Tech Mahindra (TechM) has reported slightly better-than-expected revenue performance, showing a 0.8% quarter-on-quarter constant currency decline in Q4FY24. This was primarily driven by strong performance in the BFSI (Banking, Financial Services, and Insurance) vertical. The company also saw a notable 31% quarter-on-quarter growth in Total Contract Value (TCV), with an EBIT (Earnings Before Interest and Taxes) margin of 7.4%. However, its largest vertical, communications, experienced a 2.7% quarter-on-quarter decline.
The highlight of the fourth quarter was the unveiling of a comprehensive 3-year plan by CEO Mohit Joshi. This plan outlines specific steps to execute TechM’s three-pronged strategy, focusing on accelerated growth, margin improvement, and organizational alignment. This strategic roadmap aims to mitigate the growth and margin volatility that has been a concern for TechM. The company has set an ambitious EBIT margin target of exceeding 15% by FY27, which has been factored into our model. -Tech Mahindra
Based on this strategy update, we have adjusted our estimated earnings per share (EPS) for FY25 by 3.8%, reflecting the expectation that FY25 could mark a significant turnaround year for TechM. Going forward, we anticipate a more stable and predictable trajectory in both margin and growth, with a consistent uptick in Total Contract Value (TCV) and fewer one-off events.
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Outlook
We maintain our valuation of the stock at 20 times the estimated earnings per share (EPS) for FY26, which stands at INR 65. This leads us to our target price (TP) of INR 1,350. As a result, we have upgraded our recommendation from HOLD to ADD.
