Tech Mahindra Share Price Surges 10% on Unveiling 3-Year Turnaround Roadmap

Tech Mahindra share price, the country's sixth largest IT firm, hit a 10% upper limit at ₹1,309.30 despite reporting a 41% year-on-year (YoY) drop in its March quarter profit, after the company's CEO and MD Mohit Joshi on April 25 unveiled a three-year road-map to turn around the IT services major’s slowing business, with an aim to drive better revenue growth than peer average and optimizing margin improvement by FY27.

Tech Mahindra share price have gained over 7% so far in April after having seen negative monthly returns consecutively in February and March.

The IT major posted a consolidated net profit of ₹661 crore for the January-March period, up 29.5% on a quarter-on-quarter basis. The quarterly net profit, however, fell short of analysts' expectations. Tech Mahindra's March-quarter revenue came in at ₹12,871.3 crore, marking a sequential decline of 1.8%, according to a regulatory filing.

Joshi, on April 25, laid down his ‘Vision 2027’ to focus on organizational restructuring, phased business improvements and investments, along with utilizing synergies with the larger Mahindra Group businesses. The company introduced Project Fortius, a program in which the management will work on multiple levers over the next three years to drive margin growth.

Joshi said that the turnaround will be happening in phases based on the fiscal year. In FY25, Tech Mahindra will be in a ‘turnaround phase’, when the focus will be on anchoring the new organization, investing into key accounts, markets and service lines. At this stage, the work will be to integrate front-end portfolio companies, focus on turbocharge programme for key account growth and starting Project Fortius for cost optimization, FY26 will be the 'stabilization phase' and FY27 will be the phase of ‘Reaping returns’.

Project Fortius is aimed at increasing revenue and doubling operating margin to 15% by FY27. The plan, which involves hiring more freshers, increasing automation and reducing subcontracting expenses, will help save $250 million annually.

Brokerage firm Jefferies, in a post-earnings research note, said the company's fourth-quarter results did not have any "meaningful surprises", while the net new deals were "uninspiring".

"This is the year of turnaround, so you should expect to see volatility. We expect to come back fully to growth by the second half of the (fiscal) year," said Joshi, adding that the decline in the communications vertical was on account of macro headwinds. This is the first full quarter under Joshi's leadership, who took over in December.

Tech Mahindra's CFO Rohit Anand said, “With another quarter of robust cash generation, we have reported improvement in deal wins and operating margins in Q4FY’24, which has enabled consistent dividend distribution."

"As we step into FY25, we look forward to improvement in clients spending, which fuels our optimism for a better revenue performance ahead. Our unique ability to enable customers with transformative scale at unparalleled speed, differentiates us from competitors. FY'24 posed its fair share of challenges for the IT services sector; yet, amidst the global economic uncertainties, we continue to observe a notable push towards digital adoption," Joshi added.