Stock Of The Day: Tech Mahindra Rallies To 12-Year High On Turnaround Plan — Analyst Views, Key Levels
All you need to know about Tech Mahindra's turnaround plan.
Tech Mahindra Ltd. surged over 13% to its highest since June 2012 after its Chief Executive Officer Mohit Joshi announced a detailed three-year turnaround plan. The roadmap was announced with inline fourth-quarter earnings.
The company's consolidated net profit increased 27% in the fourth quarter of fiscal 2024 but missed analysts' estimates. The IT services firm's bottom line stood at Rs 664 crore in the quarter ended March 31, 2024, according to an exchange filing on Thursday. Analysts tracked by Bloomberg had projected it at Rs 745 crore.
The EBIT margin expanded by 200 basis points to 7.4%, largely due to a lack of one-offs in the fourth quarter.
Key highlights of the turnaround plan:
Top-line growth is higher than the peer average.
EBIT margin of more than 15% by FY27.
More than 30% ROCE.
Over the next five years, more than 85% of free cash flow's capital return to shareholders
The management plans to achieve this by first investing in the business over the next two years while simultaneously running productivity swim lanes along with capability enhancements. To achieve the margin goal, the company intends to use operational levers, pricing, productivity gain and portfolio synergy.
Key levels to watch
Key support: Rs1,162.9 (One-week low)
Resistance level: Rs1,410.5 (Three-month high)
Brokerages View
CLSA believes that the 15% margin target is now elongated, has given a valuation of 20.8-times based on its FY27 EPS and has raised its target price to Rs 1,590 apiece from Rs 1,508 apiece, implying an upside of 34%. The brokerage has maintained its 'buy' rating on the stock.
Nomura expects an immediate improvement in margin in FY25, followed by steady revenue growth in subsequent years. It has maintained its 'buy' rating on the stock, but lowered the price target to Rs 1,350 apiece from Rs 1,460 apiece, implying an upside of 13.4%.
Analyst Recommendations
Out of the total recommendations on Bloomberg, 35% have a 'buy' recommendation and 37% have 'sell' on the stock, with the rest suggesting a 'hold'. This implies that there is no strong consensus call on the stock, with analysts having mixed views. The 12-month consensus price target of analysts implies a downside of 3.4%.