Tech Mahindra’s stock price surged 10% following its fourth quarter results. Should you buy on the rise?Here’s what the experts say

Despite weak financial results, Tech Mahindra, India’s fifth largest IT company by market capitalization, surged an astonishing 10% in intraday trading today. INR1,309 shares per share. The positive market reaction confirms confidence in the company’s ambitious plans for the future.

However, brokerage firms continue to maintain a cautious outlook on the stock due to short-term challenges.

The company released post-market financial results for the fourth quarter of 2024 and full year 2024 on Thursday, which were below street expectations. Consolidated net profit for the fourth quarter of 2024 plummeted by nearly 41%, INR661 million, revenue decreased 6.2% year over year. INR12,871 billion.

Please also read: Tech Mahindra aims to grow profit margin 2.5 times by FY 2027 despite sharp decline in profits

For the full fiscal year 2017, consolidated net income decreased significantly by 51.2% compared to the previous year. INR235.8 billion, revenue is INRIt was 51,996 million yen, a decrease of 2.4% from the previous year.

Despite the significant drop in profits, the company outlined ambitious goals for the next three years. Management has articulated its vision for FY27, to outperform peers in revenue growth, achieve 15% EBIT margin by FY27, maintain a ROCE profile of over 30%, and increase FCF to 85% by FY27. The aim was to return more than % of profits.

Key focuses include growing large accounts, acquiring multi-tower deals, leveraging synergies from past acquisitions, strengthening our cost structure, and achieving consistent profitable growth. The goal is to rank among the top three IT services companies by profit margin from 2027 onwards.

Please also read: 4th quarter results: Tech Mahindra announces final dividend INR28 per share

Domestic securities firm Motilal Oswal takes a positive view of recent initiatives such as right-sizing SBUs, investing in top accounts, establishing vertical delivery teams, and investing in employees, and is looking forward to TECHM’s new leadership. He expressed optimism about the reorganization.

However, brokerages remain cautious and are waiting for tangible improvements from restructuring and strategic updates before considering rerating. Despite management’s goal of achieving EBIT margins of 15% by FY27, the absence of growth and short-term investment could prevent significant margin improvement in the short term.

As a result, the securities firm maintains the stock’s rating at “neutral” and the target price is INR1,210 each, and we are revising our 2025/2026 EPS estimates downward by 0-1% following our fourth quarter 2024 results.

Nuvama Institutional Equities: Continued ‘Reduce’ rating

“New CEO Mohit Joshi has laid out a FY27 strategy to take TechM to an EBIT margin of 15%, outpacing the average growth rate of its peers.These goals are achievable, but the steps required to achieve them are We contend that it will incur significant costs in the near term.” – period pain. ”

“The Company reduces FY25E/26E by -2%/-1.5%. The Company rates the stock as ‘reduced’ at an unchanged rate of Rs 1,000 and values ​​the stock at 16 times FY26E P/E,” Nuvma said. he said.

Centrum Broking: Maintain ‘Reduce’ rating

Centrum Broking reiterated its ‘Reduce’ rating on the stock, citing a challenging near-term demand environment and pressure on client discretionary spending. The company expects a gradual recovery in FY25 due to an increase in recently concluded deals.

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Sales, EBITDA and PAT are expected to increase by 8.2%, 45.1% and 64.2% from FY24 to FY26. However, Centrum has revised down its EPS for FY25E/26E by 7.0% to 7.1%. The brokerage maintains the stock’s target price at the following levels: INR1,194 (revised from) INRPreviously 1,285), we applied a PE multiple of 17x (unchanged) to 2020 EPS.

Systematix Institutional Equities: Maintains “Sell” rating

The stock trades at a one-year forward multiple of 31.7x, representing a 66% premium compared to its historical valuation over the past 10 years. This securities company values ​​the stock at 16 times FY26 EPS and sets the target price as follows. INRAt $1,005 per share, it represents an 18% downside from current market price (CMP).

However, the company acknowledges that the recovery in revenue growth and TCV numbers, as well as the company’s return to a growth trajectory and significantly improved EBIT margins, pose significant upside risks to its calls and estimates. .

Disclaimer: The opinions and recommendations expressed in this article are those of the individual analysts. They do not represent the views of the Mint. We recommend checking with a certified professional before making any investment decisions.