On Monday, Citi made an adjustment to the price target for Tech Mahindra Ltd. (TECHM:IN), increasing it to INR1,475.00 from the previous INR1,415.00. Despite this change, the firm maintained its Sell rating on the stock. The revision follows Tech Mahindra's second-quarter performance, which aligned with expectations regarding revenues and margins.
Tech Mahindra's trailing twelve-month total contract value (TTM TCV) showed a decline of approximately 15% year-over-year. Additionally, the company's overall headcount increased by 2.4% compared to the same period last year, with software headcount remaining relatively unchanged.
The management's commentary indicated that the business environment has not shifted since the beginning of the second quarter, with the third quarter typically being seasonally weaker.
The focus for Tech Mahindra remains on margin execution, which is essential for achieving its targets. However, Citi notes that this could be challenging in the current macroeconomic climate. The firm's estimates for earnings before interest and taxes (EBIT) remain largely unchanged, with the price target now set at INR1,475.00. This target is based on a multiple of 24 times earnings, up from the previous 23 times, reflecting consistent execution so far.
Citi's analysis suggests that Tech Mahindra's valuations are around 26 times the fiscal year 2026 consensus estimates, which implies that the market is expecting perfect execution within a difficult and highly competitive environment. The firm's stance to maintain a Sell rating on the stock reflects a cautious outlook on Tech Mahindra's ability to meet these high expectations.
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