Tech Mahindra Ltd.'s second quarter results for fiscal year 2027 pushed brokerages to turn positive on the IT giant, with both Jefferies and Kotak raising tehir price targets for the stock. However, concerns related to margins and valuation continue to take up space.
The company posted a 8.3% uptick in its net profit to Rs 1,586 crore compared to Rs 1.465 crore on a quarter-on-quarter (QoQ), Constant-currency revenue growth came in at 2.4% QoQ.
The revenue was up 3% QoQ to Rs 16,180 crore, from Rs 15,712 crore in the preceding quarter. The company's EBIT (earnings before interest and taxes) saw a 5.4% uptick to Rs 2,386 crore, compared Rs 2,264 crore in the previous quarter. The EBIT Margin expanded to 14.7% QoQ from 14.4%.
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TechM's second quarter was a confirmation to Kotak that its turnaround strategy is working. The brokerage raised its price target to Rs 1,870 from an earlier Rs 1,750.
Kotak expects the strong momentum to continue, and raised its growth estimates for the company. The brokerage believes Tech Mahindra is benefiting from improving execution and demand recovery in key verticals.
Going ahead, Kotak sees significant headroom for further margin improvement over the medium term and believes that the company has not yet exhausted the benefits from operational efficiency initiatives.
Jefferies Upgrades To 'Hold', Hikes Target
Jefferies has given TechM a rating upgrade from 'underweight' to 'hold', and raised its target price to Rs 1,540 from Rs 1,260. The brokerage believes that the IT giant's growth outlook is improving and the turnaround is becoming more visible.
Accordingly, the Jefferies expects TechM to deliver 6% CC revenue Compound Annual Growth Rate (CAGR), along with 12% earnings per share CAGR over FY27-FY29.
At the same time, the brokerage has cautioned that a stronger push for growth and shift from restructuring could mean slower margin expansion beyond the current fiscal year, even as the pace matches expectations.
Citi Flags Premium Valuation
Citi remains the most cautious about TechM, out of the other brokerages. While the brokerage noted that results were slightly better than it anticipated, Citi has maintained a 'sell' call on the company with a price target of Rs 1,355.
The brokerage underlined that the earnings was partly driven by delayed normalisation of a large European manufacturing contract, and Communication & Media segment growth was aided by the Orange deal ramp-up.
Tech Mahindra continues to trade at a premium to peers in an environment ridden with sectoral headwinds like slow growth, high competition, AI impact, and GCC impact, Citi highlighted. The brokerage has also marginally tweaked its FY27-FY29 EPS estimate, cutting it by 0.5% for FY27 and raising it by 1.5% for FY29.
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