizing business mix. With a leadership change around the corner, strategic priorities could potentially change," said global brokerage house Jefferies which has maintained Hold on the IT stock with a target price of ₹1,030 per share.
“Overall, management maintained an optimistic biz outlook, based on strength in network services, new GTM strategies of P&P biz. & Co-creation. However, we believe these announcements are only mildly positive, and commentary on margin improvement too, is lackluster," said Dolat Capital that has maintained its Reduce rating on the Tech Mahindra shares with a target price of ₹1,090 apiece.
Tech Mahindra has trailed its peers historically in growth and operational performance, however, in an environment with reducing operational headwinds (cost of delivery, sub-con, attrition), the delta on earnings for Tech M can be higher than peers in FY24E, as per analysts at HDFC Securities.
“There’s an apparent continuity in organic growth focus (vs. acquisition playbook earlier) with less than three quarters remaining for CEO transition. In any case, drivers such as organic growth focus, synergy extraction from earlier acquisitions and delivery optimisation. Maintain ADD on Tech Mah, with a TP of INR 1,140, supported by a 17% EPS CAGR over FY23-25E and ~5% FCF & payout yield. It is trading at 15.8x FY24E, which is in line with the 5Y/10Y averages but at a discount of 28% to the IT index. The announcement about leadership change and higher certainty on margin trajectory can be positive catalysts," said HDFC Securities.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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