Tech Mahindra Share Price Rises After CLSA Rating Upgrade, Target Price Hike

Tech Mahindra Ltd.'s share price rose over 4% on Tuesday after CLSA upgraded its rating to 'outperform' from 'hold', noting initial signs of execution on operating profit margin expansion. The brokerage also hiked the target price to Rs 1,749 per share from Rs 1,625.78 apiece, implying a 9.8% upside from Monday's closing price.

The company's Ebitda margin expansion is already underway, CLSA said. Tech Mahindra's Ebit margin target of 15% by financial year 2026–27 is not very ambitious, given multiple margin levers, like employee pyramid, offshoring and sub-contracting spends, portfolio synergy, and optimisation, it said.

The recent ramp up in Tech Mahindra's Ebit margin trend gave scopes for re-rating, according to the brokerage. It hiked its target price to earning ratio to 22.1 times, which implied a 15% discount to Tata Consultancy Services Ltd.

However, there's no major order booking lately for Tech Mahindra. The order book is stagnant at $500 million, CLSA pointed out. Hence, it doesn't foresee a significant revenue growth in the immediate quarters.

A clear focus on banking, financial, healthcare, and manufacturing sector implies a more balanced industry mix going forward, with a lower reliance on telecom, the brokerage said.

The initial benefit from Mohit Joshi joining as C–suite executive will start reflecting in orders over the next two to three quarters, CLSA said. Given his previous portfolio at Infosys Ltd. as head of the banking financial and healthcare verticals, these verticals will be the primary growth drivers for Tech Mahindra Ltd, it said in a note.