Tech Mahindra Shares Hit 52-Week High Despite Weak Results

Tech Mahindra Shares Hit 52-Week High Despite Weak Results

Tech Mahindra’s Remarkable Stock Performance

Tech Mahindra’s share price reached a fresh 52-week high at ₹1,310.80 on the Bombay Stock Exchange (BSE) on Friday, representing a gain of over 27% year-to-date (YTD). This impressive performance far surpasses the Nifty IT index, which recorded a gain of approximately 14% during the same period. Notably, Tech Mahindra managed to achieve this despite delivering weak results in the past three quarters.

Scope for Margin Improvement

Analysts are optimistic about Tech Mahindra’s prospects for margin improvement and anticipate a positive turnaround for the technology major. Brokerage firm ICICI Securities upgraded its rating on Tech Mahindra from ‘Sell’ to ‘Buy’ and increased the target price for the stock to ₹1,552 per share, up from ₹910.

ICICI Securities’ analysts, Sumeet Jain and Aditi Patil, noted that Tech Mahindra’s new CEO, Mohit Joshi, has the potential to enhance EBIT (Earnings Before Interest and Taxes) margins significantly. They expect EBIT margin to improve to approximately 15-16% over FY24-26, which would represent an increase of about 500-600 basis points (bps) compared to the Street’s estimate of 13.2% in FY26.

Challenges in Top Line Growth

While margin improvement seems promising, analysts acknowledge that reviving the company’s top line growth may take some time. Factors such as soft demand in the telecom vertical and weaker capabilities in other verticals pose challenges in this regard.

ICICI Securities assumes a YoY CC (Year-on-Year Constant Currency) revenue growth of 10% for FY25 and 13.3% for FY26.

EPS Estimates and Valuations

ICICI Securities has revised its EPS (Earnings Per Share) estimates, with a 10% increase for FY25 and a substantial 24% boost for FY26, primarily driven by the anticipated EBIT margin improvement.

On the valuation front, analysts believe that Tech Mahindra’s current valuation at 19x/17x (price-to-earnings multiples) based on consensus FY25/26 EPS estimates appears stretched. However, they suggest that if the turnaround efforts under the new management prove successful, the stock could undergo a structural re-rating.

Market Performance

At 10:30 am, Tech Mahindra’s share price was trading 1.28% higher at ₹1,309.45 per share on the BSE.